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Taxation

Taxation in Kuwait is governed by Amiri decree number 3/1955 and various tax treaties with other countries. No personal income tax is levied either on salaries or on income from commercial activities. Corporate income tax is currently levied only on the income of foreign companies from their operations in Kuwait with the exception of companies incorporated in GCC countries. All local shareholding companies are required to make annual contributions to the Kuwait Foundation for the Advancement of Sciences (KFAS) that is set at present at 1% of net profits. In addition, listed Kuwait companies are required to contribute 2.5% of their net profits to a National Labor Force Fund. Companies are all also required to make social security contributions with respect to Kuwaiti employees only. There are no other taxes of any consequence.

The income tax decree has been little amended since it was issued in 1955, but has been supplemented by a number of directives issued by the Department of Income Taxes (DIT), which administers and enforces income taxes. The National Assembly is presently reviewing a law to change corporate income taxation to apply to both Kuwaiti and non-Kuwaiti companies and to reduce the tax rates currently being used. Under the proposal the marginal tax rate for the highest tax bracket would be reduced from 55% to 25%.

The following categories of income are subject to the corporate income tax :

A foreign partner is not subject to income tax where the partner is a natural person. If the partner is a company the income tax is levied on its share of the income in the normal way. The current practice is not to impose corporate income taxes on the profits earned in Kuwait by foreign companies owned by GCC nationals.

The foreign party's proportion of net profit subject to taxation includes any amounts receivable for royalties, management fees, technical services or interest. Losses can be carried forward and deducted from subsequent profits without limitations as to period, but cannot be carried back.

The source of income is considered to be in Kuwait if the place of performance of the services is within Kuwait. Place of performance is interpreted to include work carried out outside Kuwait under a contract which also involves onshore activity. In the case of contracts where part of the technical work, design or research is performed outside Kuwait, income from the whole contract is subject to Kuwait income tax, with a deduction for the direct technical costs incurred outside Kuwait, provided they are fully supported by documentation. Gains or profits made on the sale or disposal of capital assets, such as machinery and equipment, within Kuwait are considered part of the income of the enterprise and are taxed accordingly.

All expenses incurred by a business, including expenses incurred outside Kuwait, are deductible, provided they are legitimate, necessary and reasonable. Legitimate costs and expenses should be well supported and documented. The income tax law divides allowable deductions into four main groups :

There is no provision in the income tax law regarding any limitations on fees paid to local agents or sponsors, but the current practice of the tax department is to allow a maximum deduction of 3% of the gross annual reserve from the taxpayer's operations in Kuwait.

Income Tax Rates

Tax Bracket (KD) Tax Rate (%)
05,250 Nil Nil
5,25118,750 5
18,75137,500 10
37,50156,250 15
56,25175,000 20
75,001112,500 25
112,501150,000 30
150,001225,000 35
225,001300,000 40
300,001375, 000 45
375,001 and above 55

Note: the relevant tax rate applies to the entire taxable profit

The tax rate structure is shown in the table above. The tax is not charged progressively on bands of income; rather, total profit is charged at the rateapplicable to the band in which it falls. Marginal relief may be claimed where total profit slightly exceeds the lower limit of a tax bracket.

The regular accounting and taxable period is the calendar year ending 31 December, but the taxpayer may choose any year-end accounting date he deems appropriate, provided the tax department's approval is obtained in advance. First and last accounting periods may be of any period up to eighteen months.

Every taxpayer with taxable income in excess of KD 5,250 in a taxable period must file an income tax declaration. This is due on or before the fifteenth day of the fourth month following the taxable period concerned. The tax department requires the declaration to be accompanied by audited financial statements, certified by a locally-licensed auditor, and a statement of fixed assets. An extension of the filing deadline may be allowed if this is shown to be necessary.

All tax declarations and correspondence with the tax department must be in Arabic. Tax declarations must be filed with the Department of Income Taxes at its office in Kuwait City. Legally, the amount of income tax shown on the declaration is payable in four equal installments, due on the fifteenth day of the fourth, sixth, ninth and twelfth months following the end of the taxable period. In practice, the tax department expects to receive the full amount of tax due when the declarations are filed.

A fine is charged, equal to 1% of the tax outstanding for every 30 days or fraction of that period that a tax declaration or income tax payment is overdue, unless there is a reasonable cause for the delay.

Any dispute between the Department of Income Taxes and the taxpayer regarding the administration of the income tax law, or the amount of income tax due may be referred by either party to the courts for adjudication, unless both parties agree to submit the dispute to arbitration.

A final tax clearance certificate is granted to the taxpayer after the examining tax officer has completed his examination or review, and the final tax liability has been settled. The tax clearance certificate is necessary to release the final payment under any contract with the government and semi-public bodies. Obtaining this clearance can take some time, often holding up the payment of large sums of money. For this reason, it is most important that tax declarations are completed as fast as possible and submitted without delay.


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