The international financial system is becoming increasingly transparent; banks and other financial institutions are required to take into account not only a client’s country of registration but also their tax residency. A key tool for this oversight is the Common Reporting Standard (CRS), developed by the Organisation for Economic Co-operation and Development (OECD).
It provides for the automatic exchange of specific account information between the tax authorities of participating countries. For individuals and companies holding accounts, investments, or corporate structures outside their country of residence, this means they must pay closer attention to the information provided to banks and to their tax obligations.
The CRS is an international standard designed for the exchange of information regarding the accounts of tax residents from different countries. Under this system, financial institutions—specifically banks, brokers, and certain other organizations—verify their clients and determine their residency status. If a client is a resident of a foreign country, specific details about their account may be transmitted to local tax authorities, who then forward the data to the competent agencies of the relevant country.
Thus, the exchange does not take place directly between the bank and the foreign tax authority. The financial institution first transmits the data to its national regulator; the information is then forwarded to the relevant authority in the client’s country of residence through established international mechanisms.
The scope of information collected by financial institutions under the CRS is quite broad. Specifically, it includes:
— the account holder’s full name;
— address;
— date and place of birth (for individuals);
— countries of residence;
— tax identification number (TIN);
— account number;
— its balance or value at the end of the reporting period;
— credited amounts of interest, dividends, and certain other types of income;
— gross proceeds from the sale or redemption of specific financial assets.
For instance, if a user specifies Russia as their country of residence, the financial institution takes this information into account when determining its own reporting status.
Russia implements the automatic exchange of financial information through domestic laws governing the interaction between financial institutions and the Federal Tax Service (FTS).
In the UAE, the system operates based on both international agreements and national regulations. Financial institutions are required to conduct due diligence procedures and obtain self-certification from clients—a form specifying their countries of residence.
The UAE employs a broad approach to collecting information on clients’ tax status. Financial institutions determine the user’s residence and, where applicable, include them in their reporting.
For a Russian tax resident, holding a bank account in the UAE does not automatically trigger an additional tax liability. However, under certain conditions, data regarding the account or an associated corporate structure is transmitted to the Russian tax authorities.
This is particularly significant for entrepreneurs and owners of foreign companies. For example, if a Russian resident is a controlling person of an entity holding an account in the UAE, the relevant information is cross-referenced with data held by the FTS. Consequently, the authorities may raise questions regarding compliance with asset-related obligations, including rules concerning Controlled Foreign Companies (CFCs).
It is important to note that the mere fact of automatic information exchange does not necessarily mean the taxpayer will face an audit or has violated tax laws. However, discrepancies between actual circumstances and the data held by tax authorities often trigger additional inquiries.
The situation is somewhat more complex for businesses, as the system requires determining not only the status of the organization itself but, in certain cases, that of its controlling persons.
One key concept is the «Passive NFE» (Passive Non-Financial Entity). If a firm falls into this category, a financial institution may identify and report information regarding its controlling persons—the individuals who actually control the enterprise.
In contrast, there is the category of «Active NFE» (Active Non-Financial Entity). One of the criteria for this classification is that less than 50% of gross income for the relevant period is derived from passive income, and less than 50% of assets are used to generate such income. Passive income includes, in particular, interest, dividends, and certain types of royalties and rental income.
Therefore, for enterprises registered in the UAE or other jurisdictions, it is important not only to have a bank account but also to correctly determine their CRS status.
The use of an offshore company does not, in itself, exempt an entity from CRS requirements. If an account is opened in the name of a legal entity registered, for example, in the British Virgin Islands, the bank still has the right to request information regarding the ownership structure and ultimate controlling persons.
Banks are required to establish the tax status of their clients and, where applicable, identify the individuals who exercise control over the firm. Consequently, registering a separate entity outside one’s place of residence should not be viewed as a way to avoid information disclosure.
Banks pay particular attention to multi-tiered ownership structures, holding companies, and entities that primarily hold assets or real estate.
A common mistake is assuming that a CFC (Controlled Foreign Company) notification is required only if the firm has generated a profit. In practice, the obligation to submit a notification and the question of including CFC profits in the tax base are separate issues. Therefore, the absence of profit or the incurrence of a loss by the enterprise does not, in itself, mean that notification obligations can be ignored.
In each specific case, it is necessary to separately determine the entity’s status, ownership structure, extent of participation, and other circumstances stipulated by Russian legislation. Can UAE corporate tax be credited against tax liabilities in Russia?
In certain situations, tax actually paid by a company in the UAE is taken into account when taxing the profits of a Controlled Foreign Company (CFC) in Russia. However, the availability of such a credit depends on the specific tax regime, the nature of the income, and the method used to calculate the tax base.
Particular attention must be paid to situations where the taxpayer utilizes the statutory special procedure for determining CFC profits as a fixed amount. The mechanism for crediting foreign tax differs in such cases. Therefore, the existence of a 9% corporate tax in the UAE does not in itself mean that a Russian taxpayer can automatically reduce their tax liability by that amount.
Spending more than 183 days outside the country should not be viewed in isolation as the sole criterion for determining all tax obligations. Tax residency status is established based on the totality of circumstances and applicable Russian and international legal norms.
Double taxation avoidance agreements may employ additional criteria, such as the location of a permanent home, the center of vital interests, and other factors. Consequently, relocating to the UAE or reducing the number of days spent in Russia does not always result in the automatic termination of tax ties with the Russian Federation.
If an individual or a company holds financial assets, bank accounts, or corporate structures in the UAE, it is advisable to verify the following points in advance:
1. Which residency status is indicated in banking documents.
2. Whether the self-certification aligns with actual tax residency status.
3. How the company is classified for CRS purposes (Active NFE or Passive NFE).
4. Who the controlling person is.
5. Whether obligations regarding CFCs and notifications to the Federal Tax Service (FTS) arise.
6. Whether there is a requirement to declare accounts and assets held in other countries.
7. How corporate tax paid in the UAE can be taken into account when calculating tax liabilities to Russian authorities.
8. Whether the information provided to the bank corresponds to the actual ownership and operational structure.
The Common Reporting Standard makes international financial structures significantly more transparent. Having a bank account or a business in the UAE does not automatically trigger tax liabilities in Russia; however, one should not assume that such information will remain unknown to Russian authorities.
For Russian residents, the key factors are not only the country where the account is opened or the business is registered but also their own tax status, ownership structure, the nature of their income, and compliance with statutory obligations.
That is precisely why, when utilizing companies and bank accounts in the UAE, it is important to assess the implications in both jurisdictions in advance and ensure that the data provided to banks and tax authorities aligns with the actual business and ownership structure.
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