FATCA/CRS/IRS/AEOI

FATCA is a United States (US) Law that forms financial system that would help towards
reporting and enforcing agent of Internal Revenue System (IRS) and which was enacted to fight tax
evasion through the use of foreign accounts by US individuals and entities. It is primarily tackling
about the evasion of tax by US Persons which are holding accounts and other financial assets, it
would also develop the reporting with regards for increased customer data transparency, fair
taxation and better process.

FATCA and CRS has almost the same goals or objectives and that is to improve tax
compliance, they just differ with the rules that they are implementing separately and the required
reporting content. For FATCA it would a one search criterion which is the US, but it also requires
more classification types and that the result should be verified with attached audit proof, it is
consider one of the main factors to avoid getting unruly status. Reporting of FATCA would be one
of the issues because of the low amount of customer and the importance of financial institutions and
competent authorities. The information to be reported by Financial Institutions is equivalent to that
required to be reported by individuals in their tax returns. Information will be provided in respect
of reportable financial accounts.

On the other hand, CRS is the framework issued by OECD to collect, report and automate
the exchange of taxpayer information among regulators across the countries. Automatic exchange of
information (AEOI) will facilitate the transmission of taxpayer information from the source
jurisdictions to the taxpayer’s residence jurisdictions. It will help regulators to have tax information
of non-resident account holders and thus ease catching hold of where tax has been evaded.

It is also the global initiative to attain an international standard for exchange of information.
CRS needs financial institutions around the globe to provide tax authorities with admission and
understanding into taxpayer financial account data. It potentially applies to any individual who is
tax resident in any of the many CRS signatory jurisdictions. With that, the CRS offers for various
models of operation to allow for ease of implementation, such as multilateral agreements, non-
reciprocal agreement models (so that jurisdictions which have no native income tax can provide
reportable information) and those which work bilaterally in conjunction with double taxation
agreements. Whilst the agreements are largely standard, there are some defined areas which have
been left flexible to allow for local variations in application. These include the application of
thresholds under which entity accounts need not be reported and how beneficiary reporting is to be
handled. Clients are urged to seek advice from their tax adviser in relation to country specific
issues.

With regards to reportable financial account, Foreign bank accounts, custodian and
investment accounts will be reportable, even if held indirectly through a corporate vehicle. But, an
“equity interest” in a trust is also a “financial account” for reporting purposes. Even if not an
“investment entity”, if 50% or more of a trust’s assets produce “passive” income (dividends,
interest, rent, royalties, etc.), the trust will be a “Passive Non-Financial Entity” (NFE) and equity
interests in that NFE may be reportable.
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The illustration below could help in determining how does the CRS Reporting system work.

Source: http://www.sars.gov.za/ClientSegments/Businesses/Mod3rdParty/AEOI/Pages/How-does-CRS-
reporting-work.aspx
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“STEP 1: DETERMINE REPORTING FINANCIAL INSTITUTIONS

Financial Institutions residents in SA (referred to as Reporting

Financial Institutions or RFIs) that must apply the prescribed due
diligence requirements to find reportable accounts and report the
prescribed information, include any Financial Entity (whether a legal
entity or legal arrangement such as a trust or partnership) that is a
Custodial Institution, a Depository Institution, an Investment Entity, or a
Specified Insurance Company. Certain Financial Institutions or financial
accounts are specifically excluded under the CRS. The CRS Regulations
gives a general description of excluded FIs or accounts. Specific
exclusions are listed in Annex 1 and Annex 2 to the regulations.
 
What is a Reporting Financial
Institution:

Step 1.1  What is an Entity?

An Entity is a legal entity such as a
company or a legal arrangement such as a trust or partnership. Even
though a trust is not considered an entity under SA common law, it is
treated as an entity for AEOI purposes. 

Step 1.2  What is a Participating Jurisdiction?

A Participating Jurisdiction, broadly, is a country where the CRS is
domestic law and which has agreements in place with other CRS
participating countries to automatically exchange CRS information.

Step 1.3  What is a Financial Institution?

Type Characteristics
Depositoy •   Banks, savings/loan
Institutions institutions, credit unions etc.

  •   Accepts deposits in the

course of a banking or similar
business.
Custodial •   Custodian banks, brokers,
Institutions depositories etc.

  •   ≥ 20% of gross income from

holding Financial Assets for
others.
Investment •   Funds, portfolio managers,
Entities investment trusts etc.

  •   (i) Gross income primarily

(≥50%) from business
investment activities
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(trading/investing in Financial
Assets, portfolio management
etc.) on behalf of customers; or

•   (ii) Gross income primarily

(≥50%) from investment in
Financial Assets and managed
by a Financial Institution.
Specified •    Life insurance companies.
Insurance
Companies •    Insurance company making
payments on a Cash Value
Insurance/Annuity Contracts.
 
Please note: A nil return must be filed by an RFI that did not
maintain any reportable accounts during the relevant reporting
period.
 Step 1.4  What are Non-Reporting Financial Institutions?

