Tax Compliance Reports – 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.

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.

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

IRS stands for “Internal Revenue Service” which is a United States government agency that is responsible for introducing and issuing the law of FATCA.

1. Custodial Institution

Means any Entity that holds, as a substantial portion of its business, financial assets for the account of others. An entity holds financial assets for the account of others as a substantial portion of its business if the entity’s gross income attributable to the holding of financial assets and related financial services equals or exceeds 20 percent of the entity’s gross income during the shorter of:

• The three-year period that ends on December 31 (or the final day of a non-calendar year accounting period) prior to the year in which the determination is being made.
• The period during which the entity has been in existence.

2. Investment Entity

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.
• Otherwise investing, administering, or managing funds or money on behalf of other persons.

3. Depository Institution

Means any Entity that accepts deposits in the ordinary course of a banking or similar business.

4. Specified Insurance Company

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.

Any “US person” who has an offshore account or investment is subject to FATCA. In other words, US Persons who have withholdable payments, which is a payment that can produce US source interest or dividend income. US persons generally have an obligation to file annual tax returns and other information with the US government.

1. Specified US Person

• A citizen of the United States of America.
• US green-card holder.
• A person residing in the US.
• A privately owned domestic corporation (does not include a publicly traded company and its more than 50% controlled affiliates).
• Domestic partnership or trust.

2. US Owned Foreign Entity

which is any foreign entity that has one or more Substantial US Owners. Substantial US Owners are defined as:

• • Corporation

Any specified US Person which owns, directly or indirectly, more than 10% of the stock of the corporation by vote or value.

• • Partnership

Any specified US Person which owns, directly or indirectly, more than 10% of the profits or capital interests of the partnership.

• • Trust

Any specified US Person which holds, directly or indirectly, more than 10% of the beneficial interests.

• US citizens.
• US residents.
• A US place of birth.
• Green card holders.
• A US address or telephone number.
• Power of attorney or signing authority granted to a person with a US address.
• NFFE directly or indirectly owned by US persons controlling more than 10%.
• Partnerships or trusts with US partners, owners or beneficial owners.
• Instructions to transfer funds to an account in the USA.

• Pre-existing accounts

Accounts has balance or value as of 30 June 2014 that exceeds $50,000 or $250,000 for a cash value insurance contract or annuity contract.

• New accounts

Depository account exceeds $50,000 or Cash value insurance contract exceeds $50,000.

• Pre-existing accounts

Accounts has balance or value as of 30 June 2014 that exceeds $250,000.

• New accounts

Accounts balance owed to the account holder that exceeds $50,000.

Yes, each FI shall register on IRS portal. There are four type of registered entities as follows:

• A single FI is an FI or direct reporting NFFE that does not have any member FIs and is registering for PFFI or RDCFFI status for itself or one or more of its branches. May include a foreign branch of a USFI that is treated as a Reporting Model 1 IGA or that intends to apply for status as a QI.
• A lead FI means a USFI, FFI, or compliance FI that will carry out FATCA registration for each of its member FIs that is a PFFI or RDCFFI. A Lead FI is not required to act as a Lead FI for all Member FIs within an EAG. Thus, an EAG may include more than one lead FI that will carry out FATCA registration for a group of member FIs. A lead FI will be provided the rights to manage the online account for its member FIs. If a lead FI submits a paper Form 8957, the IRS will create an online FATCA account for the lead FI and provide the lead FI with information on how to access its FATCA account, including a FATCA ID and temporary access code. The lead FI will then need to carry out FATCA registration for each of its member FIs via the FATCA registration website.
• A member FI will need to obtain its FATCA ID from its lead FI and provide this FATCA ID on the registration form. The FATCA ID is used to identify the member FI for purposes of registration and is not the same number as the GIIN. A GIIN is issued to FIs after the FATCA registration is submitted and approved.
• A sponsoring entity is an entity that will perform the due diligence, withholding, and reporting obligations of one or more sponsored FFIs or the due diligence and reporting obligations of one or more sponsored direct reporting NFFEs. A trustee-documented trust should select “Sponsoring Entity” if it is registering to obtain a GIIN to use when fulfilling its obligations as a trustee of a trustee-documented trust.

A disregarded entity that is registering separately from its owner in order to be a Reporting FI under a Model 1 IGA should select “Single FI” or “Member FI,” as appropriate.

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

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

1. Collect Know Your Customer (KYC) form – which shall be amended to contain all US indicia- from all clients along with related supporting documents.

2. Request self-certification (W-9 or W- 8BEN) from each Individual and Entity account holder to establish the account holder US status.

It’s mandated that FFI shall report before 30 August of each year on balances of reportable accounts as at 31 December of the prior year.

1. Report on MoF portal either manually (to enter each reportable account), or through uploading a file using approved schema (FATCA XML schema 2.0, guidelines on schema requirements can be browsed from the following link https://www.irs.gov/pub/fatca/pub5124userguidev20draft.pdf).

2. Appoint approved and licensed auditor to issue assurance certificates as follows:

   • • FATCA FFI Classification Attestation

   (Reference: Ministerial Resolution No. 48 of 2015 concerning the preliminary guidelines to implementing FATCA requirements, Article 2, Clause 1).

   • • FATCA Reporting Procedures Attestation

   (Reference: Ministerial Resolution No. 48 of 2015 concerning the preliminary guidelines to implement FATCA requirements, Article 2, Clause 5).

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

   (Reference: Ministerial Resolution No. 48 of 2015 concerning the preliminary guidelines to implement FATCA requirements, Article 2, Clause 6.

• Internationally, US has the right to withhold 30% of any payment of US source income and any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends that are US source FDAP income which is a Fixed or Determinable Annual or Periodical US source interest, dividends and other similar passive Income.
• Locally, Capital Markets Authority and Central Bank of Kuwait have the right to apply penalties on non-compliant FI.

If the issue is discovered by IRS, IRS 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.

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

Yes, FFI shall report on annual basis regardless nil or not.

• Refuses consent for an FFI to pass its information to the IRS.
• Fails to comply with reasonable requests for information necessary to determine whether the account is a US account;
• Fails to provide the name, address and tax identification number (TIN) of each “specified US person” and each substantial US owner of a US owned foreign entity; or
• Fails to provide a waiver of any foreign law that would prevent a foreign financial institution from reporting information required under FATCA.

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

• IRS portal.
• MoF portal where shall upload copy of Civil ID as well as authorization letter that signed by FI’s authorized signatory.

• 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.