Feb 28, 2017

CSR

Is Your Financial Information Subject to the “Automatic Tax Information Exchange

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Following the ratification of the OECD’s Common Reporting Standard (CRS) in July 2014, some 104 countries have now dedicated themselves to financial transparency. While 55 countries, including most EU countries, already started to automatically exchange information beginning January 1st, 2017, the remaining countries will do so a year later.

The UAE is one of the countries that will start collecting data from January 1st, 2017 and will report all data collected during the period of January 1st till December 31st 2017 in September 2018.

Accounts that existed prior to January 1st, 2017 (“Pre-Existing Accounts) will be exempted from the Automatic Information Exchange if the account balance is less than USD 250,000.

What does automatic information exchange mean?

On the basis of CRS, participating countries exchange data on a global scale in order to share information on the assets of income of residents in different countries. The information is obtained by local financial institutions so that local tax authorities automatically exchange with other jurisdictions. The purpose is to track individuals who may have been attempting to avoid paying tax in the country they are resident.

Far-reaching exchange of information

Financial institutions in Dubai are obliged to report all individual accounts and also accounts opened by a financial entity, including financial information on interests, balances, dividends and sales proceeds from financial assets and also information on who owns which company shares.

Information exchange only on non-UAE- residents

As far-reaching as CRS is, it only affects non-residents as it is not bound on citizenship.

The UAE “tax resident definition” provides that an Individual is a UAE resident, who holds:

  • A valid Emirates ID and
  • A valid Residency Visa.

This allows for many individuals to be exempt from stating personal financial information by getting a UAE resident visa. So far, the “residency test” does not require to provide the bank with a “utility bill” or a lease contract. However, to be prepared for any tightening, one should consider to have such documents in place or to arrange for a tax residence certificate.

Is a Legal Entity subject to the Automatic Information Exchange?

An entity that is incorporated, registered, managed and controlled within the territory of the UAE is not subject to the Automatic Information Exchange.

It seems that in practice even for legal entities a physical address will be required in order to exempt them from the CRS. This practical approach is reasonable as a legal entity without a physical presence would not be able to manage and control the company from the UAE.

In the light of the above, Offshore Companies or the so-called International Business Companies (IBCs) registered in one of the Offshore Jurisdictions in the UAE, such as JAFZA, Ajman Free Zones or RAK ICC (former: RAKIA Offshore), do not have physical addresses in the UAE. A registered address (with the Offshore agent) will naturally not be considered as a physical address.

Free Zone Companies and Mainland Companies do have physical addresses. However, even these entities should take precautious measurements in order to make sure that the requirements are met in order to be exempt from the CRS.

Considering CRS’ high efficiency profile, it is advisable to get professional advice. We will advise and help you with your questions regarding CRS, and assisting you with applying for a resident visa or setting up a free zone company.