Low risk excluded FIs

CRS Regulations exclusions under Annex 1 to the
(Section VIII(B)) CRS Regulations
•     Government Entity, •    Pension Fund
International Organisation, (including an umbrella
Central Bank (other than Pension Fund).
payments on obligations
held in commercial activity). •    Provident Fund
(including an umbrella
•    Broad participation Provident Fund).
retirement fund.
•    Pension Preservation
•    Narrow participation Fund.
retirement fund.
•    Pension Preservation
•    Pension fund of a Fund.
government entity,
international organisation or •    Retirement Annuity
central bank. Fund.

•    Qualified credit card SUBJECT TO additional

issuer. requirements 

•    Any other Entity with

low risk of tax evasion,
similar characteristics to the
above categories, defined in
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domestic law, does not

frustrate purposes of the
Standard.

•    Exempt collective
investment vehicle.

•    Trustee documented
trust.

 
 
 STEP 2: REVIEW FINANCIAL ACCOUNTS
Step 2.1  Which Financial Accounts must be reviewed?
A financial account is an account maintained by a Financial
Institution. Specifically, the term ‘Financial Account’ includes five
categories of accounts: Depository Accounts, Custodial Accounts,
equity and debt interests, Cash Value Insurance Contracts and
Annuity Contracts as set out below:

The Financial Institution

Account generally considered to
maintain it
Depository Institutions •   The Financial Institution
obliged to make
  payments with respect to
the account.
Custodial Institutions •   The Financial Institution that
holds custody over the
  assets in the account.
Investment Entities •   The interests in an
Investment Entity (or
  other Financial
Institution – anti-
avoidance) are
“maintained” by that
Investment Entity (or
other Financial
Institution).
Cash Value Insurance/ •  The Financial Institution
Annuity obliged to make
Contracts payments with respect to
the contract.
 
The term “Equity Interest” means, in the case of a partnership that is
 FATCA/CRS/IRS/AEOI

a financial institution, either a capital or profits interest in the

partnership. In the case of a trust that is a financial institution, an
equity interest is considered to be held by any person treated as a
settlor or beneficiary of all or a portion of the trust, or any other
natural person exercising ultimate effective control over the trust.
Step 2.2  Which Financial Accounts are excluded?
Some types of accounts are excluded from being Financial Accounts
and so are not subject to the due diligence and reporting obligations.
Under the CRS these are called Excluded Accounts. There are two
categories of excluded accounts, i.e. those excluded under the
Standard (described in Section VIII(C)(17) of the CRS Regulations)
and those excluded by each CRS participating jurisdiction based on
certain criteria such as if the account type is a low risk for being used
for tax evasion. South Africa’s specific excluded accounts are
reflected in Annex 2 to the CRS Regulations:

SA Specific Excluded
CRS Excluded Accounts Accounts
•       Retirement and •       Tax Free Savings
pension accounts. Account.

•       Other tax-favoured •       Central Securities

accounts. Account.

•       Term Life Insurance •       Mzanzi Account .

Contracts.
•       Annuity Contract.
•       Estate Accounts.
•       Living Annuity.
•       Escrow Accounts.
•       Compulsory
•       Depository Accounts Annuity.
due to not-
returned •       NPO Accounts.
overpayments.
SUBJECT TO additional
•       Specific low-risk requirements
excluded listed in Annex 2
accounts.
 
Step 2.3  Which financial assets are included by the CRS?
Financial accounts that may be reportable accounts under the CRS
are accounts that maintain financial assets such as:

 Security (for example, a share of stock in a corporation;

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partnership or beneficial ownership interest in a widely held or

publicly traded partnership or trust; note, bond, debenture, or other
evidence of indebtedness).
 Partnership interest.
 Commodity.
 Swap (for example, interest rate swaps, currency swaps, basis
swaps, interest rate caps, interest rate floors, commodity swaps,
equity swaps, equity index swaps, and similar agreements).
 Insurance Contract.
 Annuity Contract.
 Any interest (including a futures or forward contract or option)
in a security, partnership interest, commodity, swap, Insurance
Contract, or Annuity Contract.

The term “Financial Asset” does not include a non-debt, direct

interest in real property. See the differences between FATCA and
CRS.

STEP 3: IDENTIFY REPORTABLE ACCOUNTS

Step 3.1  What is a Reportable

Account?

Step 3.2  What is a Passive Non-Financial

Entity?
A Passive NFE is an Entity that is not an
Active NFE.

The CRS does not require the review and reporting of financial accounts
held by Active NFE, which include for example NFEs that meet the
criteria listed in Section VIII(D)(9) of the CRS Regulations.
 
Step 3.3   Who are Controlling Persons of a PNFE?
To determine who is the controlling person or beneficial owner of a
PNFE, the Financial Institution must “look through” the Entity to
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identify the natural person(s) who exercises control over the Entity
(generally controlling ownership interest in the Entity, which is often
interpreted ≥ 25% ownership). For trusts (and equivalents), the
Controlling Persons are the settlor(s), trustee(s), protector(s),
beneficiary(ies) and any other natural person(s) exercising effective
control over the trust.

STEP 4: RFIs MUST APPLY DUE DILIGENCE RULES TO IDENTIFY

REPORTABLE ACCOUNTS

Step 4.1 What are the general due diligence obligations of RFIs?

