INTERNATIONAL TAX REPORTING: What You Need To Know

In accordance with international best practices and cooperation, the UAE has implemented a robust framework of information exchange that financial institutions and certain non-financial institutions are required to adhere to. The framework incorporates two key elements:

1.The Foreign Account Tax Compliance Act: FATCA

FATCA is a 2010 US Federal Law relating to US taxpayers. It requires all non-US foreign financial institutions to search their records for customers with a connection to the US, including records of birth or prior residency in the US, and to report, on annual basis, the assets and identifies of such persons to the US Department of the Treasury.

2. The Common Reporting Standard: CRS

CRS is an information standard, developed in 2014 and approved by the Organisation for Economic Co-operation and Development (OECD), for the Automatic Exchange of Information (AEOI) regarding financial accounts on a global level. It calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.

Who Does The Framework Apply to

All financial institutions licensed in the UAE must identify whether they are captured within the definition of ‘Reporting Financial Entities.’ In summary, these include:

• Depository Institutions – defined as savings and commercial banks, savings and loan associations, and credit unions;
• Custodial Institutions – defined as custodian banks, brokers and central securities depositories.
• Investment Entities* – defined as entities that invest, or trade in financial instruments, portfolio management or investing, administering, or managing Financial Assets; and
• Specified Insurance Companies – includes most life insurance companies

* Certain non-financial companies may also be captured 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 Institutions, 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 examples of these types of companies are: investment fund vehicles; single family offices; holding company and propriety investment companies (i.e. an entity with a commercial license that includes one or more propriety investment activities).