Introduction

FATCA and CRS in the UAE are applicable. FACTA and CRS are two different systems used in various contexts, primarily in finance and regulatory compliance. If you have an entity in the UAE it is important that you know what these are for the event that you fall under any of their obligations.

The UAE enacted in 2017 the UAE Common Reporting Standard Obligations. FACTA originates in 2010 with its enactment increasing rent reporting regulations on non-US entities.

The purpose of this publication is to help you become familiar with these and their application in the UAE.

FATCA (Foreign Account Tax Compliance Act)

FATCA stands for the Foreign Account Tax Compliance Act. It is a United States federal law enacted in 2010 aimed at combating tax evasion by U.S. taxpayers holding accounts and other financial assets offshore.

The primary objective of FATCA is to prevent tax evasion by U.S. citizens and residents who use foreign financial institutions and offshore accounts to hide income and assets.

Foreign financial institutions (FFIs) are required to report information about financial accounts held by U.S. taxpayers to the Internal Revenue Service (IRS).

FFIs that do not comply with FATCA face a 30% withholding tax on certain payments made to them from U.S. sources.

U.S. taxpayers must report their foreign financial accounts and assets on an annual basis.

FATCA has led to increased transparency and reporting, as well as significant administrative requirements for both U.S. taxpayers and foreign financial institutions.

CRS (Common Reporting Standard)

CRS stands for the Common Reporting Standard. It is a global standard for the automatic exchange of financial account information between jurisdictions, developed by the Organisation for Economic Co-operation and Development (OECD). The UAE adopted CRS in 2015.

The CRS aims to combat tax evasion on a global scale by requiring financial institutions to report information about non-resident account holders to their local tax authorities, which in turn exchange this information with the tax authorities of the account holders’ countries of residence.

Financial institutions in participating jurisdictions must collect and report detailed information on financial accounts held by non-residents.

The collected information is automatically exchanged between participating countries on an annual basis.

CRS applies to a wide range of financial institutions, including banks, custodians, brokers, certain collective investment vehicles, and certain insurance companies.

The implementation of CRS has significantly enhanced international tax transparency and cooperation, making it harder for individuals to hide assets and income in foreign jurisdictions.

Comparison

FATCA is specific to U.S. taxpayers and involves the U.S. IRS, while CRS is a global standard involving multiple countries.

FATCA imposes requirements primarily on foreign financial institutions dealing with U.S. persons, whereas CRS involves mutual information exchange between all participating jurisdictions.

Both aim to prevent tax evasion, but FATCA is U.S.-centric, while CRS has a broader, international focus.

In summary, FATCA is a U.S. law targeting foreign financial accounts of U.S. persons, while CRS is an international framework for the automatic exchange of financial information to combat tax evasion globally.

How do they Impact UAE Companies and Investors?

In the UAE, companies may need to comply with both FATCA and CRS regulations if they meet certain criteria. Here’s a breakdown of which companies must file under each regime:

FACT Compliance in the UAE

Foreign Financial Institutions (FFIs):
- Banks: All types of banks, including commercial, investment, and private banks.
- Investment Entities: Entities that conduct investment activities on behalf of clients, such as mutual funds, hedge funds, private equity funds, and similar investment vehicles.
- Custodial Institutions: Entities that hold financial assets for the account of others as a substantial portion of their business.
- Insurance Companies: Certain insurance companies that issue or are obligated to make payments with respect to financial accounts (e.g., cash value insurance contracts and annuity contracts).
Reporting Requirements: These institutions must identify and report accounts held by U.S. persons or entities with substantial U.S. ownership to the UAE Ministry of Finance, which then transmits the information to the U.S. IRS.

CRS Compliance in the UAE

Financial Institutions (FIs) in the UAE must report information on financial accounts held by non-residents to the UAE Ministry of Finance, which then exchanges this information with the tax authorities of the account holders’ countries of residence.

Financial Institutions are the following:

- Depository Institutions: Banks and credit unions that accept deposits in the ordinary course of business.
- Custodial Institutions: Entities holding financial assets for the account of others as a substantial portion of their business.
- Investment Entities: Entities primarily conducting activities such as trading, portfolio management, or investing, administering, or managing financial assets on behalf of clients. Foundations and trusts reserve special attention. It is not our intention to generalise but to be considered investment entities generally they need to obtain 50% of income from investing financial assets and have it professionally managed. Strong emphasis to a personalised annual assessment.
- Specified Insurance Companies: Insurers issuing or obligated to make payments on certain cash value insurance contracts and annuity contracts.

Key Points for Both FACT and CRS in the UAE Compliance

Companies must implement due diligence procedures to identify reportable accounts.

Companies must comply with annual reporting deadlines as specified by the UAE Ministry of Finance.

Failure to comply with FATCA and CRS requirements can result in significant penalties, including fines and, for FATCA, potential withholding taxes on U.S.-sourced payments.

Who Must File?

Banks: Both local and international banks operating in the UAE.
Investment Entities: Asset managers, investment funds, private equity firms, and other entities involved in investment activities.
Custodial Institutions: Entities holding assets for clients, such as brokerage firms.
Insurance Companies: Issuers of certain cash value insurance contracts and annuity contracts.

ADGM offers a great definition of these entities, you may access it in this link here.

Regulatory Authorities

The UAE Ministry of Finance, DIFC and ADGM are the authorities responsible for collecting and transmitting information as per FATCA and CRS regulations.

The deadlines for FATCA and CRS filings in the UAE are set by the UAE Ministry of Finance. While these deadlines can sometimes be subject to change or extension, the general timelines are as follows:

The typical deadline for FATCA reporting is March 31 of the year following the reporting period. This means that for the reporting year 2024, the FATCA filing deadline would be March 31, 2025.

The standard deadline for CRS reporting is June 30 of the year following the reporting period. Therefore, for the reporting year 2023, the CRS filing deadline would be June 30, 2024.

Specific Aspects for Filing FATCA and CRS in the UAE

Financial institutions need to be registered with the UAE Ministry of Finance and ensure they have the necessary credentials to access the reporting portal prior to the filing.

Penalties for Late or Non-Compliance

Financial institutions failing to meet the FATCA reporting deadline may face penalties, including the risk of a 30% withholding tax on U.S. source payments.

Non-compliance with CRS reporting can result in financial penalties, and persistent non-compliance could lead to more severe regulatory actions.

Possible Extensions for FATCA and CRS in the UAE

While these deadlines are standard, there may be cases where extensions are granted. It is essential for financial institutions to stay updated with any announcements from the UAE Ministry of Finance regarding changes or extensions to these deadlines.

***

We hope this publication will help you understand the concepts of FATCA and CRS in the UAE and remain available for any questions regarding this post of general application.

For more information published in English you can visit all our publications at this link as well as the videos in English of our Partner Maria Rubert.

*The information on this page is not intended to be legal advice. This article is intended to provide an initial introduction to the concepts of FATCA and CRS in the UAE.