FATCA
The Foreign Account Tax Compliance Act (FATCA) is a unilateral policy from the United States government (United States/US) to gather information regarding the whereabouts of funds of US residents abroad. FATCA requires reporting from Foreign Financial Institutions (FFI) outside the US to the US government. FATCA imposes a non-compliance penalty in the form of a 30% withholding tax on funds issued from the US for FFIs that do not comply. Types of payments that are objects of tax withholding at a rate of 30% include payments of dividends, interest, and proceeds from the sale of assets.
This FATCA policy is an effort made by the US government to detect tax abuse committed by citizens with funds abroad. With the enactment of FATCA, FFIs worldwide are required to provide reports to the United States Internal Revenue Service (IRS) regarding information related to financial accounts held by US residents or other entities in which US residents hold substantial ownership interest.
The Indonesian government has the authority to determine the model for implementing FATCA from the following two alternatives: (i) B to G (Business to Government Agreement), namely, the government allows financial institutions to make agreements with the IRS independently; (ii) IGA (Inter-Governmental Agreement) with two main classifications: IGA-1, namely the Indonesian government enters into a bilateral agreement with the US government, and financial institutions will submit reports related to FATCA through the Indonesian government; or (iii) IGA-2, namely the Indonesian government enters into a bilateral agreement with the US government, and financial institutions will submit reports related to FATCA directly to the IRS based on the bilateral agreement.
In principle, the Ministry of Finance of the Republic of Indonesia supports the implementation of FATCA through the IGA mechanism. This mechanism allows the Indonesian government to optimize the benefits of implementing FATCA for the country and the Indonesian population. The IGA mechanism also provides advantages in the form of a legal umbrella for implementing FATCA, which protects all financial institutions in Indonesia and simplifies and provides legal certainty in its implementation.
Implementing FATCA in Indonesia requires coordination between various parties, legal infrastructure, and implementing regulations. FATCA requires operational technical readiness, including human resources, database systems, reporting mechanisms, and other supporting factors that will influence the operations and efficiency of implementing FATCA for Indonesia's government and financial institutions.
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