What is FATCA in the United Arab Emirates (FATCA UAE)?

FATCA in the UAE

The UAE has multiple agreements with foreign countries that ensure compliance with the tax laws in the countries involved. An example of this is the FATCA in the UAE. All US investors residing in the country must comply with certain regulations in order to legally operate in the country.

In this article, you will find information about FATCA in the UAE, the aspects of this law, the individuals affected by it, the assets that must be reported, and how we can help you get to know more about this law appliance around the world.

  1. What is FATCA?
  2. Aspects of the FATCA 
  3. What must be reported under the FATCA?
  4. Types of taxpayers reporting to FATCA
  5. Who is affected by FATCA?
  6. FATCA in the UAE
  7. How to fill out the FATCA form in the UAE?
  8. How can we help you get to know more about FATCA in the UAE?

1. What is FATCA?

 

The Foreign Account Tax Compliance Act (FATCA) is a law that requires U.S citizens living abroad or at home to file annual reports on any foreign account holdings they have.

The FATCA declaration started in 2010 as part of the Hiring Incentives to Restore Employment (HIRE). Its goal was to promote transparency in the global financial services sectors.

1.1 Some keynotes about this law

  • FATCA requires US citizens to file annual reports on any foreign account holding and pay any taxes owed on them.
  • The US residents who do not report their foreign accounts holding over $50,000 in a single year are subject to penalties.
  • The tax revenues brought in by the FATCA pay for the business incentives introduced in the HIRE Act

2. Aspects of FATCA

The FATCA act was signed by former US President Barack Obama as part of the Hiring Incentives to Restore Employment (HIRE).  This law was designed to incentivize companies to hire unemployed workers. This was a response to the high rate of unemployment during the 2008 financial crisis.

One of the principal incentives offered to businesses through the HIRE act was an increase in the business tax credit for any new employee that worked for at least 52 weeks. Other incentives include benefits, a payroll tax holiday, and an increase in the expense deduction limit for new equipment purchased in 2010.

2.1 FATCA: Focus on tax evasion

This law looks to eliminate tax evasion by American businesses and individuals that are earning taxable income abroad. While it is not illegal to keep an offshore account, failure to disclose it to the Internal Revenue Service (IRS) is illegal since the country taxes all assets and income of its citizens on a global scale.

The FATCA declaration was in part created to fund the costs of the business incentives offered in HIRE. FATCA provisions that every US taxpayer report all financial assets held outside the country annually and pay any taxes due on them. The revenues produced by this act cover the costs of the hiring incentives offered in the HIRE act.

The US residents that do not report their financial assets and their foreign account holdings are likely to receive sanctions.

3. What must be reported under the FATCA?

As said before, every American taxpayer with financial assets totaling $50,000 or more must fill out a FATCA form. Those assets can be in stocks, bonds, bank accounts, and other financial instruments. However, there are certain exceptions. One major one is the assets from a foreign branch of a U.S institution.

3.1 Foreign institution compliance

Non-financial foreign entities (NFFE) and Foreign financial institutions (FFI) must comply with this law by disclosing the identities of US citizens with accounts. And the value of the assets in those accounts to the FATCA Intergovernmental Agreement (IGA) or the IRS.

The FFI that does not comply with the Internal Revenue Service will be excluded from the market of the United States and have a 30% of any withholdable payment withheld from them as a tax sanction. These payments can include income generated from the U.S financial assets held by these banks such as periodic profits, dividends, and interests.

NFFEs and FFFIs that agree to the law must report annually the address, name, and tax identification number (TIN) of each account holder that meets the requirements of a U.S citizen. As well as the account balance, account number, and any withdrawals and deposits on the account for the year.

3.2 Reporting thresholds for individual taxpayers

The reporting thresholds for foreign assets can vary whether you live abroad or you file a joint income tax return. According to the IRS:

  • If you file separately from your spouse or you are single, you must submit a form if you have more than $200,000 foreign assets at the end of the year if you live abroad. Or more than 50,000 if you live in the U.S
  • If you file tax with your partner, the threshold doubles. 

