US reporting requirement and tax exposure

The Financial Account Tax Compliance Act ('FATCA'), spearheaded by the United States Internal Revenue Services ('IRS') has been in play since 2014.  The aim of FATCA is to identify individuals who are US residents/citizens and using financial accounts outside of the US - essentially flagging individuals who could be avoiding/evading tax in the US.

Jurisdictions around the world have signed or agreed to sign Intergovernmental Agreements with the US to become FATCA compliant (including Kuwait in April 2015). The participating jurisdictions will provide guidance to financial institutions on what to report and how this financial account holder information should be reported to the local Ministry of Finance/Central Bank, this guidance will be made available by the Kuwaiti authorities imminently.  The information collected by the authorities will accordingly be exchanged with the US.

Going forward non-compliance could result in penalties and the risk of severe reputational damage - it is therefore advised for all financial institutions to become FATCA compliant as soon as possible because the information collected as at year end 2016 will be reported before September 2017.


Kuwaiti Financial Institutions were required to submit the financial account details of US persons holding these financial accounts in Kuwait to The Ministry of Finance by 30 November 2016.  This is in consequence of Kuwait (among hundreds of other countries) being a signatory to an inter-governmental agreement (IGA) with the US.  The Kuwait IGA means that foreign financial institutions (including banks, but in certain circumstances, family offices or trusts etc.) must report certain information about their US accounts, including accounts of certain foreign entities with substantial US owners to the local tax authorities / regulators who then transfer the information to the IRS.

The meaning of 'US account' is very broadly defined and opens up the possibility of a bank being required to classify an account as a US account and reporting relevant details of it to the IRS, even though there may be no US tax exposure or reporting requirement on the part of the individual.

Details of US accounts in other Middle Eastern countries, such as the UAE, Saudi Arabia, Qatar and Oman are assumed to have already been passed to the IRS, since the published deadlines for such reporting have already passed. This means that any US person (a US citizen or Green Card holder) in these countries who has not yet regularized their tax affairs with the IRS, may no longer qualify for streamlined filing and the significantly lower penalty regime.  Professional advice should be taken immediately in this regard. As for Bahrain, we expect that reporting on US accounts will be in due course. This means that US citizens and Green Card holders in this country should take immediate steps to review their US tax exposure, and make sure that they are fully compliant. It is clear that this window of opportunity to access the streamlined filing process will not be available indefinitely.

Common Reporting Standard

As a global solution to combat tax-avoidance and as a preventative measure to monitor individuals with foreign financial accounts (many of whom may not be disclosing these accounts to the authorities where they are tax resident), the Organization for Economic Co-operation and Development ('OECD') has, at the request of the G20 found the answer- the Common Reporting Standard ('CRS').To date, over one hundred countries have signed up to or agreed to sign up to CRS.

To put things in perspective, CRS has been dubbed the 'Global FATCA'. The Financial Account Tax Compliance Act, driven by the Internal Revenue Service in the United States, which was implemented around the world to flag and track US citizens with foreign financial accounts.

It has been widely reported that Kuwait, along with Bahrain, Qatar, Saudi Arabia and the United Arab Emirates will begin enforcing the implementation of the CRS from January 2017.

The Kuwait tax authorities, like most authorities in the Middle East are yet to release official CRS regulations. Based on the OECD minimum standards guidance it is certain that unlike FATCA, there will not be any minimum threshold for reporting purposes this implies that all account holders of Kuwaiti financial institutions will be subject to CRS reporting where they are also tax resident in another CRS jurisdiction.

Financial institutions within Kuwait are, broadly speaking, required to collect and report the following information in respect of their reportable customer accounts:

* Client's name, address, jurisdiction of residency, tax identification number ("TIN")

* Date and place of birth of client

* Account number

* Account balance or value

* Total amount of interest paid or credited to the account (gross amount of dividends and sale proceeds in a custody account).

Financial account holders in Kuwait may be asked by financial institutions to provide additional information and documentation and also to self-certify their tax residency status.

Deloitte & Touche, Kuwait has been enrolled as one of the audit firms certified with the Ministry of Finance for the provision of Foreign Account Tax Compliance services FATCA.

Law is Managing Director of Deloitte's International tax Services and Dawson is FATCA and CRS tax lead.

By Alex Law and Claire Dawson, Deloitte & Touche