Foreign Account Tax Compliance Act Update: Implementation Concerns in the Gulf Cooperation Council

Analysis

As GCC governments discuss how best to implement FATCA, financial institutions in those countries and the wider Middle East region have yet to decide their own implementation procedures. The Arab Banks Union has also written to the US's Internal Revenue Service.

Background

FATCA requires Foreign Financial Institutions to carry out procedures to identify and report US persons investing in non-US accounts and entities.

FATCA requires participating financial institutions apply a 30% withholding tax rate on US source income and gross proceeds from disposal of interest bearing assets and US securities when those payments are made to non-complying account holders or FFI's.

Concerns

On 26 September 2012, the Arab Banks Union wrote to the US's Internal Revenue Service expressing concerns about implementing FATCA in the region.

These concerns included:

• how expensive it might be to reform investment processes, new systems and staff training given the relatively small number of US customers in the region;

• how FATCA will apply to banks with branches in jurisdictions under US sanctions such as Iran and Syria;

• whether Union members with civil IDs would be considered US citizens;