On 3rd August 2020, the UAE Ministry of Finance issued updated CRS guidance. The changes in the guidance have impacts on UAE Financial Institutions (“FIs”) and their customers.
The updates to the guidance are as follows:
New section covering UAE tax residency definitions and the reasonableness test (Section 6)
The updated guidance introduces new requirements in relation to the reasonableness test. This test is required to be applied to self-certifications by UAE reporting financial institutions (‘RFIs”). These changes will require RFIs to update their customer onboarding processes and it will impact a significant proportion of account openings.
The updated guidance clarifies that in order to consider a statement of “UAE tax residency for tax purposes” declared by an Account Holder or a Controlling Person (any of which a “Declaring Person”) in a self-certification is reasonable or not, an RFI should:
1. For new individual accounts:
- Obtain documentary evidence of a valid UAE residency visa from the Declaring Person;
- Carry out enhanced due diligence procedures in respect of valid UAE residency visas with a term of five years or more. The self-certification is considered as reasonable if the enhanced due diligence procedures do not render any reason to believe that the self-certification of UAE tax residency is incorrect or unreliable
“Enhanced Due Diligence” requires an RFI to seek answers from the Declaring Person which include (but are not limited to) the following questions:
(i) Did you obtain UAE tax residency under a residency by investment scheme?
(ii) Are you a resident in any other jurisdiction(s)?
(iii) In which jurisdiction(s) have you been subject to personal income tax during the previous calendar year?
2. For new entity accounts:
- documentary evidence of valid trade license, registration certificate or similar issued by the relevant UAE licensing authority.
New section on sanctions (Section 7)
The updated guidance issued new sanctions that needs to be imposed by each regulatory authority in the UAE. The changes not only affect the FIs but should also be considered by Declaring Persons (any party that completes a self-certification).
For example, a UAE resident individual completing a self-certification to open a personal bank account could be subject to these sanctions.
1. Provision for false self-certification
- A fine of 20,000 Dirhams is to be imposed on any declaring person if the self-certification contains any inaccurate or incorrect information and the declaring person knows or should have known that the information provided is inaccurate or incorrect.
- The FIs are required to notify their regulatory authority on any violation made by a declaring person within a time span of 30 days and provide all the information available to it on the identity, address and place of residence of the violator. The regulatory authority will then have 30 days from the date of notice to notify the violating declaring person of the amount of the fine and require them to pay the fine within 30 days of receipt of the notice.
2. No valid or validated self-certification
- A fine of AED 1,000 is to be imposed on any FI which opens a new account without obtaining a valid self-certification and/or failing to validate such self-certification.
- The regulatory authority needs to notify an FI of any such violation within 30 days of the regulatory authority becoming aware of it. The FI will be required to pay the fine within 30 days of receipt of the notice.