The 2008 financial crisis changed many of the principles that had steered the global economy for years and imposed fiscal policies that could not even have been thought of earlier. The repercussions were many, not just for the economies of a few countries but the global economy as a whole, prompting lawmakers in the West to take on new systems to help get things back on track.
The US, one of the countries to have effected tough resuscitation measures, revised its tax structure to pull in higher collections and turn around the deteriorating financial situation. In an unprecedented move, the US decided to implement the Foreign Account Tax Compliance Act (FATCA) law with effect from January, with the stated aim of having all funds and assets of Americans abroad subjected to taxes and tight control.
The law targets American taxpayers with foreign accounts and assets to pay taxes to their home country even if they pay taxes in countries where they work and live. The law also obliges banks and foreign financial institutions in various countries to provide details about Americans’ funds and accounts, otherwise they will face penalties, as was the case with the Swiss Bank Uzbizas in 2009.
As a result, it seems that the era of the American paradise sought after by millions of migrants is almost over. On the contrary, nearly 4,000 Americans abandoned their US citizenship last year in 2013 to evade paying taxes stipulated in the FATCA law.
There are seven million US expatriates in various countries, including Arab countries, who are still confused on how and what to do about it. Renunciation of their US citizenship is not enough to find a way out of the impasse. This is because everyone must finish the settlement of his dues during the five years prior to renunciation of nationality and they have to sign an acknowledgement stating that they paid their dues during that period.
Foreign banks and financial institutions in which American citizens have accounts, including Arab banks, are facing difficult options, as they must provide comprehensive information about their clients or face penalties that may cost them millions of dollars. This has prompted some banks to refuse to open accounts for Americans or close their current accounts. The new tax has also contributed to deteriorating living conditions for many Americans.
So far, it is not known to what extent this law would contribute to reducing the financial crisis faced by the US, especially as there are negative aspects that will accompany the enforcement of the law.
This will lead to an increase in the number of Americans who will resort to abandoning their citizenship, thus losing highly qualified and experienced US citizens. It will also contribute to a decline in money transfers by the seven million Americans living abroad, particularly as investment in their homeland is still one of their favourite choices. Other countries will try to attract skilled Americans and provide them with the necessary facilities.
Britain has also decided for the first time to impose taxes on non-resident property owners as of April 2015, which is considered an unprecedented move that may downplay the importance of its property market, considered one of the most attractive for foreign investments.
Therefore, it would be important for Gulf banks, financial institutions and investors to be ready for such measures. First, they need to show their full compliance with the FATCA law, violation of which might be very costly.
Second, they must monitor all details of British property taxes, due to be implemented next year, thus requiring GCC banks and investors to reconsider their considerable investments in that property market. Gains generated from these investments can turn costly once the tax comes into effect.
The effects of the crisis are many and complicated despite the improvement in the global economy. However, following up on new procedures and laws and avoiding the consequences from their implementation is extremely important for Gulf investments abroad.
— The author is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.