FATCA & CRS
SERVICES IN
SAUDI ARABIA
Our Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) service in Saudi Arabia is part of our tax consultancy services in Saudi Arabia.
The Zakat, Tax and Customs Authority (ZATCA) has issued the CRS guidelines. In Saudi Arabia (Kingdom of Saudi Arabia, KSA) the CRS applies to financial institutions which are custodial institutions, depository institutions, investment entities and specified insurance companies. The guidelines provide that:
- The reporting KSA financial institutions must undertake a comprehensive review of their existing financial accounts to identify the status and tax residency of account holders, either directly or indirectly (i.e. via entities).
- Reporting KSA financial institutions must identify the tax residency and status of account holders before on-boarding when opening new financial accounts.
- Account holders which are considered reportable persons must be reported by reporting KSA financial institutions to the ZATCA on an annual basis.
The main contents of the guidelines are as follows:
- Detailed explanation of financial institutions types in KSA and applicability of the CRS to reporting financial institutions.
- Detailed definitions of non-financial entities.
- Types of accounts under CRS.
- Details on procedures for reporting financial institutions to carry out due diligence to identify reportable persons including pre-existing individual customers, new individual accounts, pre-existing entity customers and new entity accounts.
- Reporting requirement of identified reportable accounts, items to be reported, reporting period and penalties for non-compliance. If no reportable accounts are identified then the reporting financial institution must file a NIL return to ZATCA via the CRS reporting portal declaring it has no reportable accounts for that calendar year or reporting period.
- Compliance, monitoring, and enforcement rules; and penalties for non-compliance by financial institutions, failure to meet CRS requirements, for lack of reasonable care, etc.
With new, rapid, and cross-border emerging markets, governments and financial institutions worldwide have set certain measures to combat tax evasion and money laundering, ensure tax compliance with the stated rules and regulations of each jurisdiction, and sustain the integrity of the tax systems. These measures include the FATCA and the CRS.
Financial institutions include retail banks, insurance companies, hedge funds, wealth managers, asset management entities, and other financial services firms which serve US and foreign nationals.
FATCA is the United States of America federal legislation that was ratified in 2010 by the Congress to target non-compliance U.S. taxpayers using foreign accounts and prevent offshore tax avoidance by U.S. citizens or residents. It requires foreign financial institutions to report on U.S. tax residents, and provide standard information including name of the taxpayer, address, place and country of birth, nationality, gross annual income, occupation, and the country of residence, tax ID number and type if the taxpayer is also a resident of another country.
CRS on the other hand was developed in response to the G20 request, it has been enacted by the Organisation for Economic Co-operation and Development (OECD) on July 15th, 2014. It is considered a broad reporting legislation of the FATCA as at present almost more than 100 jurisdictions have adopted the CRS (excluding the United States of America), and unlike FATCA its reporting is based on tax residency and not citizenship status.
Financial institutions in the Middle East region (including Bahrain, Kuwait, Qatar, Saudi Arabia, United Arab Emirates, Lebanon and Turkey) signed up to the CRS regime during 2018.
Under the CRS agreed standard for Automatic Exchange of (financial account) Information (AEOI), it is mandatory for all financial institutions in participating jurisdiction to be compliant with the CRS. Financial institutions are required to identify customers who are tax residents outside of the country or jurisdiction where they maintain their accounts, obtain their financial account information on an annual basis, exchange certain information with other institutions, and report customers’ tax status with the related tax authorities where the customer is a tax resident.
In line with the CRS requirements, the customer will be required to provide the following information as part of the self-certification declaration form: name, address, place and date of birth, list of all countries or jurisdiction of tax residency, Tax Identification Number (TIN), as well as the place for entity registration and type of entity if applicable. As well, financial account information such as depository accounts, custodial accounts, life insurance contracts, and equity and debt interests will be shared with the tax authorities.
Yet it is important to note that CRS information requirements do differ across participating jurisdictions. Accordingly, financial institutions in participating jurisdictions need to register as reporting entities with the central bank or relevant tax authorities, which will provide the institutions with information requirements and guidance to support their CRS reporting.
Implications of non-compliance vary amongst jurisdictions and their set of tax violations and penalties; these may impose potential commercial, reputational and financial risks. Financial institutions are penalised for non-compliance in terms of failure to establish a compliance framework, failure to document and apply the due diligence procedures, failure to identify and report accounts, and inaccurate reporting.
Accordingly, financial institutions may avoid such risks by making sure they are in compliance with the CRS terms and obligations by regularly checking the documentation requirements issued by the OECD and CRS, following the CRS process of on-boarding new account customers in line with the CRS requirements, applying the CRS process on pre-existing account holders, formulating a compliance framework for the institution, and identifying and reporting on annual basis reportable accounts.
At Creation Business Consultants, our Tax Department ensures that our clients are in compliance with the CRS requirements through:
- Classification of entities that are subject to compliance requirements.
