Everything you need to know about CRS (Common Reporting Standard) in UAE

Everything you need to know about CRS (Common Reporting Standard) in UAE

The United Arab Emirates is one of around 50 countries that have agreed to share financial data on individuals and legal entities with other countries automatically. Taking this into account, banks began requesting additional tax-related details from new and existing bank account holders and continue to do so now.

The OECD (Organisation for Economic Co-operation and Development) developed the Common Reporting Standard (CRS) as a global standard to prevent offshore tax evasion by sharing financial information about bank account holders.

Why was CRS implemented in UAE?

A similar system, known as FATCA, was adopted in the United States of America in 2010. This was intended to improve tax reporting by US citizens who live and/or receive money in other countries. CRS, also known as the "global FATCA scheme," is adapting this system to prevent tax avoidance not only by US taxpayers, but by people all over the world, with over a hundred countries participating. It is used to collect data from financial institutions in participating countries and report it to local tax authorities once a year. In the event of a possible case of tax evasion, the organisations will be able to share all relevant details with the tax authorities of other participating countries in order to assess the specific tax burden. This type of knowledge is especially relevant to the account holder's tax status (tax residency).

What is the “CRS effect” on individuals with UAE bank accounts?

One query that can arise in your mind is which accounts are likely to be reportable in which circumstances.

The CRS's first reporting deadline in the UAE was June 30, 2018. The UAE government has set a deadline of 30th June each year for publishing. The monitoring process will be followed on a yearly basis.

If you are a personal account holder, an entity client, or a Controlling Individual, your details will be reported to the tax authority.

CRS effect

Personal Account Holders

The following information is required by the tax authorities for personal account holders:

  1. Name & Address
  2. Postal Code
  3. Date and location of birth
  4. TIN (Taxpayer identification number)
  5. Residency authority
  6. Account numbers or account closing details (if the bank account has been closed) as well as the name of the reporting financial institution (for example, a bank);
  7. Information on the Account Balance
  8. Any asset's gross proceeds from a sale or redemption
  9. Depending on the type of bank account you have, you might be asked to provide additional information.

Entity Client

The following information is required by the tax authorities for entity clients:

  1. Name and mailing address
  2. Taxpayer identification number (TIN)
  3. Account number and balance on a certain date
  4. This account's earnings
  5. Any asset's gross proceeds from a sale or redemption

Controlling Person

The following information is required by the tax authorities for Controlling Persons:

  1. Controlling person's name and address
  2. Controlling person's date and place of birth
  3. Taxpayer Identification Number (TIN)
  4. The controlling person's type

Who is obligated to share data? What are the ramifications of failing to provide appropriate data to financial institutions?

Financial institutions in the United Arab Emirates are required by law to collect all relevant information about their account holders' tax residency status. As a result, anyone with a bank account in one of the local banks must fill out the CRS Self-Certification form when the time comes. The tax administration may then request information, especially about a foreign tax residence (in any of the participating countries).

Due to their contractual arrangement with the bank, bank customers in the UAE are required to obey their orders. If they do not follow the terms, the bank has the option of terminating the customer's contract or sending a report to the local tax authority with the details they have already gathered. As a result, the bank can close an account, which can only be reopened until the client provides the required details.

What are the duties of the holder of the Bank Account?

The Duties summarized when opening or holding a bank account in the UAE are as follows-

  1. Provide the above-mentioned details in the form of a CRS Self-Certification form; it is possible that proof of tax status would be needed.
  2. Provide a list of all jurisdictions where you are handled as a tax resident, along with their tax identification numbers.
  3. If your tax status changes in a fair amount of time, notify the bank.

What is the difference between a reportable account and a non-reportable account?

To decide if your UAE Bank Account is reportable or not, you must first determine if the Bank Account Holder (personal or corporate) is a Reportable Jurisdiction Individual (Tax Resident of a CRS-Participating Jurisdiction) or a Tax Resident of a Non-Participating Jurisdiction, as well as whether he or she is a UAE Resident.

Before diving into the parameters, it's important to understand the distinction between a Resident and a Non-Resident.

