Your bank will send US transactions info to US tax authorities from July 1
All financial institutions in the UAE must comply with the agreement signed with the US
Financial institutions in the UAE will start sharing extensive data of account holders with a US nationality from July 1st with the Internal Revenue Services (IRS), or the American tax collecting authority.
On May 23rd the UAE Central Bank has officially signed the agreement stating that all Foreign Financial Institutions (FFI) in the UAE will answer to the request of the Foreign Account Tax Compliance Act (FATCA) to share information about any account, assets, or transactions that are linked to the US with the IRS.
According to the list that counts all foreign institutions that have complied with the agreement, there are at this point 136 institutions that will share the data, with names such as National Health Insurance Company Daman, State Bank of India and Union National Bank included.
“The UAE had already consented to being included on this list of participating countries, but they have now signed the agreement. This means that from July 1st, all financial institutions in the UAE must comply with the act or they will be subjected to a 30 per cent tax withdrawal,” explained Virginia La Torre-Jeker, a Dubai-based American tax specialist.
In her latest blog post See if your bank is FATCA-compliant (blogs.angloinfo.com/us-tax/2014/06/03/see-if-your-bank-is-fatca-compliant) she refers to the Search and Download Tool (http://apps.irs.gov/app/fatcaFfiList/flu.jsf), where individuals can look up whether their financial institution is on the list.
“You can search by country or by name of the institution, she explains. “When it says branch, it refers to a foreign branch located in the UAE.”
What will the FFI’s do?
According to the Model 1 IGA agreement that was signed by the Central Bank, the institutions will send information directly to the UAE government, which will send it on to the IRS.
As per July 1st, all pre-existing accounts will have to be identified with basic information such as the name, social security number/TIN, address, account number, current value etc.
Apart from reporting the accounts that the FFI know as being linked to US individuals, the FFI has also had to do a manual search of all their files where the account has a value of $1,000,000 or more to check if there are links to the US.
What does this mean for the account holder?
Every US citizen living abroad has always been tax-compliant over all income and assets possessed, even if this is earned outside the US.
The FATCA act, however, has provided the IRS with the improved tools to monitor financial transactions of its citizens abroad.
“FATCA and the so-called “FBAR” (now re-named FinCen Form 114) are inextricably linked, since the information supplied by FFIs can be cross-checked against the FBAR (as well as against general income tax forms such as your Form 1040 and Form 8938, for example),” writes Virgina.
Before June 30th this year, US citizens must have reported their tax liabilities of the tax year 2013. For US citizens with overseas accounts or assets the two mentioned forms are specifically important. “If these forms do not include the same information as the information provided by the FFI this is a big problem,” said Virginia.
A new FFI-client relationship
As FFI are under pressure to comply with the new rules, this has already resulted in a new approach from FFI towards their clients, elaborated Virginia.
“We already see that clients are asked a lot of questions.” Be it a new client or existing account holder, the FFI will go at lengths to guarantee there are no hidden links between the individual and the US, she explains. “When a person opens a bank account with a Lebanese passport, the bank may ask him whether he has an American passport as well.”
As the July 1 deadline indicates the start of the information sharing process, the annual reporting will be phased in from March 2015 (with respect to information related to the 2014 calendar year), with reporting of the full scope of FATCA information required no later than March, 2017.