Understanding FATCA for UAE Financial Institutions

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Introduction:

The UAE actively participates in the Automatic Exchange of Information (AEOI) through its commitment to FATCA (1) and CRS (2) regimes. Reporting UAE Financial Institutions (UAE FIs) are required to annually report specific financial account information to the UAE Ministry of Finance, facilitating data exchange with the IRS and peer jurisdictions. This write-up provides an overview of how the UAE applies FATCA.

Applicability:

The UAE-US IGA (3) applies to UAE FIs incorporated or registered in the UAE and branches of non-UAE FIs registered in the UAE. It excludes branches of UAE FIs located outside the UAE.

Reporting UAE FIs and Unregulated Entities:

Reporting UAE FIs are tasked with identifying financial accounts held by Specified U.S. Persons or Passive Non-Financial Foreign Entities (NFFEs) with Controlling Persons who are Specified U.S. Persons. Such entities must register with the US IRS. Unregulated Entities are defined as Reporting UAE FIs that are not reporting (4) to the Central Bank of the UAE, the Securities and Commodities Authority, ADGM, or DIFC for FATCA purposes. Such entities must register with the Ministry of Finance.

Reporting UAE FIs can be categorized as custodial institutions, depository institutions, investment entities, and specified insurance companies, encompassing various financial institutions such as banks, custodians, investment traders, and life insurance companies.

Exempt Entities:

Certain categories of UAE FIs are considered as Non-Reporting FIs under FATCA, viz,

•  Exempt Beneficial Owners (i.e. the Government of the UAE, an international organization and Central Bank);
•  Funds that qualify as Exempt Beneficial Owners (i.e. certain retirement or pension funds);
• Small or Limited Scope FIs that Qualify as Deemed-Compliant FFIs (i.e. certain small and/or local FIs, etc.); or
• Investment Entities that qualify as Deemed-Compliant FFIs (i.e. Trustee-documented trusts, sponsored investment entities).

Further, Non-Financial Foreign Entities (NFFEs), defined as any foreign non-US entity that does not meet the definition of an FI, are also not required to report under the UAE-US IGA. It is advisable for entities operating in the UAE to evaluate their reporting obligations under FATCA (please refer to the flowchart for further details).

Obligations of Reporting UAE FIs:

Reporting UAE FIs are obligated to comply with the UAE-US IGA, involving registration with the IRS. Other obligations include due diligence on financial accounts, annual reporting of U.S. reportable accounts, reporting payments to Non-Participating FIs, and continuous monitoring of changes in account holder FATCA status.

The FATCA reporting deadline for Reporting UAE FIs is typically June 30 of the year following each reporting period, unless extended by the regulatory authority. Nil reports must also be filed under FATCA. Information so gathered is then exchanged between the UAE Ministry of Finance and the U.S. IRS.

Conclusion:

Understanding FATCA compliance is paramount for businesses and financial entities in the UAE to avoid stringent penalties. Investment entities, fund managers, family offices of ultra- high net worth individuals having presence in the UAE, the U.S. as well we other jurisdictions must evaluate whether they are exempt from FATCA compliances. As the landscape of international tax compliance evolves, staying informed and seeking professional advice remains crucial for multinational entities operating in the UAE.

[1] Foreign Account Tax Compliance Act – a U.S. legislation

[2] Common Reporting Standard – developed by OECD

[3] Intergovernmental Agreement with the US to improve international tax compliance and to implement FATCA

Disclaimer : The content on this website is provided for general informational purposes only. It is not intended as professional advice and should not be construed as such. The information is based on the knowledge and experience available at the time of writing and is subject to change.