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How to Avoid CRS - 3 Options as of 2019

#21
@KJK

Bank's report is just a supplement to your self-certification - not more important, but not less either. If you say Country A, but the bank sees a sufficient link to Country B, they will just add a second report destination in benefit of Country B without consulting this matter with you.

Occasional wire payments are not a risk that could introduce a second CRS residency in the eyes of a bank- they a matter of AML compliance.
 
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#22
...Further to KJK's question. (High-risk CRS indica)

Second report destination could be added by the bank if any of the following apply:

1. Phone number in Country B
2. Standing order payment(s) to Country B
3. Frequent payments (very vague term) to Country B

Taking that into account, for day-to-day spending, consider some risk mitigation steps. This is a cheap and efficient option for as long as pooled accounts are out of scope:

1. Stealth account in Country A (non-resident) sends an occasional Wire/SEPA payment to a pooled prepaid debit card account in Country B (non-resident).
2. Using that prepaid debit card account issued by a bank in Country B, spend money in Country C where you are a tax resident

If you think it's good enough to play by existing rules, stop here. If you want more safety, and be a step ahead even for the possible upcoming CRS tightening, add 3 more prepaid card proxy accounts from different providers. If you take that option, you do not need pooled proxy accounts - all proxy accounts can be in your name.

- You do everything as above, except you only use each prepaid debit card for 1-2 months per year to appear as a tourist where you live for the issuing institution. This option with 4 proxy accounts will be viable even after pooled accounts are taken into scope of CRS, even if new monitoring requirements are imposed on card payments to determine residency.

Notes:
- Mobile-only and other fintech banks with no monthly account or card fees are perfect for this use-case
- Take note, you also have one account in Country C where you are a tax resident. You use that account all throughout the year, and you pay income tax on all funds you send to that account. Plausible deniability is important. If you do not pay any income tax, but have a 2019 Mercedes S class in your name, you are begging for problems.
 
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#23
rowena said:
Another thing is UAE residency is not cheap. You need to spend at least $15K(residency fees, cheap rent agreement etc...) per year to get UAE residence or keep your UAE residency active. This setup is enough for the personal bank account but business transactions are not allowed in personal accounts. You need a proper business account and it will cost you min +$10K per year or more.
Click to expand...

Can you break that cost down a bit?
 
#24
blockchain4ever said:
Can you break that cost down a bit?
Click to expand...
The biggest part is the license fee. A proper license will cost $7-8k(in respected FZE area). You can rent a trash studio unit at outside Dubai but it will cost a minimum $2k per year also you need to pay deposit and monthly fee to electric/water administration. Visa cost per person will be around $1k for the standard slow process. You need to buy basic health insurance and pay government fees(depends on the area/license), etc...
 
#25
xzars said:
With business accounts, it's hilariously easy to avoid CRS. It's not even a real challenge. The rule set applicable to businesses is substantially bulkier - which is good because there are more lines of code. And more lines of code means more security vulnerabilities to take advantage of. As an example, one vulnerability business account owners can play with is the active NFE/passive NFE treatment.
Click to expand...

@xzars Can you tell me a little bit more about it ?

If I live/reside in EU for example and wanna open busines bank account in UAE( having second residency there) for FZE company where I am 100% owner... and banks asks me for personal bank acc statement on which is my EU address I don't have to worry about CRS? I am not a financial institution just doing 100% legit eTrading. Explain me please these rules because you said its it's hilariously easy to avoid CRS with business accounts.
 
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#26
Multiple evasion techniques are available for business accounts. The easiest-to-breach vulnerability is in active NFE classification.

As the controlling person of an Active NFE, you're exempt from CRS reporting.
- To qualify, your passive income (dividends, royalties, interest, but also rental income in some scenarios) in a tax year must be less than 50% of total income.
and;
- less than 50% of assets held by the business are generating passive income.

In other words, business must generate most of it's income from active business activities. Then you qualify as an Active NFE.

---
Since mid-2017, one additional check is in place.

- "Effectively untaxed entities" cannot be categorized as "Active NFE" regardless of the above.

The early birds were quick to recognize this vulnerability and they started wrapping their passive investments in Active NFE's.

