International Tax and Exchange of Information Compliance in the UAE

The United Arab Emirates (UAE) plays a pivotal role in global tax transparency by implementing two key frameworks: the United States’ Foreign Account Tax Compliance Act (FATCA) and the Organisation for Economic Co-operation and Development’s (OECD) Common Reporting Standard (CRS). These systems ensure the automatic exchange of financial account information to combat tax evasion. The UAE adopts the “widest approach” for CRS, which includes:

• Performing due diligence on all account holders who are tax residents in jurisdictions other than the UAE or the USA (with the USA covered under FATCA).
• Reporting accounts held by individuals and entities, including controlling persons of passive non-financial entities (NFEs).

This guide outlines the obligations, procedures, and penalties related to UAE FATCA compliance and CRS reporting in the UAE, providing financial institutions with essential insights.

FATCA Compliance in the UAE

• Intergovernmental Agreement (IGA):

  • The UAE signed a Model 1B IGA with the U.S. on 17 June 2015.
  • UAE Reporting Financial Institutions (RFIs StrategX (RFIs) must identify and report U.S.-linked accounts to UAE authorities, who then share this data with the U.S. Internal Revenue Service (IRS).

• Who Must Comply:

  • FATCA applies to Reporting Financial Institutions (RFIs), including banks, custodians, investment managers, and insurance companies, whether operating as branches or standalone entities.

• Registration Obligations:

  • RFIs must register with:
    • The IRS to obtain a Global Intermediary Identification Number (GIIN).
    • UAE regulatory authorities, such as the Ministry of Finance (MOF), Central Bank, Securities and Commodities Authority (SCA), Abu Dhabi Global Market (ADGM), and Dubai International Financial Centre (DIFC).

• Exemptions:

  • Certain entities are exempt from reporting, including:
    • Government bodies.
    • Pension funds.
    • Small local banks.
    • Specific investment entities listed in Annex II of the IGA.

• Non-Financial Foreign Entities (NFFEs):

  • NFFEs are non-U.S. entities that are not financial institutions.
  • Classified as Active NFFEs or Passive NFFEs.
  • RFIs must identify Passive NFFEs with U.S. controlling persons; NFFEs themselves have no direct FATCA reporting duties.

• Due Diligence:

  • RFIs must identify accounts held by:
    • Specified U.S. persons.
    • Passive NFFEs with U.S. controlling persons.
    • Non-Participating Financial Institutions (NPFIs).
  • This involves collecting FATCA self-certification forms and reviewing documentation for U.S. indicators (e.g., U.S. address, phone number, or place of birth).

• Ongoing Monitoring:

  • RFIs must monitor accounts for changes affecting FATCA status, such as a new U.S. address or updated controlling persons.
  • Such changes trigger reassessment and require updated self-certification.

• Annual Reporting:

  • RFIs must file reports on U.S. reportable accounts or submit nil returns if no such accounts exist.
  • Deadline: 30 June each year.
  • Since 2020, U.S. Tax Identification Numbers (TINs) are mandatory.
    • If unavailable, temporary placeholder codes (e.g., 222222222, 333333333) may be used, but RFIs must actively pursue actual TINs.

• Submission Process:

  • Reports are submitted to the UAE Ministry of Finance (MoF), which exchanges the data with the IRS.

• Third-Party Providers:

  • RFIs may outsource due diligence and reporting to third parties (e.g., fund administrators or trustees).
  • Liability for compliance remains with the UAE RFI.

• Liquidated Entities:

  • Entities liquidated mid-year must complete FATCA reporting for that year.
  • They must notify their regulatory authority and deregister from the FATCA reporting portal and IRS system.

CRS Compliance in the UAE

• OECD CRS Framework:

  • Includes:
    • Model Competent Authority Agreement (MCAA).
    • Common Reporting Standard (CRS).
    • Commentaries, FAQs, and the CRS XML Schema User Guide.

• UAE Legal Framework:

  • Implemented via:
    • Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC), ratified by Federal Law No. 54 of 2018.
    • Multilateral Competent Authority Agreement (MCAA), ratified by Federal Law No. 48 of 2018.

• Reporting Deadline:

  • CRS reports are due by 30 June annually.

• Data Security:

  • The UAE exchanges information only with jurisdictions meeting strict confidentiality and data protection standards, monitored by the OECD’s Global Forum on Transparency.

