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 today 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 July 1 and requires all financial institutions outside of 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 per cent 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 Clay.

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 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 Labor party called on McClay to release details of the FATCA agreement to the New Zealand Parliament. Labor'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.

Earlier this week, South Africa and the UAE 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.