FATCA was introduced by the US Congress in 2010 to target non-compliance by US taxpayers using foreign accounts. It requires foreign financial institutions to provide annual reports on account information of customers who are US citizens and includes penalties for institutions that do not comply.
FATCA requires foreign financial institutions to report information about accounts held by US taxpayers direct to the US tax authorities or face a possible 30% withholding on US based income. Under the agreement signed by the UAE, financial institutions will supply the information to the UAE Ministry of Finance, which will then pass the information on to the US. This will enable UAE based financial institutions to supply the information without breaching UAE or Dubai International Financial Centre (DIFC) requirements in relation to customer confidentiality.
Similar agreements have now been signed by the UAE, Kuwait and Qatar. Final drafts have also been initialed by Saudi Arabia and Bahrain.
Middle East tax expert Ian Anderson of Pinsent Masons, the law firm behind Out-Law.com, said: "The UAE has followed Qatar’s lead by signing the FATCA agreement with the US. Whilst this should not impact US citizens who are tax compliant there are a number of individuals who have dual citizenship and are unaware of their US filing requirements. Everyone is however watching the developments with the common reporting standard which will extend automatic exchange of information provisions to tax residents of over 60 countries around the world”
Younis Haji Al Khoori, undersecretary at the UAE Ministry of Finance, said: "The country was keen to sign this agreement to protect UAE financial institutions. In the case of non-compliance with the requirements of FATCA, any non-US financial organisation could face a 30% penalty on certain financial returns of its operations in the US market."
"The Ministry will continue to meet all necessary requirements for linking UAE government financial institution systems to the FATCA e-system. The Ministry will also determine the required processes for monitoring reporting by financial institutions," he said.
Barbara Leaf, US ambassador to the UAE, said: FATCA is becoming the global standard in the effort to curtail tax evasion. This agreement reflects the UAE's commitment to the adoption of best practices as well as the growing strength and breadth of our bilateral relationship."
The UAE's first report, for 2014, must be submitted to the US by September 30, 2015. The agreement exempts certain government institutions, sovereign funds and international organisations from the reporting requirements.
Singapore signed a FATCA agreement with the US in December.
Earlier this month seven new countries signed up to the Organisation for Economic Co-operation and Development (OECD) Multilateral Competent Authority Agreement (MCAA) on automatically sharing tax information.
Australia, Canada, Chile, Costa Rica, India, Indonesia and New Zealand have joined 54 other jurisdictions in signing up to the agreement to exchange information under the OECD/G20 standard, which is based on the Standard for Automatic Exchange of Financial Information in Tax Matters.