Australian financial institutions with local client bases are to be exempt from the reporting obligations of the US anti-avoidance tax law, the Foreign Account Tax Compliance Act, under an agreement signed by the Australian and US Governments this week. The new law takes effect from July.To qualify as 'a financial institution with a local client base', an organisation must be licensed and regulated under Australian law, with no fixed place of business outside Australia, must not solicit customers outside Australia and must have at least 98 per cent of accounts (by value) held by Australians.Exempt institutions will have to put policies in place that prevent them from providing a financial account to any other financial institution that may then be provided to a US person.Other exempt institutions include ones that have only low value accounts, where no account has a balance in excess of $50,000.A number of government entities, including the Reserve Bank, state treasuries and finance authorities, and the Future Fund, are also exempt.Australian retirement funds are exempt. These are defined as "any plan, scheme, fund, trust or other arrangement operated principally to administer or provide pension, retirement, superannuation or death benefits."FATCA has been designed to stop tax abuses by US citizens holdings overseas bank and investment accounts. Foreign financial institutions operating accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial interest, will have to report details of these accounts to the US Internal Revenue Service.The US will apply sanctions to non-compliant foreign institutions. This takes the form of a 30 per cent withholding tax on US-sourced payments to those institutions.