4. Types of taxpayers reporting to FATCA

4.1 For taxpayers living abroad

The IRS requires the taxpayers living abroad to fill out a form under the following circumstances:

  • You are in a marriage filing a joint income tax return and the total value of your foreign financial assets is more than $400,000 on the last day of the tax year. Or more than $600,000 at any moment during that single year.
  • You are not a married person filing a joint income tax return and the total value of your foreign financial assets is more than $200,000 on the last day of the year or more than $300,000 at any moment during that single year.

4.2 For taxpayers living in the U.S

The IRS requires the taxpayers living in the United States to fill out a form under the following circumstances:

  • You are unmarried and the total value of your foreign assets is more than $50,000 on the last day of the tax year or more than $75,000 during the whole year.
  • You are married filing a joint income tax return and the total value of your financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any moment during that single year.
  • A similar situation happens when you are in a marriage but filing separate income tax returns. And the total value of your foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

4.3 Penalties for non-compliance

There are penalties for failing to file the FATCA form. The IRS can impose a $10,000 penalty for failing to file taxes. And an additional penalty of up to $50,000 if the citizen continues to not file after the notification by the IRS. And a 40% penalty for understanding taxes attributable to non-disclosed assets.

4.4 The cost of compliance

Although the non-complying costs with FATCA are high, the compliance costs for foreign financial institutions are also high. Some studies stated that 250,000 foreign financial institutions were being impacted by FATCA’s reporting requirements.

5. Who is affected by FATCA?

 

The FATCA declaration has an important impact on all businesses that are owned by U.S citizens. This includes Dual Nationals and U.S passport holders who live abroad. Also, Green Cards holders, people that spend a certain amount of days per year in the U.S, and U.S partnerships and corporations.

The FATCA legislation affects all of the above. It also affects every bank in the world. In fact, your bank will need to share your account information on an annual basis with the IRS. The IRS will mainly look at the highest amount of money that was on your account during that year.

6. FATCA in the UAE

In the UAE, generally, depository institutions like banks, custodial institutions like mutual funds, private equity funds, investment entities like hedge funds, and certain types of insurance companies must comply with the FATCA.

To implement the Foreign Account Tax Compliance Act effectively, the US has signed Intergovernmental Agreements (IGA) with the United Arab Emirates (US-UAE IGA) in 2015 and 112 other jurisdictions.

Under the UAE law, all Emirates and entities should comply with the US-UAE IGA, and the entities can be classified into the following:

  • Financial institutions (FIs) (can further be categorized into Reporting FIs and Non-reporting FIs.
  • Non-financial foreign entities (NFFE)

Authorities like ADGM, DIFC, and the Central Bank of UAE are responsible for regulating the Reporting FIs. Such FIs get the support of their respective regulatory authority to comply with FATCA. Other FIs that do not get the support of any specific regulatory authority are called unregulated FIs and obtain the support of the Ministry of Finance (MoF) in FATCA in the UAE compliance.

The US-UAE IGA deals with exempt and deemed compliant FIs, and it has been categorized into four classes:

6.1 Exempt beneficial owners: Other than funds

The international organization, government entity, and the central bank are the exempt beneficial owners from FATCA. The government entities include the government of the UAE, any political subdivision of the government, etc. And all of these are exempt from FATCA in the UAE compliance.

These entities must be wholly controlled by one or more UAE government authorities. Such entity’s earnings fall into its account or in the account of any government authority. And at the time of dissolution, all the assets will vest in any government entity.

6.2 Exempt beneficial owners: Funds

Entities like pension funds of beneficial owners, broad and narrow participation retirement funds, and investment funds owned by the exempt beneficial owners, fall under this category and are exempt from FATCA in the UAE compliance.

Narrow participation retirement funds are very different from the broad participation retirement funds. The main difference is that the first one has less than 50 participants, and non-resident partners cannot use more than 20% of the fund’s assets.

6.3 Deemed compliant: Limited or small scope FIs

This deemed compliant category comprises local banks, financial institutions with a local client base, qualified credit card issuers, and financial institutions with only low-value accounts. The value of the accounts of these FIs is very low and they have a local presence. Each FIs under this section has specific conditions to comply with if they want to fall in this category.

6.4 Deemed compliant: Investment entities

This category includes foreign corporations, sponsored investment entities, investment advisors, investment vehicles, collective investment vehicles, and investment management. Each entity under this section must comply with a lot of conditions before they classify in this category.