 
The AEOI due diligence procedures are the procedures an RFI is
required to undertake to determine whether there are any Reportable
Accounts among the Financial Accounts it maintains. For the CRS, the
general due diligence procedures that SA RFIs must comply with are
described in Sections II to VII of the CRS Regulations, as interpreted by
the CRS Commentary. RFIs are required to establish whether a person
holding the account is tax resident in any foreign jurisdiction. In
addition, RFIs have further due diligence obligations for entity account
holders.
 
Identifying the account holder is a key requirement of the due diligence
procedures. In most cases, identifying the holder of a financial account is
straightforward and the account holder is the person listed or identified
by the RFI who maintains the account as the holder of the account.
 
However, RFIs must consider the type of account and the capacity in
which it is held. 'Account Holder' is defined in the AEOI regimes such
that where a person, other than a financial institution, holds a financial
account for the benefit or account of another person as an agent,
custodian, nominee, signatory, investment adviser or intermediary, then
that other person is the account holder. An RFI may rely on information
in its possession (including information collected in line with
AML/KYC procedures), based on which it can reasonably determine if a
person is acting for the benefit or account of another person.
 
Step 4.2 How must RFIs determine the controlling person/beneficial
owner of an entity account?
 The due diligence procedures in the AEOI regimes are generally aimed
at determining whether the account holder is a reportable person, or has
a controlling person who is a reportable person in the case of passive
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NFEs, so that the RFI can report the respective accounts to SARS as a
reportable account. A controlling person is defined in the CRS
Regulations and means the natural persons who exercise control over an
entity.
 
In the case of a trust, the following persons are all regarded as the
controlling persons of the trust:

 Settlor.
 Trustee.
 Protector (if any).
 Beneficiary or a class of beneficiaries.
 Any other natural person exercising ultimate effective control over
the trust.

In the case of a legal arrangement other than a trust, such as a

partnership, the controlling persons are the persons in equivalent or
similar positions to those of a trust.
 
Very importantly, the CRS Regulations requires that RFIs must interpret
the term “controlling persons” in a manner consistent with the 2012
Financial Action Task Force (FATF) recommendations aimed to identify
the beneficial owners of a legal entity. FATF is an independent
international inter-governmental body that develops and promotes
policies to protect the global financial system against money laundering
and terrorist financing. The FATF Recommendations are recognised as
the global anti-money laundering (AML) and counter-terrorist financing
(CFT) standard. South Africa is a member of FATF and must give effect
to these recommendations, which has now been done in the Financial
Intelligence Centre Act, 2001, as amended in 2017 for this purpose (“the
new FICA”).
 
Although the CRS Regulations use the term controlling person, it
essentially corresponds to the beneficial owner. Accordingly, from 1
March 2016 when the CRS Regulations commenced, RFIs are required in
the circumstances prescribed by the CRS Regulations, to identify the
natural controlling person/beneficial owner of entity account holders in
a manner consistent with the 2012 FATF recommendations and, once the
new FICA commences, in a manner consistent with the new FICA.
 
AML/KYC procedures (Anti-money-laundering and Know-your-client)
are an integral part of the due diligence procedures for the AEOI
regimes and determining the controlling persons/beneficial owners of
entities. In South Africa, the obligation to obtain AML/KYC information
from account holders is imposed under FICA on ‘accountable
institutions’. Most RFIs essentially are ‘accountable institutions’ for
FICA purposes. The old FICA (before its amendment in 2017) required
RFIs to identify and verify the identity of a client and, if the client is
 FATCA/CRS/IRS/AEOI

acting on behalf of someone else or someone else is acting on behalf of

client, to identify and verify the identity of that person or client. Without
the completion of the identification and verification process, RFIs may
not transact with the client. In the context of a financial account this
means the account may not be opened for or, if already opened when
the old FICA came into effect, used by the client.
 
Under the new FICA, RFIs are obliged to determine the identity of the
beneficial owner of an account held or opened by a legal person.
Beneficial owner means a natural person who, independently or
together with another person, directly or indirectly:

 Owns the legal person, or

 Exercises effective control of the legal person.

The process to establish the identity of the beneficial owner of the client
under the new FICA requires three steps:

1. Determining the identity of each natural person who,

independently or together with another person, has a controlling
ownership interest in the legal person;
2. If in doubt whether the above natural person is the beneficial owner
of the legal person or no natural person has a controlling ownership
interest in the legal person, determining the identity of each natural
person who exercises control of that legal person through other means;
or
3. If a natural person who exercises control is not identified,
determining the identity of each natural person who exercises control
over the management of the legal person, including in his or her
capacity as executive officer.

Thereafter, accountable institutions must take reasonable steps to verify

the identity of the beneficial owner of client.

For some identification tasks an RFI may rely solely on information

collected and maintained through properly conducted AML/KYC
procedures, for other tasks the review of information must cover the
AML/KYC information and any other information held on the client.
 