• Reporting Requirements:

  • RFIs must report annually to the UAE MoF:
    • Name, address, jurisdiction(s) of residence, TIN(s), and date/place of birth (for individuals).
    • Account number and balance/value.
    • Gross interest, dividends, and proceeds.
    • Financial institution identifier (name and number).
    • For custodial/depository accounts: gross income and redemption payments.
  • Nil returns are required if no reportable accounts exist.
  • Records must be retained for 5 years.

• Due Diligence Procedures:

  • Vary by account type and status:
    • Pre-existing Individual Accounts:
      • Lower-value (≤ USD 1 million): Reviewed via residence address or electronic records; foreign indicia (e.g., address, phone number) prompt further checks.
      • High-value (> USD 1 million): Enhanced reviews, including documents and relationship manager inquiries.
    • New Individual Accounts:
      • Require self-certification of tax residency at opening, validated against AML/KYC data.
    • Pre-existing Entity Accounts:
      • ≤ USD 250,000 (as of 31 Dec 2016): Excluded unless balance increases later.
      • > USD 250,000: Reviewed to classify as Passive or Active NFE and identify controlling persons’ tax residency.
    • New Entity Accounts:
      • Require self-certification and determination of Passive NFE status with reportable controlling persons.

• Key Considerations:

  • Self-certifications must align with known facts.
  • Pre-existing account rules may apply if a jurisdiction joins CRS mid-period.
  • Special rules govern insurance contracts and group policies.
  • Linked accounts are aggregated.
  • Currency thresholds use AED/USD spot rates.
  • Negative balances are reported as zero.

• Reportable Entities:

  • Custodial Institutions: Hold assets for others.
  • Depository Institutions: Accept deposits (e.g., banks).
  • Investment Entities: Manage/invest funds for clients.
  • Specified Insurance Companies: Issue cash-value insurance/annuity contracts.

• Excluded Accounts:

  • Retirement/pension accounts.
  • Certain life insurance contracts.
  • Estates, court-ordered accounts, escrow accounts, loan servicing accounts, and overpayment accounts (if < USD 50,000 and refunded within 60 days).

• Reportable Accounts:

  • Held by:
    • Reportable Persons: Individuals/entities tax resident in a reportable jurisdiction.
    • Passive NFEs with reportable controlling persons.

Non-Compliance Sanctions

• Penalty Range:

  • Fines for CRS and FATCA violations: USD 300 (e.g., invalid self-certifications) to USD 70,000 (e.g., significant misreporting), with potential daily accruals.
  • FATCA non-compliance may trigger a 30% withholding tax on U.S.-source payments.

• Regulatory Enforcement:

  • UAE regulators (Central Bank, ADGM, DIFC) penalize breaches.
  • Examples:
    • September 2022: ADGM FSRA fined five RFIs between AED 30,000 and AED 119,000.
    • May 2025: ADGM FSRA imposed fines totaling AED 610,000 across 23 entities for issues like missing risk assessments, flawed due diligence, and inaccurate reporting.
    • March 2025: Central Bank fined five banks and two insurance companies AED 2,621,000 for CRS and FATCA reporting failures.

• Specific ADGM FSRA Penalties:

  • 2024:
    • Failure to submit a Nil Return on time: AED 26,000 (AED 1,000/day, up to AED 30,000).
    • Non-compliance with FATCA provisions: AED 10,000.
    • Non-compliance with CRS provisions: AED 10,000.
    • Failure to apply FATCA due diligence: AED 40,000.
    • Failure to apply CRS due diligence: AED 40,000.
    • Various non-compliances by an ADGM entity: AED 106,000.
  • 2025:
    • Various non-compliances by an ADGM entity: AED 104,000.
    • Various non-compliances by an ADGM entity: AED 86,000.

Conclusion

The UAE’s adherence to FATCA and CRS underscores its commitment to international tax compliance. Financial institutions must navigate detailed due diligence, reporting, and monitoring requirements to avoid penalties. By adopting the “widest approach” for CRS and enforcing strict FATCA obligations, the UAE strengthens its position in global tax transparency while safeguarding data integrity.

How To Stay Compliant with FATCA and CRS in the UAE

At DP Taxation, we can guide you through the process of staying compliant by keeping your FATCA and CRS forms and reports all up to date. We are also certified to aid your business or organization with advisory and representation if needed.

Contact us by booking a consultation on: dptc.ae

Or call us at +971 050 943 4155 for tailored solutions!

For further inquiries, email us at bd@dptc.ae.