Financial Crime Prevention
Overview
Tax avoidance and tax evasion threaten government revenues. In many other countries, the lost revenues run into billions of United States dollars. The impact means fewer resources for infrastructure and services such as education and health, lowering standards of living in both developed and developing countries. Tax evasion is a predicate offence in the UAE.
Key to combating tax evasion has been international tax co-operation and the effective exchange of information between countries. The Organization for Economic Cooperation and Development (OECD) has been at the forefront of international efforts to promote all forms of information exchange - including on request, spontaneous and automatic and addressing the Base Erosion and Profit Shifting (BEPS) through economic substance tests. The UAE government is firmly committed to the above initiatives and has signed various international treaties and agreements with the United States and the OECD.
ADGM takes its responsibility as a competent authority within the UAE very seriously and continues in its support of that commitment by entering into a Memorandum of Understanding (MOU) with the Ministry of Finance (MOF) to ensure that Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) are implemented and regulated.
The FSRA enacted regulations in July 2017 to comply with the OECD’s CRS.
Detailed information on these two regulatory reporting requirements are addressed in detail below.
Recent developments
The UAE signed the Multilateral Convention (“MLI”) to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“BEPS”) issued by the OECD on 27 June 2018. The MLI allows signing jurisdictions to implement amendments to their mutually selected Double Tax Agreements (“DTAs”) in a consistent manner.
The UAE has adopted the BEPS four minimum standards being Actions 5 (Harmful Tax Practices), 6 (Treaty Abuse), 13 (Country by Country Reporting) and 14 (Dispute Resolution).
The Cabinet of Ministers of the UAE accordingly enacted Resolution No. 31 of 2019 concerning the Economic Substance Regulations taking into account the global standards developed by the OECD and EU. The global standard set by the OECD Forum on Harmful Tax practices (FHTP) requires companies to have substantial activities in a jurisdiction.
For additional information and guidance on Economic Substance requirements you are recommended to visit Registration Authority’s Economic Substance webpage. In order to comply with BEPs Action 13, the Cabinet of Ministers of the UAE enacted Resolution No. 32 of 2019.
For further information on Country by Country Reporting, it is recommended that you visit: MOF - Country by Country Reporting.
Any company meeting the reporting threshold for this requirement must report directly to MOF on this issue.
The Foreign Account Tax Compilance ACT (FATCA)
FATCA promotes cross-border tax compliance by implementing an international standard for the automatic exchange of information related to US taxpayers. FATCA regulations require tax authorities to obtain detailed account information for US taxpayers on an annual basis.
FATCA is intended to increase transparency for the Internal Revenue Service (IRS) with respect to US persons that may be investing and earning income through non-US institutions. While the primary goal is to gain information about US persons, FATCA imposes tax withholding where the applicable documentation and reporting requirements are not met.
FATCA TIN Requirements
This document is a new requirement from the Internal Revenue Service (IRS), received via the UAE Ministry of Finance, that is applicable for Reporting Periods 2017-2019.
Common Reporting Standard (CRS)
CRS, developed by the Organisation for Economic Cooperation and Development (OECD), is a global reporting standard for the automatic exchange of information (AEoI). The goal of CRS is to allow tax authorities to obtain a clearer understanding of financial assets held abroad by their residents, for tax purposes.
Notification of collection of information under the Common Reporting Standard
The UAE commenced the reporting of information for tax purposes, pursuant to the OECD's Common Reporting Standard (CRS), in 2018. This followed the UAE Cabinet's decision for the Ministry of Finance (MoF) to co-ordinate with various government authorities and financial services regulators (including the ADGM Registration Authority and the ADGM FSRA) in order for financial institutions to collect information when implementing the UAE CRS obligations. To facilitate these reporting requirements, the MoF became a signatory to the Mutual Administrative Assistance in Tax Related Matters (MAC) and the Administrative Multilateral Competent Authority Agreement (MCAA). At that time, MoF required the relevant government authorities to issue regulations for financial institutions for the collection and reporting of this information. MOF provided guidance notes and draft regulations on CRS to assist all financial institutions to better understand the collection and reporting obligations. The UAE joined the Global Forum on Transparency and Exchange of Information for Tax Purposes in 2010
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