Banks operating in Rwanda have started enforcing the US Foreign Accounts Tax Compliance Act (FATCA) requirements, which seek to track off-shore American tax evaders, Ngagi Kabarega, the head of compliance and internal control at I&M Bank, has said.
I&M Bank is the current chair of the Rwanda Bankers’ Association.
Passed in 2010 by the US Congress, FATCA seeks to tap over $100 billion (Rwf69.1 trillion) the country was losing annually through tax evasion. Under the law, every US citizen pays the targeted tax regardless of where they live.
FATCA provisions, however, do not impose new obligations on US citizens living in Rwanda or any other country. Instead, its withholding obligations fall on American institutions making payments to foreign financial institutions, Rwandan banks inclusive, on which due diligence and reporting requirements fall.
Kabarega said all the banks in Rwanda had as of last month already complied with the law.
“Many foreign banks have been sending us swift messages to check if we are compliant...We have responded...and also given them our (banks) Global Intermediary Identification Numbers (GIIN),” he explained.
Kabarega noted that it was imperative that all sector players comply with FATCA, arguing that banks normally facilitate big transactions for exports and imports with American banks such as Citibank.
“It’s not only Americans who are affected by the law, but firms too. The logic of the law is that when an American comes and invests in Rwanda, the money they bring is from a US source. So, if you are creating income using that money, you are supposed to pay a portion of it to the US government,” he said.
Kabarega pointed out that they (banks) identify customers who are US citizens and forward their details to the Internal Revenue Service (IRS) in the US.
Any bank that does not follow the procedure could have a third of payments to banks from the US frozen, according to FATCA.
“If you have an American account holder who refuses to avail the necessary information, they withhold 30 per cent of the money on their account until they provide the information.”
“The world is becoming small. This law will create more global tax transparency,” added Kabarega.
In September 2013, G-20 leaders committed to the automatic exchange of information as the new global standard, and endorsed the development of a single model for this exchange, which is expected to be based on the FATCA Inter Governmental Agreements.
Those requirements came into force on July 1, 2014.
There have been reports in the foreign media, including the BBC, indicating that some Americans living abroad had started denouncing their US citizenship because of liabilities and burdens created by FATCA.
However, Washington says a decision to renounce US citizenship would not relieve these individuals of prior US tax obligations, and might well create additional US tax obligations for certain citizens and long-term residents who give up citizenship or residency.