Macau: The impact of Fatca

Lei Wun Kong	Nuno Soares da Veiga

Following the enactment of the Foreign Account Tax Compliance Act (Fatca) by the US Government, financial institutions in the Macau SAR are analysing the impact of complying with it. Under Fatca, foreign financial institutions (FFIs) are required to report information directly to the Internal Revenue Service (IRS) regarding the accounts of customers who are treated as US persons for US tax purposes, and customers who have been identified as having links to the US. Moreover, Fatca provides that non-compliant FFIs will be subject to a 30% withholding tax on their US investments and US-source income.

While the purpose of Fatca may be to combat the tax evasion of US taxpayers, compliance with Fatca poses a challenge to Macau financial institutions striving to comply with local laws, in particular the Financial System Act (FSA).

Under article 78 of the FSA, Macau financial institutions have a duty to maintain secrecy, which covers names and other information related to customers, deposit accounts and respective transactions, application of funds and other banking operations. Article 80 of the FSA provides that the duty to keep confidential facts or other information concerning relations between the institution and its customers may only be waived with the customer's consent or by court order under the terms provided for in the Macau Criminal Procedure Code. Therefore, without the consent of the US clients, Macau financial institutions are generally not legally permitted to transfer their personal data to the IRS, thus running the risk of being subject to the 30% withholding tax on their US investments and US-source income.

Macau financial institutions could terminate the accounts of the US clients who refuse to give their consent. However, this action might be regarded as abuse of law, under article 326 of the Macau Civil Code, insofar as the financial institution would be manifestly exceeding the limits of the principle of good faith, and exposing Macau financial institutions to eventual litigation.

It remains to be seen if and how Macau financial institutions will comply with Fatca and whether the Macau SAR will eventually enter into an inter-governmental agreement with the US, which could remove some privacy considerations when reporting the required information to the IRS.

Lei Wun Kong and Nuno Soares da Veiga

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