UAE discusses new US tax act

UAE Central Bank held a seminar to discuss the procedures to facilitate the new US Foreign Accounts Tax Compliance Act (Fatca), to which banks and other financial Institutions in the UAE were invited.

Discussed during the seminar was the signing of an agreement with the government of the US for Fatca Compliance. If such agreement is reached, this would mean that regulatory authorities in the UAE will set out procedures, which financial institutions will have to follow.

Fatca is a US government measure introduced in 2010, aiming to tackle tax evasion. Other than the voluntary commitment of US residents to report income on foreign accounts to the Internal Revenue Services (IRS), it forces Foreign Financial Institutions to report details of such accounts to the IRS.

Sultan Bin Nasser Al Suwaidi, Governor of UAE Central Bank, stressed in the opening remarks of the seminar on the need for the regulatory authorities in UAE to formulate procedures to facilitate compliance with the US FATCA and set clear instructions for financial institutions under their supervision, in line with the requirements of the above law.

When institutions fail to report or disclose the information, the consequences can be grave, one of the penalties being the withdrawal of US Dollar clearing rights in New York, a penalty feared by banks.

It has been reported by this website that some banks are considering ceasing banking with US residents, due to the additional responsibilities the bank will have in such a case.

“While we await further clarification from the IRS regarding reporting requirements, it appears on the face, that these will be onerous and will involve substantial costs for [the] bank in terms of people, process and systems," was written in a letter sent out to US customers by one bank in the UAE.

Other banks have publicly committed to the Act, and taken the necessary steps to comply with the new responsibilities.

Although the Act was introduced in 2010, practical implementation has been postponed. Several countries have signed intergovernmental agreements with the US so far, and GCC countries have been in the process of considering the options since January this year.

Experts speaking at the seminar recommended signing a Model 1 IGA with the US government, which they considered to be the best available option to deal with the law.

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