x Abu Dhabi, UAEWednesday 24 January 2018

Law boosts scrutiny of foreign investments in US

Barack Obama, the US president, has signed into law a bill that boosts scrutiny of foreign investments in the US.

Barack Obama, the US president, has signed into law a bill that could have a major impact on anyone who wants to invest in US assets from overseas. The measure, designed to crack down on offshore tax havens, seems likely to affect not only individual investors but also hedge funds and private equity groups. It requires non-US financial institutions that have Americans as clients or investors to report information about them to the US internal revenue service (IRS). If they do not, the IRS can withhold 30 per cent of the proceeds from the sale of any US asset payable to the institution.

For American expatriates, this signifies much closer scrutiny of their offshore income. And in some cases, it means they may need to first prove to the IRS that they are fully reporting their overseas income before they can collect the proceeds from their US investments. The full impact of the legislation is not clear, as it could be months before the IRS releases guidelines on exactly how the measure will be enforced. However, financial professionals in the region said the bill appeared to significantly increase the cost and hassle of investing in US assets.

"The people I've spoken to think it's a real disaster," said one Dubai financial adviser who works with American clients. Other investment professionals in the region said yesterday they were not yet aware of the legislation or could not yet comment on its potential impact. The provision was a little-noticed component of the Hiring Incentives to Restore Employment (HIRE) Act, a US$17.5 billion (Dh64.27bn) effort to create more jobs through tax incentives. The clampdown on overseas investors was added towards the end of the legislative debate as a means of collecting additional revenue to offset the tax cuts.

It is the latest element of a renewed emphasis by the US government on collecting taxes from Americans living and investing overseas. In his presidential campaign, Mr Obama frequently criticised "offshore tax havens", and the IRS last year toughened the reporting requirements for foreign account holders. To avoid the scrutiny and increased paperwork, some European investment brokers are increasingly turning away American clients, says Josh Matthews, a managing partner with Maseco Financial in London, which offers financial planning for American expatriates.

In a statement posted on its website, Withers, a global law firm that advises wealthy clients about investing and philanthropy, wrote that the legislation would "dramatically affect non-US financial institutions, funds and collective investment structures as well as many trustees and family offices investing through these entities". breagan@thenational.ae