Taxing time for US residents in UAE

Under the intergovernmental agreement between the UAE and the US the first report, disclosing the financial activities of US citizens in 2014, was due to be submitted to the US by September 30, 2015.

This agreement was signed to facilitate implementation of the Foreign Account Tax Compliance Act (Fatca), a tool of the US government to monitor tax compliance of its citizens (and tax residents, such as green card holders) abroad.

With the deadline passed this week, the accounts of US citizens in the UAE should now be under scrutiny of the Internal Revenue Service (IRS), unless a special grace period of one year applies to the UAE.

“On September 18, the United States Treasury Department and the (IRS) issued Notice 2015-66 relaxing (to a certain extent) the looming September 30, 2015 deadline,” explained Virginia La Torre-Jeker, a Dubai-based American tax specialist.

Pursuant to the agreement signed between the UAE and the US (Model 1B IGA ) this agreement will enter into force on the date that the UAE sends a written notification to the  US indicating that it has completed the internal procedures needed for the agreement, she continued.

“Even though the UAE signed an IGA in June it is my understanding (although I have been unable to confirm this at the time of this post) that this written notification has not yet been provided by the UAE to the US,” she writes in her blogpost Whew — A FATCA “Delay” of Sorts for Model 1 IGA Partners — Including United Arab Emirates.

“Assuming this is correct, the IGA between the UAE and US is not yet currently in force.”

What does this mean?

Although it looks like the agreement is not in force just yet, this does not mean US citizens can sit back thinking they have more time to be tax compliant, stressed La Torre-Jeker.

“US citizens have always had to be tax compliant. However, those who have not been respecting the tax laws may have a bit more time to come into tax compliance. In other words, they may not be caught just, just yet.”

The leeway that has been given means that the UAE has a little longer to enforce whatever is needed to subject financial institutions to the IGA agreement.

“If the leeway applies, the 2014 information that would have been reportable under on September 30, 2015, is exchanged by September 30, 2016, together with any information that is reportable under the IGA on September 30, 2016,” said La Torre-Jeker.

“Noncompliant taxpayers can still be caught in other ways, so waiting is not at all wise. They need to become tax compliant as soon as possible.”

In the meantime, financial institutions are already obligated to report the information of US citizens to the local authorities in the UAE, which will eventually report the findings to the US.

“Unless the UAE government modifies the reporting deadline applicable to such financial institutions, they will still have to report information to the relevant UAE government authority regarding US reportable accounts maintained at the institution. I am unable to confirm at the time of this post if any modification has been announced,” writes La Torre Jeker.

“The procedures these institutions should follow to report this information is somewhat unclear, however, I believe the deadline for reporting this information was some time back,” she iterated.

How to be tax compliant?

Every US citizen living abroad must be tax-compliant reporting all income even if this is earned outside the US. Tax information reports must be filed with regard to just about all non-US assets.

If the taxpayer has not been tax compliant, there are options available to get back into the system. Even if the individual has not filed for decades, there may be an opportunity to rectify the problem by taking into account only several years of back filings (even though as a matter of US tax law, if the IRS wished to, it can go back in time to the earliest year possible).

In June 2014 the IRS announced far more practical methods of achieving tax compliance for US persons with regard to their offshore accounts or assets through the Streamlined Programme.

Under certain conditions, among which is the demonstration of non-willfulness for the tax non-compliance, the person must file delinquent or amended tax returns for each of the most recent three years for which the US tax return due date has passed, rather than all years.

This being said, La Torre Jeker warns that non-willfulness may be hard to demonstrate as every person should know by now that he has filing duties.

“Ignoring tax filing duties when one knows of the duty cannot be ‘non-willful’. For some time now, the press has been full of reports concerning the tax filing obligations of Americans abroad and about FATCA.  As time marches on, it strains credulity to say tax noncompliance or failures to report foreign (non-US) accounts was not ‘willful’.”

For more information about the Streamlined Programme, click here: https://www.irs.gov/Individuals/International-Taxpayers/U-S-Taxpayers-Residing-Outside-the-United-States

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