Skip to main content

The Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) are two crucial regulatory frameworks governing financial institutions and entities in Singapore. These regulations have been implemented to enhance transparency, combat tax evasion, and promote international cooperation on tax matters.

This article provides an overview of FATCA and CRS in Singapore, explaining their purpose and implications for entities and account holders.

Key takeaways

  • The CRS provides for the automatic exchange of financial data among jurisdictions to combat tax evasion.
  • The FATCA, enacted by the US in 2010, targets individuals using foreign accounts who are not complying with US tax laws.
  • CRS focuses on tax residence to identify Reportable Persons, whereas FATCA focuses on reporting persons who may be US persons.
  • Reporting SGFIs, account holders, and entities in Singapore are impacted by both CRS and FATCA regulations.
  • FIs must conduct due diligence to identify reportable accounts and comply with reporting obligations to IRAS.

Understanding CRS

The CRS provides for the automatic exchange of financial data between jurisdictions to combat tax evasion. Supported by the OECD and the Global Forum for Transparency and Exchange of Information for Tax Purposes, the CRS aims to uncover and prevent tax evasion by individuals residing in different jurisdictions through offshore and financial accounts.

It outlines the specifics of financial data to be shared, the Financial Institutions (FIs) responsible for reporting, the types of accounts and individuals covered and the due diligence procedures for account holders (the person or entity identified as the owner of a financial account FI that maintains the account) that FIs must adhere to.

CRS classification

Singaporean Financial Institutions (SGFIs) are defined as any FI resident in Singapore or any FI with a branch in Singapore that is not resident in Singapore under the CRS framework. Reporting SGFIs must ensure compliance with CRS due diligence, registration and reporting obligations. Under the CRS Regulations, a Reporting SGFI.

Financial institutions

A Singapore entity will be classified as an FI under the CRS Regulations if it falls within any of the following categories:

Custodial institution

A custodial institution is an entity that holds financial assets for the account of others as a substantial portion of its business. Income generated from holding financial assets and providing related financial services include:

  • Custody, account maintenance and transfer fees.
  • Commissions and fees from executing securities transactions for financial assets held in custody.
  • Income from extending credit to customers for financial assets held in custody.
  • Income from contracts for differences and bid-ask spreads of financial assets.
  • Fees for financial advice regarding financial assets held or to be held in custody.
  • Fees for clearance and settlement services.

Depository institution

A depository institution is any entity that accepts deposits in the ordinary course of banking or similar business. An entity is considered part of a banking or similar business if its ordinary course of business refers to one or more of the following activities:

  • Makes personal, mortgage, industrial or other loans or provides other extensions of credit.
  • Purchases, sells, discounts, or negotiates accounts receivable, instalment obligations, notes, drafts, checks, bills of exchange, acceptances or other evidence of indebtedness.
  • Issues letters of credit services and manages associated drafts.
  • Provides trust or fiduciary services.
  • Finances foreign exchange transactions.
  • Enters into, purchases or disposes of finance leases or leased assets.

Investment entity

There are two types of investment entities:

  • Type A: Primarily conducts investment activities or operations for or on behalf of others. An Entity is classified as a Type A Investment Entity when its primary business activities include:
  • Trading in money market instruments (such as cheques, bills, certificates of deposit, derivatives, etc.), foreign exchange, interest rate and index instruments, transferable securities, or commodity futures.
  • Individual and collective portfolio management.
  • Investing, administering, or managing financial assets or money on behalf of other persons.
  • Type B: Derives gross income from investing, reinvesting or trading in financial assets and is managed by an FI (including a Type A investment entity).

Specified insurance company

A specified insurance company is an insurance entity or its holding company that issues or is responsible for payments related to cash-value insurance contracts or annuity contracts.

Non-financial entities

Non-financial entities (NFEs) are entities that are not classified as FIs. NFEs do not need to report CRS requirements to the IRAS. However, it must classify itself and provide a self-certification to Reporting FIs upon request to confirm its classification.

