When you go about company formation in any jurisdiction, the procedures you undergo don’t stop once you acquire your company licence. You must consider (based on your jurisdiction) what to do to ensure you maintain your favourable status. What are the ongoing corporate governance and compliance components you can’t afford to ignore? We have all the details.
But first, what is corporate governance?
Corporate governance refers to the framework an entity employs to direct and control all the moving parts. This system includes the necessary processes, norms, and regulations a firm needs to accomplish its business goals while balancing internal and external stakeholders’ needs. Beyond this definition, how does this work in practice? The primary organism in charge of driving this structure is its board of directors because they are responsible for putting parametres around how a company behaves.
Why does good corporate governance matter?
When we think about the criteria investors use to decide the merits of a company, the truth is that it’s not only about profits. Investors look more favourably at firms with effective corporate governance as a sign of their integrity and direction. If you benefit from corporate governance that fosters trust, you have more potential to forge long-term investment opportunities and thereby cultivate the conditions for long-term financial liability.
What corporate governance issues can arise if you don’t have appropriate standards? Inadequate corporate governance can lead to scandals like Volkswagen’s “Dieselgate” or fraudulent practices at firms like Enron that led to their demise. While these examples are extreme, other inadequate principles lead to other detrimental behaviours that could have dire consequences. While your board is the motor driving your corporate governance principles, any deficiencies in your board could also backfire on your mission to opt for high corporate governance.
Corporate Governance: Ensuring a structure with best practices
What constitutes good corporate governance? Inevitably, as with company formation, it often depends on the jurisdiction. In the case of the UAE, many laws provide minimum corporate governance standards. These rules depend on factors such as the type of entity (if it’s a Free Zone or Mainland company) and the industry (since specific sectors have differing rules). Three significant regulatory measures are covering particular cases. There’s the Central Bank of the UAE’s Corporate Governance Regulations and Standards that sought to standardise it across the bank sector, the Securities & Commodities Authority’s Decision no. (3/Chairman) of 2020 guiding Joint Stock companies and a 2020 decision from the UAE cabinet about the corporate governance system for Federal Government Boards.
While the local peculiarities may appear frustrating, international organisms work to promote more robust, standardised regulations worldwide. The International Corporate Governance Network, founded in 1995, is an investor-led group that seeks to promote corporate governance standards that contribute to sustainable economies and market efficiency. Its membership roster includes professionals for 45 countries (mainly in Europe and the US with the American counterpart being the Society for Corporate Governance). The group often is invited to assist in raising global corporate governance standards.
The Organisation for Economic Cooperation and Development (OECD) has had Principles of Corporate Governance of OECD and G20 countries since 1999, with the most recently-updated version receiving endorsements from the G20 Leaders Summit and OECD Council. The principles sought to aid governments in boosting their policies in this realm.
So, what corporate governance principles can help me fulfil my compliance obligation?
Regardless of where you choose to incorporate, we recommend you address a few baseline components. Focusing on these pillars will offer you the foundation to create corporate governance with transparency, fairness, accountability, and responsibility for long-term viability.
Proper accounting and auditing
Cooking the books or not completing your audited statements in the right way can lead to non-compliance, and through that, a recipe for trouble for your entity. Enlisting an accountant and auditor that meets your entity’s needs and has the expertise in the jurisdictions you impact is crucial. It’s always better to hire expert accountants to complete your statutory financial statements the right way rather than doing them yourself and getting it disastrously wrong. When you do business in multiple countries, the complexity surrounding financial and tax reporting increases.
Not only do internationally-mobile professionals and business owners like you have to file your tax documents in the jurisdiction of incorporation, but your home country may also require additional disclosures if you’re living or working abroad. If you’re a US citizen or permanent resident, you’ll have to comply with FATCA. The same goes if your country of citizenship is a CFRS jurisdiction. If word gets out about improper auditing, investors may think you don’t know how to get things done, even if it’s a rookie mistake.
You’ll also want to pay attention to local regulations, such as the UAE’s Economic Substance Regulations (ESR) and beneficial ownership declarations around the world. The UAE recently amended their requirements, and we’re ensuring that our UAE-based clients seamlessly adapt to the new rules.
