Are the UAE banks ready for CRS reporting?

The objective of developing a Common Reporting Standard (CRS) is to combat tax evasion. Common Reporting Standard (CSR) is the tax reporting framework developed by Organisation for Economic Cooperation and Development (OECD) that requires Automatic Exchange of Information (AEOI) between tax authorities in participating countries for inter-jurisdiction reporting. Under CRS, financial institutions (FIs) are obliged to identify reportable persons that are tax residents in another country and exchange this information with the taxpayer’s residence jurisdiction.

Given that CRS is a global initiative as oppose to FATCA which focuses only on US citizens; all banks, asset management companies and insurers in participating countries around the globe are required to maintain compliance with the CRS standard. More than 100 jurisdictions have already committed to the implementation of this new legislation including the United Arab Emirates (UAE) countries with the aim to prevent taxpayers to circumvent reporting, increase transparency and protect the integrity of tax systems.

What is the CRS Reporting Timeline in the UAE?

With the majority of jurisdictions already started their CRS implementation, some have committed to adopting the regime only recently such as the case with the UAE countries. To comply with the CRS, participating jurisdictions within the UAE countries are required to go live with the standard in 2018 and submit reporting by 2019. While the global effort to increase transparency represents firms with the perfect opportunity to enhance their business and service operations, the challenges of managing the compliance needs are extremely complex. Since CRS is more wide-reaching than FATCA, the need for a unified approach to ensure readiness and compliance becomes ever so clear, especially within the countries that appear less prepared.

Key Challenges of CRS

The real challenge of the CRS complexity is the volume of clients and their accounts. FIs must deal with processing significantly large volumes of data and evaluate millions of customer records in order to identify which accounts and sub-accounts are reportable under the standard. The banks have to segregate the information between residents and non-residents and break it down according to different jurisdictions. The implementation process, therefore, needs to be automated in a very smart fashion. Or else, how will financial institutions in the UAE and all over the world manage this complexity, with the specific reporting requirements of more than 100 countries? Given the extensive range of countries signed up for the CRS, data to be reported will certainly be a lot higher than its predecessor FATCA.

One of the biggest challenges is the scope of the CRS reporting. For instance, if a UAE bank has 15 entities in different jurisdictions, every entity will need to comply with the reporting requirement of that country, whether the reporting is based on the common reporting framework or on a specific reporting requirement. FIs must ensure compliance across multiple jurisdictions and ensure the data is submitted in the right format and reporting framework whilst remaining adaptable to the regulatory changes. Are the FIs in the UAE ready to ensure their data is in line with the CSR reporting framework? Can they cater for implementation requirement automatically with limited resources deployed for the process? Ultimately, can this be done in a highly intelligent manner that is cost-effective, efficient and streamlined?

The complexity of the process is undoubtedly another challenge for firms to tackle, with the identification, capturing and analysing customer data happening at the entity level. As a result, all these factors contribute the compliance cost to peak with a shorter AEOI implementation timeframe. It is not possible to overcome those challenges with a manual excel spreadsheet approach.

Today, FIs all around the globe collectively realise the need for systematic technology solutions to tackle not only CRS requirement but also the never-ending regulatory reporting challenges in order to ensure compliance and avoid penalties. This is why it is crucial to have automation, governance and audit trail to ease the process of implementation now and in the long term.

Staying Ahead

Tax reporting requirements have increased exponentially over the recent years and is set to become even more intricate in the future. With the implementation deadlines firmly in sight for UAE countries, the new world of tax transparency will no longer tolerate tax evaders. The CRS is already empowering governments to gather and investigate any proof of tax evasion and will continue to do so within UAE countries when the implementation starts a year from now. To get a head start on preparing for the CRS implementation deadlines, FIs within the UAE countries need to take action now to assess their reporting options strategies that will ensure compliance on time and benefit the organisation in the longer term.