US to access Americans’ GCC finances

The United States Internal Revenue Service is inching toward implementing a tax law targeting US taxpayers holding unreported foreign financial assets. The law will have a far-reaching impact on American expatriates who have accounts with financial institutions in the GCC.
The Foreign Account Tax Compliance Act (FATCA), signed into law by President Barack Obama in 2010 and which becomes effective on July 1, 2014, is intended to find US citizens avoiding their tax obligations by requiring foreign financial institutions to report their bank details.
Saudi Arabia has already signed agreements with accounting firms Ernst & Young, Pricewater-houseCoopers and KBMG to participate in the implementation.
The law requires that foreign financial institutions report the name, address, account number and financial activity of US taxpayers who have assets exceeding $50,000 to the IRS. Foreign banks and other financial institutions that do not sign the agreement will have a 30 percent tax withheld on US-source income deposited in their accounts.
US expats earning income from foreign employers and living at least 330 days out of the year in a foreign country already pay income taxes, although some exemptions apply. However, FATCA requires all foreign financial institutions to provide full financial details of any foreign-employed American living abroad to the IRS.
There have been unintended consequences for some expats.
Adnan Yousef, a member of the Union of Arab Banks, told the Arabic-language daily newspaper Al-Eqtisadiah that at least one Gulf bank terminated the accounts of two Americans. The details of the account closures were not provided. However, some foreign financial institutions — identified as banks, insurance companies, brokerage firms, trust companies, mutual fund companies and retirement plan administrators under the new law — rather close Americans’ accounts than provide customer data because of the costs incurred to comply with the regulations.
One American expatriate civil engineer living in Jeddah said he was denied an account at Saudi financial institution. “They said it was too much trouble to open an account because my government had too many regulations and demands,” said the engineer who asked not to be identified.
Yet most GCC banks are ready to comply with the IRS regulations.
Yousef said he expects the UAE will be the chief source of tax collections due to the large number of Americans earning high wages. Saudi Arabia has the second highest number of earners followed by Bahrain and Kuwait, he said.
In all, an estimated SR1 billion could be collected as taxes from American expats, he said.
“Gulf banks will apply the new law to subject the accounts of US citizens to gradual tax detection to make sure US citizens do not evade any taxes on his income in any state,” Yousef told Al-Eqtisadiah.
A US expat in the aviation industry said he is not worried about the new law. “I already report my income and I have nothing to worry about,” he said on the condition of anonymity. “The ones who should worry are the guys who are investing a lot of money in Saudi Arabia, using offshore accounts to keep their money, and not reporting it as income.”
Meanwhile, the Saudi Arabian Monetary Agency advised the Kingdom’s financial institutions to prepare to implement the new regulations.