Structure your board to avoid any issues
Since your Board of Directors proves crucial in your long-term direction, the structure for your board plays vital in accomplishing what you would like. If your board structure makes it hard to remove an incumbent that doesn’t fulfil their role, that’s not good governance. Fortunately, company formation experts like our team at Europe Emirates Group have the insight you need to shore up yours.
Find an expert Corporate Secretary
Suppose non-compliance is a significant concern because you would instead focus on running your business than the due-diligence and paperwork. In that case, a qualified Secretary and their services can do just that. They will update and maintain your records, handle any routine changes and remind you when it’s almost time to complete and submit any accounting. Our secretarial services ensure proper legal and financial compliance in your chosen jurisdiction.
Are you looking to resolve or prevent corporate governance issues?
If you’re looking to shore up your firm’s corporate governance apparatus, our team at Europe Emirates Group has everything you need. Whether it’s a Secretary, assistance in preparing your financial documents or determining how to best structure your board, we collaborate with all our clients to craft tailor-made solutions that maintain business ethics while achieving your enterprise goals. Would you like to learn more? Don’t hesitate to contact us today.
Written by
Adrian Oton
CEO, Europe Emirates Group
CRS: What is it?
The Organisation for Economic Co-Operation and Development (OECD) developed the Common Reporting Standard initiative, which requires governments in participating jurisdictions to collect financial account information from financial institutions registered in their jurisdiction. The account information collected is for customers who are tax residents outside the country in which they hold their accounts.
The purpose of the CRS is to avoid tax evasion and ensure that all financial information is accurately reported, even across borders. Prior to the CRS, countries only shared financial information such as assets and tax information with other countries upon request, which did not effectively prevent tax evasion. The first group of 97 countries signed on to the agreement in 2017 and a large second group followed in 2018. Today, many countries around the world have agreed to openly share financial information and contribute to the fight against tax evasion and fraud.
Once countries have received financial information from the companies and people within their jurisdiction, they automatically exchange this information on an annual basis with other jurisdictions that are also members of the CRS agreement. Participating jurisdictions will enact and implement the Common Reporting Standard under their local laws and banks worldwide reach out to customers to request information or documents to confirm their tax residency status.
The CRS is a 44-page document that contains the following information:
Name, address, Taxpayer Identification Number, birth place and day of each person named on the CRS
Account number
Name and number of institution
Account balance/value
Capital gains (all included)
There are four parts of the CRS: a model Competent Authority Agreement (CAA), which provides the legal framework for the automatic exchange of CRS information; the Common Reporting Standard; Commentaries on the CAA and CRS; and a user guide. Please refer to the OECD website for more information about the Common Reporting Standard.
How Will CRS Affect Your Business?
Governments around the globe, including that of the United Arab Emirates, are committing to international initiatives developed to fight tax evasion and promote tax transparency. The UAE was one of the first countries to sign on to the agreement, showcasing its commitment to open tax policies and aversion to tax evasion. After joining in 2017, the first CRS reporting in the UAE took place in June of 2018.
This does not mean that legitimate companies and individuals will lose the advantages being offered by the UAE in terms of quality of life and zero tax structures presently enjoyed; however, it means that there are matters and changes that need to be considered to ensure that whilst being compliant, you remain at zero tax or as close to it as possible.
Does the CRS Include My Business?
The CRS decrees that Financial Institutions must report their income and expenditures to the governing body of their jurisdiction, but there are some exceptions. The CRS defines Financial Institutions as:
Custodial Institutions
Banks
Investment Trades
Asset/Wealth Managers
Depository Institutions
Investment Entities
Specified Insurance Companies
However, there are also Non-Reporting Financial Institutions that are not included under CRS regulations, such as government entities, international organisations, or central banks, among others. If you’re interested in an initial assessment of your particular circumstances to see how the CRS will affect you and what options you have, please do not hesitate to contact us for a free initial assessment.
Written by
Adrian Oton
CEO, Europe Emirates Group
