Generali, Schwab in UAE set 'impossible' choice for US expats

By Vince Truong

Added 5th October 2016

Two big providers have ripped the carpet from under a group of American investors in the UAE, says Vince Truong, partner at Dubai-headquartered financial planners Holborn Assets.

Generali, Schwab in UAE set 'impossible' choice for US expats

The UAE arm of Generali, Assicurazioni Generali S.p.A. United Arab Emirates,  announced in September that they were no longer accepting US clients for its savings and investments business and, in the same month, brokers Charles Schwab suspended US clients in the UAE from new trades, pending possible account closure, he says.

In both cases, existing US clients in the UAE are not affected by these changes.

US expats are simultaneously being cut off by service providers and face withering friendly fire from their own government, he argues.

Other big names like Fidelity and Vanguard have already shut down access to many US clients.

Since Facta, US expats haven’t been able to invest in foreign mutual funds without paying huge taxes that don’t apply to US-domiciled funds. Now US expats will be lucky to sign up with anyone.

In the light of Fatca’s and the Financial Industry Regulatory Authority's (Finra) reporting obligations imposed by the US, it’s simply too expensive (and potentially ruinous, in the event of an accidental breach of procedure) to have US clients. Making it more complicated is the fact that US-based funds and insurance products are designed specifically to dovetail with Federal tax regulation, whereas products from abroad are not.

Only a handful of financial institutions will open investment accounts for Americans abroad and also send the respective tax documentation (Form 1099) to the US Internal Revenue Service. And, by “a handful” we mean we’ve found two such institutions.

So what’s the problem for the US expat?

The US expat is being pressed on two sides: in the marketplace, by financial institutions increasingly turning down US business and, in personal tax affairs, by the escalating form-filling and high-stakes regulation of the US tax authorities.

We’ve seen it become almost impossible for US clients to get accounts as well as understand the onerous reporting demands of the IRS. For expats, it’s confusing, potentially bankrupting and increasingly intimidating. 

And the irony is that the US government is behind both pressures. President Obama’s Foreign Account Tax Compliance Act (Fatca) legislation of 2010 is making itself felt around the globe. Fatca imposed punishing reporting restrictions on all global financial institutions with US clients and on US expats themselves in the form of intensified personal obligations to the IRS.

What does this mean practically for the US expat? Answer: Finding 30 hours of professional time to fill in just one form to report the making of just one simple investment transaction.

For any global financial institution, which is forced to complete similarly arduous Compliance duties for the US Government, Americans overseas have become the most challenging client by nationality, if not the Pariah.

How has the situation been made worse for the US expat?

US expats are routinely given advice that is either confusing, or dangerously wrong. IFAs in the GCC have, for example, recently been pushing the use of a Malta-based pension in conjunction with a regular savings plan — only for US expats to suddenly discover that, as of 18 September 2016, the provider will no longer be taking US applications. 

Generally, non-US advisers often try to do business with US expats without a complete understanding of the IRS ramifications of the products they are pitching and, as a result, many of these American clients end up in a precarious situation with the IRS. 


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