The Foreign Account Tax Compliance Act (FATCA) has taken four years to get out of the starting blocks, but as the financial world counts down to compliance in a few weeks, some nations are shockingly unprepared.
FATCA was passed in 2010, and has been on the back burner for what seems an age, but foreign financial institutions must start reporting information about the US customers with accounts with balances of more than $50,000 from July 1, 2014.
The Internal Revenue Service (IRS) wants to know just what cash and investments US taxpayers have offshore and wants to compare the information transmitted from foreign financial institutions with tax returns to make sure Americans are paying their dues.
Around 50 or so nations are white-listed as FATCA compliant by the US government and many more are rushing to beat the May 5, 2014 deadline for signing up to the tax network.
Financial institutions in countries without a FATCA treaty can enlist online and report direct to the IRS.
Poor state of readiness
Those that don’t toe the line face financial sanctions from the US Treasury.
The Middle East and North Africa is one region with a poor state of readiness for FATCA.
Most of the Gulf Co-operation Council states – Saudi Arabia, the United Arab Emirates, Qatar and Bahrain – are due to sign tax information sharing treaties with the US. Oman and Kuwait are not.
So far, only Qatar is listed as wholly FATCA compliant.
In the MENA region, Egyptian, Iraqi and Lebanese financial institutions are registering individually.
Tunisia and Libya are in two minds – considering a tax treaty but coming close to the deadline.
Algerian financial institutions are waiting for government guidance
Cost of implementing FATCA
War-torn Syria is negotiating a FATCA agreement with the US Treasury, according to local sources.
“The legal details and cost are two major factors affecting how financial institutions regard FATCA,” said Camille Barkho, chief compliance officer at Lebanon and Gulf Bank.
“I sit in meetings about FATCA where some people are asking questions about the law that Lebanon sorted out two years ago. They clearly have some way to go.”
She pointed out that the FATCA guidance and rules runs to around 1,000 pages and financial institutions have to read and consider a lot of changes to implement the law.
“I doubt if many smaller financial institutions will be ready by July 1 from what I hear,” she said.
The cost of implementing FATCA is also an issue. Barkho reckons the figures range from $25,000 for a small organisation up to more than $1 million for large financial institutions. The average is between $100,000 and $500,000.
