Gatestone Group's Approach to Regulatory Reporting
The United Arab Emirates (UAE) has laws and regulations in place that apply to companies of all sizes, and the laws must be followed to operate legally in the UAE. Gatestone Group regulatory experts ensure that your UAE company adheres to the legislation and regulatory standards and provides regulatory and compliance reporting when required. Following are five such mechanisms that businesses in the UAE must adhere to as per the eligibility criteria:
1. Economic Substance Regulations (ESR)
2. Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)
3. Understanding of the Ultimate Beneficial Owner (UBO)
4. Foreign Account Tax Compliance Act (FATCA)
5. Common Reporting Standard (CRS)
Understanding ESR (Economic Substance Regulations)
The UAE introduced ESR compliance support to guarantee that companies doing business in the UAE have substantial economic activities within the country and follow global norms and guidelines established by the Organisation for Economic Cooperation and Development (OECD).
ESR Compliance and Business Implications
Businesses conducting specific activities, including banking, insurance, leasing, fund management, and headquarters activities, in the UAE are required to show that they have a significant presence and carry out core revenue-generating activities in the country.
Key considerations for ESR in the UAE?
1. Notification
The purpose of the notification is to provide the regulatory authorities with certain initial information in respect of licensees and their activities in the UAE for the relevant reporting period. The information provided as part of the notification is a prerequisite to filing an economic substance report for the same period (if required).
2. Economic Substance Test
The purpose of the Economic Substance Report is to provide the National Assessing Authority with information on the licensee and the income, expenditure, assets, employees, and governance related to its relevant activities in the UAE.
ESR in the UAE is a vital requirement, and following the regulatory requirements will help avoid any legal or financial consequences. To effectively navigate the complexities of these regulations, businesses should seek legal and financial advice.
Understanding Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)
Federal Decree No. 20 of 2018 on Anti-Money Laundering and Countering the Financing of Terrorism, implemented by Cabinet Decision 10 of 2019, was issued to combat money laundering and the financing of terrorism by complying with international standards.
Every financial institution and designated non-financial businesses and professions (DNFBPs) that conduct business in the United Arab Emirates are subject to the law, including banks, money exchangers, dealers in precious metals and stones, corporate service providers, and real estate agents. It also covers any entity offering related services, including lawyers, accountants, and auditors. Three main goals are served by the Anti-Money Laundering and Combating the Financing of Terrorism Supervision Department:
- Examining Licensed Financial Institutions (LFIs)
- Ensuring UAE financial compliance with the legal and regulatory framework of the UAE
- Recognising threats, vulnerabilities, and emerging risks that impact the financial sector in the UAE
Regulated entities include:
- Financial Institutions (FIs)
- Designated Non-Financial Businesses and Professionals (DNFBPs)
Sectors of Designated Non-Financial Businesses and Professions
Given the nature of the services offered, the DNFBPs cover a wide range of non-financial sectors and activities that are primarily exposed to the risks of money laundering and misuse of commercial transactions and the funds traded in them for money laundering or other illegal practices, including:
- Real estate brokers and agents
- Dealers of gemstones and precious metals
- Independent auditors and accountants
- Corporate service providers
AML Policies for Gold and Precious Metal Dealers in Dubai
Decree-Law No. 20 of 2018 governs AML in the UAE, including jewelers operating in the UAE, which ensures that jewelry sales are prevented from money laundering.
The stated law will apply to a jeweler once they participate in a single or relatable series of transactions with a monetary value that equals or exceeds AED 55,000. The Dealers in Precious Metals and Stones Report (DPMSR) must be submitted within 2 weeks of receiving funds through cash or wire transfer that equal or exceed the amount of AED 55,000.
GOAML (Global Operations Anti-Money Laundering)
GoAML reporting assistance is a platform that Financial Institutions (FIs) and authorities developed to combat money laundering and terrorist financing by collating information and intelligence on suspicious transactions and curtail these financial crimes. It is a fully integrated software solution established by the United Nations Office on Drugs and Crime (UNODC).
The goAML system’s primary objectives are to collect, manage, and evaluate data to satisfy the UAE Financial Intelligence Unit’s (FIU’s) document management and statistical requirements.
In accordance with Federal Decree Law No. 20 of 2018 and Cabinet Decision No. 10 of 2019, it is a must to establish sufficient procedures to enable designated entities to report suspicious transactions linked to the financing of terrorism and money laundering. For this reason, GOAML reporting assistance has been established in the UAE.
Understanding Ultimate Beneficial Owner (UBO)
The Ultimate Beneficial Owner (UBO) is the individual who manages a business or a legal entity and receives the profit. According to Cabinet Resolution No. (58) of 2020, the following individuals may be beneficial owners or real beneficiaries:
- A natural person with direct or indirect ownership shares at least 25% of the establishment with someone who owns or controls it permanently.
