Common Reporting Standard (CRS) Regulations, 2023

Overview of CRS Reporting

The Common Reporting Standard (CRS) was developed in 2014 by the Organisation for Economic Cooperation and Development (OECD) in response to a need for more transparency on financial account information following revelations that many organizations were using offshore entities to trade or hold financial assets to conceal taxable income.

The CRS applies to Reporting Financial Institutions (RFIs) which include depository institutions, custodial institutions, investment entities and specified insurance companies.

• Custodial Institution are entities that hold as a substantial portion of their business, financial assets for the account of others.
• Depository Institutions are entities that accept deposits in the ordinary course of banking or similar business. A depository account includes any commercial, checking, time, savings or other similar instrument in the course of banking or similar business.
• Investment Entities are entities that primarily conduct business and operations relating to trading in money market instruments, individual and collective portfolio management or managing financial assets on behalf of customers.
• Specified Insurance Companies are entities that are either an insurance company or the holding company of an insurance company which are obligated to make payments with respect to a cash value insurance contract or an annuity contract.
   

The CRS details the reporting and due diligence procedures to be followed by Reporting Financial Institutions (RFIs), where RFIs have a responsibility to file financial account information with the tax authorities every year.

The CRS is parallel to the Foreign Account Tax Compliance Act (FATCA) which is a United States of America (USA) law that requires foreign financial institutions and other non-financial entities to share financial information of US account holders with the US Internal Revenue Service (IRS).

The financial information obtained is exchanged by Competent Authorities through the OECD Common Transmission System (CTS) which enables countries to obtain account information of their citizens for enhanced tax compliance.

 

Scope of the CRS Regulations in Kenya

In Kenya, the Finance Act, 2021 introduced the Common Reporting Standard through the introduction of Section 6B to the Tax Procedures Act (TPA). The TPA requires the Cabinet Secretary for the National Treasury (CS National Treasury) to issue Regulations to guide the implementation of the CRS in Kenya.

The CS National Treasury vide Legal Notice No. 8 of 2023, gazetted the CRS regulations on 7 February 2023, with an effective date of 1 January 2023.

Under the Regulations, RFIs are required to identify reportable accounts and file with the Kenya Revenue Authority the following information:

• An information return on reportable accounts held, managed or administered by that reporting financial institution. A reportable account refers to the financial account maintained by the financial institution. A reportable account comprises of the pre-existing accounts and the new accounts. The new accounts refer to a financial account maintained by a reporting financial institution opened on or after 1 January 2023 whereas a pre-existing account means a financial account maintained by a reporting financial institution as of 31st December 2022.
• A return marked “nil” if no account held, managed or administered by that reporting financial institution is identified as a reportable account.

Pre-existing individual accounts are categorised into either lower or high value accounts. Lower value accounts are pre-existing individual accounts that have an aggregate value that does not exceed USD 1,000,000 as of 31 December of every year while high value accounts exceed the aforementioned threshold.

The due diligence requirements to be applied by RFIs depend on the classification of the accounts on account into either pre-existing or new entity or individual accounts.

A reporting financial institution may apply the due diligence procedures for new accounts to all pre-existing accounts in addition to rules for pre-existing accounts. Additionally, the reporting financial institution may apply the due diligence procedures for high value account to low value accounts.

The following are indicia used identify account holders for low value accounts;

 

1. Residence status;

2. Residence Address;

3. Telephone numbers;

4. Standing Instructions;

5. Power of Attorney or signatory account authority for an account; and

6. “In care of” or “hold mail” address.

 

Enhanced procedures apply with respect to high value accounts including a review of electronically searchable databases, a review of the current customer master file and review of the following information received within the prior 5 years.

 

1. The most recent documentary evidence collected with respect to the account.

2. The most recent account opening documentation

3. Documentation on Anti-Money Laundering/Know Your Customer (AML/KYC) procedures.

4. Current Power of attorney or signature authority forms

5. Current Standing instructions to transfer funds

 

With regards to high value account and low value account due diligence, if none of the indicia listed are discovered and the account is not identified as held by a resident for tax purposes in a reportable jurisdiction, further action is not required until there is a change in circumstances that result in any indicia being associated with the account.

Review of pre-existing high value accounts must be completed by 31 December 2022 whilst, review of lower value individual accounts must be completed by the 31 December 2023.

 

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