Highlights of CRS in the UAE

Highlights of CRS in the UAE

11 December 2017

CRS oecd 2

 

What is CRS?

CRS or the Common Reporting Standard is a worldwide measure developed following the G20 request and approved by the OECD council on 15 July 2014. It addresses the need to track and report financial information in order to curb tax evasion. The backbone of this measure is the common standard created for introducing the general reporting requirements that various countries should meet for efficient exchange of information. This standard defines the financial account information that is to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered as well as the standard due diligence processes to be followed by financial institutions.

What is the legal framework of CRS in the UAE?

 The first instrument issued to enable the signing of a multilateral convention on Mutual Administrative Assistance in Tax Matters (MAC) and of a Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA) was the Cabinet Resolution Number 9 issued in 2016. The MCAA defines the rules, including confidentiality and required safeguards for data privacy, related to the exchange of information between the UAE Competent Authority and partner jurisdiction Competent Authorities. The two agreements combined are the base framework for the implementation of the international OECD standard of Automatic Exchange of Information for CRS purposes (AEOI-CRS).

 Which is the competent authority for the implementation of CRS?

The competent authority for the issuance of the CRS regulations is the Ministry of Finance as per the Cabinet Resolution.

As per the Ministry’s guidance, the regulations are published by the following UAE financial institutions regulators:

  • UAE Central Bank
  • Securities and Commodities Authority
  • Insurance Authority
  • DIFC
  • ADGM

What are the timelines for reporting?

The first CRS reporting period ends on 31 December 2017 and includes both pre-existing accounts (those in existence as at 31 December 2016) as wel as new accounts (those opened on or after 1 January 2017)

The first reporting date for CRS in the UAE is 30 June 2018 and consequently by 30 June of the year following each reporting period. This includes pre-existing high value individual accounts as at 31 December 2016. The low value pre-existing accounts are reviewed until 31 December 2018.

The first exchanges of information between the UAE competent Authority and the reportable jurisdictions will occur starting 30 September 2018

Who is a reportable person?

A reportable person is a person who not being a resident of the UAE or the US (residents of the US are dealt with under FATCA regulations) is a resident of a reportable jurisdiction. Where the address is not clear, an electronic data search for indicia of residence in a reportable jurisdiction must be carried out by the reporting financial institution.

For a Passive NFE (Non Financial Entity), it is the residence of the controlling person(s) which determines whether the entity is a reportable person.

The term “Controlling Person(s)” is defined as the natural person(s) who exercise(s) control over an entity in a manner consistent with the recommendations of the Finacial Action Task Force (FATF)

In the case of a trust, that term includes the settlor(s), the trustee(s), the protector(s) (if any), the beneficiary(ies) or class(es) of beneficiaries or any other natural person(s) exercising ultimate effective control over the trust.

What is reported?

Each Reporting Financial Institution must collect and report to the UAE Competent Authority the following information with respect to each Reportable Account (account of a Reportable Person):

  • the name, address, jurisdiction(s) of residence, TIN(s) and date and place of birth (in the case of an individual) of each Reportable Person that is an Account Holder of the account
  • the name, address, jurisdiction of residence and TIN(s) of the Entity and the name, address, jurisdiction(s) of residence, TIN(s) and date and place of birth of each Reportable Person (in the case of controlling persons);
  • the account number
  • the name and identifying number of the Reporting Financial Institution;
  • the account balance or value (including, in the case of a Cash Value Insurance Contract or Annuity Contract, the Cash Value or surrender value) as of the end of the relevant calendar year
  • in the case of any Custodial Account: (a) the total gross amount of interest, the total gross amount of dividends, and the total gross amount of other income generated with respect to the assets held in the account during the calendar year; and (b) the total gross proceeds from the sale or redemption of Financial Assets paid or credited to the account during the calendar year with respect to which the Reporting Financial Institution acted as a custodian, broker, nominee, or otherwise as an agent for the Account Holder;
  • in the case of any Depository Account, the total gross amount of interest paid or credited to the account during the calendar year;
  • in the case of any account not described above, the total gross amount paid or credited to the Account Holder with respect to the account during the calendar year including the aggregate amount of any redemption payments made to the Account Holder during the calendar year.

