TRANSLATION Rules and Executive Regulations of Law No. 46 of 2006 Concerning Zakat & Public and Closed Shareholding Companies Contribution in the State Budget 2008 @ @
Rules and Executive Regulations of Law No. 46 of 2006 Concerning Zakat & Public and Closed Shareholding Companies Contribution in the State Budget Tax Department Procedures Executive Rule No. (1) Concerning the Tax Department. Executive Rule No. (2) Concerning companies registration. Executive Rule No. (3) Concerning issuance of the tax card. Executive Rule No. (4) Concerning submission of the tax declaration. Executive Rule No. (5) Concerning conditions for extending the deadline to file the tax declaration. Executive Rule No. (6) Concerning notification of any contracts, agreements or transactions with a foreign incorporated body. Executive Rule No. (7) Concerning notification of cease of activity, assignment, amendment or change in the information of the subject company. Executive Rule No. (8) Concerning allowed and disallowed deductions. Executive Rule No. (9) Concerning assessment procedures. Executive Rule No. (10) Concerning objection to tax assessment. Executive Rule No. (11) Concerning appeal to tax assessment. Executive Rule No. (12) Concerning re-issuance of tax assessment. Executive Rule No. (13) Concerning settlement procedures. Executive Rule No. (14) Concerning allocation of collected amount. Executive Rule No. (15) Concerning auditor s report. Executive Rule No. (16) Concerning legal procedures. Executive Rule No. (17) Concerning the formation and work procedures of the Tax Appeals Committee. 1
Executive Rule No. (1) Concerning The Tax Department Article No. 12 of the executive bylaws The Tax Department is the authority responsible for the application of the Income Tax Decree No. 3 of 1955 and its amendments and its employees authorized to carry out the functions of the Tax Department including all administrative divisions concerned with applying the tax laws. 2
Executive Rule No. (2) Concerning Companies Registration Article No. 6 of the executive bylaws of Law No. 46 /2006 First: Companies subject to the law hereof (subject company) prior to its implementation shall proceed for registration at the Tax Department within ninety (90) days from date of the law enforcement. Companies subject to the Law herein that have been incorporated after the law enforcement date shall proceed for registration at the Tax Department through a notification submitted within thirty (30) days of its incorporation date by filling in the registration form designated for that purpose. The form shall be signed and approved under the signature and seal of the authorized signatory in the subject company indicating his capacity and title. Second: The form shall be accompanied by All documents evidencing the correctness of the information provided by the subject company. Such documents include: A copy of the articles of association and any amendments thereto; A copy of the agency registration certificate; A copy of the authorization letter granted to the authorized signatory; and Authorization letter from the company to the auditor s office. 3
Executive Rule No. (3) Concerning issuance of the Tax Card Article No. (21) of the executive bylaws of Law No. 46 /2006 First: Subject companies shall submit an application for obtaining Tax Card on the form designated for this purpose within thirty (30) days from the registration date with the Tax Department. Second: The tax card shall be issued within one week from the date of submitting the application and completion and approval of the registration information. Third: The Tax Card shall be renewed annually no later than the 15 th of the fourth month following the end of the taxable period for which the tax declaration is submitted. Fourth: The Subject Company shall submit its tax card to all the concerned authorities as a basic condition for dealing with the Subject Company. Fifth: All Government and public bodies or private companies or institutions shall not deal with any subject company that has no valid tax card. Sixth: The Tax Card for subject company shall not be renewed until after submission of the tax declaration and settlement of all due amounts thereof. 4
Executive Rule No. (4) Concerning Submission of the Zakat Declaration Article No. (7) of the executive bylaws of Law No. 46 /2006 Subject companies shall file Zakat Declaration on the form designated for this purpose. The declaration shall be audited by an audit firm approved by the Tax Department within a period not later than 15 th of the fourth month following the end of period subject to Zakat and shall be accompanied by the following: 1. An authorization letter from the company to the audit office for handling its financial affairs; 2. The balance sheet, the financial statements and explanatory notes thereof; 3. the documents supporting the received cash dividends; 4. A statement indicating the method of calculating the company s share of the profits from its unconsolidated associates or subsidiaries with supporting documents; 5. A statement indicating the method of calculating the company s share of the profits from its consolidated subsidiaries with supporting documents; 6. A statement indicating any changes on the retained earnings pertaining to previous years, if any, accompanied by the supporting documents; and 7. Minutes of the General Assembly meeting. 5
Executive Rule No. (4) Zakat Declaration Form Zakat Declaration under Law No. 46 of 2006 Concerning Zakat & Public and Closed Shareholding Companies Contribution in the State Budget Company name Enlistment date: Entry No. in Kuwait Stock Exchange * Fiscal Year from / / to / / Annual revenues: Less: Allowed expenses and deduction Net annual profits recognized in the income statement Add: any income added to the retained earnings not previously taxed under the same law Net profits before double account treatment (in profits) Deduct: 1. Cash dividends received directly by the company from Kuwaiti companies previously charged under the same law 2. Share of profits received directly by the company from unconsolidated associates or subsidiaries previously charged under the same law 3. Deductions on retained earnings previously taxed under the same law Net profits subject to law No. 46 of 2006 Amount due @ 1% Less: Amounts paid (as per the declaration) on the company share in the profits of directly consolidated subsidiaries previously taxed under the same law. Amount due - Amount allocated to Zakat out of the due amount ( ) - Amount allocated to public services out of the due amount ( ) KD xxx xxx xxx Xxx (xxx) (xxx) (xxx) Xxx Xxx Xxx Xxx * For companies listed on Kuwait Stock Exchange 6
