Malaysia Delays FATCA Compliance
Malaysia’s Inland Revenue Board (IRB) has deferred the filing deadline for the country’s financial institutions to comply with the 2014 reporting year under the United States Foreign Account Tax Compliance Act (FATCA). The new deadline has been set for June 30, 2015.
FATCA requires all financial institutions outside of the United States to periodically transmit information on financial accounts held by American persons to the US Internal Revenue Service (IRS), or face a 30 percent withholding tax on payments made from the US.
Original FATCA regulations created a reporting regime under which all foreign financial institutions would have to sign individual agreements to disclose their US clients to the IRS. This regime was modified by introducing Intergovernmental Agreements (IGAs), which were intended to increase compliance and impose a heavier legal burden on financial institutions by integrating FATCA into local law.
Most countries around the world have been entering into IGAs with the US government since the US introduced a complex reporting and withholding regime through the passage of the Foreign Accounts Tax Compliance Act (FATCA) in March 2010.
As of December 31, 2014, the FATCA information-sharing regime has grown to encompass 52 countries that have formally signed an IGA with the United States and 60 countries that have reached agreement in substance to sign the agreements.
The Malaysian government agreed to a Model 1 IGA on June 30, 2014. The Model 1 IGA requires financial institutions to report the account information of US persons to their relevant domestic tax authority. For example, Malaysia’s IRB would receive the information and then share it with the IRS.
Malaysia is not the only country in Southeast Asia to have entered into an IGA agreement with the United States. On December 9, 2014, Singapore became the first country in Southeast Asia to sign an Intergovernmental Agreement (IGA) on tax information sharing with the United States. The signing follows an in substance agreement reached between Singapore and the US in May 2014. Like Malaysia, Singapore has entered into a Model 1 IGA.
The type of negotiated IGA tends to differ depending on the country. Among the Asian countries that have formally signed IGAs, Hong Kong and Japan have agreed to a Model 2 IGA. Under this model, financial institutions in these countries have to directly register with the IRS.
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