FATCA and CRS Compliance in the Middle East and North Africa

28.01.2022
Read Time: 3 minutes
TAINA FATCA and CRS Compliance in the MENA Region Article

FATCA and CRS Compliance in the MENA Region

In recent years we have seen major economic players and tax authorities from across the globe focus on their growing concerns around international tax evasion and tax compliance. It was quickly realised that a coordinated approach was needed to combat tax evasion through increased tax transparency and disclosing account information between tax authorities and participating jurisdictions. And thus two Automatic Exchange of Information (AEOI) international regulatory regimes were introduced, namely; Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS). Many countries in the Middle East and North Africa (MENA) region have updated their policies to meet international standards including FATCA and CRS.

 

IGAs and FATCA Compliance in the MENA Region

The Foreign Account Tax Compliance Act (FATCA) is a US regulation which aims to combat tax evasion by preventing US taxpayers who hold assets in foreign financial institutions (FFIs) and other offshore accounts from avoiding their tax obligations. The FATCA legislation requires these FFIs to identify  US persons that hold assets abroad and regularly submit or report this information on these financial accounts. As early as 2017 countries from the MENA region have committed to improving international tax compliance and implementing FATCA worldwide by signing Intergovernmental Agreements (IGAs) with the US. IGAs stipulate that FFIs, located in specific jurisdictions, will have to perform tax due diligence by identifying and reporting US accounts to the relevant tax authorities unless they have received an exemption.The two model IGAs were developed by the US Government in collaboration with other international governments to implement and enforce FATCA legislation worldwide. 

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

FFIs in the below MENA countries currently are negotiating a IGA for FATCA obligations:

  • Jordan

  • Lebanon

  • Oman

TAINA Platform FATCA Compliance W9 Form
TAINA Platform FATCA Compliance W9 Form

Common Reporting Standard in the MENA Region: 

The Organization for Economic Cooperation and Development (OECD) developed their own global reporting standard for the automatic exchange of financial account information , using a similar intergovernmental approach as FATCA. CRS similar to FATCA requires FFIs resident in a participating jurisdiction to identify and report any tax residents or reportable accounts on an annual basis. CRS was advocated by G20 and currently has more than 100 countries signed up and committed to complying with the international standard of exchanging information under CRS. As early as 2018 MENA countries have adopted the international CRS framework, however MENA CRS adopter countries will need to ensure that they stay up to date with the list of participating jurisdictions, as they’re obligated to report their account holders from all of these participating countries.

Currently the FFIs 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)

TAINA Platform CRS Compliance in MENA Region
TAINA Platform CRS Compliance in MENA Region

MENA Financial Institutions FATCA & CRS Requirements

With FATCA and CRS Reporting deadlines fast approaching financial institutions in the above MENA countries should ensure they understand the impact of FATCA and CRS on their organisation and what compliance requirements they are subject to. FATCA & CRS affects financial institutions that serve foreign nationals which include;  banks, custodians, funds, asset and wealth managers, certain insurance companies, and their account holders and investors who are tax residents in the participating jurisdictions.

To ensure they have provable compliance with FATCA and CRS regulations, these financial institutions should ensure they understand the below obligations and have the appropriate compliance processes and procedures implemented:

  • 1. FIs must first determine whether they qualify as a reporting financial institution (RFI) and upon meeting qualification criteria they must register as reporting entities with the relevant tax authorities or central banks.
  • 2. FIs should review all pre-existing account holders and their tax residencies.

  • 3. FI must ensure they are onboarding or opening new accounts as per the FATCA and CRS requirements by requesting and validating the appropriate self certification tax forms.

  • 4. FIs must apply due diligence rules to classify which financial accounts are reportable for purposes of FATCA and CRS.

  • 5. FIs must establish policy and procedures for soliciting and validating documentation, this can be done manually or using a tax technology solution

  • 6. FIs must report the relevant information on these reportable accounts annually to the relevant tax authorities or central bank, FI must ensure they understand and meet the reporting deadlines set by their local regulatory authorities.

  • 7. FIs must establish on-going monitoring procedures to identify any potential changes in circumstances for account holders.

 

Non-Compliance with FATCA & CRS

Non-compliance with FATCA and CRS regulations can lead to serious commercial, reputational and financial risk. Failure to maintain appropriate documentation on financial accounts, failure to report information or submit FATCA and CRS filings by the deadlines, or inaccurate reporting on reportable accounts may all result in penal consequences including withholding and financial penalties. Fines can range from USD 2,800 up to USD 70,000 depending on the type of contravention, with additional administrative penalties being applied for every day of failure to comply. These non compliance penalties are usually drafted and enforced by local tax authorities, therefore are specific to each country.

Implications of non-compliance go beyond financial fines and can lead to significant reputational risk. In some cases tax authorities may publish cases of non-compliance with FATCA and CRS regulations, leading to naming and shaming in the industry and media. This objectively may have a longer lasting impact on a financial institution than any of the financial penalties.

 

How can TAINA help?

A large majority of FFIs in the MENA region are adhering to the FATCA and CRS requirements, and have identified many key compliance challenges including, limited guidance, lack of knowledgeable resources, data management, manual processes and poor customer experience. In addition many financial institutions have found that the existing tax and compliance functions and existing IT system may not be fit to meet the new FATCA and CRS obligations effectively and efficiently. 

TAINA’s fully-automated FATCA and CRS Validation Platform can help financial institutions in the MENA region lighten their compliance burden and prove their FATCA and CRS compliance whilst improving efficiency, reducing cost, mitigating risk and improving their overall customer and investor experience. Using our flexible and lightweight platform you can automate and streamline your FATCA and CRS validation process whilst ensuring you have good year end data that will result in clean FATCA and CRS reporting to tax authorities all year round.

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.

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