The Tax Procedures (Common Reporting Standards) Regulations, 2023 took effect on January 1, 2023. The Regulations are significant steps towards the global movement to increase tax transparency due to the increase in cross-border transactions that at times may lead to tax evasion and tax planning. In order to prevent this, the Organization for Economic Co-operation and Development (OECD) common reporting standards (CRS) requires an interchange of financial data for taxation purposes.

Cabinet Secretary for the National Treasury and Planning has gazetted the Regulations requiring Reporting Financial Institutions (RFI) to comply with the due diligence procedures set out. The RFI is mandated to submit to the Commissioner a declaration outlining the data that must be reported in regard to each Financial Account designated as a Reportable Account that they maintain during a calendar year for each calendar year and each succeeding calendar year. The Reports are required to be made no later than May 31st of the year after the year for which the declaration is filed and returns filed electronically and in the format specified by the Commissioner.

RFI are required to establish, uphold, and record the due diligence procedures, and records that the institution acquires or creates for the purpose of complying with the Regulations, including self-certifications, the steps taken to identify the Reportable Accounts, and records of Documentary Evidence.

Regarding each of its Reportable Accounts, each RFI is required to submit to the Commissioner the name, jurisdiction, address, residence, Tax Identification Number (TIN), and the date and place of birth of each Reportable Person that is an Account Holder of the account, account balance or value of the end of the relevant calendar year or other appropriate reporting period and further, when more than one currency is used to represent an account, the information may be reported in the currency that is used to represent the account. Information reported must specify the currency in which each amount is denominated.

However, the Regulations provide that it is not necessary to review, identify, or report a Pre-Existing Individual Account that is a Cash Value Insurance Contract or an Annuity Contract as long as the Reporting Financial Institution is effectively barred by the law from selling such Contracts to citizens of a Reportable Jurisdiction.

For Lower Value Accounts, the Regulations outline the below procedures: in case of residence address, if the Reporting Financial Institution has in its records a current residence address for the individual Account Holder based on Documentary Evidence, the Reporting Financial Institution may treat the individual Account Holder as being a resident for tax purposes of the jurisdiction in which the address is located for purposes of determining whether such individual is a resident of the jurisdiction if, in light of documentary evidence, the Reporting Financial Institution does not rely on a current residential address for the particular Account Holder.

For High-Value Accounts, the Reporting Financial Institution is required to examine its own electronically searchable data for any of the indicators, if the Reporting Financial Institution’s electronically searchable databases include fields for, and capture all of the information.

The Regulations further obligate for a Pre-existing Entity Account that, as of December 31, 2022, had an aggregate account balance or value of more than $250,000 to be reviewed, as well as Pre-existing Entity Account whose aggregate account balance or value did not exceed $250,000 as of December 31, 2022, but did as of December 31, 2023, or the last day of any calendar year following that. Accounts are only considered reportable if they are held by an entity or entities that are reportable persons, or by passive NFEs that have an entity or entities that are reportable persons as one or more of their controlling persons.

When locating the place of residence of a passive NFEs (Non Financial Entities) controlling individuals, pertaining to a holder of an existing Entity Account, the Reporting Financial Institution must identify whether the Account Holder is a Passive NFE with one or more Controlling Persons and where those Controlling Persons residence, if any of a passive NFE’s controlling individuals are reportable individuals, the account must be considered as a reportable account. 

In determining the residence of a new Entity, it must acquire a self-certification; however, if the Entity has no residence for tax purposes, the main office address of the Entity may be used by the Reporting Financial Institution to determine the Account Holder’s residence. 

If the Account Holder is resident in a Reportable jurisdiction as per the self- certification, the account is treated as a Reportable Account unless the bank reasonably determines that the account holder is not a reportable person with respect to that reportable jurisdiction based on information in its possession or that is made publicly available.

Regarding an Account Holder of a Passive NFE, when determining the Controlling Persons’ residency, if any of the Controlling Persons of a Passive NFE is a Reportable Person, then the account must be considered as a Reportable Account. The Reporting Financial Institution must assess if the Account Holder is a Passive NFE with one or more Controlling Persons who are Reportable Persons.

A Financial Institution is considered a “resident” in a Participating Jurisdiction if it is under the jurisdiction of that Participating Jurisdiction and the Participating Jurisdiction has the authority to require the Financial Institution to report.

Finally, for a trust, if one or more of a trust’s trustees reside in a participating jurisdiction, the trust is considered to be under the jurisdiction of that jurisdiction in the case of a trust that is a financial institution, regardless of whether it is a tax resident in that jurisdiction. The exception to this rule is if the trust reports all the information necessary to be reported under these Regulations with regard to Reportable Accounts maintained by the trust to another participating jurisdiction.