Common Reporting Standard (CRS) Foreign Account Tax Compliance Act (FATCA) Satisfactory Practices and Unsatisfactory Practices

§Passage 1

Common Reporting Standard (CRS) Foreign Account Tax Compliance Act (“FATCA”) Satisfactory Practices and Unsatisfactory Practices

Automatic Exchange of Information (AEOI) in the UAE

• Definition:

Automatic data exchange between authorities of different countries for global tax transparency.

• Commitment:

UAE adheres to FATCA & CRS as forms of AEOI.

• Requirements:

UAE RFIs must report account data annually to UAE MoF.

• Exchange Process:

Data sent to IRS (FATCA) & peer jurisdictions (CRS).

• Special Notes:

Occasional ad-hoc requests under FATCA & CRS by UAE MoF.

Introduction to CRS

• Background:

CRS was established by the OECD in October 2014 to improve tax transparency globally.

• UAE Commitment:

Signed MAC, MCAA, and Unilateral Declaration in April 2017.

Federal Laws No. 54 & 48 of 2018 ratified MAC and MCAA, respectively.

• Legal Framework:

MAC & MCAA serve as UAE's legal basis for implementing the OECD Standard for AEOI.

• Scope & Requirements:

Specifies what info to exchange, who reports, account types, and due diligence for UAE RFIs.

• Go-Live Date:

Effective in the UAE as of January 1, 2017.

Depository Institution

Custodial Institution

Reporting FI (RFI)

Investment Entity

Financial Institution Specified Insurance Company Reporting

(FI) Obligations

1. Government entities^

2. International Organisations^

3. Central Banks^

Entity Non Reporting FI 4. Broad and Narrow Participation

Retirement Funds (Legal person or legal (NRFI) 5. Qualified credit card issuers arrangement including 6. Exempt collective investment trusts, partnerships, vehicles foundations) 7. Trustee documented trusts

8. Qualified Credit Card Issuer

9. Other low-risk financial institutions (not defined under UAE law)

Non Financial Entity Active NFE 1. Listed NFE or related entity

2. Governmental Entity* # Passive NFEs do

3. International Organisation* (NFE) 4. Central Bank*

not have reporting obligations, they have certain disclosure Passive NFE with Controlling requirements (to Person(s) that are not Reportable RFIs) relating to Passive NFE Person(s) Controlling Persons

!#

Passive NFE with Controlling Person(s) that are Reportable * that doesn’t meet the requirements to be classified as a Financial Institution Person(s) ^ and their pension funds

Key CRS Definitions

Financial Institution • A Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.

§Passage 2

Reporting Financial Institution • A Financial Institution that is not a Non-Reporting Financial Institution (see previous slide for list)

Depository Institution • Any Entity that accepts deposits in the ordinary course of a banking or similar business

Custodial Institution • Any Entity that holds Financial Assets for the account of others, as a substantial portion of its business.

• Type A: Any entity that primarily conducts as a business one or more of the following activities on behalf of a

customer:

i. trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.); foreign exchange; exchange, interest rate and index instruments; transferable securities; or commodity futures trading;

Investment Entity ii. individual and collective portfolio management; or

iii. otherwise investing, administering, or managing Financial Assets or money on behalf of other persons.

• Type B: Any entity managed by an RFI and whose gross income of which is primarily attributable to investing, reinvesting, or trading in Financial Assets.

• Any Entity that is an insurance company (or the holding company of an insurance company) that issues, or Specified Insurance is obligated to make payments with respect to, a Cash Value Insurance Contract or an Annuity Contract. Company

• The person listed or identified as the holder of a Financial Account* by the Financial Institution that maintains the Account Holder Financial Account.

* Financial Account means an account maintained by a Financial Institution (and includes a depository account or a custodial account).

Tax Residency

• Tax residency is determined under domestic tax laws.

• An individual or an entity may be a tax resident in more than one jurisdiction.

What determines tax residency?

Individual Presence Test Economic Ties

* This is illustrative only – each Jurisdiction has

its own rules on determining tax residency for individual and entities. Please refer to Cabinet Decision No. 85 of 2022 in relation to Place on Place of Determination of Tax Residency in the UAE. Entities Incorporation Business

RFI Obligations & Requirements

RFI Obligations

RFI Requirements

• Register for CRS reporting purposes on the UAE AEOI Portal 01 Under the CRS, Reporting Financial Institutions (RFIs) are required

to:

§Passage 3

• Identify accounts which are financial accounts and therefore need to • Apply due diligence procedures and collect documentation to 02 be reviewed identify whether a financial account maintained by the RFI is a

CRS Reportable Account.

• Collect valid CRS self-certification forms from new account holders • Request individual and entity Account Holders to provide 03 and determine reasonableness completed CRS self-certification forms and/or documentary

evidence, upon account opening: − Individual Account Holders to declare their name,

• RFIs that maintain pre-existing accounts must conduct pre-existing residence address, jurisdiction(s) of tax residence and 04 due diligence procedures within deadlines TIN(s) (where applicable) on self-certifications

− Entity Account Holders to disclose their name, address, jurisdiction(s) of tax residence, TIN(s) (where applicable)

• Continuously monitor for changes in circumstances 05 as well and Controlling Person(s) information (for certain

types of entities) on self-certifications.

