Hong Kong has signed an inter-governmental agreement (IGA) with the United States to combat offshore tax dodging by the US citizens.
The IGA will include exemptions for financial institutions or products which present low risks for tax evasion by US taxpayers.
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Under the agreement, Hong Kong and the US will exchange information related to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters.
Additionally, the IGA will reduce overall compliance costs for the industry and protect the interests of these institutions and their clients.
The deal is expected to be finalized by the end of 2014.
As per the FATCA law, failure by an FFI to disclose information on their US clients, including account ownership, balances and amounts moving in and out of the accounts, will result in a requirement to withhold 30% tax on payments of US-sourced income.
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By GlobalDataThrough this tax information-sharing agreement, Hong Kong firms will provide their local tax authority with details of US account-holders, which will be passed on to the US Internal Revenue Service (IRS).
Earlier in March 2014, Hong Kong has signed a separate tax information agreement with the US as the first stage of IGA deal.
A spokesperson for the financial services and the treasury bureau said: "The IGA, which the two places have reached in substance, will reduce reporting burden and facilitate compliance with FATCA by financial institutions in Hong Kong. The IGA demonstrates Hong Kong’s commitments to enhancing tax transparency in the international arena."
