KUWAIT INCOME TAX LAW IN THE (DESIGNATED AREA) NO. 23 OF YEAR We Abdulla Al Salem Al Subah, ruler of the State of Kuwait.

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1 KUWAIT INCOME TAX LAW IN THE (DESIGNATED AREA) NO. 23 OF YEAR 1961 We Abdulla Al Salem Al Subah, ruler of the State of Kuwait. According to the proposal of the Finance and Economy Chairman, and. After the supreme council Approual, We decided the following Law : Article One : Paragraph (1) The Income Tax shall be imposed for every taxable period ending after 31 st December, 1960 on every (body corporate) wherever established and if this law applies thereto, which is engaged in trade or business in the Designated Area during that taxable period. The Income Tax rate shall be determined as follows : i. The appropriate percentage for the body corporate of such trade or business in the taxable period is calculated according to clause (n) in Article Two. ii. Wherever the percentage is 57% the proportion exceeding KD by such trade or business in the body corporate will be added to the amount of KD, iii. A sum that is equal to the aggregate of all the taxes (except for the tax imposed under such law), franchise fees, rents, tolls, customs deity, and the like that ore payable to the ruler of the state of Kuwait or he would have received it during the taxable period related to the trade or business that is taxable under such law practiced by the body corporate in the "Designated Area" or practiced by any other body corporate related to it shall be deducted from the amount calculated according to the above mentioned paragraph (a) or where the appropriate percentage is 75 it shall be deducted from the amount calculated according the above mentioned paragraphs (a & b), whichever is less, provided that such deduction may not be applied more than once for the benefit of the taxpayers. Without affecting the commitment held between a body corporate and another through the acquisition of one of the two body corporates shares in the other directly or indivectly or through the acquisition of a third body corporate or a third person, in a direct or indirect way, of shares in both body corporates, any body corporate shall be considered for the purposes of this law that it is committed to another body corporate if the trade of business run by both body corporates in Kuwait or the Designated Area mainly includes producing, selling or trading in similar commodities or commodities of the same nature, or all those business together or to have rights in such commodities while during the taxable period both body corporates have business with each other either in Kuwait or in the Designated Area in such commodities or rights in the ordinary course of engagement in their respective trades or businesses.

2 Paragraph (2) whereas 1. A body corporate shall be engaged in a trade or business of excavegating menirals or any natural substances in the neutral Zone or Designated. Islands under a licence or a frenchise or a contract granted by the Ruler of Kuwait. 2. The body corporate shall be engaged in a trade or business in Kuwait that deals in refining excavegated menirals or natural material as said above or manufacturing or treating it in any other way also transferring, storing or selling thereof. A tax shall be levied on such body corporate regarding every taxable period through which thte body corporate has been engaged in trade or business which is noted in item (2) above. The tax imposed shall be on the income realized from a trade or business. It shall be as the following : i. this tax shall be imposed on such body corporate. The body corporate shall pay the tax with respect tho such trade or business in stead of the levied tax under Kuwait Income tax Decree no. 3 of ii. This tax shall be imposed together with the tax levied on the body corporate under paragraph (1) of this article regarding the trade or business referred to in item (1). iii. This tax shall be calculated in the same manner as the tax mposed under paragraph (1) of this orticle. Whenever used in this law : Article Two : i. The expression "Taxpayer" shall mean any body corporate subject to the Income Tax imposed hereby. ii. The phrases "every taxable period" any taxable period", "Such as this taxable period" and "the taxable period" shall mean a taxable period as specified in articles (5). iii. The term "Director" shall mean, the income Taxes Director appointed by the ruler under Kuwait income Tax Decree No. 3 of iv. The expression "Director Staff" shall mean the employees and other persons employed by the director to carry out the tosks entrusted to him as a person in charge. v. "Designated Area" shall mean the Neutral Zone and the Designated Islands. vi. The expression "Designated Islands" shall mean the Islands of Kubbar, Qarawh, Um-Elmaradem and The teritorial waters. vii. The expression "Neutral Zone" shall mean the "Neutral Kuwait Arab Saudi Zone" It is also sometimes called the "Neutral Arab Saudi Kuwait Zone" It includes the following : 1. The territorial waters of such Zone. 2. The islands (if any) belonging to such zone and the territorial waters of those islands. 3. The seabed and the inner layers that are under the sea waters of the Arabian Gulf bordering the territorial waters of the Neutral Zone or