To address this additional check in 2019, a simple Tax ID number for your business entity will suffice in most circumstances. Keep in mind, you're at the mercy of your bank, a tax ID number alone does not guarantee anything. If you want to play with this vulnerability, it's important to not incorporate in a place where no corporate income tax exists. Best offshore locations today are territorial tax places where local income is subject to some taxes, or locations where world-wide income is subject to a tiny tax, i.e. 2% tax.

One interesting offshore jurisdiction since 2017, a low-profile player with big benefits is Montserrat. You can "elect your business" be subject to 1.75% corporate income tax on net profits, instead of being subject to annual renewal fees. This 1.75% tax is enough to guarantee you cannot be classified as an "effectively untaxed entity" in the scope of CRS. In regards to your UAE corporation, you're fine from the activity standpoint, you qualify as an Active NFE, but you might have some difficulties retaining your qualification due to 2017 CRS amendment which scrutinizes "effectively untaxed entities".

With my input available, formulate one or two questions, and ask your bank for details. If they do not want to consult you, take the conservative assumption that Tax ID number alone does not suffice. In this case, do something with your UAE company that triggers a small taxable event. Even if you pay 50 dollars of Corporate Income tax, you're not an "Effectively untaxed entity". In that sense, that 2017 CRS amendment is useless.
 
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#27
@alischuler83 This summary is my final response to your case.

1. As a business account holder, you must do everything you can to ensure you retain the Active NFE classification under CRS rules. Pay a tiny amount of Corporate Income Tax in UAE every year. This is your first layer of defense. See #102329

2. Should you lose your Active NFE classification for whatever reason, you "should be seen" as a UAE resident controlling person with no other residencies under CRS rules because:

- As a controlling person, you provided an UAE ID, UAE proof of address, and UAE phone number to open the business account.
- You do not send frequent payments to EU-country-X, you did not provide your EU-country-X phone number or residential address in contact details, you do not have any standing order payments to EU-country-X.

3. You also provided a bank statement which lists your EU-country-X address to complete a source of funds check.

- This was a mistake. Although you still live under 2 layers of protection, you are exposed to some tax risk. See #101861
 
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#29
@blockchain4ever File a corporate income tax return and declare some local source income, even if you did not have any local source income subject to taxes. No tax man should aggressively challenge your wish to overpay tax. File a mistake return to overpay a modest amount every year. If UAE outright refuses corporate income tax returns from non-oil companies, it could be very though to follow step 1 in post #28. Maybe you can fill the corporate income tax return, but only present that document to your bank - why would they go in-depth to prove your tax liability does not exist?
 
#30
xzars said:
3. You also provided a bank statement which lists your EU-country-X address to complete a source of funds check.

- This was a mistake. Although you still live under 2 layers of protection, you are exposed to some tax risk. See #101861
Click to expand...

Where should the source of funds be in order to bootstrap this? Let me guess - you need to move funds to a 2nd jurisdiction before moving them to UAE? What's the ideal setup?
 
#31
Guys, How about this:

Get real physical fake ID under a made up name that ( VERY IMPORTANT ) would pass validation services widely used by the banking sector to validate ID documents (whether scanned copies or physical) , for example companies that do that are gbgplc, jumio and more. There are a few other similar ones. You can easily fool a Notary with this ID and get a notarized copy to open a offshore account. The bank you bank with would never know the ID is phony unless they had access to a government database to cross check the id number ( they don't, at least UK banks don't ). Also they can't verify it close up as no offshore bank asks for physical documents. So long nothing raises any suspicion why would they ask to examine the original?

Register this non existent person as a non-resident in a country that does not tax your foreign income. You obviously need an address there too to receive your mail from your bank etc. CRS will report to your country where you are registered as non-resident. In that country the absence of a bank account, no credit file, nothing on your name in public databases etc. makes it more convincing to anyone looking that you are indeed a real non resident who REALLY doesn't live there in permanent basis. The person in reality does not exist but was made up for the purpose of CRS evasion. Should there is an investigation they only have this air to chase.

Done? What am I missing? If I do can someone please fill the gaps.

P.S. I have ID's that pass validation services. I have even tried them against said services and they pass. Most fake ID's won't pass and trigger a lot of sh*t and scrutiny.
 
#32
I forgot to add that "darks" (fake edited ID documents) commonly sold by sellers on forums 99%+ WILL NOT pass said validation check. Be my guest to try.

Hence am thinking if with access to quality darks I can do what I said and avoid CRS?
 
