Foreign Account Tax Compliance Act (“FATCA”) is a tax law enacted in the United States (“U.S.”) in March 2010 and became effective on 1 July 2014.  FATCA aims at preventing U.S. tax evasion by U.S. taxpayers holding non-U.S. financial accounts.

According to the information published by the U.S. Internal Revenue Service (the “IRS”), FATCA requires foreign financial institutions (“FFIs”) to conduct certain due diligence procedures to identify and report to the IRS information in respect of financial accounts held by, among other things, (i) U.S. taxpayers; and (ii) certain foreign entities in which U.S. taxpayers hold controlling ownership interests or are otherwise treated as controlling persons.  FFIs which do not comply with FATCA may be subject to withholding tax of 30% on certain payments received by them. 

No. 

FATCA does not replace the existing U.S. tax withholding and reporting regimes.  For example, Chapter 4 of the U.S. Internal Revenue Code (i.e. FATCA) does not replace Chapter 3 of the Internal Revenue Code (including the Qualified Intermediary (QI) regime).  FATCA imposes additional documentation and reporting requirements.

FATCA generally defines Foreign Financial Institution (FFI) as follows:



The above is general background information only.  Each legal entity should evaluate for itself whether it is an FFI under FATCA.

An NFFE is a Non-Financial Foreign Entity.  NFFE is defined as any foreign entity that does not meet the definition of an FFI, and very generally includes, among other things: non-financial entities meeting specified rules, professional services firms, and charitable organizations meeting specified rules. 

Non-compliance potentially carries a penalty of a 30% withholding tax applied to withholdable payments received by the FFI. This penalty applies to not only the FFI’s own assets but also assets held for customers.

Withholdable payments generally include, among other things:

• U.S. dividend income and U.S. interest income paid after 30 June 2014; and 

• Gross proceeds from any sales occurring after 31 December 2018 of any property, such as U.S. stocks, U.S. Treasuries and other U.S. debt securities, that can produce U.S. dividends or U.S. interest income.

Also, under a Hong Kong IGA, Hong Kong financial institutions are directed to comply with FATCA.

RO of an FFI is responsible for the FATCA compliance program of the FFI and certifying on FATCA compliance to the IRS.  The person to be appointed as RO should have sufficient authority to fulfill the duties of a RO, who may or may not be the responsible officer of a Licensed Corporation regulated by the Securities and Futures Commission. 
Major duties of a RO include: 

• certification of FATCA compliance of the FFI to the IRS, including the completion of FATCA due diligence on existing clients;

• implementation of FATCA compliance program; and

• notification to the IRS of significant non-compliance with FATCA requirements. 

If an account has “indicia” of U.S. status described below, the FFI may have to obtain additional documentation to confirm the status (as either U.S. or non-U.S.) of the account holder.  If documentation is not obtained to establish non-U.S. status, the FFI may be required to report the account to the IRS as either a U.S. account or a Non-Consenting U.S. Account.  The following are the 7 U.S. indicia: 

• Identification of the individual as a U.S. citizen or resident (e.g. U.S passport or U.S. green card);

• A U.S. place of birth for the individual;

• A current U.S. residence address or U.S. mailing address (including a U.S. post office box);

• Current U.S. telephone number;

• Standing instructions to transfer funds to an account maintained in the U.S.;

• A current power of attorney or signatory authority granted to a person with a U.S. address; and

• An “in care of” address or a “hold mail” address that is the sole address identified for the individual.

Clearing houses of HKEX group are considered as FFIs under FATCA.   The 4 clearing houses are “Reporting Financial Institutions under a Model 2 Intergovernmental Agreement” with their respective GIIN numbers as below:

 
HKEX strongly recommends Participants to assess the potential continuing implications of FATCA on their business operations and clients, and, for Participants that are FFIs, to continue to comply with FATCA.

Below are certain stocks cleared and settled by HKSCC that generate U.S. source dividend income as of Nov2020 for reference only :-

 

	Security	Security Name
1	4332	Amgen Inc
2	4333	Cisco Systems Inc
3	4335	Intel Corporation
4	4336	Applied Materials Inc
5	4337	Starbucks Corporation
6	4338	Microsoft Corporation
7	1521	Frontage Holdings Corporation
8	9987	Yum China Holdings, Inc.- S

 

Participants are encouraged to consult their own professional advisors as to which stocks and other traded products may generate withholdable payments under applicable FATCA and U.S. tax rules.

No. 

For example, under FATCA, U.S. stock includes shares issued by U.S. formed companies traded/ listed worldwide instead of shares listed in the U.S. security markets. Therefore, FATCA withholdable payments will also include certain payments related to some stock traded in securities markets outside the U.S securities markets.  

Moreover, as discussed in relevant FAQ in this page, under a Hong Kong IGA, a Hong Kong financial institution is directed to comply with FATCA.