CRS Explained: How It Affects Your Business
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
Name and number of institution
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:
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.
CEO, Europe Emirates Group