UAE Non-Reporting Financial Institution for FATCA & CRS Purposes

All UAE financial institutions (FI), defined as such for FATCA and CRS purposes, are Reporting Financial Institutions (RFIs) unless an exemption from reporting applies.

 The exemptions and the categories of FIs to which these apply can be found in Annex II to the UAE/USA  Intergovernmental Agreement (IGA) for FATCA, and for CRS in Section VIII of :

•  the Automatic Exchange of Financial Account Information Regulations attached to the Ministry of Finance Guidance Notes for the Common Reporting Standard United Arab Emirates issued 3 August 2020, and 
• the DIFC Common Reporting Standard Regulations 2018 Consolidated Version 2 (In force on 30 July 2020).

 Where an exemption applies the FI will be a Non-Reporting Financial Institution (NRFI). NRFIs are exempt from the requirement to file annual reports with the Ministry of Finance, the UAE;s competent Authority.

 A general overview of the categories of NRFIs is set out below, which provides only a basic summary of the exemptions in the context of (i) NRFIs common to both FATCA and CRS, and (ii) NRFIs specific only to FATCA. 

 A. NRFIs common to both FATCA and CRS 

1. UAE Government Entities, International Organizations, Central Bank and their Pension Funds 

 Government Entities cover the federal and any subnational government, political subdivision (e.g. emirate, municipality or local authority), its integral parts, controlled entities and any wholly owned agencies or instrumentalities (whether held directly or indirectly through other controlled entities). The net earnings of the integral part or controlled entity must be credited to its own account or other accounts of the UAE government, with no portion inuring to the befit of private persons.

 International Organizations include a wholly owned subsidiary or instrumentality of that organization; an intergovernmental organization, supra national organization comprised primarily of governments, with headquarters or substantially similar agreement (entitling privileges and immunities) in place with the UAE; and the income of which does not inure to the benefit of private persons. For the purposes of FATCA the definition only applies to International Organizations comprised primarily of non-US Governments. 

The Central Bank and the pension funds of Government Entities, International Organisations and the Central Bank, round out the NRFIs in this category.

(The exemption does not cover payments (where the NFRI acts in an intermediary capacity) arising from an obligation connected to a commercial financial activity typically carried out by a Depository Institution, Specified Insurance Company, or Custodial Institution. Any such payment would trigger reporting obligations for the NFRI in respect of that payment). 

2. Certain UAE Regulated Employee Retirement Funds 

These are regulated funds established to provide retirement, disability or death benefits, or a combination of these benefits which submit annual information reports on beneficiaries to UAE relevant authorities. (CRS specifies that such reports must be submitted to the tax authorities). The exemption applies to the following funds 

a.  Broad Participation Employee Retirement Fund.

This is a Fund in which no single beneficiary has the right to more than 5% of the Fund’s assets AND one of the following conditions is also satisfied

     -  the Fund is tax favored under UAE laws.

     -  at least 50% of the contributions come from sponsoring employers (excluding prescribed transfers of assets from other plans) 

     - distributions and withdrawals are restricted to the occurrence of specified events (except certain excluded rollover distributions) or a penalty applies to distributions/withdrawals made before the occurrence of the specified event.

     -  employee contributions (except certain permitted make-up contributions) are limited by reference to his/her earned income or a maximum of USD50K annually applying the rules for account aggregation and currency translation. 

b. Narrow Participation Employee Retirement Fund. To qualify the Fund must

     -  have less than 50 participants

     -  be sponsored by one or more employers that are NOT INVESTMENT ENTITIES or PASSIVE NFEs,

limit employer and employee contributions (excluding transfers of assets from certain designated excluded retirement and pension accounts) by reference to earned income and compensation of the employee; AND

      -  ensure that entitlements of participants that are not UAE residents is capped at 20% of the Fund’s assets. 

3. Qualified Credit Card Issuers (Must Register with IRS and obtain a GIIN) 

The exemption applies only where the sole reason for being an FI arises from issuing cards that accept deposits in excess of the balance when the customer makes a payment, and the Card Issuer has implemented policies and procedures to refund the overpayment within 60 days.

 4. Trustee Documented Trusts 

This applies to a trust established under UAE law where its Trustee is an RFI (and, in the case of FATCA, has not been declared a Non-Participating FI by the IRS) Additionally the Trustee must be, otherwise, compliant with its FATCA and/or CRS reporting obligations. 

 5. Exempt Collective Investment Vehicles (CIV)

 This applies to a UAE regulated CIV, in which -

      -  (in the case of FATCA), all interests in the CIV (including debts interests exceeding USD50K) are held by or through one or more Exempt Beneficial Owners (BOs), Active NFFEs, US Persons that are not Specified US Persons and FIs that are not Non-Participating FIs. The reporting obligations of the CIV are deemed to have been met except in relation to an FI through which interests in the CIV are held. 

     -  (In the case of CRS), all the interests (equity and debt) are held by persons that are not reportable, except a Passive NFE that has a Controlling Person that is reportable

6. Other Low-Risk Financial Institutions 

Although the UAE has power under its international agreements to exempt other types of low-risk FIs from the reporting obligation, to date no additional low-risk FIs for either FATCA or CRS have been identified. 