- Analysis of the gaps within the entities processes that need to be worked on to comply with the CRS requirements.
- Report the risks and impacts from non-compliance.
- Provide workshops, blogs, and reminder notifications to increase compliance awareness.
- Support the clients in implementing the due diligence requirements.
- Assist clients in completing the reporting requirements to the relevant authorities.
- Review the entities’ policies and frameworks to ensure they are in compliance with the CRS requirements and regulations.
FATCA & CRS IN SAUDI ARABIA FAQs
The Foreign Account Tax Compliance Act (FATCA) aims to combat tax evasion by U.S. taxpayers holding accounts and other financial assets outside the United States. It requires foreign financial institutions to report information about financial accounts held by U.S. citizens and residents. This includes details such as account balances and transactions, allowing the U.S. government to ensure compliance and collect taxes owed by its citizens living abroad.
The Common Reporting Standard (CRS) is an international standard for the automatic exchange of financial account information between participating countries. Its primary goal is to enhance transparency in global financial systems and combat tax evasion. By requiring financial institutions to report on the tax residency of account holders, the CRS ensures that tax authorities have the necessary information to assess compliance with local tax laws.
In Saudi Arabia, FATCA and CRS apply to various types of financial institutions, including retail banks, insurance companies, asset management firms, investment entities, hedge funds, and wealth management companies. These institutions are responsible for identifying and reporting the tax residency of their clients to ensure compliance with both FATCA and CRS regulations.
Financial institutions must conduct due diligence to identify reportable accounts under CRS. This includes reviewing existing accounts to determine their tax residency status, verifying the information provided by account holders during account opening, and classifying accounts based on the residency of the account holder. The due diligence process involves obtaining self-certification forms from clients, which include information about their tax residency and tax identification numbers.
Account holders are required to provide specific information for CRS compliance, including their name, address, date and place of birth, Tax Identification Number (TIN), and details of any additional tax residencies. If the account holder is an entity, they must provide information about the place of registration and the type of entity. This information is crucial for financial institutions to accurately report to tax authorities.
Financial institutions that fail to comply with FATCA and CRS regulations may face significant penalties, including fines, reputational damage, and loss of business relationships. Penalties can arise from failures such as not establishing an adequate compliance framework, inaccurate reporting of account information, or failing to report required data to tax authorities. The financial implications of non-compliance can be substantial, prompting institutions to prioritize adherence to these regulations.
To ensure compliance, financial institutions should implement a robust compliance framework that includes regular training for staff on FATCA and CRS requirements, establishing clear procedures for identifying and reporting account holders, and conducting periodic audits of their processes. Institutions should also maintain updated documentation and stay informed about changes in regulations to effectively manage compliance risks.
The Zakat, Tax and Customs Authority (ZATCA) is the regulatory body responsible for overseeing the implementation of FATCA and CRS in Saudi Arabia. ZATCA provides guidelines for reporting financial institutions, ensures compliance with the regulations, and monitors the exchange of financial information with other jurisdictions. Financial institutions must report identified reportable accounts to ZATCA annually, as part of their compliance obligations.
Individuals who believe they have been incorrectly classified as reportable persons under FATCA or CRS may appeal this classification through the financial institution involved. It is essential for the individual to provide evidence supporting their claim of non-reportable status. The financial institution will review the documentation and make the necessary adjustments if warranted.
The primary difference between CRS and FATCA lies in their reporting criteria. FATCA focuses on U.S. citizens and residents, requiring foreign financial institutions to report information on these individuals. In contrast, CRS is based on tax residency rather than citizenship and requires financial institutions in participating jurisdictions to report information on non-resident account holders. This broader scope makes CRS applicable to more jurisdictions and individuals.
Financial institutions can prepare for CRS reporting by conducting a thorough assessment of their existing account holders, ensuring they have obtained the necessary self-certification forms from clients, and establishing a clear reporting process. It’s also advisable to provide training for staff to understand the requirements and implement technology solutions that streamline the reporting process and data management.
Self-certification is a crucial process in which account holders declare their tax residency and provide necessary information to financial institutions. This declaration allows financial institutions to collect accurate data for reporting purposes and ensures compliance with CRS requirements. Self-certification protects both the financial institution and the account holder by establishing clarity regarding tax obligations.
Financial institutions are required to submit annual reports under CRS, detailing reportable accounts for the preceding calendar year. If no reportable accounts are identified, institutions must file a NIL return with ZATCA to declare that there are no reportable accounts for that period. Timely submission of these reports is critical to avoid penalties for late reporting.
Financial institutions can access various resources to aid in compliance with FATCA and CRS, including guidelines issued by ZATCA, publications from the Organisation for Economic Co-operation and Development (OECD), and training programs provided by tax consultants. Additionally, partnering with experienced tax advisory firms can offer specialized knowledge and support in navigating the complexities of compliance requirements.
