Tax Compliance Reports - CRS

CRS Services are sought by financial institutions to comply with the requirements of the international agreements related to the exchange of information for tax purposes in force in the State of Kuwait. All financial institutions (FIs) operating in the State of Kuwait are required to comply with all requirements set forth in the Multilateral Competent Authority Agreement (“the MCAA”) which was signed between the State of Kuwait and Organization for Economic Development and Cooperation (OECD) to Improve International Tax Compliance and to Implement Common Standard for Reporting (CRS).

Baker Tilly provides its services to financial institutions in the State of Kuwait regarding CRS mandates including:

1. CRS Assurance Services

• CRS FFI Classification Attestation.

• CRS Reporting Procedures Attestation.

• Issuance of Annual/ On Demand CRS Compliance Certification for financial institutions about the extent of compliance with CRS requirements and integrity of processes and procedures in place.

2. CRS Consulting Services

• Establishing CRS Process, Policies and Procedures.

• Troubleshooting issues related to CRS reporting.

Below are some significant information and frequently asked questions pertaining to CRS implementation in Kuwait:

What is Common Reporting Standard (CRS)?

The Common Reporting Standard (CRS) is an information standard for the automatic exchange of tax and financial information on a global level, which the Organization for Economic Co-operation and Development (OECD) developed in 2014. Its purpose is to combat tax evasion. More than 100 countries had signed an agreement to implement it, with more countries intending to sign later.

Why FIs in Kuwait shall comply with CRS?

On 19 August 2016, the Government of the State of Kuwait signed the CRS Multilateral Competent Authority Agreement with the Organization for Economic Cooperation and Development (“OECD”) for exchange of information for tax purposes. Pursuant to such Agreement, the financial institutions shall provide the governmental authorities in their countries with information about profits, balances and revenues generated from the sale of assets when the beneficiaries are resident outside their home country in accordance with the Common Reporting Standard developed by OECD.

Subsequently, the MoF Kuwait has issued the Resolution No. (46) Of 2017, namely “Additional Preliminary Guidelines concerning Implementation of the International Agreements on Tax Information Exchange.”

What’s the competent Authority in Kuwait?

Ministry of Finance is the competent authority which is responsible to submit reports to CTS.

What are jurisdictions where Kuwait is planning to report for them?

The list of jurisdictions can be browsed from the following link:

http://www.mof.gov.kw/MOFAgreements/MOFAgreementsDetail.aspx#mofCRS

What is CTS?

CTS stands for “Common Transition System” which is a centralized system that managed by OECD and responsible for communicating CRS reports between related jurisdictions.

What is the Definition of Financial Institutions (FI)?

Any Financial Institution that is resident in the Jurisdiction, but excludes:

1. any branch of that Financial Institution that is located outside the Jurisdiction, and

2. any branch of a Financial Institution that is not resident in the Jurisdiction, if that branch is located in the Jurisdiction

Hence, financial institutions may include four (4) types as follows:

1. “Custodial Institution”

Generally includes custodian banks, brokers and central securities depositories.

2. “Investment Entity”

Generally includes Entities investing, reinvesting or trading in financial instruments, portfolio management or investing, administering or managing Financial Assets.

3. “Depository Institution”

Generally includes savings banks, commercial banks, savings and loan associations and credit unions.

4. “Specified Insurance Company”

Generally includes most life insurance companies.

Are governmental entities considered as FI?

No, It’s considered as Exempt Beneficial Owners other than Funds.

What is the reportable persons?

Reportable Persons could be either a:

1. Individual

• Identification as Partner Jurisdiction citizens or residents.

• Partner Jurisdiction mailing or resident address.

• Partner Jurisdiction telephone number.

• Power of attorney or signing authority granted to a person with a Partner Jurisdiction address.

• Instructions to transfer funds to an account in the Partner Jurisdiction.

• “Hold mail” instruction or “in-care-of” address in a Reportable Jurisdiction.

2. Entity

• Incorporated in the Partner Jurisdiction.

• A Partner Jurisdiction address or telephone number.

• Checking whether the Entity is a Passive NFE and, if so, the residency of Controlling Persons.

Which are the reportable accounts?

the term “Reportable Account” means a Financial Account that is maintained by a Reporting Financial Institution and that, pursuant to due diligence procedures consistent with the Common Reporting Standard, has been identified as an account that is held by one or more persons that are Reportable Persons with respect to another Jurisdiction or by a Passive Non-Financial Entity with one or more Controlling Persons that are Reportable Persons with respect to another Jurisdiction.

1. For individuals

• Pre-existing accounts

Any balance or value created prior to 31 March 2017 should report as of 31 December 2017 or in any subsequent year (no threshold).

• New accounts

Any balance or value created after 31 March 2017 should report as of 31 December 2017 or in any subsequent year (no threshold).

