Abu Dhabi: The UAE, represented by the Ministry of Finance (MoF), has announced the signing of the agreement to facilitate implementation of the Foreign Account Tax Compliance Act (FATCA). Younis Haji Al Khoori, Undersecretary of MoF, and Barbara A. Leaf, the U.S. Ambassador to the UAE, signed the agreement at the Ministry’s premises in Abu Dhabi.
FATCA was enacted by the U.S. Congress in 2010 to target non-compliance by U.S. taxpayers using foreign accounts. The U.S. law requires foreign financial institutions to provide annual reports on account information of customers who are U.S. persons.
Commenting on the FACTA agreement, Younis Haji Al Khoori, Undersecretary of MoF, said, “The country was keen to sign this agreement to protect UAE financial institutions. In the case of non-compliance with the requirements of FATCA, any non-U.S. financial organisation could face a 30 per cent penalty on certain financial returns of its operations in the U.S. market.”
Al Khoori added, “The Ministry will continue to meet all necessary requirements for linking UAE government financial institution systems to the FATCA e-system. The Ministry will also determine the required processes for monitoring reporting by financial institutions.”
Under the intergovernmental agreement, the first report, for 2014, must be submitted to the United States by September 30, 2015. The agreement exempts certain government institutions, sovereign funds and international organisations from the reporting requirements.
As implemented, the U.S. law requires foreign financial institutions to submit reports directly to the U.S. Treasury Department or via the foreign government, providing information about financial accounts held by U.S. persons or by certain foreign companies with one or more U.S. shareholders that own more than 10 per cent of the company.
As per the UAE Cabinet decision No (100/5 and/2) for 2013, which was issued on 14 April 2013, the MoF was chosen to implement the FATCA — Model 1 ‘intergovernmental agreement’ and provide the required information to the U.S. Treasury Department.
Based on this decision, negotiations, as well as legal and technical committees, were established and supervised by a fourth, higher steering committee headed by the Minister of State for Financial Affairs, the Minister of State for Foreign Affairs, and the Governor of the UAE Central Bank. International consultants were also appointed to support the committees’ work, in addition to legal consultants to provide legal support on the agreement.
These committees had an initial clarification meeting with the U.S. Treasury Department in February 2014 and prepared for negotiations by reviewing local laws, as well as studying the expected effects of signing a FATCA agreement. As a result of opening up communication channels with the UAE Central Bank, the Securities and Commodities Authority, the Insurance Authority, and the Dubai International Financial Centre, the steering committees held numerous workshops with stakeholders from the public sector and the banking sector, and worked with financial departments to determine the expected effects of the agreement.
The UAE Central Bank also held workshops and meetings with banks operating within the country; during which banks agreed on the importance of the UAE signing an initial draft agreement. The Securities and Commodities Authority worked to raise awareness on the future impact of the agreement on financial markets, the Dubai Gold & Commodities Exchange, and financial services companies to which the law would apply, to ensure the readiness of these entities to comply with FATCA standards.
After rounds of negotiations held by the Ministry, the Model 1 FATCA agreement was initialed by the UAE and the United States on May 21, 2014, following approval from local governments.
Regulatory entities have stressed the need to adhere to the requirements of FATCA through meetings, guidance on due diligence and developing reports, in addition to monitoring UAE financial institutions’ commitment to comply with these requirements.