An RFI may rely solely on their AML/KYC procedures when:

 Reasonably determining that an entity is an Active NFE or a

Financial Institution (any entity account)
 Identifying the controlling persons of an entity (any entity account,
but note the procedures relating to settlors of trusts)
 Determining whether the Controlling Person or persons of a Passive
NFE holding a Pre-existing Account is a Reportable Person, provided
that the balance or value does not exceed $1 million.
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An RFI must review AML/KYC information and any other information

held on the client when:

 Confirming the reasonableness of a self-certification for a New

Individual Account or a New Entity Account
 Determining whether the holder of a Pre-existing Entity Account
may be a Reportable Person.

The details of due diligence requirements depend on whether an

account is pre-existing or a new account. An account is pre-existing if it
is in existence as of 29 February 2016 for the CRS, or was in existence on
30 June 2014 for FATCA. The required due diligence further depends on
whether an account holder is an individual or an entity. For accounts
held by individuals, there are further distinctions in procedures for
Lower Value Accounts and High Value Accounts (CRS and FATCA) or
below a threshold (FATCA).
 
Step 4.3  Which accounts must a Financial Institution review?

For Preexisting Individual Accounts, New Individual Accounts and

New Entity Accounts, no de minimis threshold applies. In respect of
Preexisting Entity Accounts, the CRS Regulations allows the application
of the USD 250,000 (or the Rand equivalent based on an exchange rate of
R15 to US$1) threshold meaning accounts below this amount are not
reportable and subject to review, unless the RFI elects otherwise.
 
Step 4.4 How must RFIs review individual accounts?
A. Preexisting individual lower value accounts
 A Lower Value Account for CRS purposes is an individual account with
an aggregate balance or value that does not exceed $1 million as of 29
February 2016. It will remain a lower value account as long as the
balance or value does not exceed $1 million last day of February 2017
and last day of February of subsequent years. An RFI can apply either a
residence address test or an electronic record search.

 Residence address test: The current residence address for these

purposes is the residential address recorded by the RFI for the Account
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Holder. A residential address is one where the RFI understands or

presumes the account holder resides. A 'care of' or post office box
address would not generally be presumed to be the residential address
(except in special circumstances such as that of military personnel). The
current residence address must be substantiated by evidence, such as:
o Documentary Evidence, i.e. the evidence specified in Section VIII(E)
(6) of the CRS Regulations Broadly, it covers certain documents issued
by an authorized government body, an audited financial statement,
third party credit report, bankruptcy filing or securities regulator’s
report
o Supporting documentation, such as a document issued by an
authorized government body or a utility company
o General documentation, i.e. any of the above, and any other
government or formal commercial document such as, for example, a
trust deed or company certificate.
 Electronic records search: Where an RFI is unable to establish the
residence of an individual with a Lower Value Account with the
residence address test, or chooses not to apply the residence address
test, it must review its electronically searchable data for indicia of the
individual’s residence. The account holder is regarded as a resident of a
foreign jurisdiction if any of the following foreign indicia is found:

o The account holder is identified as resident of a foreign jurisdiction

or as a US citizen
o A current mailing or residence address (including a post office box)
of the account holder is in a foreign jurisdiction
o There are one or more current telephone numbers in a foreign
jurisdiction and no telephone number for the account holder in South
Africa
o For non-depository accounts only, that there are current standing
instructions to transfer funds to an account maintained in a foreign
jurisdiction
o There is a currently effective power of attorney or signatory
authority granted to a person with an address in a foreign jurisdiction
o An 'in-care-of' address or 'hold mail' instruction in a foreign
jurisdiction if the RFI does not have any other address on file for the
account holder.

If none of these indicia are discovered through an electronic search, no

further action is required for lower value accounts unless and until there
is a subsequent change of circumstance that results in one or more of
these indicia being associated with the account or the account holder, or
the account becomes a high value account. Where any of the first four
indicia are found or subsequently arise the account becomes a reportable
account unless the RFI takes action that leads to the indicia being cured.
The RFI may (but is not required to) cure the indicia by obtaining both:

 A self-certification (if not already obtained); and

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 Documentary Evidence supporting the self-certification to establish

the account holder's non-reportable status.

In the case where the only indicium is item 6 above (an 'in-care-of'
address or 'hold mail' instruction in a foreign jurisdiction and no other
address on file for the Account Holder), the RFI is required to undertake
at least one of these actions:

 Conduct a paper record search of certain documents specified in

the CRS; or
 Seek a self-certification or documentary evidence from the account
holder to establish their tax residency.

If the paper record search action is chosen and further foreign indicia are
found, the account is a reportable account unless the RFI takes the
appropriate curing action for the indicia. If the paper record search finds
an South African address and no other foreign indicia are found, the
account is not a Reportable Account. For any of these curing procedures
in which Documentary Evidence is obtained, the evidence will be
sufficient to confirm non-reportable status for CRS purposes (but not
FATCA) if it contains a current South African residential address.
 
If the chosen course of action fails to resolve the status of the account the
RFI is required to attempt the other course of action. If neither course of
action is successful in resolving the status of the account, the RFI must
report the account as an undocumented account. If foreign residence
indicia were found and not remediated (“cured”) under the options
available, the account is a Reportable Account for the indicated
jurisdiction(s). The RFI maintaining the account must make reasonable
efforts to obtain the account holder's date of birth and Taxpayer
Identification Number (TIN) if these are not already held.
 
