A minor provision tucked into legislation designed to help create US jobs could have major tax implications for Americans working abroad - and anyone who invests in US assets. If approved the bill would, in certain circumstances, withhold from overseas investors 30 per cent of the proceeds from the sale of US securities and other investments. The US government would return the 30 per cent once the investor files a tax return to prove the source of funds is legitimate and requisite taxes are paid in full.
"That would be nuts. They are basically saying 'you need to prove to us that you have been paying your taxes'," said Josh Matthews, a managing partner of Maseco Financial in London, which specialises in financial planning for US expatriates. The new law would also strengthen the reporting requirements for non-US banks that serve American customers. Current law requires US citizens living abroad to file a form documenting any accounts that exceed US$10,000 (Dh36,723) at any point during each financial year, but that requirement has largely been ignored, said Vince Truong, a Dubai-based financial adviser who is certified in the US.
By collecting information from overseas banks, however, the US internal revenue service may be able to document once-hidden accounts, exposing the account holders to civil, and possibly criminal, penalties. "Times have changed. They are clearly upping the ante in terms of how much pressure they are going to apply," Mr Truong said. The measure would be likely to affect not only individual investors but also private equity groups and hedge funds operating outside US borders.
Called the Hiring Incentives to Restore Employment (HIRE) Act, the bill was passed by the US House of Representatives last week and will next go to the Senate. But even if it is passed there and signed by the president of the US, Barack Obama, it could still undergo significant revisions before coming into effect. And experts stressed it was not clear how the law would be enforced. The $15 billion bill was primarily designed to create jobs. The tax elements were added during the final stages of negotiations in order to help cover the cost of the incentives being offered to employers.
Dean Rolfe, a tax leader for the Middle East with PriceWaterhouseCoopers in Dubai, said he was "certainly giving our clients a heads-up that this is in the pipeline". Mr Rolfe said the bill appeared to be part of a larger effort by the US government to squeeze tax evaders and offshore havens. "There is the perception that a lot of people may not be paying their fair share of US tax," he said. @Email:breagan@thenational.ae
