Common Reporting Standard and FATCA

In 2010, the Foreign Account Tax Compliance Act (“FATCA”) was enacted by the United States (“US”) Congress to target non-compliance by US taxpayers using foreign accounts. FATCA requires Foreign Financial Institutions (“FFIs”) to report to the IRS information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, in order to fight against tax evasion and encourage proper international tax reporting. Financial and certain non-financial institutions in participating countries must comply. For the complete list of participating countries that have enacted Common Reporting Standard legislation, please refer to this website provided by the Organization for Economic Cooperation and Development.

Yes, available at this link provided by the Ministry of Finance.

Yes, DIFC legislation is set out in the Common Reporting Standards Law, DIFC Law No. 2 of 2018 (the “Law”) in relation to the information gathering and reporting obligations imposed on Reporting Financial Institutions under the Law and the Common Reporting Standards Regulations 2018 (the “Regulations”) collectively referred to as the “DIFC CRS”. The legislation can be found at these links:

DIFC CRS Law
DIFC CRS Regulations

The MOF is the Competent Authority for CRS reporting in the UAE. DIFC CRS legislation is administered by the DIFC Registrar of Companies (“ROC”), even for authorised firms regulated by the DFSA.

DIFC cannot provide legal or tax advice, please contact a professional consultant or advisor for assistance, or check the OECD website for more information on how to determine your tax residency.

The following are some key points from the DIFC CRS:

Article 4 of the Law indicates that the DIFC CRS applies to:

• any Reporting Financial Institution (“RFI”) subject to the supervision of the Relevant Authority under this Law;
• any Account Holder of a Reportable Account held with an RFI subject to the supervision of the ROC; and
• any other person to whom a provision is specified to apply.

Article 12 of the Law sets out collecting, reporting and record keeping obligations of the RFIs, the key requirements being:

• Having used appropriate systems and procedures in order to comply with the DIFC CRS, the RFI must collect and report to the UAE Competent Authority (i.e., the MOF) the information required in the Regulations using the ROC portal in the manner and on the dates prescribed in the Regulations under Section I, General Reporting Requirements.
• keep records of the steps undertaken and any evidence relied upon for the performance of the due diligence procedures and measures to obtain those records that the RFI obtains or creates for the purpose of complying with this Law, as set out in the Regulations under Section II, General Due Diligence Requirements.
• provide and English translation of any records as necessary, and retain records in an electronically readable format for a retention period of six (6) years after the date of reporting the information. prior to 28 February each year provide any Reportable Persons (as defined in the law), information regarding its reporting requirements to MOF.

Section II(E) of the Regulations provides that an RFI may use a service provider to undertake the due diligence requirements and the reporting obligations but states that those obligations continue to be the obligations of the RFI.

Sections II through VII of the Regulations sets out the obligations for specific account types that RFIs must review and report on as follows:

• Due Diligence for pre-existing individual accounts
• Due Diligence for new individual accounts
• Due Diligence for pre-existing entity accounts
• Due-Diligence for new entity accounts
• Special Due Diligence rules

"Custodial Institution” means any Entity that holds, as a substantial portion of its business Financial Assets for the account of others.

“Depository Institution” means any Entity that accepts deposits in the ordinary course of a banking or similar business.

"Specified Insurance Company” means any Entity that is an insurance company (or the holding company of an insurance company) which issues, or is obligated to make payments with respect to, a Cash Value Insurance Contract or an Annuity Contract.

"Investment Entity" means any Entity that:

• primarily conducts a business involving managing, investing, reinvesting or trading in Financial Assets on behalf of a customer; or
• if the Entity is managed by an RFI referred to in (a) above.

Yes, a Non-Financial Services Entity (“Non-FS Entity”) could be caught by the definition of Investment Entity under the DIFC CRS, if:

• its gross income is primarily attributable (i.e. 50% or more) to investing, reinvesting, or trading in Financial Assets; and
• the entity is managed by another entity that is a:
  • Depository Institution, a Custodial Institution, a Specified Insurance Company, or an Investment Entity;
  • that acts for or on behalf of customers; and
  • has discretionary authority to manage the Non-FS Entity’s assets.

Please see DIFC CRS and Guidance for more information and examples on the applicability of the Investment Entity definition to Non-FS Entities.

Such Non-FS Entities may include but are not limited to:

• Investment Fund Vehicles
• Single Family Office
• Holding Company
• Proprietary Investment Company (i.e., an entity with a Commercial Licence that includes one or more Proprietary Investment activities)

Investment Entities are subject to CRS requirements. However, as the assessment in whether a DIFC entity falls into this category can be rather complicated, the following may assist in making such determination.

An Entity licensed by the DFSA as an Authorised Firm that is licensed to conduct one or more of the following Financial Services activities, may be classified as an Investment Entity for the purposes of the CRS Regulations:

• Dealing in Investments as Principal
• Dealing in Investments as Agent
• Managing Assets
• Managing a Collective Investment Fund
• Managing a Profit Sharing Investment Account
• Providing Fund Administration
• Operating a Crowdfunding Platform
• Operating an Employee Money Purchase Scheme
• Providing Trust Services
• Acting as Trustee of a Fund

The above is only indicative and is not an exhaustive list. More information can be found in the DIFC CRS Guidance.

The OECD CRS includes a number of options to which reference is made on pages 12 to 17 in the CRS Implementation Handbook, allowing jurisdictions to implement requirements as suited to their domestic circumstances in order to provide for easier implementation, and reduce burdens, without impacting on the purpose or effectiveness of the CRS. The UAE has opted for the “widest approach”, under which RFIs are required to perform due diligence procedures and report information on all accounts held by an account holder who is resident for tax purposes in a jurisdiction other than the USA or the UAE. The following table, available in the UAE FATCA IGA and the UAE CRS Guidance, summarises the permitted options and whether or not they have been implemented by the UAE and likewise implemented via the DIFC CRS.