- Or someone who has the power to designate or remove the majority of the establishment’s managers, vote with a majority of 25% or more, or use any other method to exert ultimate control over the establishment.
A natural person who holds the position of senior management official in the organisation may be considered the UBO in situations where the UBO cannot be identified using the two criteria listed above.
What does your business need to do to comply with UBO in the UAE?
1. Obtain a UBO Certificate: An entity that successfully complies with UBO rules is granted a UBO certificate.
2. Observe the provided guidelines: When establishing a new business relationship or embarking on an onboarding process, your organisation needs to adhere to protocols and procedures to gather data about all individuals who hold significant ownership or control.
3. Keep the information current and accurate: Businesses should submit and keep accurate and current information because providing false or misleading information will incur penalties. In addition to the charges, your company might lose the trust of its clients and its reputation.
Understanding the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS)
Taxpayers in the United States often carry out non-compliance with tax legislation using foreign accounts, after which the United States Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010 to ensure that tax obligations are met.
FATCA mandates that Foreign Financial Institutions (FFIs) provide information about financial accounts held by United States (US) taxpayers or by foreign entities in which US taxpayers have a significant ownership interest in the US Internal Revenue Service (IRS). On June 17, 2015, the United States and the United Arab Emirates signed the UAE FATCA Inter-Governmental Agreement (IGA).
There are two types of UAE FIs: reporting UAE FIs and non-reporting UAE FIs, which include:
- Investment Entities
- Depository Institutions
- Custodial Institutions
- Specific insurance companies
Banks, custodians, investment traders, asset and wealth managers, funds, and life insurance companies are a few examples of the above categories.
What are the requirements of FATCA for UAE Financial Institutions (FIs)?
The UAE-US Inter-Governmental Agreement must be followed by reporting to the UAE Financial Institutions (FIs). General requirements include:
- Follow the registration requirements.
- Conduct due diligence on the maintained financial accounts.
- Report annually on all maintained United States reportable accounts, or file a nil return if none
- Reporting annually on any payments made to non-participating FIs
- Continuously monitoring for changes in circumstances that could result in an account holder’s FATCA status
The above list of requirements for reporting UAE FIs is not all-inclusive.
In contrast, the Common Reporting Standard (CRS) is the globally accepted standard for Automatic Exchange of Information (AEOI). By enabling CRS participating jurisdictions to automatically exchange data collected from local FIs with exchange partners where reportable persons are residents for tax purposes on an annual basis, the CRS primarily aims to facilitate tax transparency.
According to the Cabinet Decision, the Ministry of Finance is responsible for overseeing the country’s adoption of CRS. To implement the provisions of the CRS regulations, the following authorities have been designated as regulatory authorities:
- Central Bank: A financial institution governed by the laws and regulations of the Central Bank, under its supervision.
- Relevant Financial Free Zone Authority: A financial institution registered in the applicable financial free zone.
- Securities and Commodities Authority: a financial institution governed by the laws and regulations of the Securities and Commodities Authority, under its supervision.
- Insurance Authority: A financial institution subject to its supervision under the laws and regulations of the Insurance Authority.
- Ministry of Finance: Financial institutions are exempt from all the aforementioned regulatory bodies’ jurisdiction.
The UAE Reporting Financial Institutions (UAE RFIs) are required by the FATCA and CRS regimes to submit annual reports to the UAE Ministry of Finance with details on specific financial accounts held by reportable account holders and/or controlling persons. The UAE’s first CRS reporting period concluded on June 30, 2018, and as a result, June 30 of the following year is set aside for this purpose every year. According to the stated deadline for domestic reporting, all UAE reporting financial institutions must register on the CRS/FATCA system and submit data and risk assessments.
The consequences of non-adherence differ depending on the jurisdiction and the tax violations and penalties involved. Financial institutions that do not create a compliance framework, record and implement due diligence procedures, identify and report accounts, or provide inaccurate reporting are subject to penalties for non-compliance.
Financial institutions can mitigate these risks by ensuring their adherence to the CRS terms and obligations. This can be achieved by periodically reviewing the documentation requirements issued by the OERS and CRS, adhering to the CRS process for onboarding new account customers, applying the CRS process to existing account holders, creating a UAE financial compliance framework for the institution, and identifying and reporting reportable accounts on an annual basis.
Stay Compliant with Gatestone Group
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FAQs
ESR aims to ensure companies in the UAE conduct genuine core income-generating activities within their jurisdiction.
GOAML facilitates the reporting of suspicious transactions, acting as a primary tool against money laundering.
Yes, non-compliance with regulatory reporting in the UAE can result in financial penalties, operational disruptions, and reputational damage.
No, regulatory reporting in the UAE encompasses a range of data, from financial transactions to operational insights, ensuring comprehensive oversight.