Interview: Alok Chugh
What steps is Kuwait taking to engage in new international tax regulations and practices?
ALOK CHUGH: Tax authorities from various jurisdictions have introduced regulations for customer tax transparency and to curb tax avoidance, such as the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). FATCA promotes tax compliance by implementing an international standard for the automatic exchange of information (AEOI) related to US taxpayers, while the CRS is a global reporting standard for the AEOI developed by the OECD. FATCA and the CRS are just the beginning of the overall customer tax transparency landscape expected in the coming years.
Since January 1, 2019 most off-shore jurisdictions, including but not limited to the Cayman Islands, Bermuda, the Bahamas, the British Virgin Islands, Jersey, Guernsey and the Isle of Man, have introduced new economic substance rules and requirements. These laws dictate that companies that are tax residents in these jurisdictions, and that undertake certain relevant activities as prescribed by the laws, will need to ensure they have enough economic substance. Other jurisdictions, such as the UAE and Bahrain, have also introduced new economic substance rules effective from 2019.
In addition, the G20 and the OECD launched the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in 2015, which targets tax-avoidance strategies that exploit gaps and mismatches in tax rules across countries. A number of MENA countries including Saudi Arabia, Egypt, the UAE and Qatar have also introduced country-by-country reporting (CbCR) regulations in line with Action 13 of the BEPS framework. On top of that, most of the countries in the region have also implemented FATCA and the CRS.
In 2015 Kuwait signed an intergovernmental agreement with the US to become FATCA-compliant, which requires Kuwaiti financial institutions to submit the financial account details of US persons holding accounts in Kuwait to the Ministry of Finance, which then transfers the information to the US Internal Revenue Service. Similarly, in 2016 Kuwait signed the Multilateral Competent Authority Agreement to exchange information on tax residents in different jurisdictions. Kuwait-based groups with presence in low- or no-tax jurisdictions will need to assess whether their group entities fall under the new economic substance rules.
Kuwait also signed the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent BEPS (known as the Multilateral Instrument, MLI). However, the MLI provisions within the existing covered tax agreements (CTA) will only come into effect once the ratification procedure is complete in each signatory jurisdiction. Kuwait must therefore ratify the treaty to bring the MLI into force for its CTA. The country has not yet adopted Action 13, but Kuwait-based multinational groups are already having to comply with Master File, Local File and CbCR requirements in countries which have introduced such rules.
How are digital platforms and e-commerce being harnessed by the Kuwaiti market?
CHUGH: Digital platforms and e-commerce have been embraced by various sectors in Kuwait, primarily in banking, telecoms and retail. Most banks and telecoms companies have adopted platforms where individuals or businesses can easily transfer funds and pay bills, among other transactions. In line with global trends, retail businesses have introduced e-commerce websites during recent years, making shopping more convenient.
Regulatory authorities, such as the Central Bank of Kuwait, the Capital Markets Authority, Kuwait Customs and others, are at various stages of IT conversion. For instance, in a 2019 reform, the Ministry of Health announced the launch of an online platform to channel all payments of health insurance fees for residency purposes. Value-added and excise taxes are also expected to be implemented in Kuwait, a process which will require further IT integration of various ministries.
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