Please refer to the DIFC CRS Guidance for more information on these options (including the options that were not adopted which are outlined in Appendix 1 of the Guidance).

Certain financial accounts are considered to be a low risk of being used to evade tax and are specifically excluded from needing to be reviewed. These include several of the categories of accounts excluded from the definition of Financial Accounts in the FATCA Intergovernmental Agreement (“FATCA IGA”) and therefore they have also been excluded from the same in the UAE and DIFCA legislation. These non-reportable accounts are jurisdiction specific as what is low risk can vary from jurisdiction to jurisdiction.

The UAE FATCA IGA (and in turn the DIFC) has determined that the following are to be considered Excluded Accounts and therefore non-reportable accounts

• Certain savings accounts such as
  • retirement and pension accounts
  • non-retirement tax favoured accounts
• Certain term Life Insurance contracts
• Estate accounts
• Escrow accounts
• Depository accounts due to not returned overpayments
• Other low risk excluded accounts

Details of what is covered by the above categories is to be found in Section VIII of the CRS Commentaries and Section VIII(C)(17) of the Regulations.

The concept of Non-Reporting Financial Institution is similar to that in FATCA whereby some are specifically excluded from being required to report and some are reported by other RFIs. A starting point in compiling a list of Non-Reporting Financial Institutions are those treated as such with respect to the UAE FATCA IGA, signed when the UAE CRS was enacted.

The effective dates for due diligence on financial accounts and exchange of information are set out in Article 6 of the Law:

• in respect of Pre-existing Accounts that are subject to due diligence requirements under this Law, the effective date is 31 December, 2016; and
• in respect of New Accounts that are subject to due diligence requirements under this Law, the effective date is 1 January, 2017.

Reporting under the DIFC CRS is done on an annual basis. The first reporting deadline for the DIFC CRS was 30 June 2018 with respect to the reporting period ending 31 December 2017. Subsequent reporting is due by 30 June of the year following each reporting period. The Ministry of Finance (“MOF”) may adjust reporting requirements and timelines at its discretion.

For information purposes, the following are the effective dates set out by the UAE CRS and therefore RFI’s must have met these deadlines in order to remain compliant with DIFC CRS:

• Pre-existing Accounts to be subjected to due diligence procedures are those in existence as at 31 December 2016.
• New Accounts to be subjected to due diligence procedures are those opened on or after 1 January 2017.
• The first CRS reporting period ended on 31 December 2017.
• The review of Pre-existing High Value Individual Accounts at 31 December 2016 was to be completed by 31 December 2017.
• The Reportable Pre-existing High Value Accounts must have been reported by 30 June 2018.
• The review of Pre-existing Lower Value Individual Accounts at 31 December 2016 must have been completed by 31 December 2018.
• First exchanges of information by the MOF to the Reportable jurisdictions will occur on or after 30 September 2018.

An undocumented account may arise when an RFI is unable to obtain information from an account holder in respect of Pre-existing or New Accounts. They may also arise where an RFI is unable to obtain from the account holder a valid self-certification following a “change in circumstances”. An "Undocumented Account" exists where the only evidence for the residence status for a Pre-existing Individual Account is a "hold mail" or "in-care-of address" and the Reporting Financial Institution has not been able to obtain a self-certification from the individual. Financial Institutions with a disproportionate number of reported undocumented accounts may be subject to a compliance review by the ROC, once the review regime has been developed.

The DIFC CRS, under Article 12(1) of the Law, requires RFIs to collect and report CRS information to MOF through the reporting system provided by the Registrar. Fines and penalties are set out in Articles 19(2) and (3) of the Law for an RFI who commits a contravention of the DIFC CRS The Registrar also has broad investigation and inspection powers under Article 13 of the Law in connection with CRS. . In addition, the Registrar also has the power to order an RFI to block, suspend or close under Article 13(4). As generally required by the CRS, the OECD and the Competent Authority (i.e., the MOF) may audit compliance with and implementation of the DIFC CRS.

Please use the MOF Portal to make CRS and FATCA filings for your business.

Penalties, Enforcement and Appeals are set out in Part 4 of the Law, and Schedule 2 includes a list of fines and other disciplinary actions. Please note that a fine will be levied on each occurrence of a contravention of the Law and shall (if applicable) accumulate separately for each contravention.

Further information about CRS may be found at the following links:
OECD Website
CRS Commentary
MOF-provided UAE CRS guidance
DIFC CRS Guidance

The Foreign Account Tax Compliance Act (“FATCA”) was enacted in 2010 by the United States (“US”) Congress to target non-compliance by US taxpayers using foreign accounts. FATCA requires Foreign Financial Institutions (“FFIs”) to report to the US Internal Revenue Service (“IRS”), information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.

The United Arab Emirates (“UAE”) entered into a FATCA Inter-Governmental Agreement (“IGA”) with the US on 17 June 2015 (the “UAE FATCA IGA”). The full text of the IGA is available on the US Treasury website and on the UAE Ministry of Finance website.

While FATCA and CRS reporting obligations have many similarities, it is important to understand the nature of the reporting obligations under each of FATCA and CRS, including any differences that impact the entity’s particular reporting obligations and specific DIFC legislative requirements.

When using this Guidance, please consider the reporting obligations of your Firm under FATCA and the CRS. As was the case for previous years, reporting for FATCA and CRS is required to be actioned via the ROC portal designed specifically for this purpose. The DIFC Portal is available at this link.

Authorised Firms should continuously assess their obligations under FATCA, CRS and any DIFC specific legislation, and ensure compliance.