3 attached to the Neutral Zone. i. The world "Kuwait" means the "State of Kuwait" excluding the "Designate Area" ii. The expression "Body corporate" wherever established and if this law applies thereto" shall mean any body corporate engaged in a trade or business that is taxable according to this Decree, either established directly or by and agent. Also, any body corporate engaged in trade or business that is taxable hereby, which is undertaken by an agent. iii. The word "tolls" shall not include importing fees. iv. The word "income" shall mean the gains and dividands that are realized by the taxpayer as a result of his engagement in trade or business which is taxable hereby. v. The phrase "engaged in a trade or business in the designated Area includes the following : 1. Buying and selling in the "Designated Area" of properties and commodities also the releuant right. Maintaining a permanet office in the Designated Area where sale and burchaze contracts are concluded. 2. Operating other productive, industrial or commercial projects in the Desigaated Area. 3. Leasing properties located in the Designated Area. 4. Rendering services in the designated Area regarcling the operations in the Neutral zone according to a licence, a contract or a franchize offered by the ruler of ther State of kuwait. Neuertheless, it does not include merely buying in any part of the Designated Area of properties, commodities or the relevant rigths. i. The phrase "engaged in the trade or business that is taxable hereby" and the expression engaged in trade or business that is taxable hereby" in respect of liability to taxation according to paragraph I of (Article One) means the engagement in the rade or business in the Designated Area or engagement in such trade or business. As for the liability to taxation according to paragraph (2) of Article One means engagement in trade or business as referred to in item (2) of paragraph (2) in Article One or engagement in similar trade or business. ii. The expression "appropriate percentage" of income shall mean the percentage indicated in the list to follow : On income not exceeding KD the pereentage shall be 20% Article Three : On income exceeding KD the percentage shall be 57% When calculatin income, it shall be allowed to deduct the following amounts wherever incurred : i. Charges paid by the taxpayer for the commodity sold or services rendered related to engagement in trade or business that is taxable hereby.

4 ii. iii. Accumelated expenses payable by the taxpayer except for the amounts referred to in Article One that are due to the ruler or which he has already received. Also the capital expenditure amounts during the taxable period related to engagement in trade or business hereby, including without limitation to the gemerality, of the abovementioned the cost of drilling and digging out petrol, developing it or any other hudrocarbon properties. Also, administrative corporation and staff expenses, as well as contributions, wages, and compensations for services provided by others whether becomes due or paid directly to those offesuch services or to other persons in return of insurance, retirements or other projects set for the benefit of the people offering such services. Areasonable amount for each taxable period as a recompense for exhoustion, depreciation or obsolescence on properties used during engagement in trade or Business that is taxable hereby during the taxable period. In respect of the properties mentioned hereunder. The reasonable amount, on the bases of twelve months is the percentage indicated in the price list thereof as specified by Article four (unless otherwise indicated) However, there must not be any deductions from any amounts that are allowed to be deducted from, in preuious terms, as a recompense for exhaustion, depreciation or obsolescence. Percentage -Buildings, offices, lodgings, warehouses, hospitals, clubs = 4% - Roods and bridges = 4 % - Reservoirs (tanks), pipelines, docks = 5 % - Furnishings and office equipment - Machineries, engines, equipment 15% - Excluding the below mentieneel - 10% - Automobiles and motorcytles = 33.5% - Lorries and Trailers = 25% - Public service Machines (including building supplies, road pavement tools, workshops, equipment, handling materials and others) 25% - Service stations buildings and roods - 10% - Service and lubrication equipment and other service stations equipment = 15% - Vehicles = 20% Refining machinery, pipelines (inside the refinery) and small reservoirs = 10% The loses incurred during the taxable period regarding engagement in trade or business which are taxable according to this law and that have not been indemnified by insurance or others. Such losses include, withow limitation to the generality of the abouesaid, dead dedts, losses resulting from compensation claims regarding injuries submitted against the taxpayer,

5 and losses resulting from clawage, injury or spoilage inflieting on the stock that is being traded in, or on any properties used during engagement in trade or business.

INTRODUCTION. 2) The Population in mid 1994 was approximately 1.3 million of whom about half were Kuwaiti citizens.

INTRODUCTION. 2) The Population in mid 1994 was approximately 1.3 million of whom about half were Kuwaiti citizens. INTRODUCTION Background: 1) The State of Kuwait is a country in the northern corner of the Arabian Gulf. Its natural resources are dominated by its huge oil resources, which are estimated to last for 100-150