Arguably few countries will be impacted as much by the OECD's Common Reporting Standard (CRS) than those jurisdictions once seen as "offshore havens". We in Curacao, however, welcome this additional move towards more transparency in ownership.
As long as you're tax compliant, the forthcoming deadline for first reporting should not be a big worry for you - it's just another step in global transparency, just like the Know Your Client (KYC) processes we all go through. The days when you could set up an offshore company and hide money are over. In the past, there were a lot of international structures set up for private individuals for tax structuring, but these days international structures are being used less for tax, and more for asset protection and estate planning purposes.
It's all about more transparency, and I think it helps the international world and especially the image that offshore tax isles had. We applaud this. Still, in the end, it's an extra regulatory burden.
What is CRS?
The Common Reporting Standard (CRS), approved by the OECD Council in 2014, calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. As TMF Group has previously reported, no two countries are alike, and while the CRS provides a consistent approach to what financial institutions are required to participate - how financial information is represented, the accounts reported on, and due diligence procedures - implementation will vary locally across the different jurisdictions.
Curacao had been due to be an early adopter country, but was moved to the late adopter list and has is first CRS reporting deadline on 31 March 2018.
Who is impacted?
Any legal entity, including Trusts, that exists in a country that has signed up to CRS is impacted by this regulation - that includes client entities, internal entities, and so on. It's the responsibility of the directors to make sure the companies keep compliant. I say "any legal entity is impacted" because while on the surface the regulation seems simple - it impacts financial institutions - the definition of financial institution in this case can be hazy.
Every entity should go through the steps to determine whether it is qualified as a financial institution or not, and every country has its own guidelines for CRS. There are steps to go through, including looking at financial statements, organisational charts, the entity's activity and so on. Some are really obvious - a bank is obviously a financial institution, same as an insurance company - but they're not the only financial institutions. If the company for example has a managed investment account managed by a third party that is a financial institution, then the entity itself becomes a financial institution. That can be a surprise for some, but if their entity is classified as a financial institution, they then have the obligation to report.
What must be reported?
Those affected must report the financial accounts of the financial institution to the local authorities. That information, together with the details of the controlling persons, often the ultimate beneficial owner(s) (UBOs) of the structure, will be shared with local authorities, and they will share that information with the country of tax residency of the controlling persons, if that country has also signed up to CRS.
Why is this happening?
As I said earlier, CRS is another string in the global transparency bow, an effort to make it impossible to hide undeclared funds. In the past people could set up a company in the Caribbean, put assets in there and have a trust company manage it, and the actual owners would not be visible. Obviously, if applicable, UBOs have an obligation to declare in their tax returns that they own assets in a foreign country, but some don't.
If you are an owner of a Curacao company and you have undeclared assets in there, and it is considered a financial institution for CRS purposes because its investment account is being managed by, say, Merrill Lynch, then all information will be shared with local authorities in your country of tax residency if that country has also signed up to CRS.
It doesn't end there. If you have a bank account in a CRS country, then the local bank is considered a financial institution and that bank will also have to report on their financial accounts - i.e. the bank accounts they hold in their books. If it's on behalf of company, they will ask for controlling persons and exchange information.
TMF Curacao and CRS
We are embracing this trend towards global transparency. We take compliance seriously, and we set up a dedicated team here in Curacao to perform CRS classifications, making sure we have the right quality of people, and the tools available to do it in efficient and correct way. We're doing this not only for our Curacao clients but also for BVI and Cayman, and the wider Americas.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
