Personal Income tax:
There is no income tax on individuals in Kuwait.
Corporate Income Tax:
Kuwait does not impose income tax on companies wholly owned by the nationals of Kuwait or other Gulf Cooperation Council (GCC) countries, including Bahrain, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. However, GCC companies with foreign ownership are subject to taxation to the extent of the foreign ownership. Income tax is imposed only on the profits and capital gains of foreign 'corporate bodies' conducting business or trade in Kuwait, directly or through an agent.
Income earned from activities in Kuwait shall be considered subject to tax in Kuwait. In cases where a contract involves the performance of work both inside and outside Kuwait, the entire revenue from the contract must be reported for tax in Kuwait, including the work carried out outside Kuwait. Please refer to the Income determination section for more information on income that is subject to tax in Kuwait.
The current tax rate in Kuwait is a flat rate of 15%.
Foreign companies carrying on trade or business in the offshore area of the partitioned neutral zone under the control and administration of Saudi Arabia are subject to tax in Kuwait on 50% of taxable profit under the law.
Zakat is imposed on all publicly traded and closed Kuwaiti shareholding companies at a rate of 1% of the companies’ net profits.
Contribution to the Kuwait Foundation for the Advancement of Sciences (KFAS):
All Kuwaiti shareholding companies are required to pay 1% of their net profits as per their financial statements, after their transfer to the statutory reserve and the offset of loss carry forwards, to the KFAS, which supports scientific progress.
Income tax is imposed on the profit of a business in Kuwait as calculated by the normal commercial criteria, using generally accepted accounting principles (GAAP), including the accrual basis. Note that provisions, as opposed to accruals, are not deductible for tax purposes. In addition, for contract accounting, revenue is recognised by applying the percentage of completion method.
Article 2 of the amended tax law provides that income earned from the following activities in Kuwait shall be considered subject to tax in Kuwait:
· Any activities or business carried out either entirely or partially in Kuwait, whether the contract has been signed inside or outside Kuwait, as well as any income resulting from supply or sale of goods, or from providing services.
· The amounts collected from the sale, rent, or granting of a franchise to utilise any trademarks, design, patents, copyright, or other moral rights, or those related to intellectual property (IP) rights for use of rights to publish literary, arts, or scientific works of any form.
· Commission earned or resulting from agreements of representation or commercial mediation, whether such commissions are in cash or in kind.
· Having permanent office in Kuwait where the sale and purchase contracts are signed and/or where business activities are performed.
· Profits resulting from the following:
o Any industrial or commercial activity in Kuwait.
o Disposal of assets, either through the sale of the asset, part of the asset, the transfer of the asset’s ownership to others, or any other form of disposal, including the disposal of shares in a company whose assets mainly consist of non-movable capital existing in Kuwait.
o Granting loans in Kuwait.
o Purchase and sale of property, goods, or related rights in Kuwait, whether such rights are related to monetary assets or moral rights, such as mortgage and franchise rights.
o Lease of property used in Kuwait.
o Providing services, including profits from management, technical, and consultancy services.
o Carrying out trading activities in the KSE, whether directly or through portfolios or investment funds.
Inventory is normally valued at the lower of cost or net realisable value, on a first in first out (FIFO) or average basis.
Capital gains on the sale of assets and shares by foreign shareholders are treated as normal business profits and are subject to tax at a 15% rate. The tax law provides for a tax exemption for profits generated from dealing in securities on the KSE, whether directly or through investment portfolios.
Dividends declared by companies listed on the KSE after 10 November 2015 are exempt from tax in Kuwait.
In principle, tax is levied on the foreign company's share of the profits (whether or not distributed by the Kuwaiti company) plus any amounts receivable for any other income in Kuwait (e.g. interest, royalties, technical services, management fees). However, the Kuwait tax law will still subject the interest received from a Kuwaiti source to tax in Kuwait, whether this interest is the only source of income for the foreign entity in Kuwait or the foreign entity has more sources of income in Kuwait than the interest income.
Royalty income earned from “the sale, lease, grant of franchise to use or utilise any trademark, design, patent, intellectual property, or copyright in Kuwait” is taxable in Kuwait. Kuwait tax law imposes a deemed profit of 98.5% on royalties earned from Kuwait (1.5% being an allowance for head office overheads), as the profit on which the prevailing flat corporate tax rate of 15% is applied.
Foreign currency exchange rates and related profits and losses:
The tax treatment for realised and unrealised losses and gains related to foreign currency transactions are as follows:
· Unrealised foreign exchange gains are required to be reported in the tax declaration. However, unrealised gains may be excluded from taxable income for calculating the tax due for the fiscal year.
