By Choi Kyong-ae

U.S. citizens or Green Card holders will be required to report their nationality from July 1 when they open an account at financial firms here, the Financial Services Commission (FSC) said Wednesday.

The move is in line with a bilateral agreement signed in March between Seoul and Washington to figure out financial-transaction records by Koreans and U.S. citizens at financial firms in each other’s countries.

“The U.S. government aims to boost its tax revenue and crack down on foreign tax evasion by its citizens” through the Foreign Account Tax Compliance Act (FATCA) that takes effect Tuesday next week in Korea, an FSC official said by telephone.

U.S. tax authorities have stepped up efforts to collect taxes from taxpayers living outside the country by penalizing those who failed to pay taxes, as well as those who helped taxpayers underreport or avoid taxes.

The FSC said it had delivered the related guidelines to commercial banks, merchant banks, insurance companies and other financial firms.

All customers who want to open an account at financial firms are required to fill out a new form. A person who comes from the U.S. has to specify whether he is U.S. citizen, Green Card holder, or U.S.-based taxpayer to have an account at a Korean bank, the FSC official explained.

As for U.S. natives and Korean-Americans who reside in Korea but have the right to vote for U.S. President, Korean financial companies now have to report the U.S. citizens’ income, account balances and other financial information to the National Tax Service (NTS).

The NTS then shares the financial information of accounts that exceed $50,000 for an individual and $250,000 for a U.S.-based business with the U.S. Internal Revenue Service (IRS).

“We plan to send the information we collect on wealthy U.S. accountholders in Korea to the IRS every September from 2015,” an NTS official said. “If Korean financial firms that do regular business with the U.S. do not file a FACTCA report, 30 percent of their U.S. earnings will be withheld.”

The NTS official said information sharing on a regular basis between the two countries will help reduce tax evasion attempts.

But commercial banks argue the new checking system may result in massive capital outflows from them, as some wealthy expats tend to use foreign bank accounts to hide assets, the Korea Federation of Banks (KFB) said.

Pressured by FATCA introduction, the expats may move their hidden assets to tax havens such as Switzerland, the Bahamas, the British Virgin Islands, and the Caymen Islands. FATCA came into existence in 2010 to collect unpaid taxes from non-U.S. based taxpayers.

The U.S. Treasury Department has reportedly signed an information-sharing deal with 77,000 financial firms in 70 countries to kick off the FACTCA regulations next month. All U.S. accounts worth over $50,000 are subject to reporting by each government to the IRS, the FSC said.