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FATCA & CRS Tax Compliance

FATCA & CRS Tax Compliance

One of the main streams of income to any government is the tax. However, countries discovered that some business entities, as well as individuals, are accommodating their investments in tax evasions to avoid tax reporting and obligation transparently. As a reaction, countries supported the Automatic Exchange of Information (AEOI) between tax authorities to combat tax evasion for cross-border business and to enforce policies regarding ethical tax practices. Accordingly, G20 has developed an initiative to issue standards related to AEOI.

On 18 March 2010, the United States of America has approved The Foreign Account Tax Compliance Act (FATCA), i.e. a federal law that was enacted as part of the US Hiring Incentives to Restore Employment (HIRE) Act.

In 2014, Organisation for Economic Co-operation and Development (OECD) has launched a global initiative for the Common Reporting Standard (CRS), which came into use in 2017.

Accordingly, governments signed intergovernmental agreements with the US government as well as OECD regarding the implementation of FATCA and CRS.

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is a 2010 United States federal law requiring all non-US (‘foreign’) financial institutions (FFIs) to search their records for customers with indicia and to report the assets and identities of such persons to the US Department of the Treasury.

What is the relationship between FATCA & the Government of Kuwait?

The state of Kuwait represented by the Ministry of Finance signed the Foreign Account Tax Compliance Act (FATCA) agreement on April 29, 2015, with the Government of the United States of America represented by the Internal Revenue Service (IRS) to improve international Tax Compliance and to Implement FATCA.

Why financial institutions in Kuwait shall comply with FATCA?

Pursuant to the Ministerial Resolution No. 48 of 2015 concerning the preliminary guidelines to implementing FATCA requirements in the State of Kuwait, all financial institutions operating in the State of Kuwait shall use due diligence by reviewing and identifying the financial accounts belonging to US persons and then communicate the information relating to such accounts to Kuwait competent authority,

which in turn will transfer the information to US Internal Revenue Service (IRS). As per the aforesaid Ministerial Resolution, all financial institutions operating in Kuwait shall comply with reporting requirements in accordance with FATCA Agreement and meet the Agreement requirements by taking a set of actions as detailed in the above-mentioned Ministerial Resolution, within the prescribed time frame.

What is 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.

What is the relationship between CRS & the Government of Kuwait?

The state of Kuwait represented by the Ministry of Finance signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information and Common Reporting Standard (CRS) on August 19, 2016,
with the Organization for Economic Co-operation and Development (OECD) to improve international Tax Compliance and the exchange of financial accounts information between more than 100 countries.

Why financial institutions in Kuwait shall comply with CRS?

Pursuant to the Ministerial Resolution No (46) Of 2017, concerning the additional preliminary guidelines concerning implementation of the international agreements on tax information exchange,
all financial institutions operating in Kuwait shall comply with reporting requirements in accordance with CRS Agreement and meet the Agreement requirements by taking a set of actions as detailed in the above mentioned Ministerial Resolution, within the prescribed time frame.

What is the common between FATCA & CRS?

There are 4 common factors between FATCA & CRS, as follows:

  1. Definition of Foreign Financial Institutions (FFI)

There are four (4) types of FFIs as follows:

  • Custodial Institution

This means any entity that holds, as a substantial portion of its business, financial assets for the account of others.

  • Investment Entity

This means any entity that conducts as a business (or is managed by an entity that conducts as a business) one or more of the following activities or operations for or on behalf of a customer:

  • Trading in money market instruments (cheques, bills, certificates of deposit, derivatives, etc.), foreign exchange, exchange, interest rate and index instruments, transferable securities, or commodity futures trading;
  • Individual and collective portfolio management; or
  • Otherwise investing, administering, or managing funds or money on behalf of other persons.
  • Depository Institution

This means any entity that accepts deposits in the ordinary course of a banking or similar business.

  • Specified Insurance Company

This means any entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, a Cash Value Insurance Contract or an Annuity Contract.

  1. Reports mandates to Kuwait Ministry of Finance

  • Report on Ministry of Finance portal either manually (to enter each reportable account), or through uploading a file using approved schema (XML schema 2.0)
  • Appoint licensed auditor who is registered in Ministry of Finance as tax auditor, to issue assurance certificates as follows:
  • FATCA/CRS FFI Classification Attestation
  • FATCA/CRS Reporting Procedures Attestation
  • Issuance of Annual/ On-Demand FATCA/CRS Compliance Certification for financial institutions about the extent of compliance with FATCA/CRS requirements and integrity of processes and procedures in place
  1. Deadline of Reports from Kuwait Ministry of Finance to Corresponding Competent Authority

It’s mandated that the Kuwait Ministry of Finance shall dispatch report FACTA / CRS received from FIs to the corresponding competent authority before 30 September of each year on balances of reportable accounts as of 31 December of the prior year.

  1. Nil Reporting

If a financial institution has no reportable accounts (nil reporting), FFI shall report on an annual basis regardless of nil or not.

What are the differences between FATCA & CRS?

SrDescriptionFATCACRS
1International Competent AuthorityIRS – USAOECD
2Type of agreement with Kuwait Ministry of FinanceOne-to-one agreementMultilateral agreement
3Reportable accountsUS PersonsAccount-holders from the country (or countries) of tax residence
4Reports Deadline from FIs to Kuwait Ministry of Finance31 August of each year on balances of reportable accounts as of 31 December of the prior year.31 May of each year on balances of reportable accounts as at 31 December of the prior year.

What are risks that financial institutions may face due to non-compliance with FATCA & CRS requirements?

The competent authority of each corresponding country has the right to apply to withhold 30% on certain payments to FFI if those FFI are not committed to the agreement.

Moreover, the financial institution in Kuwait may be subject to local penalties by national authorities such as bit not limited to Kuwait Ministry of Finance, Central Bank of Kuwait, and Capital Markets Authority.

What are the services offered by Baker Tilly related to FATCA / CRS Tax Compliance?

  1. FATCA / CRS Assurance Services

As Baker Tilly in Kuwait has two licensed auditors who are registered in the Ministry of Finance as tax auditors, we offer FATCA/CRS assurance services which cover the following:

  • FATCA / CRS FFI Classification Attestation.
  • FATCA / CRS Reporting Procedures Attestation.
  • Issuance of Annual/ On-Demand Compliance Certification for financial institutions about the extent of compliance with FATCA / CRS requirements and integrity of processes and procedures in place.
  1. FATCA / CRS Consulting Services

  • Establishing FATCA / CRS Process, Policies, and Procedures.
  • Troubleshooting issues related to FATCA / CRS reporting.

What is the benefit of being FATCA / CRS compliant?

  • Ensure compliance with the applicable legislative and regulatory requirements related to FATCA/CRS in the State of Kuwait.
  • Minimize risk of balances withheld in the corresponding countries that are under the umbrella of FATCA / CRS agreements.
  • Support cross-border business transactions.
  • Minimize risks of exposure to financial penalties and sanctions, and thus, save relevant expenses and costs.
  • Enhance business entity’s reputation and motivate business growth.

Why Baker Tilly provides this service?

Baker Tilly is distinguished by specialist professional experience and offers the following characteristics carrying added value to our clients as follows:

  • Approved licensed auditors in Kuwait Ministry of Finance
  • A global consulting firm operating in the State of Kuwait.
  • Bilingual team.

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