Kuwait
This report analyses the implementation of the AEOI Standard in Kuwait with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
Kuwait’s legal framework implementing the AEOI Standard is not in place in accordance with the requirements of the AEOI Terms of Reference. While Kuwait’s international legal framework to exchange the information with all of Kuwait’s Interested Appropriate Partners (CR2) is consistent with the requirements, the domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has significant deficiencies in areas that are fundamental to the proper functioning of the AEOI Standard. More specifically, deficiencies have been identified in Kuwait’s enforcement framework.
Effectiveness of AEOI in practice
Kuwait’s implementation of the AEOI Standard is not compliant with the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. While Kuwait is on track with respect to exchanging the information in an effective and timely manner (CR2), there are fundamental issues with respect to ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1).
Overall rating in relation to the effectiveness in practice: Non-Compliant
General context
Kuwait commenced exchanges under the AEOI Standard in 2019, when it exchanged information relating to both 2017 and 2018.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Kuwait issued Ministerial Decision No. (36) for the year 2017.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 April 2017. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2017 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2018.
With respect to the exchange of information under the AEOI Standard, Kuwait is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2019.
Table 1 sets out the number of Financial Institutions in Kuwait that reported information on Financial Accounts in 2022 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or relating to Controlling Persons, resident in a Reportable Jurisdiction). Kuwait did not provide information on the number of Financial Accounts reported by Financial Institutions in Kuwait in 2022. In this regard, it should be noted that Kuwait requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of Kuwait’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by Kuwait in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Kuwait’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in Kuwait:
the Ministry of Finance (the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with Kuwait’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place by Kuwait, which ensure the validation of the data reported by Financial Institutions before it is exchanged with Kuwait’s exchange partners; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Kuwait’s legal frameworks implementing the AEOI Standard concluded with the determination that Kuwait’s domestic legal framework is Not In Place and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of Kuwait’s implementation of the AEOI Standard in practice and where particular identified gaps in Kuwait’s legal frameworks directly impact its implementation in practice, these are mentioned below.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for Kuwait are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex B).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Kuwait’s domestic legislative framework is not in place as required as it does not contain several key aspects of the CRS and the Commentary. Significant deficiencies have been identified in relation to the framework to enforce the requirements (SR 1.4). Most significantly, Kuwait’s domestic legislative framework does not provide relevant authorities access to records kept by Financial Institutions, does not incorporate a framework for enforcement to address non-compliance, and does not include strong measures to ensure that valid self-certifications are always obtained for New Accounts.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Kuwait has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Kuwait has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Kuwait has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Kuwait does not have a legislative framework in place to enforce the requirements in a manner that is consistent with the CRS and its Commentary as significant deficiencies have been identified. More specifically, Kuwait’s legislative framework:
does not include sanctions on Account Holders and Controlling Persons for the provision of a false self-certification;
does not provide the relevant authorities with the power to access the records held by Reporting Financial Institutions in relation to the due diligence procedures applied;
does not provide for sanctions on Reporting Financial Institutions for failing to carry out the due diligence procedures; and
does not incorporate measures to ensure that self-certifications are always obtained and validated for New Accounts as is required.
These are key elements of the required enforcement framework and are therefore material to the proper functioning of the AEOI Standard.
Kuwait should amend its domestic legislative framework to include sanctions on Account Holders and Controlling Persons for the provision of a false self-certification.
Kuwait should amend its domestic legislative framework to provide the appropriate authorities with access to the records required to be kept by Reporting Financial Institutions.
Kuwait should amend its domestic legislative framework to include sanctions for failure to comply with the due diligence and reporting procedures.