An RFI must monitor the balance of lower value pre-existing individual
accounts on the last day of February of each year from 2017. On the first
occasion the balance exceeds $1 million, the account becomes a high
value account and the RFI must carry out the enhanced review
procedures for High Value accounts in the next calendar year.
 
B. Preexisting individual high value accounts
 For CRS purposes, a High Value Account is an individual account with
an aggregate balance or value that exceeds $1 million on last day of
February 2017 and last day of February of subsequent years. The RFI
must, for both the CRS and FATCA, start with an electronic record
search and then continue, where appropriate, with a paper record search
and a relationship manager inquiry.
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 The electronic record search for CRS is a search for the same indicia
as described for lower value accounts. If the RFI's electronically
searchable databases include fields for the indicia included in the
electronic record search, and capture all of the information described in
those fields, a paper record search is not required for the CRS
 The paper record search for indicia should include a review of the
current master file and, to the extent that they are not contained in the
current master file, the following documents associated with the account
and obtained by the Financial Institution within the last 5 years:
o The most recent Documentary Evidence collected with respect to
the account
o The most recent account opening contract or documentation
o The most recent documentation obtained by the Financial
Institution for AML/KYC procedures or other regulatory purposes
o Any power of attorney or signatory authority currently in effect
o Any standing instructions to transfer funds currently in effect (in
the case of the CRS, instructions for a Depository Account is not a
potential indicium).
 A relationship manager inquiry is always required for high value
accounts if the account or any account aggregated with it has such a
manager.

The relationship manager inquiry is in addition to the electronic record

search and (if appropriate) the paper record search. The RFI must
consider whether any relationship manager associated with the account
or any accounts aggregated with such an account has actual knowledge
that would identify the Account Holder as a Reportable Person. A
relationship manager is an employee or officer of the RFI who has been
assigned responsibility for specific Account Holders on an ongoing
basis. A person with some contact with Account Holders, but whose
functions are of a back office, administrative or clerical nature, is not
considered to be a relationship manager.
 
The effect of finding indicia is the same as for lower value individual
accounts, namely:

 If none of the relevant indicia are found in the review of the high
value account and there is no relationship manager with actual
knowledge that the account holder is a reportable person, no further
action is required until there is a change in circumstances resulting in
one or more indicia being associated with the account
 In the special case where the only indicium is an 'in-care-of' address
or 'hold mail' instruction in a foreign jurisdiction and there is no other
address on file for the Account Holder, the RFI must obtain a self-
certification or Documentary Evidence from the account holder to
establish their tax residency. If the RFI cannot obtain either of these, it
must report the account as an undocumented account
 FATCA/CRS/IRS/AEOI

 An RFI may cure certain indicia if it obtains or has previously

obtained and recorded a self-certification and documentary evidence
that establishes the Account Holder's status as non-reportable.

C. New individual accounts

 New individual accounts are accounts that are opened on or after 1
March 2016. The Financial Institution must:

1. Obtain a self-certification: Upon account opening, obtain a valid

self-certification establishing tax residency from the individual seeking
to open an account. A self-certification must be signed/positively
affirmed, dated and include the following:
o Name
o Residence address
o Date of birth
o Jurisdiction(s) of residence for tax purposes
o Taxpayer Identification Number (TIN) – in South Africa it would be
the individual’s income tax reference number
2. Verify the self-certification: The FI must compare the self-
certification to the other information obtained in connection with the
account opening (including for AML/KYC obtained under FICA) to
determine if it is valid. If the self-certification conflicts with other
information that the FI has or is otherwise unreliable, the FI must either
obtain a new self-certification or a reasonable explanation from the
individual supported by documentary evidence.

Self-certification:
  A self-certification may be provided in any manner and in any form
– see for example the sample self-certification forms by the OECD.
Provided the self-certification contains all the required information and
the self-certification is signed or positively affirmed by the customer, an
RFI may gather verbally the information required to populate or
otherwise obtain the self- certification. The approach taken by an RFI in
obtaining the self-certification is expected to be in a manner consistent
with the procedures followed by the RFI for the opening of the account.
The RFI will need to maintain a record of this process for audit
purposes, in addition to the self- certification itself. In all cases, the
positive affirmation is expected to be captured by the RFI in a manner
such that it can credibly demonstrate that the self-certification was
positively affirmed (e.g. voice recording, digital footprint, etc.). A self-
certification can be completed based on a yes/no response to record the
client’s jurisdiction of tax residence, instead of requiring the completion
of a blank field. For example, in order to complete a self- certification the
client could be asked whether the jurisdiction in which the account is
being opened is the sole tax residence of the account holder, with
additional questions only being asked if the answer is no.
 
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If the self-certification establishes that the Account Holder is a foreign

tax resident, the RFI must treat the account as a Reportable Account. An
account holder may be a tax resident of more than one jurisdiction. Even
if no CRS reporting is required, a record of the self-certification must be
kept for record purposes.
 
