By Shabiya Ali Ahlam
- All local banks have registered with US IRS ahead of 1 July implementation
- Financial account details of US citizens will be shared with US IRS by obtaining written permission from client
- SLBA has requested Exchange Control Department to put forward set of guidelines regarding remitting 30% withholding tax to US IRS, decision still pending
Local banks faced with few challenges in complying with the US imposed Foreign Account Tax Compliant Act (FATCA), have found their way around most of the issues in a manner that ensures their safety from legal implications.
With the Banking Act Section 77 stating that no information of a client can be disclosed, the Daily FT learns from the Sri Lanka Bankers Association (SLBA) that the banks will report to the US Inland Revenue Service (IRS) the income status of their clients by obtaining written permission. The approval will be obtained on a one-on-one basis.
Set to take effect on 1 July, the Foreign Account Tax Compliance Act of 2010 will require foreign banks, investment funds and insurers to hand over information to the US IRS about accounts with more than $ 50,000 held by Americans.
FATCA was introduced by the USA to ensure that all its citizens, regardless of where they reside to report their financial accounts. Due to tax non-compliance the US faces a loss of $ 100 billion annually.
While the reporting can take place in two forms, which is through intergovernmental agreements or individual companies entering into an agreement with the US IRS, Sri Lanka has opted for the latter.
Speaking to the Daily FT SLBA Secretary General Upali de Silva said: “All banks have entered into individual agreements with the IRS well within the deadline which was set for 25 April 2014 and later extended to 5 May.”
To date more than 60 IGAs have been negotiated, including deals with Indonesia, Peru and Kuwait announced in recent days, according to the Treasury Department’s website.
Since under FATCA all registered financial institutions are expected to remit to US IRS 30% of withholding tax of clients who have not complied with the law, Silva shared that a suggestion has been put forward by the SLBA to the Exchange Control Department to issue a set of regulations for this purpose.
“While a decision on this regard is yet to be made, failing to provide the guidelines will result in banks having to obtain written approval on individual cases from the Exchange Control Department to remit the 30% withholding tax,” he added.
In a notice published recently the SLBA urged all US citizens to register with their respective banks in order to be compliant with FATCA. The notice pointed out that according to the provisions of FATCA the criteria that classifies an individual as a citizen of USA, including an individual born in the US but a resident of another country, a lawful resident of the US (including a green card holder) a person residing in the US, a person who spends a certain number of days in the US each year, US corporations, estates and trusts, any entity that has a linkage or ownership to US or to US territories and non-US entities that have at least one US person as a ‘substantial beneficial owner’.