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 exchange.
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.
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