UAE banks to expats: ‘We’ll be sharing your bank details from 2018’

Expatriates living in the United Arab Emirates are beginning to get the word from their advisers, bankers and others that details of financial accounts they have in the country will begin to be shared automatically with the authorities in most of their home countries, beginning in 2018, as the country begins to honour its obligations under the so-called Common Reporting Standard.

The UAE is one of some 47 countries and jurisdictions that have committed to automatically sharing the financial data on individuals and legal entities with other countries, beginning in 2018, under the CRS, which means that financial institutions operating there will be required to start collecting such data early in 2017.

Another 54 countries will start exchanging this information next year, and thus have already begun collecting it, according to the Organisation for Economic Co-operation & Development, which is behind the creation and enforcement of the CRS.

For now at least, few expatriates in the UAE are aware of the CRS, according to Bob Parker, chief executive of the Holborn Group, the Dubai-based international advisory business, which also has operations as well in the UK, Africa and Spain. But he says their need to know about it may not be all that urgent.

“That’s because your average UAE expat is almost certainly non-resident for tax purposes in their own country, given that the UAE doesn’t tax its residents at all at the moment,” he explained.

That said, Parker said that Holborn advisers “normally recommend that our UAE clients keep their money outside of the UAE rather than in a UAE bank, because the UAE’s banking laws can be a problem – for example, if an expatriate account-holder dies, since “their assets are automatically frozen [on their death], and there can be issues as well with the will, since the law of the land is for an individual’s assets to be distributed to their surviving family members on the basis of a Shariah law formula, although [this is] rarely applied in the case of non-Muslims, [though] can be applied to immovable assets.”

Tax evasion response

The CRS was developed over the last few years in response to growing global concerns, particularly among G20-member countries, about what many experts have said has been a growing problem of tax evasion and avoidance that has been facilitated by the practice of keeping assets abroad, either in individual accounts or in corporate accounts that don’t reveal their beneficial owners.

The types of financial institutions that will be expected to report in those countries that have signed up to the CRS include banks, custodians, certain investment entities such as investment funds, and certain insurance companies, trusts and foundations.

The fact that UAE banks will begin reporting bank account details to expats’ home country tax authorities is thought likely to unsettle many expatriates, who assume that being resident in the Emirates means they can accumulate wealth tax-free during their time there. For now, at least, the UAE is aggressively anti-tax, although, as reported here in February, it and its fellow Gulf Cooperation Council member states are moving towards adopting a value-added tax in 2018, under pressure from the International Monetary Fund.

And in June, a CFA Society Emirates report found that some 80% of Emiratis surveyed said they would consider moving abroad  if an income tax were introduced.

According to Zawya, the Middle Eastern news service owned by Thomson Reuters, HSBC has begun alerting its clients to the fact of the pending information gathering in a circular, which warns them that, “from the beginning of January 2017… all banks and other financial institutions [will be required] to ask customers for information, with a view to determining where they are resident for tax purposes”.

The Zawya report quoted the compliance head of an undisclosed UAE bank as saying that this particular institution had “yet to receive any specific guidelines on data collection related to CRS” but that its staff were “fully aware; starting next year we will have to collect the required data as part of implementation of CRS”.

The only Middle Eastern country not yet on the OECD’s current  list of CRS-compliant countries  is Oman.

The US is the only major country not to have signed up to enforce the CRS. It has said it doesn’t need to, as it implemented a similar tax information exchange scheme known as the Foreign Account Tax Compliance Act (FATCA), although some observers note that FATCA isn’t as universally in force as the CRS is set to be, or as encompassing in the types of information it asks for, and that the US could therefore potentially end up being used by some foreign HNWIs, with access to specialist advisers, to hide their wealth.

A number of countries, including Argentina, Indonesia and Brazil, have introduced tax amnesties ahead of the implementation of the CRS, in hopes that concerns about what may happen once the autmatic information exchange begins will prompt taxpayers with unreported billions to come forward.

Under CRS, the information to be reported about individuals and legal entities will include such details as the investment income the individual in question earned during the previous year, as well as any interest income, dividends, income from insurance payments, annuities and so on. contracts or annuities. Account balances are also due to be reported, as will be any gross proceeds from the sale of financial assets.

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