They are divided into two main categories:

  • Active NFEs: Refers to any NFE that meets any of the following criteria, which include but are not limited to:
    • Less than 50% of the NFE’s gross income is passive income, and less than 50% of its assets are used to produce passive income.
    • Shares are regularly traded on an established securities market or are related to such traded entities.
    • The NFE is a governmental entity, international organisation, central bank, or wholly owned by them.
    • It is not yet operating but is investing capital for non-FI business operations within 24 months of its initial incorporation.
    • The NFE was not an FI in the past five years and is liquidating assets or reorganising for non-FI business operations.
  • Passive NFEs: A professionally managed (type B) investment entities outside participating jurisdictions*.

*A participating jurisdiction under the CRS refers to a jurisdiction with an agreement to provide specified information and is listed in a published list, which is updated annually on the IRAS CRS webpage to reflect any changes in jurisdictions with which Singapore has agreements.

Passive NFEs must identify and provide self-certification for their controlling persons’ (the natural person who has control over the entity) tax residences to Reporting FIs if those controlling persons are deemed reportable persons under CRS.

Non-Reporting financial institutions

A Non-Reporting FI excludes entities from conducting CRS due diligence and reporting on financial accounts. These entities include:

  • Government entities, international organisations or central banks, except for payments related to commercial financial activities of certain financial institutions.
  • Retirement and pension funds of governmental entities, international organisations, and qualified credit card issuers.
  • Entities with low tax evasion risk similar to those mentioned above.
  • Exempt Collective Investment Vehicles (CIVs)
  • Trusts in which the trustee is a Reporting FI and reports all necessary information.

Understanding FATCA

FATCA, passed by the US in March 2010, aims to tackle non-compliance with US tax regulations among US individuals using foreign accounts. FACTA mandates all FIs outside the US to regularly report information regarding financial accounts held by US persons to the US Internal Revenue Service (IRS). FIs that do not comply face a 30% FATCA-related withholding tax on specific payments received from the US.

FATCA impacts FIs globally. To assist FIs in complying with FATCA, the US has established a framework for entering into Intergovernmental Agreements (IGAs) with partner jurisdictions across the globe:

  • In jurisdictions where the Model 1 IGAs have been adopted, the FIs in the respective jurisdictions will be required to disclose account details of US persons to their respective domestic authority, which then shares the data with the US IRS (Singapore’s domestic authority in this case being IRAS).

In jurisdictions where the Model 2 IGAs have been adopted, the FIs’ respective jurisdictions will be required to report US persons’ account information directly to the US IRS. Information exchange occurs between the US IRS and relevant government authorities upon request.

FATCA classification

Under FATCA, Singapore entities can be classified into several categories, each with different obligations and requirements. The first step for a Singapore entity (or its representative) is to determine whether it falls under the Singapore-based FI (SGFI) or Non-Financial Foreign Entity (NFFE) category.

Singapore-based financial institution

SGFIs will fall into one of two categories: Reporting SGFIs or Non-Reporting SGFIs. Reporting SGFIs must comply with their due diligence and reporting obligations.

An SGFI is defined as:

  • Any FI that is tax resident in, or incorporated, formed or established under the laws of Singapore. This excludes any branch of the FI located outside of Singapore.
  • Any branch of an FI that is not tax resident in, not incorporated, formed or established under the laws of Singapore, if such branch is located in Singapore.

If an FI is a tax resident in both Singapore and another country, it will be categorised as an SGFI.

Similar to the CRS regulations, an entity qualifies as an FI if it falls within any of the following categories:

  • Custodial institution
  • Depository institution
  • Investment entity (Type A)
  • Specified insurance company

Non-reporting Singapore-based financial institutions

A Non-reporting SGFI is any SGFI that qualifies as a Deemed-Compliant FFI (DCFFI) or an Exempt Beneficial Owner (EBO) under the relevant US Treasury Regulations.

Exempt beneficial owners

EBOs do not have any reporting or registration requirements for their financial accounts unless they derive income from commercial, financial activities similar to those undertaken by SGFIs. Generally, they do not need to register with the US IRS for a Global Intermediary Identification Number (GIIN). Categories of EBOs include:

  • Government and government-linked entities
  • Central banks
  • International organisations
  • Qualifying funds
  • Investment entities wholly owned by EBOs

Deemed-compliant FFIs (DCFFIs)

DCFFIs are not required to register with the US IRS or report US Reportable Accounts under FATCA. However, there are exceptions, which include:

  • If the Non-Reporting SGFI is subject to registration requirements under its existing qualified intermediary (QI), withholding foreign partnership, or withholding foreign trust agreement.
  • If the Non-Reporting SGFI is a sponsoring entity for sponsored investment entities* or sponsored closely held investment vehicles (CHIVs)**.
  • If the Non-Reporting SGFI acts as a lead FI for one or more related entities.

