Dubai: The UAE’s commitment to share financial data on individuals and legal entities under Common Reporting Standards (CRS), starting in 2018, could mean banks and financial institutions will start collecting required financial data from early 2017.
The CRS, developed in response to the G20 request and approved by the Organisation for Economic Cooperation and Development (OECD) Council in 2014, calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.
The CRS sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
A few banks in the UAE have already informed their customers on the reporting requirements related to their tax status and tax domicile.
HSBC in a recent circular to its customers has said: “The local laws [relating to CRS] will mean that from the beginning of January 2017, governments will start requiring all banks and other financial institutions to ask customers for information with a view to determining where they are resident for tax purposes.”
According to OECD’s website, the UAE along with Saudi Arabia, Bahrain Qatar and Kuwait will start collecting data on individuals and companies starting January this year and will be ready to share the data with other international jurisdictions starting 2018.
“We are yet to receive any specific guidelines on data collection related to CRS. But we are fully aware; starting next year we will have to collect the required data as part of implementation of CRS. Our know your customer (KYC) requirements are fully geared to meet CRS,” said the compliance head of a local bank.
The OECD has developed rules to be implemented by governments participating in the CRS. The data collection will be implemented through both self-certification and taxpayer identification numbers.
As part of the data collection, starting January 2017, banks and financial institutions could ask their customer to make self-declarations or share the data on their tax status.
Under the CRS agreement, from January 2016, financial institutions in more than 50 countries around the world have begun collecting information on their clients and their accounts. This data will be passed on to the clients’ country of residence in 2017.
A further 47 countries will be starting to collect data in 2017, ready to exchange it in 2018. The UAE and all Gulf countries except Oman are in this list. This exchange of information will be annual.
End of financial secrecy and tax evasion
The full implementation of CRS will spell an end to financial secrecy in global holding of assets and tax evasion.
The US made the first move in its 2010 Foreign Account Tax Compliance Act (Fatca) that forced foreign banks to start handing over their clients’ data or face a 30 per cent tax.
Under both Fatca and the CRS, information will be automatically transferred bringing transparency in global fund movements and tax compliance.
In a typical scenario, if one lives in one country and has assets in another, under CSR his information will be shared between countries and the local tax authority in his country (where he is citizen or domiciled for tax purposes) will automatically receive information on the financial assets he owns overseas, without asking for it, and regardless of whether they have any questions about his tax affairs.
Under CRS the information to be reported about individuals and legal entities will include details investment income earned over the year, as interest, dividends, income from certain insurance contracts or annuities. Account balances are also reported, and gross proceeds from the sale of financial assets.
The financial institutions that need to report include banks, custodians, certain investment entities such as investment funds, certain insurance companies, trusts and foundations.
