In March 2013 United Arab Emirates Central Bank Governor, Sultan bin Nasser Al Suwaidi, announced that the UAE was considering signing an IGA with the United States in order to facilitate compliance with FATCA. He stressed the need for the UAE regulatory authorities to prepare procedures to facilitate FATCA compliance and set clear instructions for financial institutions under their supervision. Very recently, the UAE Central Bank issued Notices to financial institutions in the Emirates that clearly move the FATCA express steadily along its inevitable path of destruction.
While no IGA has yet been signed, all indications are that this may happen pretty soon. The Model that would be implemented with the UAE would apparently be a so-called “Model 1B IGA” – which is “nonreciprocal”. This means that only the UAE would provide information to the US Internal Revenue Service (IRS) about US clients of UAE financial institutions; the US IRS will not provide information to the UAE about UAE clients of US financial institutions. This makes sense, as the UAE does not impose an income tax and, as such, would not be concerned about any kind of tax evasion. As a technical matter, until an IGA is implemented, UAE FFIs / NFFEs must comply with the FATCA Treasury Regulations and various IRS notices that have clarified and implemented the Regulations. However, at the rate things seem to be moving based on the Central Bank Notice, it looks like a signing might not be too far off.
Various mandates were announced by the UAE Central Bank Notice on November 19 in Notice No. 321/2013. Under these mandates, financial institutions such as banks, finance companies and investment companies must take certain actions by certain dates, as below:
By November 19, 2013
• Identify client accounts that have “US indicia”
By January 1, 2014
• Adopt due diligence procedures in line with Model 1B IGA for pre-existing clients and new clients
By March 1, 2014
• Prepare to connect to the FATCA reporting system as developed by the Central Bank
By November 1, 2014
• Register with the IRS for FATCA purposes (obtain GIIN / get on IRS FFI list)
By 1 August 2015
• First report to be submitted to UAE Central Bank to be shared with IRS based on calendar year 2014 account information
The Central Bank issued a later Notice No. 374/2013 on Dec 31, 2013 advising financial institutions to complete a survey detailing their FATCA readiness. It will be evaluated by Patton Boggs and Deloitte Touche. The deadline for completion of the survey was today, January 23, 2014.
What Should You Do Now If You Have Unreported Income or Assets?
It is clear that the full force of FATCA will soon be upon us in the UAE. Any US person having undeclared foreign financial assets or accounts must take action before it is too late. Those who are still ‘hiding’ will eventually be caught out. By then, it will be too late to enter the IRS Offshore Voluntary Disclosure Program (OVDP). If you are not in compliance and have unreported income or assets, you must act now. The best advice is to consult a US tax attorney and obtain a full understanding of the possible civil and/or criminal implications you are facing. Learn about the latest OVDP and other options that you can consider. With the attorney examine the possible penalties and risks under each option.
If you think you are safe simply because you closed out your foreign account – think again. Looking at the recent Department of Justice Non-Prosecution Program for Swiss Banks, it is likely that the program will serve as a template for banks in many other countries. Under that Program, Banks are required to “look back” to US-related accounts that existed on August 1, 2008 and turn over the details to the US Government. This means that merely having closed out the account won’t help. In fact, closing out the account can serve as evidence against you for possible criminal intent.
The Importance of Attorney-Client Privilege
Only by consulting an attorney can the information and documentation you reveal be given protection from disclosure to the US tax authorities pursuant to the attorney-client privilege. Accountants and financial advisors do not have this privilege. If your matter must be worked on with such third parties, it is best if your attorney works under a so-called Kovel agreement which generally tries to extend the attorney-client privilege to information revealed to these persons. Get the best help you can – and get it fast.
In accordance with Circular 230 Disclosure
Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.
Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.
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