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Ensuring Compliance with the Common Reporting Standard and FATCA

The Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) are global measures aiming to boost tax transparency and fight against tax evasion. They require financial institutions to identify and disclose specific information about their account holders and/or those controlling the accounts to the relevant tax authorities.

In the United Arab Emirates (UAE), efforts are underway to adopt both CRS and FATCA as part of Automatic Exchange of Information (AEOI) commitments. The UAE has endorsed agreements such as the Convention on Mutual Administrative Assistance in Tax Matters (MAC) and the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA) to enable information exchange with other countries under CRS. Additionally, the UAE has entered into an Intergovernmental Agreement (IGA) Model 1 B with the United States to facilitate FATCA compliance.

The UAE Ministry of Finance (UAE MoF) is responsible for overseeing both CRS and FATCA implementation in the country. To enforce these regulations, the UAE MoF has introduced the Common Reporting Standard Regulations (UAE CRS) and the Foreign Account Tax Compliance Act Regulations (UAE FATCA). These regulations are applicable across all UAE territories, including financial free zones like the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).

What are the obligations for reporting under CRS and FATCA?

Under CRS and FATCA, UAE Reporting Financial Institutions (UAE RFIs) must:

Sign up on the CRS/FATCA system via this link: https://fatcacrs.mof.gov.ae and complete a risk assessment questionnaire by the specified deadline.

Follow due diligence procedures to identify any reportable accounts or controlling persons associated with their financial accounts, following the rules and guidance of UAE CRS and UAE FATCA.

Annually submit the necessary information on reportable accounts or controlling persons to the UAE MoF, using the CRS/FATCA system, by the specified deadline.

Keep records of the collected and reported information for at least six years after the end of the relevant calendar year.

Afterward, the UAE MoF will share this information with the IRS and other jurisdictions for FATCA and CRS compliance. Additionally, the UAE MoF may receive ad hoc requests periodically as part of the FATCA and CRS regimes.

Who are the UAE RFIs?

UAE RFIs are financial institutions that operate within the UAE or have branches there, unless they are specifically exempted or excluded from reporting under the UAE CRS and UAE FATCA regulations. These institutions encompass:

  1. Depository institutions like banks and credit unions.
  2. Custodial institutions including custodians, brokers, and trust companies.
  3. Investment entities such as funds, investment managers, and advisors.
  4. Specified insurance companies like life insurance firms and annuity providers.

Some entities may fall under the category of Non-Reporting Financial Institutions (NRIs) as per the UAE CRS and UAE FATCA regulations. NRIs are not obliged to register or report under CRS and FATCA, but they may need to furnish certain information or certifications to other financial institutions or the UAE MoF if requested. Examples of NRIs include:

  1. Governmental entities, central banks, and international organizations.
  2. Pension funds, retirement funds, and other tax-favored accounts.
  3. Certain low-risk entities like non-profit organizations, start-up companies, and dormant entities.

How do you identify which accounts and/or individuals need to be reported?

Reportable accounts and/or controlling persons are those required for reporting under CRS and FATCA, depending on factors like their tax residency or citizenship. This can vary based on the financial account type and the institution involved.

Under CRS, reportable accounts include those held by:

Individuals or entities tax resident in jurisdictions other than the UAE.

Passive non-financial entities (NFEs) tax resident in jurisdictions other than the UAE, with controlling persons also tax resident in such jurisdictions.

A reportable jurisdiction is one that has an information exchange agreement with the UAE under CRS. You can check the list of reportable jurisdictions on the UAE MoF website.

 

For FATCA, reportable accounts comprise those held by:

Specified US persons, such as US citizens, residents, or certain US entities.

Non-US entities owned either wholly or partly by specified US persons, unless they qualify for an exemption.

A US person is defined as:

A US citizen or resident.

A partnership or corporation organized in the US or under its laws.

A trust if it meets certain criteria regarding US control and supervision.

An estate of a deceased person who was a US citizen or resident.

How to adhere to CRS and FATCA rules?

To ensure compliance with CRS and FATCA regulations, UAE RFIs should follow these steps:

Determine their status and responsibilities according to UAE CRS and UAE FATCA regulations, seeking professional guidance if necessary.

Establish and enforce suitable policies and procedures for identifying, documenting, and reporting reportable accounts and/or controlling persons, as per UAE CRS and UAE FATCA regulations.

Provide training and education for their staff regarding CRS and FATCA requirements and best practices.

Regularly monitor and update their compliance program to maintain its effectiveness and alignment with UAE CRS and UAE FATCA regulations.

What advantages come with following CRS and FATCA rules?

Following CRS and FATCA rules can offer these advantages to UAE RFIs:

Boost their image and trustworthiness as accountable and open financial organizations.

Steer clear of penalties and repercussions for not following the rules, such as fines, license suspension, or legal action.

Smooth out their dealings and transactions with other financial bodies and clients bound by CRS and FATCA regulations.

Play a part in worldwide endeavors to support tax openness and fight against tax avoidance.

Get in Touch with Legal Experts for CRS and FATCA Compliance Services in the UAE

Our firm specializes in offering CRS and FATCA compliance services in the UAE. We can assist you with the following aspects of CRS and FATCA compliance:

Determining Entity Classification: We’ll work with you to determine your entity type and status for CRS and FATCA compliance, considering factors like your legal structure, activities, and jurisdiction of incorporation.

Registration Support: Our team can help you register your entity with the Internal Revenue Service (IRS) to obtain a Global Intermediary Identification Number (GIIN) for FATCA compliance, and with the UAE Ministry of Finance to access the new reporting portal for CRS and FATCA purposes.

Reporting Assistance: We’ll guide you through the process of preparing and submitting required reports to the UAE Ministry of Finance, ensuring compliance with FATCA and CRS regulations and deadlines, and facilitating information exchange with relevant foreign tax authorities.

Expert Advice: Our experienced legal professionals can provide you with technical advice and guidance on FATCA and CRS matters, including impact assessment, compliance program design and review, due diligence procedures, risk management, and documentation requirements.

With our firm’s extensive experience and expertise in handling CRS and FATCA compliance issues across various sectors and industries, you can trust us to ensure your compliance with global tax reporting standards. Get in touch with us today to benefit from our professional services.

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