Fatca exemptions for Hong Kong retirement funds?

The US has said Hong Kong’s largest pension schemes could escape from Fatca.

This is because the US judges these pensions schemes to be low risk for tax evasion. Fatca or the Foreign Account Tax Compliance Act requires foreign financial institutions to identify any US account holders they may have, and disclose their account details to the US Internal Revenue Service, if the foreign financial assets are worth $50,000 or more.

Final regulations by the US Treasury have included amendments that mean that Hong Kong retirement funds may fall outside the scope of Fatca, said Sally Wong, chief executive of the Hong Kong Investment Funds Association (HKIFA).

"There are further relaxations for retirement funds/pensions funds. Certain retirement funds may now fall under the broad category of 'payments owned by exempt beneficial owners'. There has been an addition of new categories such as 'investment vehicles exclusively for retirement funds', which allow for retirement funds to be exempted," Wong said.

Wong said HKIFA is also in the process of determining whether the underlying funds used for MPF/Orso schemes would also be exempt from Fatca.

"We are exploring with our legal counsel whether these amendments can accommodate the underlying funds that are approved pooled investment funds (Apifs), as these are primarily designed and structured for retirement purposes. If both the retirement schemes and Apifs are able to be classified under the broad category of 'exempt beneficial owners', then it probably would help to alleviate the compliance burdens. Ultimately, pension and retirement schemes present low risk of tax evasion," she says.

Wong also called for the Hong Kong government to sign an intergovernmental agreement (IGA) with the US to provide further clarity.

"We hope the Hong Kong government will sign an IGA with the US government, and included in the annex to the IGA will be a list of exempt institutions/products such as MPF and Apifs," she says.

As of today, no country in Asia has yet signed an IGA. Japan is finalising its agreement while Malaysia, Australia, New Zealand, Singapore and Korea are believed to be actively engaged with the US Treasury in discussions to do so.