Overview of FATCA and CRS Regulations

Foreign Account Tax Compliance Act (FATCA)

FATCA is a U.S. legislation which was signed into U.S. Law on 18 March 2010, as part of the U.S. Hiring Incentives to Restore Employment (“HIRE”) Act. The fundamental objective of FATCA is to identify those U.S. persons who may be evading tax through the use of offshore investment vehicles and to ensure that the Internal Revenue Services (“US IRS”) can identify and collect appropriate amount of tax from all U.S. persons.

FATCA requires Foreign Financial Institutions (“FFIs”) to register with US IRS, perform due diligence to identify U.S. accounts and report U.S. persons’ data to US IRS either directly or through their local government under an Intergovernmental Agreement (“IGA”).

The UAE has been added to Treasury’s IGA list as having substantively agreed to a Model 1 IGA as of 21 May 2014 pursuant to IRS Announcement 2014-17 and the U.S. Treasury Department website. Thus, the UAE is treated as having a Model 1B IGA in effect and will continue to be so treated if it continues to demonstrate “firm resolve” to sign the IGA as soon as possible, which allows UAE Financial Institutions to register on the FATCA registration website consistent with that status.

Common Reporting Standards (CRS)

CRS was developed by the Organization for Economic Co-operation and Development (“OECD”) on the mandate of the G20. It is the global standard for the automatic exchange of financial account information for tax purposes. The CRS builds on the intergovernmental approach adopted by many jurisdictions for the implementation of the United States FATCA and is designed to maximize efficiency and minimize costs.

Under the CRS, jurisdictions obtain specified financial account information from their Financial Institutions and automatically exchange that information with partner jurisdictions on an annual basis.

The legal basis for jurisdictions to exchange information under the CRS is contained in Multilateral or Bilateral Competent Authority Agreements (“CAA”). The most common instrument is the Multilateral Competent Authority Agreement (“MCAA”), to which the UAE is a party. The MCAA contains the rules on the modalities of the exchange between the UAE Competent Authority (the Ministry of Finance) and partner jurisdiction Competent Authorities. It also contains representations on confidentiality, safeguards and the existence of the necessary infrastructure for an effective exchange relationship.

The CRS is implemented in the UAE in accordance with the Cabinet Resolution Number 9 of year 2016, the UAE Government.  The CRS provides jurisdictions with several implementation options. Under the CRS, the UAE has opted for the “widest approach”. Under this approach, Reporting Financial Institutions 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 USA is excluded because jurisdictions will be reporting to the USA under FATCA.

As per the UAE CRS Guidance Notes, a fine in the amount AED 20,000 shall be imposed on any account holder or controlling person, as the case may be, if the self-certification that is required to be submitted by such account holder or controlling person to the Financial Institution contains any inaccurate or incorrect information and the account holder or controlling persons knows or should have known that the information provided is inaccurate or incorrect. 

Disclaimer The purpose of this publication is to create awareness and has been written in general terms. This publication is not for any specific situation and therefore no opinion should be drawn from it for any particular circumstances. Limitless Consulting recommend that the reader of this publication should refer to the official documents referred in the document, seek appropriate professional advice for any particular situation and accepts no liability for any loss as a result of any information mentioned in this publication.