Foreign Account Tax Compliance Act (FATCA)

Background

FATCA, which affects Financial Institutions ("FIs") worldwide, aims at reducing tax evasion by US persons. It requires Financial Institutions outside the US to provide information regarding their customers who are US persons to the US Internal Revenue Service ("US IRS"). A 30% withholding tax is imposed on the US source income of any FI that fails to comply with this requirement.

The US has developed Intergovernmental Agreement (IGA) models as tools to facilitate FIs` compliance with FATCA:

  • Model 1 establishes a framework for FIs outside the US to report account information of US persons to their relevant domestic authority, which will in turn provide the information to the US IRS;
  • Model 2 establishes a framework for FIs outside the US to directly report account information of US persons to the US IRS, which is supplemented by information exchange upon request between the US IRS and its relevant government counterpart.

More information on FATCA can be found on IRS FATCA web page.

Malaysia-US IGA  New!

The Malaysia-United States (US) Intergovernmental Agreement (IGA) was signed on 21 July 2021 to improve tax transparency and to implement the Foreign Account Tax Compliance Act (FATCA). To comply with the due diligence obligations under the IGA (“Agreement”), the Malaysian Government gazetted the following subsidiary legislations on 1 September 2022:

  1. P.U.(A) 278/2022
    Income Tax (Agreement Between the Government of Malaysia and the Government of the United States of America to Improve International Tax Compliance and to Implement the Foreign Account Tax Compliance Act) Order 2022

     

  2. P.U.(A) 279/2022
    Income Tax (Automatic Exchange of Financial Account Information Between the Government of Malaysia and the Government of the United States of America to Improve International Tax Compliance and to Implement the Foreign Account Tax Compliance Act) Rules 2022

     

  3. P.U.(A) 280/2022
    Labuan Business Activity Tax (Automatic Exchange of Financial Account Information Between the Government of Malaysia and the Government of the United States of America to Improve International Tax Compliance and to Implement the Foreign Account Tax Compliance Act) Regulations 2022

The Guidance Notes will be finalised and published accordingly in due course.

The date for submitting the 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021 and 2022 reportable information and nil returns under FATCA to IRBM has been extended to 31 July 2023.

As FATCA submissions are done via IDES, kindly refer to IDES Data Preparation guide for guidance on data preparation.