Non-reporting FIs, generally, do not need to report information to the UAE. However, they must provide self-certifications to withholding agents to avoid withholding US source payments to them. Then, once considered exempt or deemed compliant, there would not be too much work, which means less burden on the team and will reduce costs.

Certain saving accounts, like accounts held by an estate, escrow accounts, life insurance contracts having certain terms, and partner jurisdictions accounts are excluded from the definition of financial accounts and therefore the reportable FIs do not report them.

7. How to fill out the FATCA form in the UAE?

The process to fill out the FATCA form in the UAE is the following:

  • Login to your NPS account
  • Click on “FATCA Self-Certification”
  • Submit the required details under the “FATCA/CRS Declaration Form”.
  • Click on submit
  • Read and tick “Declaration and authorization by all customers”
  • Click on confirm
  • Enter OTP received on your registered mobile number
  • Lastly, after authentication through OTP, Acknowledgment for the completion of FATCA Self-Certification will appear.

8. How can we help you get to know more about FATCA in the UAE?

On Connect Zone, we count on a team of legal advisors and tax specialists ready to assist you through every administrative and legal process you need. Our professionals can offer you guidance and can carry out every procedure related to this act so you can concentrate on other aspects of your business. You and your company can benefit from many FATCA in the UAE related services, for example, our VAT and tax consultancy.

In addition, we offer multiple solutions for those looking to settle or relocate their companies into the UAE. Therefore, we guide you through the application process for a freelance visa, or if you wish yo set up a free zone business, we can help you too.

Are you ready to have us as your business partner? Find out all the details you need to know about our services by contacting us. Do it now! +971 43 316 688. Also, write us an email with all of your concerns: contact@connectzone.ae

If you are looking for a job opportunity in the Middle East, try the best job platform, thetalentpoint.com. Here, you will find multiple enterprises offering new job opportunities every day. Send your resume and start a new chapter in your life. Also, you can send your CV to contact@thetalentpoint.com.

Know about tax residency certificate in the UAE by Connect Zone

tax residency certificate in the UAE

The United Arab Emirates has transformed itself from a country once completely reliant on oil revenue, to one with a diverse economy attracting investment from all around the world. Certain emirates like Dubai or Abu Dhabi have become financial centers that attract hundreds of entrepreneurs thanks to their multiple incentives. One of these incentives is the favorable tax environment. For this reason, we will now learn in-depth how to obtain a tax residency certificate in the UAE.

In this article, you will find information about the taxation system in the UAE, the process to obtain a tax residency certificate in the UAE, and how we can help you with this process.

  1. Taxation in the United Arab Emirates
  2. What kind of taxes exist in the UAE?
  3. Tax residency certificate in the UAE
  4. Requirements to obtain the tax residency certificate
  5. Process of obtaining the tax residency certificate in the UAE
  6. How long does it take to obtain the tax residency certificate in the UAE?
  7. Benefits of obtaining the tax residency certificate
  8. How can Connect Zone help you get a tax residency certificate in the UAE?

1. Taxation in the United Arab Emirates

 

In a globalized world, companies no longer have to be restricted to a single geographical territory, instead, they are spread across the globe. As total income is generated by different countries, each country wishes to tax the profits earned and the global tax income of its residents on its land.

In order to curb double taxation and ensure that entrepreneurs do not pay tax for the same income twice, countries like the UAE have entered into the Double Tax Avoidance Agreement (DTTA). Then, once the DTTA is signed between the two countries, it mandates tax authority to produce a tax residence certificate, which helps individual residents and investors claim the treaty benefits.

1.1 Double Tax Avoidance Agreement

UAE’s double taxation treaty (DTT) or DTAA is a bilateral agreement that upholds and preserves the interest of companies and foreign investors coming from other taxable jurisdictions and investing in the UAE. Any national or foreign company already paying taxes abroad for the profits earned in its business can mitigate any potential tax burden as a result of this treaty. Investments in the United Arab Emirates are 100% tax-free and the government does not impose any taxes through DTT on the business owners planning to establish their business.

Not only the companies, but the individuals who are fiscal residents in the United Arab Emirates for more than 180 days and can deliver the documents required by the Federal Tax Authority (FAT) are eligible to use the advantages of the treaty.