Timing of the self-certification:
 
Please note: A Reporting Financial Institution must obtain a self-
certification upon account opening. Where a self-certification is obtained
at account opening but validation of the self-certification cannot be
completed because it is a ‘day two’ process undertaken by a back-office
function, the self-certification should be validated within a period of
90 days.
There are a limited number of instances, where due to the specificities of
a business sector it is not possible to obtain a self-certification on ‘day
one’ of the account opening process, for example where an insurance
contract has been assigned from one person to another or in the case
where an investor acquires shares in an investment trust on the
secondary market. In such circumstances, the self- certification should
be both obtained and validated as quickly as feasible, and in any case
within a period of 90 days. If the self-certification does not require CRS
reporting it must still be obtained and kept for record purposes.
It is recognised that an RFI may be unable to obtain the self-certification
for all accounts within the 90 day period in exceptional circumstances,
for example due to system constraints in the first year of reporting. In
such cases the RFI may approach SARS to determine a method of
dealing with such circumstances to ensure that it is able to comply with
its due diligence obligation to obtain self-certifications for all new
accounts, which may include a risk based approach to prioritisation.   
Measure to enforce the provision of self-certifications upon account opening:
Given that obtaining a self-certification for new accounts is a critical
aspect of ensuring that the CRS is effective, it is expected that South
Africa have strong measures in place to ensure that valid self-
certifications are always obtained for new accounts (see examples in
paragraph 18 of the OECD CRS Commentary on Section IX). In all cases,
Reporting Financial Institutions must ensure that they have obtained
and validated the self-certification in time to be able to meet their due
diligence and reporting obligations with respect to the reporting period
during which the account was opened. Therefore, a self-certification
must be obtained by an RFI upon account opening unless the limited
number of instances or exceptional circumstances set out above apply.
 FATCA/CRS/IRS/AEOI

SARS is of the view that not allowing a person who presents indicators
of being a reportable person to transact on an account until a valid self-
certification is obtained, will ensure compliance by the RFI  with its due
diligence obligations under the CRS Regulations to obtain self-
certifications and minimise the risk of being sanctioned for failing to
determine and report a reportable account. This approach is supported
by:

 The wording of Section IV(A) and VI(A) of the CRS Regulations

read with the OECD CRS Frequently Asked Questions (Question 22 on
page 10), and
 The fact that the failure by an RFI to so obtain a self-certification
and the failure by the client to provide the self-certification is enforced
by the sanctioning of such non-compliance under Public Notice 193.

If the client who wants to open an account refuses, without just cause to
provide the self-certification or other documents required under the CRS
by the FI, it constitutes non-compliance by the client under Public Notice
193 read with section 26 of the TAA and Section X(A)(2) of the CRS
Regulations and the client may incur an administrative penalty imposed
by SARS. For more information on sanctions, see SARS AEOI Penalties.
 
Step 4.5 How must Entity accounts be reviewed? 
A. Preexisting Entity accounts
A preexisting entity account is an account exceeding US $250,000 held
by an entity (a non-individual) on 1 March 2016. The RFI must review
the aggregated account balance at the end of February each year to
determine if the balance has exceeded the threshold on that date. Once
the balance has exceeded $250,000 at the review date, the account
becomes reviewable and due diligence must be carried out in the
following 12 months.
If an RFI is required to carry out due diligence on an entity account, it
must follow these procedures to determine if the account is held by one
or more entities that are Reportable Persons. The RFI must also establish
whether an entity is a Passive NFE or should be treated as a PNFE and if
so, "look through" the entity account holder to the controlling persons to
determine whether they are reportable persons.

1. Account holder is a reportable person

An RFI must review information maintained for regulatory or customer

relationship purposes (including information collected for AML/KYC
purposes) to determine whether the Account Holder is resident of a
foreign jurisdiction. Information indicating that the Account Holder is
resident in a foreign jurisdiction includes:
 FATCA/CRS/IRS/AEOI

 A place of incorporation or organisation in a foreign jurisdiction

 An address in a foreign jurisdiction.

If the information indicates that the account holder is a foreign resident,

the RFI must treat the account as a reportable account unless, at the RFI's
option, it cures this status by:

 Obtaining a self-certification to the contrary from the account

holder (signed by a person with authority to sign on behalf of the
entity), or
 Reasonably determining based on information in its possession or
publicly available that the account holder is not a reportable person (for
example, where such information shows that the entity is a listed public
company or a governmental entity

     2. Account holder is a RFI

If an account holder is an RFI the account would generally not be a

reportable account for CRS purposes unless the RFI is a type B
Investment Entity (see below) and is resident in a jurisdiction that is not
a CRS participating jurisdictions, in which case the RFI is deemed to be a
Passive NFE.

Broadly, under the CRS Regulations an entity is an Investment Entity if

it:

o Primarily conducts as a business specified activities for or on behalf

of customers ('type A'), or
o Primarily derives its gross income from investing or trading in
Financial Assets and is managed by a Financial Institution ('type B').

