Implementation of the Common Reporting Standards (the “CRS”) in the UAE

Common reporting standards in UAE

05 Apr 2017 Implementation of the Common Reporting Standards (the “CRS”) in the UAE

Implementation of the Common Reporting Standards (the “CRS”) in the UAE

Information on the CRS and how it will affect Financial Institutions in the UAE

The Common Reporting Standards (the “CRS”), developed by the Organization for Economic Cooperation and Development (the “OECD”), is a global reporting standard for the automatic exchange of information. In December 2016, the Ministry of Finance (the “MoF”) in the United Arab Emirates (the “UAE”) released a document titled Guidance Notes for the Common Reporting Standard (the “Guidance Notes”)[1], in order to provide clarity and assist financial institutions in the UAE’s upcoming implementation of the CRS.  Over 100 countries have agreed to take part in the CRS, with the UAE expected to begin the first exchanges of information in 2018[2].This newsletter will discuss the CRS and its implementation in the UAE, including the relevant deadlines.


WHAT IS THE CRS?

The CRS was developed in response to a G20 request and approved by the OECD Council on 15 July 2014. The request was aimed at providing a common system used to combat tax evasion and to protect the integrity of tax systems. The CRS hopes to achieve this by imposing new requirements on jurisdictions to obtain information from their Financial Institutions (as defined in a later section), and automatically exchange that information with other jurisdictions on an annual basis. Essentially, the CRS is a global reporting standard for the automatic exchange of information.

Often referred to as the Global FATCA, the CRS was largely based on the US Foreign Account Tax Compliance Act (“FATCA”), and contains similar provisions to its US counterpart. These provisions include obligations on Financial Institutions to review and collect information in order to identify a client’s country of residence, and to then provide information to the country where the client is a tax resident.

CRS REQUIREMENTS

Determination of tax residence status

Firstly, under the CRS, Financial Institutions are required to determine whether clients are “tax residents” of another jurisdiction. To determine this, Financial Institutions will have to review and collect information in an effort to identify an account holder’s country of tax residence. This can be done by using self-certification forms, samples of which can be found on the OECD website at http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/. The forms fall under three categories, depending on the legal form of the account holder. These categories are:

  • Individual;
  • Entity; and
  • Controlling person.

Additionally, Financial Institutions may then have to provide account information to the home country’s tax authorities/administration.

WHO DOES THE CRS AFFECT?

Financial institutions such as banks, investment companies, insurance companies and other financial services providers (“Financial Institutions”) will be required to perform due diligence procedures and report information on all accounts held by an account holder who is a tax resident in another jurisdiction.

Those tax resident in the United States of America (the “USA”) are excluded, as reporting Financial Institutions will be reporting their information under FATCA.

Additionally, those tax resident in the UAE are also excluded. These include the following:

  • an individual who is a UAE national;
  • an individual who is a resident in the UAE with a valid Emirates ID and a valid Residency Visa; and
  • an entity which is incorporated, registered, managed and controlled within UAE.

CRS IMPLEMENTATION IN THE UAE

In the UAE, the Council of Ministers Resolution No. (17) for the year 2012 on the collection and exchange of information for the purposes of international tax agreements (the “Resolution”)  provides the legislative basis for the implementation of the CRS.

The main Articles are as follows:

Article 1 The Ministry of Finance is authorised to collect and exchange information and data on natural persons and legal entities licensed to operate in the UAE, including the free zones, in implementation of the obligations of the State provided for in international tax agreements.

Article 2 The Ministry of Finance when exercising the powers conferred upon it under Article 1 of this resolution shall coordinate with federal and local authorities concerned in all matters relating to specifying the type and nature of the information and data to be collected and the mechanism to provide it, and these authorities shall cooperate with the Ministry in implementing the provisions of this decision.

Additionally, the UAE released the Cabinet Resolution Number 9 of year 2016, in which the UAE Government has committed to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the “MAC”) and the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (the “MCAA”).

The MCAA contains the rules on the exchange of information between the UAE and other jurisdictions, as well as details regarding the infrastructure necessary for the exchange of information.

The UAE has adopted the “widest approach” to the CRS, where Financial Institutions must capture, maintain and report information on all account holders, other than UAE and USA tax residents, whether or not that account holder is tax resident to a CRS compliant jurisdiction.

DEADLINES

As per the MoF’s Guidance Notes, the deadlines for the implementation of the CRS are as follows:

31 December 2016

Pre-existing accounts opened before or on this date to be subjected to due diligence procedures.

1 January 2017

New accounts opened on or after this date are subject to due diligence procedures.

31 December 2017

The first CRS reporting period ends.

Review of pre-existing high value individual accounts (those existing as at 31 December 2016) must be completed.

30 June 2018

First reporting due date, with 30 June of each subsequent year being the next reporting due date.

Reportable pre-existing high value accounts need to be reported.

30 September 2018

First exchanges of information by the UAE competent authority to the reportable jurisdictions will occur.

31 December 2018

Review of pre-existing lower value individual accounts (those existing as at 31 December 2016) must be completed.

30 June 2019

All reportable accounts need to be reported.

CONCLUSION

As can be seen, the CRS will affect all UAE Financial Institutions. As such, Financial Institutions should familiarise themselves with the Guidance Notes and adjust their internal governance systems in order to best prepare for the implementation of the CRS.

For assistance in this matter, please contact *protected email*.

[1] Guidance Notes for the Common Reporting Standard (CRS) United Arab Emirates <http://www.sca.gov.ae/English/Documents/ImportantLinks/UAE%20AEOI%20GUIDELINES%20NOTES.pdf>

[2] AEOI: Status of Commitments <https://www.oecd.org/tax/transparency/AEOI-commitments.pdf>

 

Our Experience
lecocqassociate arabia dmcc provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.

This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq on moc.e1503216031taico1503216031ssaqc1503216031ocel@1503216031lrd1503216031 for any questions.