CRS and FATCA Compliance in Asia Pacific

CRS and FATCA Compliance in Asia Pacific 

Background 

Tax authorities across the globe are in agreement that to combat tax evasion, a coordinated approach is necessary across all jurisdictions. Automatic Exchange of Information (AEOI) is where jurisdictions exchange accountholder information about tax residents of one country who have in-scope accounts in the other country.  Two international regulations were put in place to combat tax evasion through increased transparency and reporting to tax authorities on foreign accounts.

The Foreign Account Tax Compliance Act (FATCA) added Chapter 4 to the U.S. Internal Revenue Code (IRC). FATCA came into force in 2014, since then foreign financial institutions (FFIs) have been required to disclose certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest to the Internal Revenue Service (IRS). The IRS may impose 30% withholding tax on withholding agents who fail to obtain valid tax documentation.  

The Common Reporting Standard (CRS) is a due diligence and reporting framework introduced by the Organization of Economic Cooperation and Development (OECD) in 2014. CRS has been adopted into local law by local tax authorities of committed jurisdictions, with more joining every year.  

IGAs and FATCA Compliance in the APAC Region 

Before FATCA is implemented into a country’s legal framework, the adopting country needs to sign an Intergovernmental Agreement (IGA) with the U.S. The IGA requires FFIs to report information on their U.S. accountholders, either directly to the IRS (Model 2 type of IGA) or to the local tax authority which will exchange that information with the IRS (Model 1).  

Currently, the FFIs in the below APAC jurisdictions have FATCA obligations: 

• India
• South Korea
• Vietnam
• Cambodia
• Indonesia
• Kazakhstan
• Thailand
• Australia
• Hong Kong
• Japan
• Malaysia
• New Zealand
• Singapore
• China
• Macau

Common Reporting Standard in the APAC Region:  

As of 2023, more than 117 jurisdictions have committed to exchanging accountholder information under CRS and adopted it into local law. These jurisdictions have multilateral or bilateral agreements in place that specify the required information to be exchanged.  

Currently, the FIs in the below APAC jurisdictions have CRS obligations: 

• Australia
• Hong Kong
• China
• Indonesia
• Japan
• Malaysia
• Macau
• New Zealand
• Singapore
• Taiwan
• India
• South Korea
• Thailand
• Samoa
• Armenia (2025)
• Mongolia (2026)
• Papua New Guinea (2027)

FATCA vs. CRS for APAC Financial Institutions  

Scope

FATCA applies to U.S. individual accounts, U.S. entity accounts, and Passive Non-Financial Foreign Entity (PNFFE) accounts held by substantial U.S. owners. When a country enters into an IGA with the U.S., it is required to report for 2014 until the year the IGA was entered into force. For instance, Malaysia, which entered into force in 2022, is expected to have reporting requirements for 2014 through 2022. 

CRS is broader in scope than FATCA because it requires financial institutions to identify their accountholders who are tax residents in any CRS participating jurisdictions. It also has deeper “look-through” requirements for controlling persons of Passive Non-Financial Entities (NFE). For this reason, the reporting requirements may be greater under CRS. 

Tax Forms

Due diligence for FATCA is captured using IRS Forms W-9 or W-8 series.

Due diligence for CRS is captured through self-certification forms. CRS self-certifications are not “version specific.” Rather, specific data must be captured for individuals, entities, and controlling persons. Most financial institutions develop their own self-certification forms.  

Penalties

Implications of non-compliance include penalties, fines and reputational risk. 

FATCA imposes a 30 percent withholding tax on withholding agents who fail to comply with the due diligence requirements.

There is no withholding under CRS, each participating jurisdiction establishes its own penalties. For example Penalties for non-compliance in Thailand failure to comply with the new reporting requirements could result in a maximum fine of THB 200,000 or THB 500,000 for false reporting. In addition, failure to maintain the required information could also lead to a maximum fine of THB 300,000.

How Can TAINA Help? 

Many financial institutions in the APAC region face compliance challenges associated with tax form validation, data error remediation, manual tax operations and poor customer experience that is often associated with such cumbersome manual processes.  

TAINA’s automated tax form validation platform is already being used at scale by the world’s largest and most sophisticated financial institutions to transform their regulatory compliance and customer experience. The TAINA Platform is powered by a robust regulatory engine that designed and kept up to date by industry leading tax technical SME’s who continuously monitor global regulations.

TAINA has helped its clients eliminate the pain and risk associated with manual tax form validation, whilst achieving significant cost savings, efficiency gains, and improved customer experience.  

We would love to talk to you more about your current documentation validation process and how our award-winning FATCA and CRS Validation platform may add value to your organisation.

For more information on how our fully automated FATCA and CRS Validation platform can add value to your business, get in touch or request a demo to see it in action.