The subject of compliance has been practiced for several decades as a means of ensuring financial order and corporate standards in the global financial and business world. The regulations and requirements for the procedures of compliance have undergone noticeable changes in all countries of the world towards more stringent requirements for customer identification, checking the nature of the activities of companies and individuals and other data. In recent years, compliance regulation and requirements for the Know Your Customer (KYC) regulations in the UAE have also changed, especially in the banking sector of Dubai and other Emirates.
Historically, the UAE has always welcomed foreign business and created more favorable conditions for entrepreneurs than anywhere else in the world. Companies in the Free Economic Zones with 100% foreign ownership definitely continue to attract a significant amount of foreign capital, while the reporting requirements, the presence of the office and the introduction of authorized capital have changed. These changes have entailed a certain range of conditions and rules for the corporate and banking sectors of the UAE. Such changes significantly affected the requirements for the scope of documents for customer identification, much more detailed information about the source of funds and the intentional activities.
Following the adoption of the Law on the taxation of foreign accounts (FATCA) by the US Government, and the obligation of all foreign financial institutions to sign an agreement on the exchange of information with the IRS, banks in the UAE also follow these new conditions, and within the framework of this law they introduced a new document in account opening procedure, which sanctions the willingness of the client to automatically exchange the information on the account with the IRS, in case he/she has a US citizenship or a US resident card.
The similar example was followed by the European Union when they created an equivalent FATCA, which was called the Common Reporting Standard – CRS. This solution applies to all citizens of countries that are listed in the AEOI list – Automatic Exchange of Information. Financial institutions of the UAE, which joined this list and signed the agreement on information exchange, (comes into force in 2018), automatically provide information on all non-resident accounts and their beneficiaries, to the tax authorities of the European Union and other countries included in this list.
New conditions are also applicable in the corporate sector of the UAE, for example, accounts of International Business Companies – IBCs registered in the UAE, are not able to obtain resident status, and are also subject to the regulations on the information exchange.
In connection with those mentioned above, the requirements for documents on customers under the KYC procedure (Know Your Customer) for opening accounts and companies in Dubai, the UAE, have also become tougher. The main goal of this is to attract real companies with real and apparent activities to the country while meeting all the new standards of international compliance. So, in order to open a new company account in the UAE, in addition to personal documents (a passport and address and resume confirmations) it is required to provide, information about the existing business in any other jurisdiction outside the UAE, registered in the name of the same beneficiary who will own the account of the new UAE company. As a rule, this information provided in the form of the company’s registration documents and a company's account statement for the last six months with actual account movements. In the course of review of the company's documents within the framework of the compliance procedure, a bank has the right to request for additional accompanying documents such as contracts, invoices, etc.
After opening an account, it is required to transfer a minimum monthly balance, which should be maintained on the account at least by the end of each month, and also adhere to the information specified by the bank regarding the annual turnover and counterparties with which the company will interact. Operations on the account must be carried out within the framework of the activities and documents provided by a bank under the "Know Your Customer" (KYC) procedure, and comply with the company's license. In case new or additional activities are planned, which also implies the occurrence of new counterparties, you must inform the account manager in advance so that the bank will input new data about these changes into your client's profile, which will again be reviewed by the bank's Compliance Department and only after confirmation from of the Compliance Department, a client can begin to implement financial transactions on the account related to the new activity. Failure to comply with regulations on minimum balance, company turnover, and compliance regulations may lead to blocking/freezing of the account or its closure.
A bank account in the UAE can be closed by a bank due to non-compliance with the above rules, and this may cause difficulties when opening an account with another bank in the UAE. For example, in case of Bank B finds out about the closure of your account in a Bank A, this Bank B either rejects the account opening or if the situation meets the current compliance requirements, and compliance was not the reason for account closing in the previous bank, Bank B may increase the required minimum monthly balance or make you purchase some other bank products as an additional condition for opening an account.
We should also pay attention to the fact that the Compliance Department of banks in Dubai and the other UAE Emirates carefully considers the list of counterparts with which the new company plans to interact. It is important to make sure, as much as possible, that counterparties who will make payments to the account of the new company in the UAE and who will receive transfers from this account do not cooperate with countries that are on the list of countries under international sanctions. In case of such violation there is a high probability that the account will be closed, and in the worst case, the central bank of the UAE will put a ban on opening accounts in the UAE for a specific beneficiary.
It is worth noting that, despite all the above-mentioned current regulations and requirements, they are still somewhat less stringent than in most other stable jurisdictions. This primarily applies to the minimum balances on accounts – if the UAE on the average requires about USD 100,000, - as a minimum account balance, this amount can be much larger in other countries. At the same time, the UAE, unquestionably, fully complies with all the regulations and norms in the framework of international compliance and bilateral agreements with the tax authorities of other countries. Thus, the country secures stable and reliable positions in the banking and financial world in combination with the favorable conditions in terms of taxation for investors and business.