Kong IGA: Banks Required to Report Customers’ U.S. Status to IRS

The Hong Kong Inland Revenue Department (HKIRD) has recently announced that banks in the region are required to report customers who cannot be ascertained to have a U.S. or non-U.S. status to the Internal Revenue Service (IRS).

Reporting Requirements for Banks

For individual and entity customers, including companies and trusts, who do not fall under this category, their aggregate year-end financial account balance will be reported to the IRS. However, the IRS reserves the right to request specific customer information from banks via the HKIRD.

• Financial institutions that are classified as Nonparticipating Foreign Financial Institutions (NPFFI) must report certain information, including:
  • Account holder names and addresses
  • Financial account numbers
  • Account balances
  • Payments made during the year

Purpose of Reporting Requirements

The reporting requirements apply to financial institutions that maintain accounts for U.S. persons or foreign entities with substantial U.S. assets. The information collected will be used to determine whether the account holders are subject to U.S. taxation and whether they have complied with U.S. tax obligations.

• The Kong IGA aims to prevent tax evasion by ensuring that U.S. taxpayers comply with U.S. tax laws and regulations.
• Banks must provide their customers with a W-8 Form, which is used to self-certify their FATCA status.

Compliance Requirements

The reporting requirements are effective immediately, and banks must submit the required information to the IRS by June 30th of each year. Failure to comply with the regulations may result in penalties and fines.

Conclusion

The Kong IGA is an important step towards ensuring tax compliance and transparency between Hong Kong and the United States. The agreement demonstrates the commitment of both governments to prevent tax evasion and promote economic cooperation between their countries.