Kuwaiti financial companies are growing restless. A report carried by the Arab Times reports that Kuwait’s Union of Investment Companies has been pressing government authorities for guidance on FATCA; the Foreign Account Tax Compliance Act.
FATCA was part of the Obama administration’s HIRE Act. It’s purpose is to make foreign financial institutions the eyes and ears of the IRS. Under the law, foreign banks and other financial firms must examine their customer base and report accounts owned or controlled by U.S. taxpayers. Institutions that fail to comply could be subject to mandatory withholding and international pressure.
Several Arab nations are already in negotiation with the IRS to comply with FATCA. Although delayed twice, the law is scheduled to be implemented in 2014. Bahrain, the UAE and Jordan are already negotiating for a bilateral agreement with the IRS. Kuwait, however, has not yet made any decisions.
The Kuwaiti Union of Investment Companies has asked the Central Bank of Kuwait and the Kuwait Stock Exchange for guidance. Last year the Central Bank of Kuwait told banks that Kuwaiti law does not allow disclosure of account information to third parties. That presumably includes the IRS. Instead the central bank authorities told financial institutions to include waivers from clients. Unfortunately, banks and other financial institutions say they still have more questions than answers.
Without answers, there is concern that Kuwaiti banks might simply begin closing accounts if there is even a suspicion that an account may have ties to the United States. Worse, many international banks may refuse to do business with banks that are not FATCA compliant.
FATCA has caused a great deal of consternation among the international financial community. While many countries are deep in negotiations with the IRS, there are still countries that either have not taken action or refuse to comply. As more nations sign up (or in the case of Europe, pass their own FATCA laws), the risks for non-compliant nations is increasing.
Our bet is that the U.S., bolstered by its European allies, will prevail. Not all agree with me. And that uncertainty has caused many taxpayers to sit on the fence.
This post focuses on the FATCA compliance by banks. The failure by American taxpayers (that includes dual nationals and resident aliens) to comply carries enormous risks. Foreign accounts must be reported on Report of Foreign Bank and Financial Accounts (FBAR) and often on a FATCA form (IRS form 8938). Failure to file an FBAR can result in a civil penalty of up to the greater of $100,000 or 50% of the highest historical account balance.
The IRS is offering an amnesty and other initiatives to encourage compliance. Most of those programs are only available if the taxpayer comes forward first. That means noncompliant taxpayers who are sitting on the fence are engaging in a very costly game of Russian Roulette.
If you are a foreign financial institution and have questions about the law, give us a call. We are happy to help banks, hedge funds, brokerage firms and insurance companies FATCA compliance.
Are you an individual with an unreported Kuwaiti or other offshore account? Find an experienced FATCA lawyer immediately. We can help. Our team of IRS attorneys have helped taxpayers across the world with FATCA and FBAR problems. We usually offer flat fees for our services. Because we handle many of these cases, we can offer our services for less cost than many other tax lawyers.
Post by Brian Mahany, Esq.