New Zealand has become the latest country to sign an agreement with the US to implement the Foreign Account Tax Compliance Act.

New Zealand has
become the latest country to sign an agreement with the US to
implement the Foreign Account Tax Compliance Act.

The
inter-governmental agreement was signed by New Zealand’s revenue
minister Todd McClay and US Chargé d’Affaires Marie Damour, the
New Zealand government said.

FATCA was enabled in
2010 as part of the US government’s plan to curtail offshore tax
evasion by encouraging transparency through the collection of
information on accounts held by US citizens abroad.

It is set to take
effect on 1 July and requires all financial institutions outside
the US to regularly submit information on financial accounts held by
US persons to the IRS. When the act comes into force, those who are
not compliant will suffer a 30% withholding tax on income and gross
proceeds, as of January 2015.

Under the IGA,
rather than individually sending account information for US taxpayers
to the US Inland Revenue Service, New Zealand financial institutions
will instead provide this information to the New Zealand Government,
which will then exchange it with the IRS.

McClay said the
agreement will make it easier for New Zealand financial institutions
to comply and thereby reduce additional costs being passed on to New
Zealand customers.

“The IGA is
reciprocal, meaning that New Zealand will also receive information
about certain accounts held by New Zealand residents with US
financial institutions. This will help prevent tax evasion and
enhance the integrity of both countries’ tax systems,” said
McClay.

The agreement is
similar to the one negotiated by a number of other nations including
Denmark, Australia and the UK. The key difference is that New Zealand
has managed to negotiate a number of specific exemptions for entities
and accounts that are considered low-risk from a US tax evasion and
avoidance perspective. This includes superannuation, KiwiSaver
schemes, tax pooling accounts, registered charities, and Maori
authorities as defined by tax legislation.

Last month, New
Zealand’s main opposition Labour party called on Mc- Clay to
release details of the FATCA agreement to the New Zealand Parliament.
Labour’s revenue spokesperson David Clark said at the time that the
government had let its negotiation on the agreement run too late.

“It appears to
have backed itself into a corner. It must now pass this law or the US
will place unsustainable penalties on the New Zealand banking
system,” Clark said in a statement.

South Africa and the
UAE have both reached deals to cooperate with the US in its fight
against tax evasion. South Africa has signed an agreement with the US
to implement FATCA, while the UAE has also reached a deal in
substance.