• Report Reportable Accounts or file NIL Returns on an annual basis, by • Ensure effective implementation of the CRS. 06 the reporting deadline

• Have effective systems in place to accurately identify CRS Reportable Accounts and to ensure that the information

• Complete and submit Risk Based Assessment (RBA) on an annual reported for CRS purposes meets the data quality 07 basis requirements.

CRS and FATCA framework in the UAE.

• SCA plays a crucial role in overseeing the implementation of the CRS and FATCA in UAE's securities sector. As part of our regulatory mandate, we have conducted a series of onsite and offsite engagements with reporting financial institutions (RFIs) across the securities sector during 2022 and the first quarter of 2023. These engagements aimed at assessing their adherence to the CRS and FATCA, identifying areas of potential improvement, and strengthening the effectiveness of the CRS and FATCA framework in the UAE.

CRS and FATCA Report: Objectives & Goals

1. Provide an overview of the current state of CRS compliance among RFIs.

2. Identify challenges and detail proactive measures taken by SCA to support compliance.

3. Best Practices: Understand and disseminate best practices in CRS compliance.

4. Strategies: Share effective methods for overcoming compliance issues.

5. Dialogue: Strengthen SCA-RFI cooperation for better adherence.

6. Emerging Trends: Assess future directions and promote a culture of continuous improvement.

7. Transparency & Trust: Show the UAE financial sector's commitment to global tax norms.

8. Policy Guidance: Inform future SCA actions for effective CRS implementation.

9. Global Impact: Elevate CRS reporting quality, contribute to anti-tax evasion efforts, and uphold UAE financial integrity.

§Passage 4

Expectations:

• The SCA expects all RFIs to use this report as a guide to enhance their understanding of the CRS and FATCA, address any identified gaps in their compliance procedures, and reinforce their commitment to meeting the CRS obligations. Furthermore, it is our expectation that this report will help the RFIs to understand the broader context and implications of the CRS, appreciate its importance in promoting a fair and efficient global tax system, and thus actively contribute to its successful implementation in the UAE.

CRS and FATCA Compliance: Observations & Recommendations Positive Findings:

• Many RFIs have robust systems meeting CRS requirements per UAE legislation and MOF guidelines.

• These best practices serve as valuable benchmarks for other RFIs.

Areas for Improvement:

• Shortcomings observed in new account onboarding, due diligence on pre- existing accounts, and reporting mechanisms.

Immediate Action Needed:

• RFIs should address these compliance gaps urgently.

Compliance and Governance – Satisfactory\ Unsatisfactory Practices

Internal Audits:

• Conducted regularly, findings documented and Procedure Gaps:

communicated. • Lack of clear procedures, ineffective

• Follow-up actions are taken to resolve all issues. communication, or irregular updates to staff. Policy Governance: Self-Certification Issues:

• Well-documented decisions communicated to all relevant staff. • Inconsistent collection, poor record-keeping, or lack of follow-up on missing forms.

• Regular reviews for ongoing relevance and effectiveness.

Self-Certification Tests:

Training Deficiencies:

• Regular, systematic tests on the validity of self-certification • Infrequent training, lack of documentation, or forms. not covering all relevant staff.

• Clear documentation of the testing process and findings.

New Account Onboarding- Satisfactory\ Unsatisfactory Practices

New Account Onboarding:

Reasons for TIN Absence:

• Timely, systematic collection and validation of CRS self- certifications.

• Inconsistent capture of reasons for

• Clear documentation of process and results.

TIN Validation: missing TINs.

• Consistent validation of TINs against OECD guidance.

• Clear documentation of process and results.

TIN Validation Issues:

Reportable Account Management:

• Inconsistent validation procedures or lack

• Consistent identification and correct treatment of CRS Reportable Accounts. of clear documentation.

• Based on self-certification forms.

Pre-Existing Account Due Diligence - Satisfactory\ Unsatisfactory Practices

Pre-Existing Due Diligence: Due Diligence Procedures:

§Passage 5

• Timely, systematic completion on Individual • Lack of clear, structured procedures

Lower Value accounts within the specified

leading to delayed or incomplete due diligence.

timeframe.

Aggregation Rules: Account Aggregation:

• Absence of well-defined procedures for

• Consistent application of aggregation rules to

applying account aggregation rules. accurately determine individual account

balances.

Reporting - Satisfactory\ Unsatisfactory Practices

Timely Reporting: Missed Deadlines:

• Consistent adherence to deadlines, and • Failure to meet deadlines due to systematic filing of all returns, including nil disorganized or untimely reporting returns.

processes.

Control & Governance Issues:

Governance & Control:

• Inadequate controls lead to errors or

• Robust procedures, including marker/checker

omissions in CRS and FATCA reports. review and sign-off process, prior to

submission.

Thank you