Kuwait should amend its domestic legislative framework to include strong measures to ensure that valid self-certifications are always obtained for New Accounts in accordance with the requirements.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Kuwait’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of Kuwait’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Kuwait and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
Kuwait has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
Kuwait put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
Kuwait’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Kuwait are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex B).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Kuwait’s implementation of the AEOI Standard is non-compliant with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures. More specifically, while Kuwait is meeting expectations with respect to collaboration with its exchange partners to ensure effectiveness (SR 1.6), there are fundamental issues with respect to ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5). Kuwait should continue its implementation process to ensure its effectiveness, including by addressing the recommendations made.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
a) an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
i. be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
ii. include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
iii. include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
b) effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
c) effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
d) strong measures to ensure that valid self-certifications are always obtained for New Accounts;
e) effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
f) effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, Kuwait implemented some of the requirements in accordance with expectations. However, fundamental deficiencies were identified. The key findings were as follows:
Kuwait has developed a strategy to ensure compliance with the AEOI Standard. The strategy is based on a risk assessment that took into account a range of relevant information sources, such as the information reported by Reporting Financial Institutions, information from AML compliance reviews and information reported by the public. The strategy also includes plans for communication and outreach activities, and Kuwait has already conducted a workshop with Financial Institutions and set up an email address and phone number dedicated to inquiries regarding the AEOI Standard. With respect to the interaction between Kuwait’s AEOI and AML frameworks, there does not appear to be a formalised plan or activity undertaken to ensure that it always results in reporting in accordance with the AEOI Standard.
Kuwait has developed a formalised plan to understand its population of Financial Institutions, including relevant non-regulated Entities, building on a wide range of internal and external sources, such as the tax registry, membership lists of relevant associations in the financial sector and information provided by service providers on request. Kuwait also cross-checks the Foreign Financial Institution list for FATCA purposes. After the matching exercises, Kuwait identified several Financial Institutions that should have been classified as Reporting Financial Institutions. Kuwait has followed up in these instances by informing the relevant regulators about the Financial Institutions that have failed to register, but further action is needed to ensure that these Reporting Financial Institutions are classifying themselves correctly under Kuwait’s domestic rules and reporting information as required.
Kuwait allocated financial resources to the implementation of the AEOI Standard, including by hiring third party services, although the overall adequacy of its resourcing is unclear, particularly with respect to the financial and human resources allocated within the responsible authority. Kuwait stated that a significant number of exchange of information officials are undergoing training and have been assigned to core functions, but it remains unclear as to whether the resources assigned are sufficient to ensure the effective implementation of the AEOI Standard
Kuwait has indicated that some verification activities have been carried out by an external auditor, but it did not demonstrate how it comprehensively verifies the full range of due diligence requirements by Reporting Financial Institutions, such as through desk-based checks or in-depth reviews that include the review of the records held by Reporting Financial Institutions, nor how it effectively addresses non-compliance. While Kuwait has developed detailed plans for future compliance activities, there are currently no clearly defined procedures in place and effective actions taken to ensure self-certifications are obtained as required. It is also noted that any activities will be constrained by Kuwait’s lack of a legal basis to access the records held by Financial Institutions for the purpose of ensuring compliance with the AEOI Standard and to impose sanctions for failure to comply with the due diligence and reporting procedures.
Kuwait has developed clearly defined procedures to follow up with Reporting Financial Institutions when undocumented accounts are reported, although it does not appear that effective action has been taken in the instances where undocumented accounts have been reported. Kuwait also has clearly defined procedures to address circumvention of the due diligence and reporting procedures by Financial Institutions, persons or intermediaries.
It is noted that Kuwait does not have a jurisdiction-specific list of Non-Reporting Financial Institutions or Excluded Accounts for ongoing monitoring.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
In terms of the Financial Account information collected and sent by Kuwait, it was found to include a much lower proportion of Tax Identification Numbers with respect to the individuals associated with the accounts when compared to most other jurisdictions. Furthermore, while the collection and reporting of dates of birth is generally higher across jurisdictions, Kuwait nevertheless reported a much lower rate of collection of dates of birth when compared to other jurisdictions. These data points are key to exchange partners to effectively utilise the information and are important to developing an effective compliance strategy to ensure the AEOI Standard is being effectively implemented. The level of undocumented accounts reported by Kuwait’s Reporting Financial Institutions appeared to be in line with most other jurisdictions.
Feedback was also received from Kuwait’s exchange partners indicating that, compared to what they generally experience in relation to the information received from all of their exchange partners, they achieved a relatively low level of success when seeking to match information received from Kuwait with their taxpayer database. Furthermore, one exchange partner highlighted issues with respect to the information received, in particular incorrect or incomplete addresses. Follow-up discussions confirmed that Kuwait is aware of these issues and is seeking to improve the situation.
