In accordance with international best practices and cooperation, the United Arab Emirates (UAE) has implemented a robust framework of information exchange that “Financial Institutes” and “Certain Non-Financial institutes” must adhere to or be faced with paying substantial fines.
The framework incorporates the:
- Foreign Account Tax Compliance Act (FATCA), the inter-governmental Agreement (IGA) with the U.S; and
- the Organization of Economic Cooperation and Development (OECD) Common Reporting Standard (CRS) Requirements.
What is FATCA?
FATCA promotes cross-border tax compliance by implementing an international standard for the automatic exchange of information related to US taxpayers. FATCA regulations requires the DIFC to obtain detailed account information for US taxpayers on an annual basis.
What is CRS?
CRS is a global reporting standard for the automatic exchange of information to allow tax authorities to obtain a clearer understanding of financial assets held abroad by their residents, for tax purposes.
Notice and Reporting Guidelines
As per the guidelines, all “Reporting Financial Entities” must submit an application detailing their “Reportable Accounts” by 31st July 2020 on the DIFC portal for period ending 31st December 2019. FATCA and CRS reporting requirements have significant similarities, and it is important that you understand the reporting obligations under each.
How to Meet the Reportable Test?
All companies/organizations licensed in the DIFC must identify whether they fall within the definition of “Reporting Financial Entities”. These are defined as:
- Depository Institutions – includes savings and commercial banks, savings and loan associations, and credit unions;
- Custodial Institutions – includes custodian banks, brokers and central securities depositories.
- Investment Entities* – includes entities investing, reinvesting, or trading in financial instruments, portfolio management or investing, administering, managing Financial Assets and
- Specified Insurance Companies – includes most life insurance companies.
* Certain Non-Financial companies may also be caught under the definition of Investment Entities if:
- Their gross income is primarily attributable (i.e. 50% or more) to investing, reinvesting, or trading financial assets and
- the entity is managed by another entity that is a:
- Depository Institution, a Custodial Institution, Investment entity or a Specified Insurance Company;
- that acts for or on behalf of customer; and
- Has discretionary authority to manage the Non-Financial company.
Some example of these types of companies are:
- Investment Fund Vehicles
- Single Family Offices
- Holding Company or
- Propriety Investment Company (i.e. an entity with a commercial license that includes one or more propriety investment activities)
Fig 1. Steps to identify if Reportable Financial Entity (herein after referred to as ‘entity’)
Further guidance can be found via the DIFC CRS Regulations
Next Steps
3. If no reportable accounts are found, a Nil report is to be filed, also before the deadline.
4. If the entity has reportable accounts (i.e. Specified US person for FATCA or Reportable Account for CRS, then the entity must provide the following information as set out in Fig.3 below:
