De Vere: The Clock is Ticking to Get Your Tax Affairs in Order
The countdown is well and truly on: with the Standard for Automatic Exchange of Financial Account Information now underway, meaning people in Indonesia have less than a year to ensure their tax affairs are organised.
The e aim of the OECD’s Common Reporting Standard (CRS) is to create a global approach of sharing financial information amongst international tax authorities. The CRS was set up to act as a deterrent to people who may be stashing cash offshore and circumventing domestic tax responsibilities.
The 55 countries within the so-called ‘Early Adopters Group’ began reporting in January this year, whereas the countries within the ‘Fast Followers Group’, where Indonesia is included, will implement CRS in January 2018, and now have less than a year to ensure their tax affairs are organised.
Incorporating global anti-money laundering requirements, in effect, CRS is a global version of the Foreign Account Tax Compliance Act, or FATCA, in the U.S., allowing governments across the globe to gain data on their tax residents who are in possession of financial accounts in other jurisdictions.
As such, financial institutions, such as banks, building societies, insurance firms and FX companies, amongst others, located in every country belonging to the Automatic Exchange of Information, are obliged to pass on all pertinent information regarding these clients on an annual basis.
In turn, the tax authorities will exchange data with other contributing countries.
With regard to this data being shared, according to the OECD, the CRS is designed across three dimensions:
- The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets.
- The financial institutions that are required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
- Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.
Whilst this Standard is aimed at all individuals who have offshore assets, expatriates will be disproportionately affected because most, typically, have cross-border elements within their financial affairs.
Naturally, the CRS should not present a major problem for the majority of people who are most likely already compliant with the necessary regulations.
However, those with overseas assets and investments who aren’t yet CRS compliant should seek advice as soon as possible from cross-border financial specialists, in order to mitigate the risks and alleviate any doubts sooner rather than later.
If not, they could encounter harsh penalties from January next year, and a lack of awareness about the Common Reporting Standard will be viewed as an unacceptable excuse by worldwide tax authorities.
Therefore, it is the responsibility of the financial services industry to increase awareness of the CRS, particularly now the first ‘Early Adopters’ are now reporting. Of course, even though there may be a whole host of cross-border measures available to lessen the tax burden, it’s crucial that individuals with assets in different jurisdictions make sure that all financial planning strategies are fully compliant with the Common Reporting Standard.
The time to act is now.
deVere Group is one of the world’s largest independent advisers of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.
The information contained in this article is believed to be reliable but is subject to change without notice. It provides an opinion, based on facts and experience, and is not to be construed as investment advice. deVere makes no representation as to the completeness or accuracy of the information or of any opinions expressed.