PwC: More than 1,000 financial institutions will fall under Fatca

PETALING JAYA: PwC Malaysia estimates that more than 1,000 financial institutions in Malaysia will fall under the Foreign Account Tax Compliance Act (Fatca), a few of which may not even realise that they do, PwC Malaysia partner and assurance financial services leader Ong Ching Chuan in a statement yesterday.
As at Nov 21, 2014, 498 financial institutions in Malaysia have registered with the US IRS.
The Inland Revenue Board's (IRB) is expected to enter into an intergovernmental agreement with the US by end of this month, which will see Malaysian financial institutions obliged to comply with the US federal law aimed at detecting and deterring the evasion of US tax by US persons who hide money outside the US.
Ong added that cost and effort to comply with this Act could be high, ranging anywhere from RM100,000 to several million and that financial institutions shouldn't misperceive this as an Act that only impacts US banks, or traditional financial-related entities.
He said Fatca could be misperceived as an act that will only affect the US citizens and entities, but it actually includes those in the banking business; those who perform custodial services such as nominee companies and trustees; investment entities such as unit trust and private equity companies; life insurance companies; holding companies or treasury centres.
"In Malaysia, the level of awareness on Fatca and who or which entity falls under its scope is low," Ong said in a statement yesterday.
He expects local laws and policy to change to accommodate Fatca compliance, such as laws governing privacy protection to enable local financial institutions to report on their relevant customers' status.
Financial institutions will be subject to 30% withholding tax by the US on any of their US-sourced income such as dividend receivables from stock of US-based companies if they do not comply with Fatca.
In order to comply with Fatca, he opined that financial institutions need to grapple with additional costs of compliance in the area of IT implementation and other operational processes.
"For the customers, the additional due diligence means additional forms to complete as part of the self-declaration process," he added.
In light of the Fatca implementation, he also noted that IRB has yet to announce the reporting timeline by Malaysian financial institutions to them despite IRB's first reporting timeline to the US Internal Revenue Service (IRS) to be on Sept 30, 2015.
"Our local financial institutions need to take a hard look at their systems implementation processes and assess the impact of the act on their organisation – this includes resources needed to support the implementation and monitoring processes," said Ong.