HSBC sent a circular to clients on Thursday alerting them to the new measures that are being ordered by the Organisation for Economic Co-Operation and Development (OECD), a 35-member grouping of mostly European nations. The measures will make it more difficult for people to avoid paying taxes and will start taking effect next month.
“These local laws will mean that from the beginning of January 2017, governments will start requiring all banks and other financial institutions to ask customers for information with a view to determining where they are resident for tax purposes,” HSBC said. “Therefore, from the beginning of 2017 onwards, we will be contacting some of our customers to collect information related to their tax status.”
The move follows the United States push in the past couple of years to collect money from its citizens abroad. Unlike most countries, the US requires that its citizens pay tax above a certain salary threshold even if they live abroad. And banks across the Middle East have been helping Washington with the implementation of the US Foreign Account Tax Compliance Act (FATCA) for individuals subject to these tax laws.
The UAE is a big hub for private banks catering to wealthy clients, many of whom are able to store assets in offshore accounts around the world such as Jersey, Switzerland, and Hong Kong, as well as in the UAE. In recent years however, governments have been tackling some of the world’s biggest private banks such as UBS and imposing hefty fines on them for failing to disclose account information to governments chasing tax evaders.
The issue is urgent here because the UAE is among the fastest growing bastions of private wealth among Arabian nations. Private wealth in the UAE has grown at the fastest pace among the Gulf states in recent years, according to a recent study.
While wealth in the region grew at an average of 17.5 per cent a year from 2010 to 2014, doubling to $2.2 trillion from $1.1 trillion, the UAE’s wealth increased at an annual growth rate of 25 per cent.
Although new levels of disclosure are making total anonymity increasingly difficult, UAE-based financial advisors say that the vast majority of citizens and subjects of OECD nations have little to worry about as expats from most of these countries have few if any tax obligations while working abroad. Instead, the measures are being rolled out in order that banks may help governments locate willful offenders. “It’s very important to make sure people don’t evade taxes,” said Sam Instone, the Dubai-based chief executive of AES International, a firm that offers fee-based advice. But equally, he observed: “It is important to make sure that tax systems work so that services in those countries function well in terms of the educational and health systems.”
This article by Mahmoud Kassem originally appeared in The National