CRS classification of family structures, step by step

Short answer

For the automatic exchange of information (AEOI/CRS), every company, foundation and trust must be assigned to a category: financial institution, active or passive non-financial entity (NFE). The decisive test is usually the one for investment entities: predominantly investment income and management by a financial institution. A financial institution reports itself; for a passive NFE, the banks report the controlling persons.

Why the classification has such consequences

The classification determines who reports, what is reported and to which tax authority. If a family foundation is a financial institution, it may have to register and report on its own account holders – that is, on the founder, beneficiaries and other persons. If it is a passive non-financial entity, the banks report its controlling persons. A wrong classification, or one that differs between banks, leads to queries, duplicate or missing reports and in the worst case to fines.

The categories

The decision path

1. Is the entity a custodial institution, depository institution or specified insurance company? For family structures almost always no.
2. Over the last three years, did at least 50 per cent of gross income derive from investing, reinvesting or trading in financial assets?
3. If yes: is the entity managed by a financial institution, for example by an asset manager with a discretionary mandate or a supervised corporate trustee? Then it is generally an investment entity and therefore a financial institution.
4. If no: does it meet a test for active NFEs, for example as the holding company of an operating group, or because less than 50 per cent of its gross income is passive and less than 50 per cent of its assets produce passive income?
5. If no active test applies, it is a passive NFE.
6. Document the result with reasons and declare it consistently to all banks through the self-certification.

Foundations and trusts in particular

For trusts, the trustee is decisive: if the trustee is a supervised financial institution and manages the trust assets, the trust is often itself an investment entity. In many jurisdictions it can be treated as a trustee-documented trust – the trustee then takes over the reporting. For family foundations, it depends on who manages the investments: if the foundation board appoints an asset manager with a discretionary mandate, there is much to suggest a financial institution; if the bank only advises and the foundation board decides itself, a passive NFE is more likely.

Under the CRS, the controlling persons of a trust are always the settlor, trustees, protectors, beneficiaries or classes of beneficiaries and any other person with control – regardless of any threshold. The corresponding roles apply to foundations.

Worked example (simplified)

A family has three structures. The Holding AG owns 100 per cent of two operating industrial companies: an active NFE as the holding company of an operating group. The investment GmbH holds a securities portfolio that the family manages itself with the bank's advice: a passive NFE, and the bank reports the shareholders as controlling persons. The family foundation has entrusted its assets to an asset manager with a discretionary mandate and earns almost exclusively investment income: an investment entity, and therefore a financial institution – with its own registration and reporting duties, or reporting through an appointed service provider.

If the investment GmbH later moves to a discretionary mandate, its classification can change. That is why every change in the management model belongs in the compliance calendar.

Typical mistakes

• Different self-certifications for the same structure at different banks.
• A holding company of an operating group mistakenly classified as passive – or, conversely, a pure investment holding classified as active.
• A discretionary mandate overlooked that turns the structure into a financial institution.
• Incomplete controlling persons of a trust: the protector or classes of beneficiaries are missing.
• Missing tax identification numbers and outdated tax residences.
• FATCA and CRS classifications that are not aligned with each other.

Self-certifications and documentation

For every entity, banks require a self-certification stating its classification, tax residence and tax identification number and – for passive non-financial entities – information on all controlling persons. The bank may rely on the self-certification but must check it for plausibility, for example against the account-opening documents. Contradictions lead to queries or to a classification under the fallback rules.

The family office should therefore keep a short classification memo for each structure: income structure over the last three years, management model, chosen category, reasons and date. If circumstances change – a new asset manager, the sale of the operating subsidiary, new beneficiaries – the self-certification must be updated with all banks. A single memo prevents different banks from receiving different information.

In FLIORE

FLIORE keeps the classification per structure and tax year, pre-fills controlling persons from their roles and checks before export which information is missing – for example tax identification numbers or tax residences. This way all banks receive the same, reasoned self-certification.

At a glance

Terms on this page

Passive non-financial entity

Under the CRS, an entity that is not a financial institution and mainly earns passive income such as interest, dividends or rent.

Tax residence

The country in which a person is subject to unlimited tax liability because of residence, stay or other criteria.

Family foundation

A foundation whose purpose lies predominantly in the interest of one or more families.

Protector

A person or body that supervises the trustee of a trust or the board of a foundation and holds certain consent rights.

FATCA

US law under which foreign financial institutions must report accounts of US persons to the US tax authority, the IRS.

Frequently asked questions

Sources

• OECD – Common Reporting Standard with Commentary
• Swiss Federal Tax Administration (FTA/ESTV)
• German Federal Central Tax Office (BZSt)
• Austrian Federal Ministry of Finance (BMF)
• IRS – Foreign Account Tax Compliance Act (FATCA)

This page provides orientation and does not replace legal or tax advice. The cited legal sources in their applicable version are authoritative.

Read more

More on Compliance in practice

• The KYC process in a family office: from onboarding to periodic review
• Evidencing source of wealth: the evidence matrix
• Building the risk profile of a business relationship
• The KYC file: structure, contents, auditability