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FATCA Compliance: A Guide for Hong Kong Financial Institutions
In a bid to combat tax evasion and enhance international cooperation, the Foreign Account Tax Compliance Act (FATCA) requires financial institutions worldwide to report information about foreign accounts held by U.S. taxpayers. Here’s what you need to know as a Hong Kong financial institution.
What are Withholdable Payments?
Withholdable payments under FATCA include:
- U.S. dividend income and interest income paid after June 30, 2014
- Gross proceeds from sales of U.S. securities that can produce U.S. dividends or interest income
Who is the Responsible Officer (RO)?
The RO is responsible for certifying the FFI’s FATCA compliance to the IRS and implementing a comprehensive compliance program. The RO may not necessarily be the same person as the responsible officer of a licensed corporation regulated by the Securities and Futures Commission.
Major Duties of the RO
- Certifying FATCA compliance to the IRS
- Completing due diligence on existing clients
- Notifying the IRS of significant non-compliance
Consequences of Having an Individual Account with Indicia of U.S. Status
If an account has indicia of U.S. status, such as a U.S. place of birth or current U.S. residence address, the FFI may need to obtain additional documentation to confirm the status of the account holder.
Hong Kong Exchanges and Clearing Limited (HKEX) Preparations for FATCA
As clearing houses, HKEX’s affiliates are considered Reporting Financial Institutions under a Model 2 Intergovernmental Agreement with their respective GIIN numbers. The group strongly recommends that Participants assess the potential implications of FATCA on their business operations and clients.
Stocks Cleared and Settled by HKSCC Generating U.S. Source Dividend Income
As of November 2020, certain stocks cleared and settled by HKSCC generate U.S. source dividend income. These include:
- Amgen Inc
- Cisco Systems Inc
- Intel Corporation
- Applied Materials Inc
- Starbucks Corporation
- Microsoft Corporation
- Frontage Holdings Corporation
- Yum China Holdings, Inc.
Can I Avoid FATCA?
No, you cannot avoid FATCA by not participating in the U.S. securities markets or not having U.S. account holders. FATCA requires FFIs to perform due diligence on existing and new client accounts to identify their FATCA statuses.
Disclaimer
While care has been taken regarding the accuracy of information provided, this FAQ is for general guidance only and should not be construed as legal or tax advice. Participants are encouraged to consult their own professional advisors on the implications of FATCA.