B. NRFIs exclusive to FATCA -

1. Investment Entity that is wholly owned by FATCA designated Exempt Beneficial Owners

Entities described in this section B.1 and sections A.1 and A.2 above satisfy the requirements for Exempt BOs under relevant US FATCA rules.

In addition to the requirement that each direct equity interest in the Investment Entity described in this section must be held by a FATCA (Exempt BO), each direct holder of a debt interest in the Entity must be either a Depository Institution (in the case of a loan made to the Entity), or a FATCA Exempt BO.

2. “Deemed Compliant” FIs

In addition to the NRFIs listed above, for FATCA purposes only, the following entities (which along with Qualified Credit Card Issuers, Trustee Documented Trusts and Exempt CIVs in section A.3.-A.5. above) are “Deemed Compliant” under US FATCA rules, i.e. the IRS deems the Reporting obligations to be satisfied. These e deemed compliant FIs, (which are predominantly Investment Entities), are exempt from filing annual Reports with UAE Ministry of Finance (in defined circumstances):

(1) Certain Small or Limited Scope UAE licensed FIs identified below. (Applicable limitations include geographical restrictions on business location and solicitation of clients.)

    a. FI with a local client base

    b. Local bank or credit organization with assets of USD175M or less and for which the total consolidated assets with any related  entities does not exceed USD500M.

    c. FI, which is not an Investment Entity, with only low value accounts (i.e. accounts of USD50K or less and assets of not more than USD50M whether alone or on consolidated basis with related entities)

The full qualifying criteria to be met by each of the above FIs in order to be a NRFI is contained in Annex II, Section III, A, B and C of the IGA.

(2) Sponsored Entities (Must register with IRS and obtain a GIIN)

These are FIs that have an agreed arrangement in place with another person (the Sponsor that is duly authorized by IRS) to fulfill the Sponsored Entity’s UAE FATCA compliance obligations as well as registration and FATCA reporting obligations with the IRS. Sponsored UAE FIs:

  a. A US Controlled Foreign Corporation (CFC) that-

      -  is organized under the laws of the UAE,

      -  is (directly or indirectly) wholly owned by a Reporting US FI which agrees to act or requires one of its affiliates to act as a Sponsor for the CFC

      -  is not a Qualified Intermediary (QI), Withholding Foreign Partnership (WFP) or Withholding Foreign Trust (WFT) as defined in US Treasury Regulations

     -  shares a common electronic account system with the Sponsor to enable Sponsor’s access to all information on accounts, customers and payees of the Sponsored Entity 

  b. An Investment Entity that is established in the UAE, which is not a QI, WFP or WFT.

  c. A Closely Held Investment Vehicle that -

     -  is an Investment Entity established in the UAE,

     -  is sponsored by an entity that is either a Reporting US FI, a Reporting FI of a US Model 1 Partner Jurisdiction or an FI that has not been declared a NonParticipating FI by the IRS

     -  is not a QI, WFP or WFT,

     -  is not holding itself out as an investment vehicle for unrelated parties,

     -  has twenty or fewer individuals owning all its interests (debt and equity) disregarding debt interests owned by Participating FIs, Deemed Compliant FIs and equity interests owned by any Entity that owns 100% of the equity interests in the Sponsored Closely Held Investment Vehicle and which other Entity is also a Sponsored Closely Held Investment Vehicle. 

(3) Investment Advisors & Investment Managers - Investment Entity Type A

This exemption applies to Investment Advisors & Investment Managers that satisfy the criteria for a UAE FI solely on the basis of providing investment advice, investment management services or acting on behalf of a customer for purposes of investing, managing or administering funds that are on deposit (in the name of the customer) with a FI other than a participating FI.

(4) US Partner Jurisdiction Investment Entities

This applies to Investment Entities that are regulated CIVs established in a US Partner Jurisdictions and in which all interests (including debt interests exceeding USD50K) are held by or through one or more Exempt BOs, Active NFEs, US Persons that are not Specified US Persons and FIs that are not Non-Participating FIs.

(5) US Treasury Regulations designated Qualified Collective Investment Vehicles (Must Register with IRS and obtain a GIIN)

The exemption applies to a UAE Investment Entity that is a Qualified Collective Investment Vehicle under relevant US Treasury Regulations

(6) Collective Investment Vehicles that are Investment Entities, and not otherwise covered in Sections A.5, C.4 or C.5 above

An Investment Entity (A) is exempt from reporting obligations in respect of interests in a UAE established Investment Entity (B) where the reporting obligations for the interests in B are carried out by B itself or some other person on B’s behalf.

C. Registered Deemed Compliant FIs

In accordance with US FATCA Rules and Regulations the following deemed compliant UAE NRFIs must register with the IRS and obtain a GIIN.

     -  Non-Reporting member of a Participating FFI group (i.e. where reporting is being carried out by another person.

     -  Qualified Collective Investment Vehicle under US Treasury Regulations

     -  Restricted Funds

     -  Qualified Credit Card Issuers

     -  Sponsored Investment Entities

More articles around FATCA

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• Unpacking some FATCA and CRS basics

• FATCA/CRS: Reporting Obligations Of UAE Investment Entities

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