November 3, 2014
Banking sources in Kuwait said that 28 Kuwaitis with dual nationalities have informed the competent authorities they wanted to renounce their US citizenship.
The move was attributed to their wish to avoid paying taxes as required by the Foreign Account Tax Compliance Act (FATCA) that targets tax non-compliance by US citizens with foreign accounts.
The act that was passed as law in March 2010 and came into effect in July this year forces the world’s banks to report information to the US Internal Revenue Service (IRS) about their customers who hold US citizenship or a green card in order to ensure they file tax returns.
The law, initially intended to track and catch money launderers, is now affecting all US citizens and green card holders, including Kuwaitis who have the US citizenship even though they do not have any business in the US or do not earn money from a US company.
While Kuwait and the other five member countries of the Gulf Cooperation Council (GCC) — Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates — are tax free and citizens do not pay any taxes, US citizens are required to file tax returns annually.
The sources cited by a local daily on Monday said that the Kuwaitis who wanted to renounce their US citizenship were concerned about the taxes they would have to pay to the US Treasury even though they worked on Kuwaiti government projects in Kuwait.
According to the sources, banks in Kuwait have started to refuse requests by Kuwaitis who also hold the US citizenship to open accounts amid concerns they would wade into serious financial problems with the US as their non-compliance with FATCA would incur a 30 per cent withholding penalty on their US investments.
According to Dr John P Hayes who teaches marketing at Gulf University for Science and Technology (GUST), at least one bank in Kuwait with major ties to the US has reportedly hired 600 people to comply with FATCA at a cost in the range of $100 million (Dh367 million).
“When it comes to collecting his money, Uncle Sam is ferocious. If you have not filed your US income tax returns, you may want to comply starting with the coming tax season. Do not think your bank is going to protect you because the penalties are too severe for the banks to risk the loss,” he advised in a column published by a local daily in December.
My Kuwaiti friends with dual nationality (or where their spouse has dual nationality) have been asking me about this; especially where it concerns inheritance. If you are a US citizen and you inherit money from say a very rich Kuwaiti relative, the US Government is going to ask you to pay inheritance tax (also known as "estate tax" or "death tax"). You are PHUCKED. Better consider it carefully.