New US law to affect individual investors, hedge funds and private equity groups

A crackdown on investment from offshore tax havens could have a major impact on anyone who wants to invest in US assets from overseas, it is claimed.

A new law will no only affect individual investors but also hedge funds and private equity groups as 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% of the proceeds from the sale of any US asset payable to the institution.
 
According to Withers, a global law firm that advises wealthy clients about investing and philanthropy, the legislation will ‘dramatically affect non-US financial institutions, funds and collective investment structures as well as many trustees and family offices investing through these entities’.
 
Financial advisors say that the biggest impact will be on American expats who will be subject to 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 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.
 
The provision is a little-noticed component of the Hiring Incentives to Restore Employment (HIRE) Act, a US$17.5 billion 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 part of a renewed emphasis by the US government on collecting taxes from those investing overseas linked to a worldwide crackdown on offshore tax havens.
 
To avoid the scrutiny and increased paperwork, some European investment brokers are increasingly turning away American clients, according to Josh Matthews, a managing partner with Maseco Financial in London, which offers financial planning for American expats.