Sea-change in landscape of taxation
KUWAIT CITY, Nov 29: “The world of taxation has changed tremendously impacted by FATCA, transfer pricing, Base Erosion and Profit Sharing, and others which require dramatic changes in existing operating models and structures,” remarked Fouad Douglas, PwC Country Senior partner, at a tax seminar organised by the PwC in conjunction with the Union of Investment Companies at Jumeirah Messilah Beach Hotel, on Sunday.
The seminar covered topics from the Foreign Account Tax Compliance Act to the taxability of dividends, foreign direct investment law, the public and private partnerships, and other pertinent tax matters in relation to the Income Tax in Kuwait and was attended by senior officials of the department of inspection and tax claims as well as from the Capital Markets Authority and the Kuwait Direct Investment Promotion Authority along with representatives from invited companies.
Douglas shared FATCA was no longer a US domestic tax issue but one globally affecting countries and financial institutions that tasks them to identify, capture, track and report on accounts by US persons.
Sherif Shawki, Partner in charge of PwC’s Kuwait tax practice, reiterated the evolving regulatory environment in Kuwait pointing to the tax implications of the PPP law, the signing of the Inter-Govermental Agreement on FATCA and the credit scheme under Foreign Direct Investment.
FATCA was introduced to detect and deter the evasion of US tax by US persons by creating an obligation on Foreign Financial Institutions for information reporting. The IGA signed between Kuwait and the US in April this year, followed by the Ministerial Order No. 48 issued in September, have set the compliance framework for FIs operating in Kuwait which include registration, appointment of the Responsible Officer, and the implementation of compliance requirements with extended deadlines to Dec 2015.
Shawki explained that FATCA is now a local law and all FIs in Kuwait must comply or be subject to sanctions; the Ministry of Finance acts as the entity in charge of reporting. He stressed that the IGA has contributed to the improvement of compliance and implementation of FATCA, bringing greater clarity by setting forth the definitions, obligations, the timeline, implementation and enforcement for compliance, the mechanism for communication and approach to difficulties.
He also highlighted approaching deadlines: by Dec 2015, as per Kuwait local regulations, classifying of the FI under FATCA, registration of the FI and obtaining the GIIN, on-boarding of new clients in compliance with the regulations, reviewing procedures for pre-existing individual accounts must be completed. By June 30, 2016, review of pre-existing individual accounts that are lower value accounts for US Indicia must be completed. Sept 2016 was initially set by the IRS for Model 1 IGA jurisdictions in relation to the year 2015 but a new date will be identified through local regulations to be issued in the coming period.
Mohamed Araji, Tax Director at PwC, delved into the pre-existing due diligence requirements of FATCA which include Electronic Record Search for US Indicia, monitoring the status change in case of any US Indicia arises, and treatment of account with US Indicia as a US account unless provided with a self-certification of the account holder specifies that they are not US citizens/residents, a non-US passport or other official identification of citizenship is a country other than the US or a copy of the Account Holder’s Certificate of loss of US Nationality.
He also explained the due diligence required for different thresholds and expounded on reporting forms, before touching upon the Common Reporting Standard. MOF officials present revealed that they are currently working on the CRS even as Qatar, KSA and UAE in the Middle East are already committed to the exchange of information.
Meanwhile, Shawki also drew attention to the CMA law update No. 22 published in the official gazette in May 10 and effective as of Nov 10, with objectives of regulation activities through transparency, fairness and competitiveness, as well as the protection of investors, adapting a full disclosure policy, creating awareness, developing the KSE, diversity and creation of innovative tools of investment while minimising systematic risks.
He shared that the CMA Law update concurs the Income Tax Decree, its executive rules and regulations on exemption of capital gains but adds the exemption of return resulting from trading in the Kuwait Stock Exchange for both local and foreign companies.