The US government has signed a Foreign Account Tax Compliance Agreement (FATCA) with almost 100 jurisdictions around the world. FATCA, which went into the effect on July 1, 2014, requires that all worldwide banking and financial institutions report US account holders with account balances of $10,000 or more to the United States Internal Revenue Service (IRS) in an effort to battle international tax evasion. A full list of countries signed up for FATCA can be viewed here. To learn more about FATCA, view our previous blog Here.
Russia was in agreement talks with the US to sign an amended Intergovernmental Agreement (IGA). They signed the agreement just days before FATCA went into effect. Interestingly, the expected reciprocity between the two countries did not happen. Russian banks and financial institutions are required to report all US accounts holding $10,000 or more to the US, but the US does not have the same obligation to report Russian bank accounts in US banks to the Russian government. China, another country that resolutely refused to sign the agreement with the US has now signed up. However, China’s IGA with the US is reciprocal. This means that China’s financial institutions will report all US accounts to the IRS, and US banks will report all Chinese held accounts to the Chinese government. This allows both countries to curb the prevalent problem of tax evasion. It should be noted that US and China are on a short list of countries that tax on a worldwide basis. Apart from an obligation to protect the country’s banks from penalties enforced by the IRS, China would also benefit from the IGA due to a new legislation introduced in January 2014 called the Foreign Asset Reporting Requirements (FARR). The FARR requires the residents of The People’s Republic of China (PRC) to report all international transactions, foreign accounts and assets to discourage offshoring. Before this legislation, residents were only required to report international transactions with non-residents. Non -compliance will result in penalties of almost US$50,000 for companies and US$8,000 for individuals. In addition to PRC residents, the new Foreign Asset Reporting Requirements will also apply to the following groups: PRC citizens who have been absent from the country for less than a year. Non-residents who have had economic transactions within the PRC. Corporations that are registered in the PRC Branch offices of foreign institutions Individuals who reside in the PRC for more than a year
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