THE South Africa's National Treasury and the South African Revenue Service (SARS) have initiated a dialogue with the USA to conclude an inter-governmental agreement (IGA) for Foreign Account Tax Compliance Act (FATCA).

FATCA was enacted to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers with foreign financial institutions (FFIs). From next year onwards failure by an FFI to sign an agreement with the US Internal Revenue Service and disclose information would result in a requirement, to withhold 30% tax on US-source income.

It is aimed at reducing the compliance costs of South African FFIs, which would include South African banks, asset managers, private equity funds, long-term insurers and other participants in the financial sector and will be achieved through the exchange of information between South Africa and the US on a reciprocal basis, in terms of the existing double taxation agreement between the two countries.