A Set of Core Changes to the Application of FATCA

A Set of Core Changes to the Application of FATCA

The governments of the State of Kuwait and the USA, on 29 April 2015, signed agreement on improving international tax compliance and application of the Foreign Accounts Tax Compliance Act (FATCA). The agreement stipulates that all financial institutions operating in the State of Kuwait shall comply with the requirements of the report issued by the US Internal Revenue Service, and the reporting according to FATCA. Under the agreement, all financial institutions in Kuwait shall exert due diligence by reviewing and identifying the financial accounts that belong to US persons. Following this, they shall transmit the information relating to those accounts to the Ministry of Finance (MoF) in the State of Kuwait, who, in turn, shall transmit the same information to the US IRS.

As the government of the State of Kuwait signed this agreement, Ministerial Resolution No. 48 of 2015 was issued regarding the provisional guidelines to implement the requirements of FATCA in the State of Kuwait. The Resolution was published in the Official Gazette on Sunday, 13 September 2015.

Hisham Sorour, Managing Partner of Baker Tilly, stated that as the Resolution contained obligatory details, Baker Tilly Audit, Tax and Consulting, conducted analysis of the Ministerial Resolution to highlight the new features and timelines contained therein, so as to facilitate follow-up of the resolution by the concerned persons.

The new feature in the Resolution is that the Ministry of Finance, in collaboration with the regulators in the State of Kuwait, shall take over supervision and collection of information on the compliance with FATCA according to the relevant agreement, instead of direct reporting by the financial institution to IRS. The aim is to standardize the compliance requirements at all financial institutions, whereby variance between such institutions in fulfilling the FATCA requirements can be avoided, eventually maintaining the financial reputation of the institutions, in particular, and the financial reputation of the State of Kuwait, in general, at a global level.

Regular Reports and Certificates by Accredited Audit Firms
The Ministerial Resolution, in Article 2 thereof, stipulates that the financial institutions subject to FATCA scope of application shall issue two types of reporting, which should be approved by an audit firm accredited by the Coordinating Committee for Concluding the FATCA Inter-Governmental Agreement (IGA). These are: financial institution rating accreditation certificate according to FATCA agreement, and the approval of the report issued by IRS from the technical perspective according to FATCA requirements. Also, an annual certificate, or as requested, shall be submitted on the financial institution’s compliance with FATCA requirements and the proper monitoring by an audit firm accredited by the Coordinating Committee for Concluding the IGA.

The Ministerial Resolution covers a set of core changes, representing preparedness to implement MoF’s reporting mechanism, instead of sending the reports to IRS, and compliance with the minimum information received under the Know Your Customer “KYC” document (individuals) in each financial institution. MoF will advise all financial institutions of the reporting guidelines and transmission mechanism.

31 December 2015 Deadline for Meeting IGA Requirements
Article 3 of the Resolution stipulates a number of deadlines to be met by the financial institutions. These cover 4 actions: amending the individual and corporate account opening procedures, and registration with IRS. Such obligations commenced 1 July 2014 and the deadline was 30 June 2015. In the event of failure by the financial institution to meet such deadlines, they shall instantly fulfill all obligations preceding 31 December 2015, in all cases.

$250,000 for Corporate, $50,000 for Individuals
Article 2 of the Resolution species the amounts to be reviewed in the US entities operating in the State of Kuwait, having one or more accounts, totaling over $250,000, or equivalent in other currencies, as of 30 June 2014. For individuals subject to FATCA, having one or more accounts, totaling $50,000 – $1,000,000, or equivalent in other currencies, as of 30 June 2014. Review shall be completed no later than 30 June 2016.

Tightening Required Customer Information
Article 4 of the Resolution states the minimum information on customers that financial institutions must obtain when opening new accounts or updating their information.
In the event of corporate accounts, the Resolution requires using Attachment 5 of the Resolution, i.e. FATCA Self Certification, and independent document among the procedures applied to identify all customers when opening the account and/or updating information.

In the event of individual accounts, the Resolution refers to Attachment 3, representing the minimum information received among the “KYC” document, and Attachment 4 if there are positive indications to subjection to FATCA.

Obligation by End of September 2015
Article 4 of the Resolution obliges the financial institution to identify an employee, and a substitute to ensure implementation of all FATCA requirements in the financial institution, and notifying MoF, with an official letter, no later than 30 September 2015, as well as notifying the supervising regulator.

Banking Secrecy
While the general legal principle, stipulating localization of laws, the US imposed FATCA as the first global act that aims at combating tax evasion, and to enhance tax transparency, making financial secrecy, in general, and banking secrecy, in particular, an obligation that does not conflict with tax transparency, thus classifying tax evasion as a crime to be combated by all global parties.

It is worth mentioning that FATCA is a set of policies and procedures circulated by IRS, especially designed to mitigate tax evasion by US persons. The application of FATCA obliges financial institutions, i.e. banks, investment companies, trustees, securities custodians, mutual funds, credit companies, insurance and re-insurance companies, at local or global levels, to comply with those policies and procedures issued by IRS. Otherwise, they will sustain financial losses and local penalties that may affect their local business, even if they have not US customers or dealings with the US.

Baker Tilly Team and Services
In this context, Baker Tilly Kuwait has formed a global team, including tax consultants from Baker Tilly International Network in the US, to provide consulting, audit and training services to financial institutions operating in the State of Kuwait.