Thousands of Gulf States nationals could be US tax evaders and not even know it. According to Italian-Swiss lawyer Giovanni Rossi who works for a law firm handling many of similar cases, the number could reach a few hundreds of thousands.
“Actually, I do not think that this is “a problem” legally speaking but, in my opinion, this is indeed a phenomenon of certain relevance especially here in the Middle East,” he said. Under US law, tax evasion is a felony that could land a person in jail.
Those who were born on American soil and those who were born to an American parent are American nationals even if they don’t have passports, Rossi stressed. According to the US’ Internal Revenue Service (IRS), American citizens or resident aliens of the US who are living abroad must pay tax on any income over $99,200 (Dh364,064) per year.
“Although I am not aware of official statistics or official numbers, it is reasonable to assume that this phenomenon is quite widespread in the Middle East as, for example, there are more than 200,000 Saudis who have the potential to have US citizenship,” Rossi told Gulf News in an interview in his office in Dubai.His firm has dealt, so far, with mainly Saudi and Kuwaiti clients.
While no estimates are available for dual UAE and US citizens, Rossi said “informally, I am aware of the significance of this phenomenon here too.”
“Many people think that if they have a US passport they automatically have the US nationality but actually the two things are not related … let us not forget that a passport is purely a travel document which does not prove that you are a national of a certain country.”
“You could still be an American national even without having an American passport, because you maybe never asked for it, because you didn’t need it, because you were using your other country’s passport.”
The issue of dual nationality of many Gulf nationals has surfaced recently with the introduction of the US law, namely FATCA (Foreign Account Tax Compliance Act). The law was passed in 2010 but it is still being implemented around the world. It basically obliges any bank worldwide, including banks in Europe and the Gulf region, “when opening an account dealing with US dollars for any individual or company to provide information to the American authorities to ensure that if there are American interests involved with such bank account they should be taxed,” Rossi said.
Complying with US tax laws simply means submitting necessary papers and paying the necessary taxes; however, given the relatively high exemption level ($99,200 in this tax year) many citizens simply need to show that their income is below the exception cap.
Last November, Kuwaiti Arabic-language newspaper Al Shahed reported that 28 Kuwaitis with dual nationalities have informed the competent authorities they wanted to renounce their US citizenship — a move that was linked with their wish to avoid paying taxes according to FATCA. However, lawyer Rossi explained that people who wish to renounce their US citizenship need to settle outstanding taxes for a certain number of previous years first.
“Most likely, many Middle Eastern people know that they are Americans, but in good faith they are not aware of the fact that they have to pay taxes in the USA given that most of their assets are in the UAE [or] Saudi [or] Kuwait … etc and because they are working here and their families are here, they don’t see why they should pay taxes in the USA,” Rossi explained.
The IRS, which is the tax authority in the US, “when giving penalties does take into consideration if you have acted in good or in bad faith in case you have not made the necessary declaration for over 6 years, etc. But you have to prove your good faith,” he added. Rules of taxes on income and property are generally the same whether US citizens are inside the US or outside it, Rossi explained.
However, if people pay their due taxes, and later decide to relinquish their American nationality; this doesn’t solve their problem for ever. Anyone who renounces their American nationality will not be allowed to enter their former homeland, as was the case with entrepreneur Roger Ver, who was denied several non-immigrant visas to the US after he renounced his American citizenship last year because he didn’t want to pay taxes.
Press reports quoted a letter by the American embassy in Barbados, as saying Ver was rejected because: “one of the most common elements within the various non-immigrant visa requirements is for the applicant to demonstrate that they have a residence in a foreign country which they have no intention of abandoning ... You [Ver] have not demonstrated that you have the ties that will compel you to return to your home country after your travel to the United States.
However, under American immigration law, article 8 U.S.C. 1182, any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is inadmissible”.
So far, Rossi’s law firm in both Switzerland and Dubai has managed to settle some 40 cases over the past 6 years for Gulf-US dual nationals. There are some 60 cases in process. Among the 100 cases, there are five of dual Emirati-US nationals.
Apart from paying taxes, many countries including the US and Gulf States don’t allow double nationality, and in such a case it is “easier” to renounce the American rather the gulf nationality, Rossi added. “They should start worrying,” said a Gulf woman of her two children with American nationality after she gave them birth while studying in the US. “It is their problem,” added the woman, who asked not to be named because it is not allowed to have dual nationality,
The Gulf woman explained that her children need to read the American regulations carefully and check their income. However, she doubted that her children, who are working in their Gulf country, are making the maximum for exclusions.