*A sponsored investment entity is an investment entity that is not an FFI and does not have a reporting obligation under FATCA. However, it relies on a Reporting SGFI (the sponsor) to ensure its US Reportable Accounts are reported.

*Sponsored CHIVs are non-reporting entities that rely on a Reporting SGFI (the sponsor) to ensure FATCA compliance. However, CHIVs are typically limited to a small number of investors who may have greater control over the investment vehicle.

Non-financial foreign entities

For the purposes of FATCA, an NFFE refers to any non-US-incorporated entity that is not a foreign financial institution (FFI).

There are two categories of NFFEs:

  • Active NFFEs: The criteria for Active NFEs (CRS) and Active NFFEs are generally the same, except for conditions related to US Territories (where the NFFE is organised in a US Territory and all owners are bona fide residents of that territory) and excepted NFFEs as described in the US Treasury Regulations.
  • Passive NFFEs: Any NFFE that is not a withholding foreign partnership or withholding foreign trust.

Reporting obligations and consequences for non-compliance

FATCA and CRS impose specific reporting obligations on different stakeholder groups:

Financial institutions: Must conduct due diligence to identify reportable accounts, including US accounts under FATCA and accounts held by tax residents of CRS jurisdictions. They must report account information, including account balances, interest, dividends, and other income, to the Inland Revenue Authority of Singapore (IRAS) for CRS and the IRS for FATCA.

Account holders: Individuals and entities must provide accurate self-certifications to financial institutions regarding their tax residency status. They may also need to provide additional information or documentation as requested by the institutions.

The types of financial accounts that must be reported are:

  • Depository accounts
  • Custodial accounts
  • Cash value insurance contracts
  • Equity and debt interests in a financial institution
  • Annuity contracts

All Reporting SGFIs must submit their CRS and FATCA returns, including nil returns if applicable, by 31 May of the following the calendar year.

Reporting SGFIs could encounter enforcement measures, such as penalties of up to USD 5,000 if they fail to submit their FATCA or CRS returns on time or file them altogether.

Additional steps and resources to ensure compliance

Ensuring compliance with CRS and FATCA regulations in Singapore is crucial for businesses to avoid penalties and maintain regulatory adherence. Here are steps and resources that can be taken to ensure compliance:

  • Stay updated: Regularly monitor updates and changes to FATCA and CRS regulations issued by relevant authorities in Singapore. This ensures that compliance measures are aligned with the latest regulatory requirements.
  • Review reporting deadlines: Understand the deadlines for submitting FATCA and CRS returns, including any nil returns if applicable. Failure to meet these deadlines can result in penalties.
  • Internal training: Conduct training sessions for employees, especially those involved in financial operations or compliance, to ensure they know FATCA and CRS requirements and procedures.
  • Due diligence procedures: Implement procedures to identify Reportable Persons or entities. This may involve verifying tax residency status, collecting necessary documentation, and maintaining accurate records.
  • Seek professional advice: For complex cases or if unsure about specific compliance requirements, businesses should seek advice from advisors or consultants specialising in international tax regulations.
  • Educational resources:
    • IRAS website: The IRAS website provides comprehensive information on FATCA and CRS, including detailed guidelines, FAQs, and training resources.
    • OECD CRS website: The OECD CRS website provides resources and information on the CRS framework, including a list of participating jurisdictions.

Safeguard your compliance journey with Acclime

Acclime specialises in providing thorough guidance and support to businesses in Singapore as they navigate the complexities of FATCA and CRS compliance. With a dedicated team of experts, we offer tailored solutions to ensure seamless regulatory adherence and risk mitigation. By leveraging our deep understanding of these regulations, we help businesses confidently navigate the compliance landscape, minimising potential risks. Contact us for further information on how we can assist your business.