Dubai: Americans in the UAE must lose no time in filing their tax returns as overseas taxpayers are being assiduously tracked down to ensure compliance, tax consultants have warned.
“Make no mistake about it – the IRS (Internal Revenue Service) is looking hard at Americans living and working abroad. It is tracking down overseas taxpayers who have not been paying their fair share,” said Virginia La Torre Jeker, qualified US tax attorney with the Dubai-based Far East Management Consultants.
The US tax filing season began on January 1 and the returns are due by April 15, with a two-month extension for Americans living abroad, she said.
Vince Truong, US-certified Financial Planner with Holborn Assets in Dubai, said non-compliance has far-reaching consequences depending on the individual situation. “In the case of not filing the FBAR (or Foreign Banks and Financial Accounts form), the IRS has initiated the Offshore Voluntary Disclosure Program (Initiative) which allows taxpayers with foreign accounts to voluntarily “come clean”. This allows the IRS a uniform penalty structure and processing protocol. For instance, there is a streamlined filing procedure for those cases considered a low compliance risk; such persons likely will not face penalties.
“But those who don’t qualify for streamlined processing but are non-willful might still pay up to $10,000. Willful violators could face fines of $100,000 or 50 per cent of the total balance of the foreign account, whichever is greater. Those who intentionally evade can also face criminal prosecution.
“When times were good, they weren’t looking so hard; now they are. What has changed recently is that they now have the legal means to enforce compliance,” he added.
Jeker said the IRS is tracking down Americans in several ways: the John Doe Summons which directs a foreign financial institution to produce records of US persons having active or closed accounts; stolen bank data; whistleblower rewards, tax information agreements and the Foreign Account Tax Compliance Act (FATCA) which makes hiding foreign assets very difficult.
As Truong explained, “FATCA requires foreign banks to report their US accountholders and if the banks do not comply, there would be 30 per cent withholding on income from US financial assets. Now how might this affect a small local bank with no direct business in the US? Why would they be bothered to comply? Because they still have to route money through US clearing banks in New York and failure to comply could result in the loss of the right to route those funds.”
The tax consultants said failure to comply by US citizens and green card holders in the UAE is not uncommon. Over 40,000 American citizens are estimated to be residing in the country.
According to Jeker, there are taxpayers who deliberately evade tax by “hiding” assets in non-US financial accounts and properties or by not reporting their income truthfully.