#33
cheektocheek said:
Guys, How about this:

Get real physical fake ID under a made up name that ( VERY IMPORTANT ) would pass validation services widely used by the banking sector to validate ID documents (whether scanned copies or physical) , for example companies that do that are gbgplc, jumio and more. There are a few other similar ones. You can easily fool a Notary with this ID and get a notarized copy to open a offshore account. The bank you bank with would never know the ID is phony unless they had access to a government database to cross check the id number ( they don't, at least UK banks don't ). Also they can't verify it close up as no offshore bank asks for physical documents. So long nothing raises any suspicion why would they ask to examine the original?

Register this non existent person as a non-resident in a country that does not tax your foreign income.
Click to expand...

Great plan, but by this time you've committed a handful of possibly serious crimes in multiple jurisdictions though. ID fraud is a tad more serious now after 9/11 as it's connected to terrorism.

One thing is a fake ID when registering a company, but when it's in the banking system then ultimately the money will be connected to you if you're going to enjoy it. My guess is that the fake ID can lead to charges at any point in time, as every "use" could be a new crime. Tax fraud on the other hand happens when you do the transaction, and the statue of limitations might be 5 or 10 years.

Just something to consider.
 
#34
blockchain4ever said:
but when it's in the banking system then ultimately the money will be connected to you if you're going to enjoy it. My guess is that the fake ID can lead to charges at any point in time, as every "use" could be a new crime. Tax fraud on the other hand happens when you do the transaction, and the statue of limitations might be 5 or 10 years.
Click to expand...

You assume though that you are going to get caught. Realistically I don't see how you could get caught if you are careful.

Also the money will indeed be connected to "you" but you being a non existent person. Obviously you wouldn't send money from your "2nd identity" to your legit bank account. If you need to do that there are ways obviously to "clean" the funds from the 2nd identity.
 
#35
@blockchain4ever Funds may originate from a EU bank without any real CRS risk, as long as your due diligence documents sing out loud "this is a UAE resident who has an account in EU".

Historically, Malta has served as an intermediary stepping stone for flows from/to banana republics and tax havens. In this use-case, you would open a new account in Malta as a UAE resident, and send your funds from EU-country-X bank account to Malta prior to sending them to UAE. Don't send in 100K, and immediately send out 100K - this will certainly be flagged as ML. If you stay patient, moving 1M a year is possible, especially if you diversify across 2 or more intermediary banks. Open a few short-term time deposits and savings accounts to make it look like you bank with a purpose.

- "Historical trends" aside, I would not bank in Malta in 2019. Instead, I'd use Germany as the intermediary stepping stone. Georgia (outside EU) is an option if you're a German. In the case of Georgia, you could lose up to 1% to international wires, but in terms of scrutiny, they tend to be laid back like Latvia in 2010.

---

@cheektocheek That should work. However, do not underestimate the ability of those services to evolve. Banks may at any time decide to re-verify identification documents as software updates are made available. If you get your account closed due to fake ID detection, you can opt to not reveal your true identity, but in this case, any funds you had on the account should be assumed lost for good. And if you do reveal, you will likely lose the funds to fines and legal fees PLUS risk other consequences.

With these constraints in mind, I only see use for fake IDs in "fling banking" relationships where the user generates a layer of obfuscation to conceal the origin or destination of funds. Fake IDs are a better fit for professional launderers and illegal trade - in either case, all account holders assume the lifespan of an account to be 3-24 months. CRS evaders want more shelf life out of any solution, but also less risk of confiscation.
 
#36
@xzars

So acording to your ocde link there is at present no deal to exchange information between the US and Switzerland.

If I open a US account with a swiss address it will not get reported? Is that what this means?
 
#37
Gueco said:
@xzars

So acording to your ocde link there is at present no deal to exchange information between the US and Switzerland.

If I open a US account with a swiss address it will not get reported? Is that what this means?
Click to expand...

CRS is not signed nor implemented by the US. Your US accounts can not get reported via CRS.

You still need to consider other means of bilateral information exchange and mutual assistance agreements. Lacking country-specific expertize, I still think that if you're not a big crook and the Swiss authorities do not go asking specifically for your banking affairs in the US, you stay off the hook.
 
#38
xzars said:
...
1. As a business account holder, you must do everything you can to ensure you retain the Active NFE classification under CRS rules. Pay a tiny amount of Corporate Income Tax in UAE every year. This is your first layer of defense. See #102329
...
Click to expand...