The United Arab Emirates has signed the Double Taxation Treaty (DTT) or Double Taxation Avoidance with the following countries:

  • Andorra
  • Armenia
  • Austria
  • Bulgaria
  • Belarus
  • Belgium
  • China
  • Croatian
  • Egypt
  • Fiji
  • France
  • Germany
  • Japanese
  • Italy
  • Russia
  • Mexico
  • Spain
  • Turkey
  • United Kingdom
  • Venezuela, etc.

2. What kind of taxes exist in the UAE?

One of the characteristics of the United Arab Emirates is the almost non-existent tax policy. However, there is a latent tax system:

2.1 Corporate taxation

This type of tax is only payable in certain industries in the United Arab Emirates. The tax rate is the following:

  • The progressive rate of up to 55% for oil and gas companies
  • Rate up to 20% for foreign bank branches
  • No tax rate for all other companies and industries

In order to fully enjoy the tax exemptions and be able to declare to foreign tax authorities that your company is a Dubai company, you must obtain a tax residence certificate.

Although the Emirati laws do not stipulate articles regarding the tax residency of companies, the Ministry of Finances provides a tax residency certificate in the UAE for a company under certain circumstances. Generally, they require the company to be incorporated under Emirati law, have resident directors, and be domiciled in the UAE.

These rules imply that companies must follow the following substance tests:

  • The entrepreneurs must manage their  companies in the UAE (board meetings in the country)
  • Companies must demonstrate that core revenue-generating activities have been carried out in the nation.
  • The company must have an adequate number of qualified employees in the country, have an office (or co-working space), and incur expenses in the nation.

2.2 Taxation of individuals

In the United Arab Emirates, there is no personal income tax, therefore there is no law that governs it. Hence, an individual residing in the UAE will not have to pay taxes on his personal income.

As there is no law, there is no concept of tax residence, so until recently the UAE Ministry of Finance did not issue a tax residency certificate for an individual.  This meant that anyone moving there could not provide their tax residence since the only certificate available was the certificate of nationality.

Fortunately, the Ministry of Finance now provides a tax residency certificate for an individual who can prove that he resided in the country for more than 183 days during a tax year.

2.3 Other taxes: Real estate and VAT

The UAE does levy real estate taxes in the form of a 5% municipal tax on the annual rental value of the residential property. In addition to this, there is an incipient value-added tax or indirect tax since 2018 of 5% on some consumable goods.

2.4 More tax advantages

Certain emirates, like Dubai, do not have gif tax, inheritance tax, and no wealth tax. The country has signed 88 treaties to avoid double taxation and has signed the multilateral instrument, making some Emirates a great financial center from which to coordinate your company.

For this reason and given this attractive tax framework, many professionals, digital nomads, athletes, etc, have decided to relocate to the UAE.

3. Tax residency certificate in the UAE

A tax residency certificate is an official document delivered by the Federal Tax Authority (FTA) to a company operating in the country to establish tax residency and allow it to benefit from the double taxation avoidance agreements.

The Dubai tax residency certificate aims for any business operating in a free zone or in the Mainland that has been in the country for at least a year. Offshore companies cannot apply for this certificate and must receive a tax exemption instead of the tax residence certificate.

As well as companies, this Dubai tax residency certificate is also available for individuals who have resided in the country for at least 180 days and who wish to establish tax residence in the country. This is beneficial for individuals whose native countries do not have a double taxation agreement with the UAE. Keep in mind that an individual must have a valid United Arab Emirates resident visa for more than 180 days to apply.

4. Requirements to obtain the tax residency certificate

 

The documents needed to apply for this Dubai tax residency certificate vary if you are a company or an individual. The steps for both cases are the following:

4.1 Requirements for an individual to obtain the tax residency certificate in the UAE

Some documents are the following:

  • 6 months of personal bank statements, certified by the bank.
  • Emirates ID copy
  • Proof of income in the United Arab Emirates – e.g share certificate, salary certificate, employment agreement.
  • Passport copy and valid visa copy.
  • A copy of the certified tenancy contract or title deed, valid for at least three months prior to application.
  • A report from the General Directorate of Residency and Foreign Affairs (GDRFA) showing all exits and entries from the UAE.

Note that the tax residency certificate in the UAE cost is around AED 2000, payable to the FTA. This fee must be paid through the UAE e-Dirham card.

