In a region famous for its oil and the perception of widespread
tax-free living, international tax agreements have generally
made little difference to those in the Middle East. However,
times are changing.
The effects of Foreign Account Tax Compliance Act (FATCA)
and soon, the Common Reporting Standard (CRS), championed by
the Global Forum on Transparency and Exchange of Information
for Tax Purposes, will mean much more cross-border information
Following satisfactory Phase I peer reviews of their legal
and regulatory frameworks for transparency and exchange of
information, three Arab countries (United Arab Emirates,
Kingdom of Saudi Arabia and Qatar) have indicated their
intention to form part of the second wave of 'early adopters'
of CRS. The consequence of this is that financial accounts
(broadly defined) in existence in these three countries from
January 1 2017 will be subject to automatic reporting, in 2018,
to the beneficial owner's jurisdiction of residence.
Additionally, Qatar and Bahrain have already been reviewed
in the second peer review phase and were rated as "largely
compliant". Bahrain is, however, yet to determine its timetable
for adopting the automatic exchange system.
Although it is not a member of the Global Forum, Lebanon has
also been subjected to a Phase 1 Peer Review by the Global
Forum 'because of advertising itself as a developing financial
centre'. However, this jurisdiction has not yet been cleared to
progress to Phase 2.
In this region, wealth planning, structuring, or the use of
trusts and foundations is usually motivated not by tax
considerations, but genuine commerciality, confidentiality
concerns or succession planning. The bulk of the wealth appears
to be concentrated in the hands of a small number of family
groups and it is not unusual to see investments being made
across borders. Historically, there has been no widespread
local requirement to report financial information to a
regulatory body and so there will undoubtedly be some initial
resistance for the reasons outlined above.
Because of the geopolitical environment in the region now
and in the past (as well as the climate), dual nationality or
long term visitors' visas are not uncommon. While facilitating
travel, such documents can also expose the holder to taxation
in the other jurisdiction, something which is commonly
overlooked. Awareness of the worldwide basis of US taxation is
increasing in the wake of FATCA, and many individuals are
regularising their position. The impact of CRS will, however,
have a much broader reach.
For those who are tax resident in a jurisdiction with
personal taxation, and who also have assets in the Middle East,
there remains only a short window of opportunity to regularise
one's situation, whereas fully compliant individuals may wish
to consider the impact of the loss of confidentiality on the
structuring of their affairs.
Fiona McClafferty (firstname.lastname@example.org)
Tel: +971 (0)4 506 4841
Fax: +971 (0) 4 327 3637