LEX MUNDI INTERNATONAL TAX DESKBOOK EDITORS: John R. Barsanti, Jr. and Robert Lewis Jackson Armstrong Teasdale LLP One Metropolitan Square St Louis, Missouri 63102 KUWAIT TAX DESKBOOK Prepared by Abdullah Kh. Al-Ayoub Abdullah Kh. Al-Ayoub & Associates Souk Al Kabir Building Block B, 9 th Floor Fahad Al-Salem Street P.O. Box 1714 13018 Safat Kuwait submitted March 2006
Lex Mundi International Tax Deskbook I Introduction As a general rule, individuals (Kuwaiti or foreign nationals) are not subject to taxes on income. Also, Kuwaiti companies are not subject to taxes on income. A foreign company engaged in commercial activities in Kuwait (in a direct or indirect way) is subject to income tax. Corporate income tax is not levied on the income of companies incorporated in the Gulf Cooperation Council (GCC) countries from their operations in Kuwait. The principal legislation relating to tax on income is contained in the Kuwait Income Tax Decree (No. 3 of 1955). The taxes on income are administered by the Tax Liability and Planning Department, Ministry of Finance, State of Kuwait. II Companies There are two modes of incorporating a company in Kuwait, as a closed shareholding company or as a company with limited liability. Income tax is applicable to the proportion of the net profit of a Kuwaiti closed shareholding company or limited liability company, attributable to foreign corporate shareholders/partners. 1. Declaration of Income and Payment of Instalments A foreign body corporate carrying on trade or business in Kuwait is subject to income tax. Every taxpayer has to file an income tax declaration with the Director of Income Taxes, Kuwait on or before the fifteenth day of the fourth month following the end of the taxable period for which the declaration is made. Every taxpayer is required to pay the amount of income tax in four equal instalments. The instalments shall be due, respectively, on the fifteenth day of the fourth, sixth, ninth and twelfth months following the end of the taxable period. 2. Calculation of income/profit taxes The term income means gains and profits of a body corporate derived from carrying on trade or business in Kuwait and includes: The purchase and sale in Kuwait of property, goods, or rights pertaining thereto and having a permanent office in Kuwait through which the contracts of purchase and sale are executed. The operation of any other industrial or commercial enterprise in Kuwait.
Leasing any property situated in Kuwait. Providing services in Kuwait. This expression shall not include the mere purchase in Kuwait of property, goods or rights related thereto. The amount of income tax is determined by computing the appropriate percentage of the income of the body corporate for the taxable period. The tax rates range from 5% to 55% and are applied progressively to income brackets. The table below shows the current income tax rates: Exceeding KD But not Exceeding KD Tax % -- 5,250 Nil 5,250 18,750 5 18,750 37,500 10 37,500 56,250 15 56,250 75,000 20 75,000 112,500 25 112,500 150,000 30 150,000 225,000 35 225,000 300,000 40 300,000 375,000 45 375,000 -- 55 3. Deductions All expenses incurred by a business, including expenses incurred outside Kuwait, are deductible, provided they are legitimate, necessary and reasonable. The income tax law provides for inter alia, the following allowable deductions: Cost of goods sold or services rendered by the taxpayer. Other expenses that relate to the trade or business in Kuwait such as administrative, overhead and establishment expenses. A reasonable amount in each taxable period for depreciation and obsolescence of property, machinery and equipment. Losses sustained in the trade or business that are not covered by insurance payments or otherwise. These include, in particular, bad debts, claims for damages against the tax payer, and losses due to the damage, destruction or loss of inventory or other property used in the trade. 4. Territorial Rules The source of income is considered to be in Kuwait if the place of performance of the contract is within Kuwait. Place of performance is interpreted to include work carried out outside Kuwait under a contract which involves onshore activity.
5. Withholding taxes Not applicable III Partnerships Income tax is applicable to the proportion of the partnership profits attributable to a foreign body corporate which is a member of the partnership. In computing the income of such a body corporate the income of the partnership shall be computed as if the whole partnership were a taxpayer. The accounting period of the partnership shall be regarded as the accounting period of the taxpayer. Individuals who are members of a partnership shall not be subject to Kuwait Income Tax. Our comments above regarding tax treatment and filing particulars, apply to partnerships. IV Individuals Individuals (Kuwaiti as well as foreign nationals) are not subject to taxes on income. V Other taxes Other contributions include: 1. Social security contributions towards employees pension fund (for Kuwaiti nationals) are contained in Law No. 61 of 1976. Employers have to make monthly contributions for the insured at the rate of 10% of the salaries of their employees. 2. Closed shareholding companies are expected to make voluntary annual contributions to the Kuwait Foundation for the Advancement of Sciences, at 5% of net profits. The requirement is presently under suspension. 3. Companies listed on the stock exchange are required to contribute 2.5 % of net profits to the National Labor Force Fund. VI Inheritance and gift taxes Not applicable VII Other Matters 1. Investment Agreements
Kuwait and the countries below have executed agreements for the Encouragement and Protection of Investment: Austria Bosnia Czech Republic Finland Lithuania Netherlands Poland Belarus Bulgaria Denmark Italy Malta Pakistan Romania Belgium China Ethiopia Kazakhstan Mongolia Philippines Russia Switzerland Germany Slovenia Hungary Sweden Zimbabwe Ukraine Malaysia Tajikistan Turkey India Croatia Belgo- Luxembourg Economic Union 2. Exchange Control Kuwait does not have an exchange control regime. 3. Avoidance of double taxation Agreements for the avoidance of double taxation have been executed between Kuwait and the countries below: Indonesia Pakistan Russia Malaysia Czech Republic Belarus Hungary Singapore Croatia Malta Italy Poland Switzerland Ireland Germany Sri Lanka Ukraine France Bulgaria Korea Mongolia Turkey Austria Ethiopia Belgium Netherlands Canada United Kingdom of Great Britain & Northern Ireland