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What is Common Reporting Standard (“CRS”)?
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.
The UAE have CRS legislationDIFC 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 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.
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
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