Local banks brace for compliance with US tax law

Commercial banks operating in the country are bracing themselves for full compliance with the United States’ Foreign Account Tax Compliance Act (FATCA) that comes into effect in July next year.

The FATCA will require local financial institutions to identify, document and report accounts owned by American citizens to the United States IRS for tax purposes.

Local financial institutions that do not comply will be subjected to a 30% withholding tax on income and proceeds from their investments in the US. Non-compliance may also make it difficult for local banks to do business with financial institutions that are FATCA-compliant.

The FATCA rules are provisions of the United States’ Hiring Incentives to Restore Employment Act, and have expansive information reporting rules aimed at ensuring that US citizens with financial assets outside the US are paying the correct amount of taxes at home.

US tax authorities have the power to order banks to withhold funds of non-compliant citizens.

“The government is going to sign up to the various agreements with the US government, and as a bank we have to comply. If you look at our customer profile at the moment, we don’t expect to have a lot of issues [when FATCA comes into effect].

“It’s a matter of providing the necessary information. We have put in place measures to be able to gather the necessary information,” Mr. Philip Owiredu, Executive Director of Cal Bank, told the B&FT.

The Managing Director of Cal Bank, Mr. Frank Adu, also said banks in the country already do something similar for central government by deducting withholding tax and paying to the Ghana Revenue Authority (GRA).

“The beginning of the account-opening process is the key for all activity in the bank. Once you go through the KYC (know your customer) properly, you will from that point build the database. Once an American opens an account, you tag it with FATCA. We already do so for government, so it shouldn’t be a problem,” he said.

Mr. Joseph Ofori-Teiko, the General Manager of Cal Bank, also believes that though the beginning of the compliance may be tough for some banks, they cannot afford not to comply because they have assets in the US.

“It’s going to be tough, but the challenge is that banking has become a little more complex. The delinquents are advancing at a pace by which they are trying to outwit the system already in place. So we will continuously see such mechanisms to try and improve these challenges in the market place,” he said.

The Bank of Ghana (BoG) is expected to introduce new account opening forms which will ensure that local financial institutions comply.

As the compliance date approaches, some analysts have said that its presents an opportunity for government to also explore ways of collecting information on Ghanaian citizens who have investments and others assets in the US for tax purposes.

Mr. Djabanor Narh, Partner, Advisory Services of Ernst and Young, said: “There are a lot of Ghanaian citizens who have investments in the US, so it might be an opportunity for us to explore how this can benefit the GRA; but that’s yet to be defined, and it’s one of the things the private sector can help with.”