· Realised foreign exchange gains are taxable in Kuwait and are therefore added to calculate taxable profits.
· Unrealised losses are not considered as tax deductible costs and are therefore excluded for calculating taxable profits.
· Realised losses may be claimed as tax deductible costs, provided such losses are supported by adequate supporting information and documents.
The following sources of income are exempt from tax in Kuwait:
· Kuwaiti merchants purchasing, transporting, and selling goods imported on their own account where the foreign supplier has not been involved in Kuwait operations.
· Profits of a corporate body generated from dealing in securities listed on the KSE, whether such activities are carried out directly or through investment portfolios or funds.
The Kuwait tax law does not clearly state the tax treatment of foreign income. Such income is currently treated on a case-by-case basis.
Tax Period & Return:
Tax is imposed on profits arising in a taxable period, which is defined as the accounting period of the taxpayer and further assumed to be the calendar year. However, the DIT may agree to a written request from the taxpayer to change the year-end to a date other than 31 December. Also, at the taxpayer’s request, the DIT may agree to extend the accounting period, provided it does not exceed 18 months.
The taxpayer must submit a tax return, based on the taxpayer’s books of account, within three months and 15 days of the end of the taxable period. Taxpayers can request an extension of up to 30 days for filing the tax declaration. The maximum extension in time to be granted will be 60 days. If such an extension is granted, no tax payment is necessary until the tax declaration is filed, and payment must then be in one lump sum.
The taxpayer must keep in Kuwait certain accounting records, which are subject to inspection by the tax department’s officials. Accounting records may be in English and may be in a computerised system used to prepare financial statements, provided that the system includes the required records and the tax department is previously informed.
The tax return should be supported by the following:
· Audited balance sheet and profit-and-loss account for the period.
· Detailed list of fixed assets (e.g. additions, disposals).
· List of inventory (e.g. quantities and values).
· List of subcontractors and the latest payments to them.
· Copies of current contracts and a statement of income and expenditure for each.
· Trial balance, forming the basis of the accounts.
· Last payment certificate from the client.
· Insurance companies must attach to the Public Budget and the tax declaration a detailed statement with the reinsured documents and the related terms and conditions.
As a general rule, an assessment is finalised only after inspection of records by the tax department. As indicated above, proper documentation must be kept to support expenditure and to avoid disallowances at the time of tax inspection. If support is considered inadequate, the assessment is apt to be made on the basis of deemed profitability. This is computed as a percentage of turnover and is fixed arbitrarily, depending on the nature of the taxpayer’s business.
Payment of tax:
Tax is payable in four equal instalments on the 15th day of the fourth, sixth, ninth, and 12th months following the end of the tax period. If an extension is approved by the DIT, all of the tax is payable upon the expiration date of the extension. Failure to file or pay the tax on time attracts a penalty of 1% of the tax liability for every 30 days of delay or part thereof.
If a company disagrees with an assessment issued by the DIT, the company should submit an objection within 60 days from the date of the assessment. The DIT is required to resolve the objection within 90 days of the filing of the objection, after which a revised tax assessment is issued by the DIT. Upon issuance of a revised tax assessment, any additional tax is payable within 30 days. If the DIT issues no response within 90 days of filing the objection, this implies that the taxpayer’s objection has been rejected.
In case the objection is rejected or the taxpayer is still not satisfied with the revised tax assessment, the company may contest the matter further with the Tax Appeals Committee (TAC) by submitting a letter of appeal within 30 days from the date of the objection response or 30 days from the expiry of the 90 days following submission of an objection if no response is provided by the DIT.
The matter is then resolved through appeal hearings, and a final revised assessment is issued based on the decision of the TAC. Tax payable per the revised assessment must then be settled within 30 days from the date of issuance of the revised assessment. Failure to do so results in a delay penalty of 1% of the amount of the tax due per the final assessment for each period of 30 days or part thereof of the delay.
Statute of limitations:
The statute of limitations period is five years. Moreover, under Article No. 441 of the Kuwait Civil Law, any claims for taxes due to Kuwait or applications for tax refunds may not be made after the lapse of five years from the date on which the taxpayer is notified that tax or a refund is due.
Topics of focus for tax authorities:
The DIT has implemented an active approach to ensure the compliance of local companies with the tax retention mechanism, especially those who have franchise operations and agreement with foreign franchisors in Kuwait. In some cases, the DIT has asked the Kuwaiti companies to settle the 5% retention where the franchisors have failed to comply with the tax law requirements.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.