UAE signs FATCA Agreement with USA

The United Arab Emirates (UAE) signed the United States of America (USA) Foreign Account Tax Compliance Act (FATCA). This means that the UAE has agreed to share information regarding the finances of USA citizens based in the UAE.

The FACTA was initially passed by the USA congress in 2010. The purpose the FACTA was introduced was to eliminate USA tax evasion by USA tax players who held bank accounts in foreign countries. According to the FACTA, foreign financial institutions must present account information of US citizens on an annual basis. If a financial organization fails to do so, it will be subject to a penalty.

The USA FACTA obliges foreign financial organizations to reveal and submit information concerning the accounts of USA taxpayers to the US tax authorities. Financial institutions, which choose not to comply with the FACTA, are subject to a 30% penalty (withholding on USA derived income). In accordance to the agreement made between the UAE and the USA, financial institutions will provide US account information to the Ministry of Finance in the UAE, which in turn will submit to the USA tax authorities. This procedure will allow the financial institutions in the UAE to provide account information and comply with the FACTA agreement having to breach the UAE or Dubai International Financial Centre (DIFC) policies regarding their customers’ confidentiality.

Along with the UAE, other countries such as Qatar and Kuwait have agreed to the FACTA. Similarly, Bahrain and Saudi Arabia are at the final stages of negotiations concerning the FACTA.

USA citizens who hold financial accounts at UAE-based financial institutions who pay their taxes will not be influenced by the FACTA, as they abide the tax legislation of their country. However, there are people who hold a dual citizenship and do not know they are required to fulfill their USA tax obligations. The entire world is eagerly waiting to witness the developments of FACTA, which will in effect provide the automatic exchange of information concerning taxpayers in more than 60 countries internationally.

The UAE was eager to sign the FACTA agreement in order to guard the UAE-based financial institutions. Foreign financial institutions that do not comply with the FACTA will be subject to a 30% penalty on particular returns of its activities in the USA market.

The UAE Ministry of Finance will carry on linking UAE state financial institution systems with the FACTA system in accordance to the requirements set by the FACTA agreement. The UAE Ministry of Finance will also introduce a process to monitor the reports provided by UAE-based financial institutions.

The FACTA is gradually being introduced internationally. The purpose is to minimize USA citizens’ tax evasion. By signing the agreement, the UAE commits in disclosing and complying with the FACTA agreement but also strengthen its relations with the USA.

The UAE is called to submit its first report by the end of September 2015. Particular state institutions, international organizations as well as sovereign funds are not subject to comply with the FACTA.

The FACTA agreement was also signed by Singapore in December 2014. Additionally, the Organization for Economic Co-operation and Development (OECD) and Multilateral Competent Authority Agreement (MCAA), both concerning the exchange of tax information, were signed by an additional seven countries. countries such as, New Zealand, Australia, Chile, Canada, Indonesia, India and Costa Rica along with 54 other countries have agreed to exchange information as prescribed by the OECD/G20 policy, that is part of the Standard for Automatic Exchange of Financial Information in Tax Matters.