An entity is a type B Investment Entity if it is:

o Investing on its own account, as a collective investment vehicle on

behalf of participants or as a trust on behalf of beneficiaries, and
o Managed by a Depository Institution, a Custodial Institution, a
Specified Insurance Company or a type A Investment Entity mentioned
above, and it meets the Financial Assets test described below.

An entity is managed by a Financial Institution if that Financial

Institution performs, either directly or through another service provider,
any of the investing or trading activities described above on behalf of the
entity. The activities may be performed as part of managing the entity as
a whole, or by appointment to manage all or a portion of the Financial
Assets of the entity. An entity is not regarded as being managed by a
 FATCA/CRS/IRS/AEOI

Financial Institution if that Financial Institution does not have

discretionary authority to manage the entity’s assets.

An entity meets the Financial Assets test if its gross income is primarily
attributable to investing, reinvesting or trading in Financial Assets – at
least 50% of its income is attributable to investing, reinvesting or trading
in Financial Assets in the shorter period of either the:   

o Three-years ending on the last day of February in the year before

that when its status as an investment entity is to be determined , or
o Time the entity has existed.

     3.  Passive NFE controlling persons3.  Passive NFE controlling persons

The RFI must determine whether the entity is a Passive NFE. If so, the
RFI must identify the controlling persons of the Passive NFE and
whether any of those controlling persons is a reportable person. For the
purposes of determining whether the entity is a Passive NFE, the RFI
must request a self-certification unless it has information in its
possession or that is publicly available to reasonably determine the
status of the Account Holder.
 
To identify the controlling persons, the RFI may rely on information
collected and maintained in line with AML/KYC procedures. If the
Passive NFE account holder is a legal person (for example, a company),
a natural person is treated as a controlling person if they meet the
AML/KYC threshold for ultimate beneficial ownership. If no natural
person meets the threshold, the controlling person will be the person
who holds the position of senior managing official for the entity. If a
controlling person of the Passive NFE is itself an entity, the RFI will
need to identify the natural persons that control that entity (and so on, if
there is a chain of entities, until the ultimate natural persons with control
are determined). 
If the account balance or value does not exceed $1 million, the RFI may
also rely on information collected and maintained in line with
AML/KYC procedures to determine if any of the controlling persons are
reportable persons. The process to identify whether a controlling person
is a reportable person is a search for indicia as described for individuals
above. The same curing options are also available as described for
individuals. 
If the account balance or value does exceed $1 million, the RFI must seek
a self-certification from either the account holder or the controlling
person to establish whether any of the controlling persons are reportable
persons. This may be provided in the same self-certification provided by
the account holder to determine its own status. If a self-certification is
required but is not received after reasonable efforts to obtain it, the RFI
must then rely on an electronic record search for indicia to determine
 FATCA/CRS/IRS/AEOI

whether any controlling persons are reportable persons. The electronic

record search is that as described for individuals. If no indicia are
present, no further action is required until there is a change in
circumstances that results in foreign tax residence indicia for a
controlling person linked to the account.
B. New entity accounts
There is no minimum threshold for due diligence on new entity
accounts under the CRS – all new entity accounts must be reviewed.
For a new entity account, the RFI must determine whether the account is
held by one or more entities that are reportable persons. The RFI must
also establish whether an entity is a Passive NFE or should be treated as
a Passive NFE and if so, "look through" the entity account holder to the
controlling persons to determine whether they are reportable persons.

1. Account holder is a reportable person

In order to determine whether an entity account holder is a reportable

person, the RFI must generally obtain a self-certification in the account
opening procedure. It must also confirm the reasonableness of the self-
certification based on information obtained in connection with the
account opening.
 
If the self-certification indicates that the account holder is resident in a
foreign jurisdiction, the RFI must treat the account as a reportable
account. A self-certification is not required where the RFI reasonably
determines, based on information in its possession or publicly available,
that the account holder is clearly not a reportable person.

      2. Account holder is a RFI

If an account holder is an RFI the account would generally not be a

reportable account for CRS purposes unless the RFI is a type B
Investment Entity (see below) and is resident in a jurisdiction that is not
a CRS participating jurisdictions, in which case the RFI is deemed to be a
Passive NFE.
 
Broadly, under the CRS Regulations an entity is an Investment Entity if
it:

 Primarily conducts as a business specified activities for or on behalf

of customers ('type A'); or
 Primarily derives its gross income from investing or trading in
Financial Assets and is managed by a Financial Institution ('type B').
 FATCA/CRS/IRS/AEOI

An entity is a type B Investment Entity if it is:

 Investing on its own account, as a collective investment vehicle on

behalf of participants or as a trust on behalf of beneficiaries, and
 Managed by a Depository Institution, a Custodial Institution, a
Specified Insurance Company or a type A Investment Entity mentioned
above, and it meets the Financial Assets test described below.

An entity is managed by a Financial Institution if that Financial

Institution performs, either directly or through another service provider,
any of the investing or trading activities described above on behalf of the
entity. The activities may be performed as part of managing the entity as
a whole, or by appointment to manage all or a portion of the Financial
Assets of the entity. An entity is not regarded as being managed by a
Financial Institution if that Financial Institution does not have
discretionary authority to manage the entity’s assets.

