Dubai investor visa to circumvent CRS will no longer work

Dubai FTZ Residence Visa sham

Sweet desserts: How the United Arab Emirates became an oasis for tax evaders

Set up a company, shield your income from prying eyes

Economist article 27th Sep 2018 - missing graphic

Under the CRS, banks must share information with the country where an account-holder is tax-resident. If the account holder is an entity, then the bank must look through it to the “controlling person” and report on that individual. In the UAE, since both the individual and the company have local tax residence, neither need fear having any information passed on to other countries, regardless of whether their money is held in a bank account, a trust or an investment fund. And, of course, there is no local tax to pay.

No other haven works quite like this. Others, even Caribbean islands which have held out against the CRS, say foreign-owned enterprises and the people who control them cannot be tax-resident there. Under CRS rules, the firms are deemed to be resident where they are managed from. In the UAE, however, foreign-owned entities are permitted to be tax-resident, even though the owner would normally be tax-resident elsewhere.

The UAE’s documentation system also makes it easier for people to avoid tax inspectors. When dealing with banks, clients need to produce a Tax Identification Number (TIN). This number is particularly important for any company that holds an account because it serves as an identifier for tax-information exchange between governments. Since the UAE levies no income tax, it does not issue TINs. Instead, the experts say, it hands out registration numbers for value-added tax, which it does levy. Clients then try to pass these off as genuine TINs to bolster the claim that they are tax-resident in the UAE. The ruse appears to be working. Whether because they cannot tell the difference or are turning a blind eye, many banks in other countries, when presented with the VAT-linked substitute TINs, accept that the client’s tax affairs are a matter for the UAE and therefore do not pass information on to other countries.

Compared with most offshore tax-minimising schemes, this one is cheap. In the UAE, companies can be formed, office space rented and residence acquired for “the price of a decent suit and pair of shoes”, says an adviser. Unlike in most other countries that sell residence rights, a donation or property investment in the hundreds of thousands or millions of dollars is not a prerequisite for a visa.

The country’s first free-trade zone was established in the mid-1980s. It now has more than 40, with tens, perhaps hundreds, of thousands of companies between them. Ras al-Khaimah, one of the country’s seven emirates, has over 14,000. The number of UAE firms being used as vehicles to dodge tax is impossible to determine. “Judging by the talk among tax and wealth advisers, it’s many thousands,” says a tax expert.

The Organisation for Economic Co-operation and Development (OECD), which oversees the CRS, is worried about the tax-dodging possibilities of residence-for-sale schemes. Pascal Saint-Amans, head of the OECD’s tax group, says the UAE is a concern and argues that the country has not been “proactive” in curbing abuse. The UAE finance ministry replies that it is “committed to implementing international economic standards to the highest levels of [tax] transparency” and is “actively working with the international community” on data exchange. Asked to comment, the Ras al-Khaimah free-trade zone did not reply.

The OECD will unveil some new policies this year, says Mr Saint-Amans. These could include making banks ask tougher questions of anyone claiming to be tax-resident in a haven. Banks could be required, for example, to run through a list of questions to establish where a client’s personal and economic links are strongest: where he spends most of his time, where his children go to school, where his doctor is and so forth. In cases where banks see evidence of discrepancy, they could be required to send account information to all countries with a possible claim on the client’s tax domicile. Until then, the Gulf state will remain a tax-dodgers’ oasis.
The UAE AEOI Guidelines Notes defines a UAE tax resident as "Resident Person" in the UAE means:
A. An Individual who is a resident in UAE with:
  1. a valid Emirates ID, and
  2. a valid Residency Visa
Financial Institutions will have to determine all the jurisdictions which have a tax claim on the individual based on Permanent home, Centre of Vital Interest, Habitual Abode.

Financial Institutions will not have to determine which jurisdiction has the sole tax claim on the account holder.

Account holders can provide evidence that they are not tax resident in a country the financial institution considers them resident.

Financial Institutions will no longer be allowed to accept residence visas and utility bill as proof of tax residence. Tax residence will be determined by the updated 2017 OECD Model Tax Convention.
The OECD Model Tax Convention page 87 gives a descending priority criteria of determining tax residence, when two states lay claim. This is (1) Permanent Home, (2) Centre of Vital Interest, (3) Habitual Abode, (4) Nationality and (5) Mutual Agreement by the states.