4.2 Requirements for a company to obtain a tax residency certificate in the UAE

  • Memorandum of Association’s copy
  • The organizational chart structure of the company
  • Passport, valid UAE resident visa copy, and Emirates ID of the company directors, managers, or shareholders.
  • A copy of the certificate of incumbency for the company – normally the Chamber of Commerce certificate.
  • Certified  commercial tenancy contract copy or title deed, valid for at least three months prior to application, physical office space is mandatory (virtual office space will not be sufficient)
  • Valid UAE trade license (Mainland DED or free zone) the company must have been active for over 1 year.
  • Latest certified audited financial statements or UAE company bank statements from the last 6 months, stamped by the bank.

The tax residency certificate in the UAE cost around AED 10,000 payable to the FTA, paid through the e-Dirham Card.

5. Process of obtaining the tax residency certificate in the UAE

The certificate of residence in the UAE was created to take advantage of the double taxation avoidance agreements signed between the UAE and the foreign jurisdictions. Note that the FTA issues Commercial Activities Certificates to enable individuals to refund the VAT paid in advance outside the country, whether or not DTAAs are applicable.

To obtain the tax residency certificate in the UAE login you must complete the following:

  • Create an account on the payable FTA portal
  • Complete the application form
  • Attach the required documents in JPEG or PDF format
  • Your attached documents and applications will be verified and if they meet the criteria, you will receive email confirmation and be asked to pay the remaining fees via the system.
  • After payment confirmation, you will receive the certificate of residence in the UAE via express courier.

5.1 What happens if the tax residence certificate is lost or damaged?

For damaged, lost or an extra copy of origin you have to pay AED 100 for issuing a replacement plus AED 3, paid through the e-Dirham Card.

5.2 Eligibility for tax residence certificate

To be eligible to obtain a tax residency certificate in Dubai sample, you must be the following:

  • Freezone company
  • An individual employee
  • Companies operating in UAE Mainland
  • An individual business/investor owner

Not eligible:

  • Offshore company
  • Branch of a foreign company
  • A non-employed individual (with a spouse visa)

6. How long does it take to obtain the tax residency certificate in the UAE?

If all the necessary documents are correct, the pre-approval process with the FTA generally takes 4-5 business days. Following pre-approval and confirmation that all documents are correct, the FTA then takes up to a further 5 working days to issue the tax residence certificate.

The tax domicile certificate or tax residence certificate is valid for 1 year, and can then be renewed each year, subject to resubmission and renewal process.

7. Benefits of obtaining the tax residency certificate

Entrepreneurs in the United Arab Emirates enjoy access to international markets when they decide to establish their company in one of the country’s Emirates. The added benefit of being a tax resident in the nation and obtaining the UAE tax residence certificate is to receive tax incentives and avoid double taxation by being a resident. Companies and individuals can obtain a separate UAE tax residence certificate which allows income to be covered both at the corporate and individual levels.

An overall view of your business structure and individual circumstances should support your effective tax planning. Therefore, we recommend you always seek professional tax advice, along with finance and accounting support to ensure that your individual situation and corporate structure are in line with tax rules to obtain the maximum benefit from UAE tax residence.

8. How can Connect Zone help you get a tax residency certificate in the UAE?

Whether you are an individual resident or the owner of a company, maintaining a legal and administrative order and being up to date with the tax laws of the country will allow you to reside in the UAE without problems. The government of this country is very strict regarding the following of the tax regulations and the residency status. This is why hiring a team of professionals, such as Connect Zone, to support you during these stages is more than necessary.

Connect Zone’s professionals are highly trained to complete the entire tax residency certificate in the UAE format on your behalf. Our agency has more than 20 years helping entrepreneurs in the United Arab Emirates achieve their goals. Some of our services include a wide range of PRO services, and full guidance during your freelance visa application.

Do you want to meet your goals with a team of professionals willing to assist you at every step? Feel free to share all of your concers with us. Contact us now by calling at +971 43 316 688. On the other hand, write us an email at contact@connectzone.ae.

Is your job search taking too long? Try looking for jobs on thetalentpoint.com. By uploading your CV, you will be able to connect with several enterprises looking for talents like yours. In addition, you can send your resume to contact@thetalentpoint.com.