An entity meets the Financial Assets test if its gross income is primarily
attributable to investing, reinvesting or trading in Financial Assets – at
least 50% of its income is attributable to investing, reinvesting or trading
in Financial Assets in the shorter period of either the:  

 Three-years ending on the last day of February in the year before

that when its status as an investment entity is to be determined, or
 Time the entity has existed.

      3. Passive NFE controlling persons

The RFI must determine whether the entity is a Passive NFE. If so, the
RFI must identify the controlling persons of the Passive NFE and
whether any of those controlling persons is a reportable person. For the
purposes of determining whether the entity is a Passive NFE, the RFI
must request a self-certification unless it has information in its
possession or that is publicly available so it can reasonably determine
the status of the Account Holder.
 
To identify the controlling persons, the RFI may generally rely on
information collected and maintained in line with AML/KYC
procedures. These procedures must be consistent with
recommendations 10 and 25 of the 2012 FATF Recommendations or the
new FICA, including always treating the settlors and beneficiaries of a
trust as controlling persons. If the Passive NFE Account Holder is a legal
person (for example, a company), a natural person is treated as a
controlling person if they meet the AML/KYC threshold for ultimate
beneficial ownership. If no natural person meets the threshold, the
Controlling Person will be the person who holds the position of senior
managing official for the entity. If a controlling person of the Passive
 FATCA/CRS/IRS/AEOI

NFE is itself an entity, the RFI will need to identify the natural persons
that control that entity (and so on, if there is a chain of entities, until the
ultimate natural persons with control are determined).
 
The RFI must seek a self-certification from either the account holder or
the controlling person to establish if any controlling persons are
reportable persons. This may be provided in the same self-certification
as that provided by the account holder to determine its own status. As a
self-certification is required to establish the status of the controlling
persons, this may be an opportune time to request or confirm the
identity of the controlling persons (even though the RFI could solely rely
on AML/KYC information for that purpose and procedures consistent
with the 2012 FATF Recommendations or the new FICA).
Step 4.6 How must RFIs obtain and verify taxpayer identification
numbers (TINs)
For both new and pre-existing accounts, a TIN is not required if a TIN
was not issued to the person by the relevant jurisdiction. Such a
circumstance can arise because either:

 TINs are not used by the jurisdiction (see the OECD's Tax
Identification Numbers); or
 TINs are used in the jurisdiction, but the particular person, for a
range of possible reasons, has not obtained or been issued a TIN for that
jurisdiction.

RFIs are not required to verify the accuracy of the TIN of an account
holder under the CRS Regulations or the BRS. The following is,
however, required:

 Preexisting Accounts: An RFI is required to use reasonable efforts to

obtain the TIN(s) of a pre-existing account holder. If no TIN is found
after due diligence that meets the “reasonableness test”, none needs to
provided. Also, the TIN is not required to be reported if (i) a TIN is not
issued by the relevant Reportable Jurisdiction, or (ii) the domestic law of
the relevant Reportable Jurisdiction does not require the collection of the
TIN issued by such Reportable Jurisdiction.
 New Individual Accounts: If the self-certification establishes that the
Account Holder is resident for tax purposes in a Reportable Jurisdiction,
the RFI must treat the account as a Reportable Account and the self-
certification must also include the Account Holder’s TIN with respect to
such Reportable Jurisdiction (subject to Section I.D).

If a person claims not to have a TIN, this statement should be part of the
self-certification collected for the account, unless the RFI reasonably
determines that the person would not have a TIN for the relevant
foreign jurisdiction, based on information on the OECD's Tax
 FATCA/CRS/IRS/AEOI

Identification Numbers. In exceptional circumstances the customer may

declare to be a foreign tax resident but not provide their TIN, because
they need additional time to locate the TIN (for example, the customer is
an exchange student whose TIN has always been solely in the
possession of the student's parents, who reside overseas). In such
exceptional cases, an RFI should obtain the missing TIN within a
reasonable period of time, in no cases exceeding 90 days. The account
should not proceed if after this period of time the person seeking the
account cannot or refuses to provide the TIN.
 
 Step 4.7 What is a change in circumstances?
 A change in circumstances relating to an account or information held by
the RFI for an account is a change that results in new or additional
information relevant to the status of the account for reporting purposes.
It includes an addition or change of an account holder. A change in
circumstances for an account must be considered for all accounts
maintained by the RFI for the account holder to the extent computerized
systems allow aggregation of the accounts.
 An RFI is expected to have procedures that ensure a change in
circumstances is identified by the RFI. These procedures should cover
information that comes to a relationship manager of a high value
account (if there is one). RFIs should encourage any persons providing a
self-certification to notify the RFI of a change in circumstances affecting
the validity of the self-certification. A change in circumstances may
require the RFI to report the account or to act to resolve the status of the
account.
 Where a change in circumstances has caused an RFI to know or have
reason to know that a self-certification or other documentation used in
the original due diligence for the account is unreliable, the RFI must re-
determine the status of the account. The re-determination process
broadly follows the original due diligence process for the account.”