Update
---
As of 30.08.2019, it is not a requirement to pay more than 0 Corporate Income Tax. It's just a "nice-to-have" to be covered for possible upcoming CRS tightening on which mr. Morris speculated about on his CRS-related blog. See here for more details: CRS reporting active NFE unclear. Help needed!

Your entity qualifies as "Active NFE" by fulfilling just one of the following criteria. Zero tax paid, or absence of corporate income tax in jurisdiction of incorporation does not automatically disqualify your business from "Active NFE" status.

9. The term “Active NFE” means any NFE that meets any of the following criteria:

a) less than 50% of the NFE’s gross income for the preceding calendar year or other appropriate reporting period is passive income and less than 50% of the assets held by the NFE during the preceding calendar year or other appropriate reporting period are assets that produce or are held for the production of passive income;

b) the stock of the NFE is regularly traded on an established securities market or the NFE is a Related Entity of an Entity the stock of which is regularly traded on an established securities market;

c) the NFE is a Governmental Entity, an International Organisation, a Central Bank, or an Entity wholly owned by one or more of the foregoing;

d) substantially all of the activities of the NFE consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a Financial Institution, except that an Entity does not qualify for this status if the Entity functions (or holds itself out) as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes;

e) the NFE is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a Financial Institution, provided that the NFE does not qualify for this exception after the date that is 24 months after the date of the initial organisation of the NFE;

f) the NFE was not a Financial Institution in the past five years, and is in the process of liquidating its assets or is reorganising with the intent to continue or recommence operations in a business other than that of a Financial Institution;
g) the NFE primarily engages in financing and hedging transactions with, or for, Related Entities that are not Financial Institutions, and does not provide financing or hedging services to any Entity that is not a Related Entity, provided that the group of any such Related Entities is primarily engaged in a business other than that of a Financial Institution;
or

h) the NFE meets all of the following requirements:

i) it is established and operated in its jurisdiction of residence exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in its jurisdiction of residence and it is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare;
ii) it is exempt from income tax in its jurisdiction of residence;
iii) it has no shareholders or members who have a proprietary or beneficial interest in its income or assets;
iv) the applicable laws of the NFE’s jurisdiction of residence or the NFE’s formation documents do not permit any income or assets of the NFE to be distributed to, or applied for the benefit of, a private person or non-charitable Entity other than pursuant to the conduct of the NFE’s charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the NFE has purchased; and
v) the applicable laws of the NFE’s jurisdiction of residence or the NFE’s formation documents require that, upon the NFE’s liquidation or dissolution, all of its assets be distributed to a Governmental Entity or other non-profit organisation, or escheat to the government of the NFE’s jurisdiction of residence or any political subdivision thereof
Click to expand...

Source: Standard for Automatic Exchange of Financial Account information in Tax Matters
 
#39
@xzars compliment for your guide and many many thanks for your big contribution at community!!!

So to avoid CRS for business bank account at the moment we can check the crs rule of the countries around the world between them and our country of residence... but this is a short term way because almost all are starting in few years to Automatic Exchange Informations correct?

About Business account you advice to have NFE active company to hold bank account to avoid CRS?
 
#40
@Osleak

a) The best long-term option is to buy investment real estate in a foreign country. Get utility bills in your name whenever you need them for CRS re-certification, and you will earn rental income. Once you have real estate, applying for second residency is often trivial. This option is effectively free because it generates positive cashflow. The strawberry method might be the better alternative for the beginners who can't yet afford foreign investment real estate.

b) In regards to active NFE, I discussed this with one tax planning firm, and the consultant said that banks currently lack the means to accurately identify active/passive status. They cannot monitor other bank accounts the entity holds with other banks in other jurisdictions to say if more than 50% of income is investment-related. Furthermore, they cannot force you to merge all revenue streams to one business account to make this monitoring possible.

Two things are of primary importance at this point: NACE (activity) classification code, and your CRS self-certification. If they see that you mostly generate investment income (on their account), they may ask for invoices/contracts to see if you have some kind of active business income that proportionally exceeds what you earn in investment income on their account.

A couple of points - banks can easily make a mistake, so do not rely on active/passive NFE status too much. Back it up with a second residency so even if they report by accident, the CRS report goes to wrong jurisdiction (where your investment real estate is).
 
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