What is the Common Reporting Standard (CRS)?
The Common Reporting Standard was developed by Organisation for Economic Co-operation and Development (OECD) to support fighting tax evasion and to protect the integrity of our tax systems. Under the CRS requirements, the financial institution (we on behalf of Solarisbank) must collect certain information about its customers and their shareholders to be provided to the tax authorities on a regular basis.
What CRS Entity type should I consider for my business?
The CRS entity type depends on the type of business. As any tax directive, this can be a complex topic to understand. To help you find the category that best suits to your company, we created a brief explanation for the 3 different categories.
- The Active NFE
- The Passive NFE
- The Passive NFE - Investment Company Type B
What is an "Active non-financial entity" (NFE)?
Active non-financial entity (NFE), as the name suggests, are companies that are not a financial institution and that earns active income (e.g. by trade or sales).
Legally, It means that an Active NFE can either have: a) less than 50% of gross income for the preceding calendar year is passive income; and b) less than 50% of the assets held by the entity are assets that produce or are held for the production of passive income (e.g. rent, licences, dividends or interest).
Typically one of the following type of entities will fall under this classification:
- Legal entity with active business operations: an operational company that produces goods and/or services.
- a holding company: consists of business who hold equity stakes in other companies. Companies that does not qualify for this category are the ones that act as an investment fund - any investment vehicle whose purpose is to acquire or fund companies and collect interests as capital assets for investment purposes.
- a listed company: companies that are traded on an established securities market.
- public organisations: examples are governments, international organisations or a central bank.
- a non-profit organisation: active in the country of incorporation and exclusively related to religious, non-profit, scientific, artistic, cultural, sporting or educational purposes.
What is an "Passive non-financial entity" (NFE)?
Passive NFE are companies that are not financial institutions and that primarily earn passive income (e.g. interest, dividends, rents, royalties, etc.). Typically one of the following types of entities will fall under this classification:
- Government Schools
- Other non-profit companies
What is an "Passive non-financial entity" (NFE) Investment Company Type B?
Investment Company Type B are entities that conduct monetary operations in participating states, but who are not considered a financial institution.
The entity must satisfy two conditions:
- More than 50% of the Gross Income must be primarily attributable to investing in financial assets;
- The investment entity must be managed by a Custodial Institution, Depository Institution, Specified Insurance Company or a type A Investment Entity. The entity must invest or manage the financial assets on behalf of other person.
It is important to highlight that Remagine is not a tax advisory company, so you should reach out to your tax consultant for further help 😉