 

For more information you can send me an email at geethap2007@hotmail.com

AEOI

The evolution of the structuring world following the evolution of banking transparency

The evolution of the structuring world following the evolution of banking transparency

24 February 2017

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Having been in the financial services industry since more than 23 years, starting first with the now defunct brand name Arthur Andersen and currently heading wealth structuring in the UAE for ABN Amro, it has been exciting to see how the standards of transparency and structuring have been evolving especially throughout the last 10 years.

 

In the past, most families and High Net Worth Individuals (HNWI) held their assets either directly individually or through a simple offshore company. Most individuals and families strived to pay the least taxes possible and resorted to more or less complex structuring in order to achieve that goal. Some only had the goal of better coordinating their global wealth and having an organised and global streamlined process for their tax or other reporting (to individual shareholders in the case of large family conglomerates) when creating a comprehensive overall structure for their global assets. In some cases, dodging taxes had been the main guideline and this led to structures that could be sometimes inefficient for inheritance purposes or vice versa.

 

Many financial centers were built more on the goal of secrecy and preservation of the goal of minimising the tax bill whether in a fully compliant or partially compliant way. I remember an anecdotic exchange as comments on an article on the website wealthbriefing.com back in 2007 where an eminent tax expert was speaking of how Swiss banking secrecy could never be broken and I had commented that it would and that the US would use the foreign accounts reporting rule to dismantle it. This is eventually what they set out to do, implementing one of the most intricate legislation on tax reporting that would rock not only Swiss banking secrecy but also the world’s standards in terms of banking secrecy.

 

While it was first with FATCA that the “offshore” model was first attacked, there were a number of other occasions where HNWI started seeing that it was pointless to put in place a structure which main goal was minimising taxes in a hardly compliant way. Indeed, there were a number of data thefts, disclosure by hackers of professional databases such as the Panama papers which made it an uneasy time for HNWIs hiding their assets rather than really structuring for an optimised generational transfer. The final nail in the coffin of any attempt to dodge taxes was of course the worldwide application of CRS with the latecomers already having to comply this year and reporting of worldwide bankable assets a certainty rather than a grey area.

 

As the legislation grew tighter and especially with CRS, it became obvious that wealth structurers could no longer be simple creators of offshore company structures nor of a simple trust or a foundation without the actual coordination of the global tax and inheritance impact of HNWIs. Wealth structurers today need to be mindful that they have to change their old habits of advising as they were used to advising on a simplified and one-land approach and move into the arena of global coordination of all the aspects of the generational transfer when creating an overall structure for a HNWI family, especially when there is a large or complex family business to cater for.

 

While some of us already followed this trend since a few years because of our background experience in tax consulting firms, I realised from viewing the structuring put in place for certain HNWIs who have called upon my help that some wealth planners especially in the Middle East and Asia still look very much in a tunnel-like way at structuring for a HNWI. Their approach seems to be with no consideration of either global tax issues nor sometimes even of sharia restraints for muslim clients in this region.  This might often be the case because the client insists that the wealth planner limit the approach in order to have a cheaper solution but personally, I think that a good wealth planner should insist even when a client insists on an incorrect structuring. The insistence of the client might be because he/she wants to maintain control or for some other reason that the wealth planners are not comfortable to delve into but I believe the matter should be addressed because if the structure could cause great financial damage to the coming generations in the future, a wealth planner should insist on understanding the client’s reservations and explaining the optimal solution because ultimately, when explained properly, clients are willing to change their mind and adopt structures that will benefit generations to come and anchor their businesses in a compliant and globally coordinated environment.

 

As a conclusion, I would say that HNWIs should revisit on an annual basis with their wealth planners the structures put in place because there may be reasons to amend such structures based on new developments either in structuring or in taxation. No structure should be set in stone and then left forgotten on a shelf as a thick rulebook which nobody examines anymore but each overall structure should be carefully reviewed just like one would review the accounts on a yearly basis. If change is required, it should be carried out and the structure made effective again if legislation had rendered it less effective in a given year.  To end this brief analysis,  I would like to cite a maxim from Publilius Syrus that I think applies very much to the world of wealth structuring: “Malum est consilium quod mutari non potest”