2. For Entities

• Pre-existing accounts

Balance or value that exceeds $250,000 created prior to 31 March 2017 should report as of  31 December 2017 or in any subsequent year.

• New accounts

Any balance or value created after 31 March 2017 should report as of 31 December 2017 or in any subsequent year (no threshold).

Has FI to register with CTS?

No

Has FI to register with MoF?

Yes, on the reporting portal (http://www.mof.gov.kw/CRS.aspx). The enrollment is once at the initial stage of reporting. Hence, FI will use the same credentials (user name and password).

How FI to be prepared to report on CRS mandates annually?

FI shall conduct the due diligence procedures to identify reportable persons within their system:

1. Collect Know Your Client (KYC) form – which shall be amended to contain all reportable persons indicia from all clients along with related supporting documents.
2. Request self-certification from each Individual and Entity account holder to establish the account holder status.

When FI shall report on CRS mandates annually?

It’s mandated that FI shall report before 15^th August 2018 for the first reporting year (ended 31 December 2017), However, FI shall report before 31th May of the following years on balances of reportable accounts as at 31 December of the prior year.

What types of information will be exchanged?

The following types of information must be exchanged as part of the Common Reporting Standard for all reportable accounts:

1. Name, address, tax identification number (TIN), date and place of birth (in the case of an individual).
2. Account number.
3. Name and identifying number of the reporting financial institution.

Depending on the type of account, other financial information should be reported:

How will the confidentiality of the information exchanged and the security of exchanges be guaranteed?

Data will be exchanged in accordance with the applicable legal provisions relating to confidentiality and the protection of personal data.

The exchange of data between financial institutions and the Administration for the purposes of automatic exchange will be achieved through the provision of secure, point-to-point communications.

The exchange of data between the Administration and the OECD will be carried out via the OECD’s centralized secure platform, Common Transition System (CTS).

How FI shall report on CRS mandates annually?

1. Report on MoF portal either manually (to enter each reportable account), or through uploading a file using approved schema (CRS XML schema, guidelines on schema requirements can be browsed from the following link (https://www.oecd.org/tax/exchange-of-tax-information/common-reporting-standard-status-message-xml-schema-user-guide-for-tax-administrations.pdf).
2. Appoint approved and licensed auditor to issue assurance certificates as follows:

• CRS FI Classification Attestation.

(Reference: Ministerial Resolution No. 46 of 2017 concerning the preliminary guidelines to implementing of the International Agreements on Tax Information Exchange, Article 3, Clause 1.)

• CRS Reporting Procedures Attestation.

(Reference: Ministerial Resolution No. 46 of 2017 concerning the preliminary guidelines to implementing of the International Agreements on Tax Information Exchange, Article 3, Clause 2.)

• Issuance of Annual/ On Demand CRS Compliance Certification for financial institutions about the extent of compliance with CRS requirements and integrity of processes and procedures in place.

(Reference: Ministerial Resolution No. 46 of 2017 concerning the preliminary guidelines to implementing of the International Agreements on Tax Information Exchange, Article 3, Clause 3.)

What type of penalties that FI subject to in case not reporting?

Capital Markets Authority and Central Bank of Kuwait have the right to apply penalties on non-compliant FI.

What would happen if the reporting were wrong or incomplete?

If the issue is discovered by CTS, CTS will send to FI directly the concern and identify the deadline for receiving the response based on its severity. Then FI shall submit “corrected file” which shall be limited to concerned year and entity only.

What’s the currency conversion of account balances?

FI shall use the Central Bank of Kuwait rate as at 31 December of the year of the reporting year.

If FI has no reportable accounts (nil reporting), shall FI to report?

No obligations from OECD that FI shall report on annual basis for nil reporting. However, A jurisdiction may require the filing of a nil return by a Reporting Financial Institution to indicate that it did not maintain any Reportable Accounts during the calendar year or other reporting period. Requiring financial institutions to file nil returns will help jurisdictions in ensuring that all Reporting Financial Institutions are identified and comply with the CRS due diligence and reporting requirements.

Who should you contact if FI has a request for technical support on dealing with CRS portal?

• FI users can access technical system support by email at AEOI_support@mof.gov.kw.
• FI users can access general CRS support by email at CRS-inquiry@mof.gov.kw.

If FI focal point of contact has been changed, what is the required procedure for updating that?

FI shall update its information on MoF portal where shall upload copy of Civil ID as well as authorization letter that signed by FI’s authorized signatory.

What’s Tax Identification Number (TIN) for Kuwaiti reportable accounts?

Tins are issued by the Public Authority of Civil Information (PACI). Each individual has a civil identification number, and each company has a civil identification number.

What are added value to business entities from CRS Reporting/Consulting Services?

• Comply with laws, regulations, resolutions and instructions issued by the regulators.
• Enhance business entity’s reputation and promote all stakeholders’ confidence.
• Contribute to optimizing efficiency and reputation of the banking and financial services sector, and adherence to international legislations.