Tan of DBS said she refers Americans seeking private-banking services to U.S. institutions with operations in Singapore such as Citigroup, Bank of America, Morgan Stanley, Goldman Sachs Group and JPMorgan Chase, which are able to open securities accounts for Americans because they’re regulated by U.S. authorities. Such accounts allow purchases of investment products without restricting Americans to cash and time-deposit accounts.
While that may be easy for Americans in Singapore, those who live elsewhere face obstacles. Before Fatca, U.S. citizens in Bangkok or Manila could find investment opportunities through non-U.S. banks such as HSBC. Now their only option is to fly to cities where U.S. firms operate.
If Americans choose to bank with a non-U.S. firm such as HSBC, their investment choices are limited. At the HSBC branch in the bank’s Asia regional headquarters in Hong Kong, Americans can hold only savings deposits. They’re prohibited from opening accounts to trade local stocks or buy products available to non-U.S. customers, including 45 equity funds investing in China or other geographies and industries. There’s only one comparable emerging-markets equity option available on HSBC’s U.S.-based investors’ Web site.
Financial institutions that choose not to accept American customers still must determine whether new or existing clients are “U.S. persons,“ in order to comply with Fatca, according to Michael Brevetta, director of U.S. tax consulting at PricewaterhouseCoopers in Singapore.
The definition includes citizens, green-card holders and non-Americans deemed U.S. residents by being present in the country for at least 183 days over a three-year period, which makes them subject to U.S. tax on their worldwide income, according to the IRS.
The compliance costs for banks, asset managers and insurance companies “could stretch into the billions of dollars,” Brevetta said. Private-banking firms in Hong Kong and Singapore already have operating costs between 88 percent and 90 percent of their revenue, compared with 70 percent at Swiss banks, PricewaterhouseCoopers estimated in a September report.
Penalties for not complying will be stiff. Non-U.S. firms that don’t make required disclosures will be subject to 30 percent withholding of certain dividends, interest or proceeds from the sale of assets they or their customers receive from U.S. sources, according to Baker & McKenzie’s Weisman, who has conducted workshops and seminars on the proposed rules for current and potential clients in Hong Kong and Singapore.
“Overwhelmingly, financial institutions outside the U.S. don’t like it, for obvious reasons,” Weisman said, calling the withholding tax a “stick” the U.S. is wielding. “The U.S. is outsourcing a tax-compliance function, which is enormously expensive.”