CRS and FATCA Compliance in the Middle East and North Africa

CRS and FATCA Compliance in the Middle East and North Africa 

Background 

Global tax authorities agree that to combat tax evasion, a coordinated approach is necessary across jurisdictions. Automatic Exchange of Information (AEOI) is where countries exchange accountholder information about tax residents of one country who have in-scope accounts in the other country.  

The Foreign Account Tax Compliance Act (FATCA) added chapter 4 to the U.S Internal Revenue Code (IRC). Since 2014, when it came into force, foreign financial institutions (FFIs) have been required to disclose to the Internal Revenue Service (IRS) certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The IRS may impose 30% withholding tax on withholding agents who fail to obtain valid documentation.  

The Common Reporting Standard (CRS) is a due diligence and reporting framework introduced in 2014, by the Organization of Economic Cooperation and Development (OECD) which has been adopted into local law by many member countries, with more committing to join each year.  

IGAs and FATCA Compliance in the MENA Region 

Prior to implementing FATCA compliance into a country’s legal framework, both countries agree to an Intergovernmental Agreement (IGA). The IGA requires FFIs to report information on their U.S. accountholders, either directly to the IRS (Model 2 type of IGA) or to the local tax authority which will exchange that information with the IRS (Model 1).  

Currently, the FFIs in the below MENA countries have FATCA obligations: 

• Israel 

• Saudi Arabia 

• Kuwait 

• Qatar 

• Bahrain 

• United Arab Emirates (UAE) 

• Iraq 

• Cyprus 

• Algeria 

• Tunisia  

• Turkey 

Common Reporting Standard in the MENA Region:  

As of October 2022, more than 110 jurisdictions have committed to exchanging information with each other under the CRS and have adopted it into local law. These relationships are based on multilateral or bilateral agreements that specify the required information to be exchanged.  

Currently, the FIs in the below MENA countries have CRS obligations: 

• Cyprus 

• Lebanon 

• Israel 

• Saudi Arabia 

• Kuwait 

• Qatar 

• Bahrain 

• United Arab Emirates (UAE) 

• Oman 

• Turkey 

• Jordan (2023) 

• Tunisia (2024) 

FATCA vs. CRS for MENA Financial Institutions  

CRS is broader in scope than FATCA because it requires financial institutions to identify their accountholders who are tax residents in any CRS participating jurisdictions.

It also has deeper “look-through” requirements for controlling persons of Passive Non-Financial Entities (NFE). FATCA applies to U.S. individual accounts, U.S. entity accounts, and Passive Non-Financial Foreign Entity (PNFFE) accounts held by substantial U.S. owners. Thus, reporting requirements may be greater under CRS. 

FATCA imposes a 30 percent withholding tax on withholding agents who fail to comply with the due diligence requirements. There is no withholding under CRS. Each participating jurisdiction establishes its own penalties.

When a country enters into an IGA with the U.S., it is required to report for 2014 until the year the IGA was entered into force. For instance, Turkey, which entered into force in 2021, is expected to have reporting requirements for 2014 through 2021. 

Due diligence for FATCA is captured using IRS Forms W-9 or W-8 series. These forms are unacceptable as CRS self-certification. CRS self-certifications are not “version specific.” Rather, specific data must be captured for individuals, entities, and controlling persons. Most financial institutions develop their own forms.  

What's the Risk of non Compliance?

To ensure compliance under FATCA and CRS financial institutions must understand the nuanced requirements of each regime and implement processes for due diligence, withholding, and reporting.  Implications of non-compliance include penalties and reputational risk. 

How Can TAINA Help? 

Many financial institutions in the MENA region face compliance challenges associated with tax form validation, error remediation, manual operations and poor customer experience that is often associated with such cumbersome manual processes.  

TAINA’s automated tax form validation platform is already being used at scale by the world’s largest and most sophisticated financial institutions to transform their regulatory compliance and customer experience. The TAINA Platform is powered by a robust regulatory engine that is updated as regulations change.

TAINA has helped some of the largest and most sophisticated financial institutions' clients eliminate the pain and risk associated with manual tax form validation, whilst achieving significant cost savings, efficiency gains, and improved customer experience.  

We would love to talk to you more about your current documentation validation process and how our award-winning FATCA and CRS Validation platform may add value to your organisation.

For more information on how our fully automated FATCA and CRS Validation platform can add value to your business, get in touch or request a demo to see it in action.