Based on these findings, it has been concluded that Kuwait is not meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. More specifically, fundamental issues have been identified, including with respect to not having in place an effective enforcement framework to address non-compliance by Reporting Financial Institutions. Kuwait should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Kuwait should actively monitor the interaction between its AML and AEOI frameworks to ensure that the collection and reporting of information under the AEOI Standard is in accordance with the requirements.
Kuwait should routinely update the information used to identify its population of Financial Institutions and take actions to ensure they correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions and report information as required.
Kuwait should implement its framework and take appropriate actions to verify that Reporting Financial Institutions are effectively implementing the AEOI Standard and are reporting complete and accurate information, including in-depth reviews and reviewing the records they hold. Reference is made to the recommendations given when assessing Kuwait’s legal frameworks implementing the AEOI Standard.
Kuwait should ensure that it allocates adequate resources to carry out its compliance strategy.
Kuwait should develop and implement effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions, including the application of dissuasive penalties and sanctions as appropriate, and routinely apply them where non-compliance is identified. Reference is made to the recommendations made when assessing Kuwait’s legal frameworks implementing the AEOI Standard.
Kuwait should develop and implement effective procedures to monitor and verify whether Reporting Financial Institutions are obtaining valid self-certifications as required, including dedicated communication activities, with a particular focus on self-certifications obtained after the opening of a Financial Account. Reference is made to the recommendations made when assessing Kuwait’s legal frameworks implementing the AEOI Standard.
Kuwait should implement its policy to follow up with Reporting Financial Institutions that report undocumented accounts to ensure that the requirements are being complied with.
Kuwait should address the issues raised by its exchange partners.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
a) use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
b) have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
It should be noted that, as Kuwait exchanges information on a non-reciprocal basis and does not therefore receive information, it is not required to have in place procedures to notify its exchange partners. SR 1.6 b) has therefore not been assessed in this case.
In order to collaborate on compliance and enforcement, it appears that Kuwait implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, Kuwait has the necessary systems and procedures to process them as required.
Based on these findings it was concluded that Kuwait is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. Kuwait is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard
Kuwait’s implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). Kuwait has shown improvement over time and is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Two exchange partners highlighted particular issues with respect to preparation and format of the information sent by Kuwait (representing 4% of its partners). These generally related to partners experiencing download errors and failed digital signature validations with respect to the files submitted by Kuwait. More generally, one of Kuwait’s exchange partners reported rejecting more than 25% of the files received, due to the technical requirements not being met. This has improved over time and is now broadly in line with the general experience of other jurisdictions. It was noted that Kuwait has already successfully addressed all of the issues.
Based on these findings it was concluded that Kuwait is fully meeting expectations in relation to sorting, preparing and validating the information. Kuwait is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, Kuwait linked to the Common Transmission System.
Based on these findings it was concluded that Kuwait is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Kuwait is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
One exchange partner highlighted delays in the sending of information by Kuwait. Furthermore, this partner stated that the information has still not been received. Kuwait has confirmed that it is aware of these issues and will soon be addressing the situation.
Based on these findings it was concluded that, overall, Kuwait is meeting expectations in relation to exchanging the information in a timely manner. It was also noted that there is room for improvement with respect to the timeliness of exchanges. Kuwait is encouraged to continue to ensure the ongoing effectiveness of its implementation, including in relation to the area highlighted.
Kuwait should ensure it sends information to all of its exchange partners in a timely manner.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from Kuwait’s exchange partners did not raise any concerns with respect to Kuwait’s use of the agreed transmission methods and therefore with Kuwait’s implementation of this requirement.
Based on these findings it was concluded that Kuwait is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Kuwait is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
It should be noted that, as Kuwait exchanges information on a non-reciprocal basis and does not therefore receive information, it is not required to have in place systems to receive the information and provide status messages. SR 2.8 has therefore not been assessed in this case.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
While it is unclear whether Kuwait’s approach will ensure that corrected, amended or additional information is provided in a timely manner, it has not been tested and no such concerns were raised by Kuwait’s exchange partners in previous years and therefore with respect to Kuwait’s implementation of these requirements.
Based on these findings it was concluded that Kuwait appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. Kuwait is encouraged to continue to ensure the ongoing effectiveness of its implementation.