The following conditions apply to an individual in the Resident category:

  1. The person must have a valid UAE residence visa as well as an Emirates ID.
  2. He or she must be a UAE citizen.

The following is the condition that applies to an Entity:

  1. Only if the Entity is integrated, licensed, managed, and/or governed within UAE territory is it appropriate.

If you want to open a personal bank account in the UAE as a UAE Resident, you must sign the CRS document. As part of the account opening paperwork for a Non-Resident account.

If you give your TIN number or numbers to the bank when opening a Non-resident Personal Bank Account in the UAE, the account will be deemed reportable right away.

Difference between reporting & non-reporting account has been mentioned below-

Reportable Non-Reportable
Your account would be reportable if you have a Non-Resident personal/entity account in the UAE despite not being a UAE Resident. In the countries where you are a legal tax resident, you must have a valid Tax Identification Number. If you are a UAE citizen with a resident's account, you must ensure that the CRS form is submitted. The type, along with the required documents, will be collected by the concerned bank. The aim of the form is to demonstrate that you are a UAE Tax Resident who does not have a TIN in the UAE. This will prevent your account from being reported.
If the bank signatories on a new corporate account are non-UAE residents, the account will be reportable. You will be required to provide your TIN to the bank during the account opening process.

Non-reportable are personal or corporate UAE bank accounts opened by UAE residents.

During the account opening process, account holders can sign a CRS form indicating that they are UAE residents, that they do not have a TIN number in the UAE, and that they do not have any other TIN numbers in the countries where they are tax residents.
  Account holder (personal and corporate) who is a tax resident of a country that is not part of the CRS.

 

How can you tell whether you're a passive or active NFE?

 

It's important to understand the distinction between an active and a passive NFE. In the case of an organization, you must determine if it is a financial corporation or a non-profit organization. This is used to determine the selected entity's current CRS location.

The chosen company account is an NFE only if it is not associated with a financial institution. Knowing the NFE group you belong to, as well as the criteria for each of the two categories, is crucial. If you don't follow the requirements mentioned below, your organization will be classified as a "passive NFE."

  1. The company is listed on the stock exchange.
  2. A central bank, government, or international foundation owns or controls the entity.
  3. Passive income accounts for less than half of the income generated by the company and its properties.
  4. The organization is relatively young, having existed for less than a year.
  5. A Charity Foundation is the name of the organization.

Who is the competent authority to regulate CRS in UAE?

For the purposes of enforcing the provisions of the UAE CRS Regulations, the following authorities have been designated as Regulatory Authorities:

  1. The Central Bank, in the case of a financial institution subject to its supervision under the Central Bank's relevant laws and regulations;
  2. Securities & Commodities Authority in the case of a Financial Institution subject to the Securities & Commodities Authority's oversight under the Securities & Commodities Authority's applicable laws and regulations;
  3. Insurance Authority in the case of a Financial Institution subject to its oversight under the Insurance Authority's relevant laws and regulations;
  4. A Financial Free Zone Authority appointed as a Regulatory Authority by the applicable Financial Free Zone in respect of a Financial Institution registered in that Financial Free Zone;
  5. Any Financial Institution not otherwise controlled by any of the above Regulatory Authorities is subject to regulation by the Ministry of Finance.

Which approach has been opted by UAE Common Reporting Standard?

The UAE has chosen the "widest solution" under the CRS:

  1. Reporting Financial Institutions must conduct due diligence procedures on all accounts held by an account holder (or a controlling individual in the case of a passive NFE) who is tax resident in a jurisdiction other than the United States.
  2. Making a report Financial institutions must record details on all accounts held by an account holder (or a controlling individual in the case of a passive NFE) who is tax resident in a jurisdiction other than the United States or the United Arab Emirates.
  3. The United States is exempt because, under FATCA, jurisdictions would be required to report to the US.

The authorities will examine the case before deciding if the individual is active or inactive. The authority agrees to take action after a thorough review and examination. The mechanism determines whether a given individual is passive or active.

Conclusion

You can always contact us at Dhanguard if you have any questions about CRS applications in the UAE. We'll make sure you understand the distinction between reportable and non-reportable bank account holders.

By Om Chaudhary

15-Apr, 2021

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