Executive Rule No. (5) Concerning extension of Time to submit the Zakat declaration Article No. (8) of the executive bylaws of Law No. 46/2006 First: The subject company shall be entitled to request extension of time to submit the Zakat declaration in accordance with the following conditions: A. The application shall be submitted within a period not later than the first day of the third month following the end of the fiscal period under law. Any application submitted after that date shall be void. B. Reasons for extension shall have to be necessary and acceptable by the Tax Department. Second: The Tax Department may decide on the extension request within 30 days of submitting the application. In case no reply has been received during such period, the same shall be considered an implicit refusal of the extension request. Third: Extension for filing Zakat declaration may be granted for a period not exceeding 60 days following the expiry of the original deadline for submitting the Zakat declaration. 7
Executive Rule No. (6) Concerning notification of any contracts, agreements or transactions with the foreign corporate body. First: All subject companies shall notify the Tax Department of any contracts, agreements or any commercial, industrial or consultancy deals or any activities giving rise to the stance of performing business for these bodies by a foreign corporate body, represented by a main contractor, subcontractor, provider or foreign partner with a Kuwaiti company or beneficiary in any form for carrying on business for these companies. A percentage of 5% of the contract, agreement or deal value shall be retained from each payment to the foreign corporate body. Second: The notification shall contain the basic information of the foreign corporate body which has been contracted, agreed or dealt with and this will include the following: Name of the incorporated body; The address of the foreign incorporated body inside and outside the State of Kuwait; Nationality of the incorporated body; The capacity of the company in the contract (main contractor, subcontractor, partner, provider, beneficiary); Type of contract or activity; Contract number and value; Date and duration of the contract and Tax card number and date of issuance. 8
Executive Rule No. (7) Concerning notification of cease of activity, assignment, amendment or change in the information of the subject company. First: Each subject company shall notify the Tax Department within 30 days from the occurrence of any change or amendment in the information contained in the registration form as well as in case of making any change to its legal form whether through merge or assignment of part or whole of the subject company s activities or its liquidation. Second: Documents evidencing change, amendment or assignment are submitted, reviewed and approved. 9
Executive Rule No. (8) Concerning allowed and disallowed deductions. Articles No. (3) and (4) of the executive bylaws of Law No. 46/2006 First: For the purpose of computing the due amount, a subject company is allowed to deduct the following: A. Cash dividends received directly by the company or through a portfolio from companies previously charged under the same law. B. Profits received directly by the company from unconsolidated associates or subsidiaries previously charged under the same law. C. The Company shall be entitled to deduct any reduction in retained earnings from the profits subject to Zakat if it is proved that such earnings have been previously taxed under the same law. D. A holding company and subject companies (parent company) that consolidate the financial statements of subsidiaries is dealt as one entity. Paid amounts for its share in the profits of subsidiaries are directly deducted from the due amounts thereon as per Zakat declaration for the same period under Zakat Law without the deduction being extended to its subsidiaries. Second: For the purpose of computing the due amount, subject company shall not be allowed to deduct the following: A. Board of directors remunerations; B. Statutory reserve; C. Contribution to Kuwait Foundation for the Advancement of Science; D. Donations, grants and Zakat and E. National Labor Support Tax under law No. 19 of 2000. 10
Executive Rule No. (9) Concerning assessment procedures Article No. (9) of the executive bylaws of Law No. 46/2006 First: due amount shall be assessed on basis of net subject profits as per Zakat declaration in case the declaration is accepted by Tax Department. Tax Department is entitled to correct or amend the declaration and also have the right to discard the declaration and determine income on deemed basis as per the second paragraph hereof. Second: Tax Department shall have the right to assess the due amount on deemed basis in all cases where it is not possible to assess the due amount on the actual net profit of the subject company including the following cases: A. In case the subject company does not file Zakat declaration or any of its attachments; B. In case the subject company does not provide the books, registers and documents required for inspection after scheduling two appointments through official letters; C. In case the subject company refuses to provide the information, documents or explanations required by Tax Department or provides information and documents that do not indicate its true income subject to Zakat Law and D. In case the documents in support of the accounts are not available or the information has big shortage or the documents are not in accordance with the registers in a way affecting the income subject to Zakat Law. Deemed assessment hereof is made on basis of the information, data and presumptions available to Tax Department. Third: Tax Department shall notify the subject company of the assessment. The notification shall include net profit subject to Zakat Law and the amount due. The Subject company shall settle the amount due within 30 days from the date of being notified with the assessment letter. 11
Executive Rule No. (10) Concerning Objection against Zakat Assessment Articles No. (10) and (11) of the executive bylaws of Law No. 46/2006 First: The subject company may object to the assessment within sixty (60) days from the date of being notified of the assessment letter. The subject company shall explain the reasons for its objection and attach the documents supporting its objection submitted to the Tax Department. Second: In case the period indicated in the first paragraph expires without the subject company filing its objection, the assessment shall be final and the due amount shall be mature. Third: Tax Department shall decide on the objection within the 90 days following the date of its submission. No response to the objection shall be considered an implicit refusal of the objection. Fourth: In case the Tax Department and the subject company agrees on determining the due amount within the period mentioned in the third paragraph, the due amount shall be assessed as per the agreement and shall be final. The subject company shall settle the amount due within thirty (30) days following the issue of assessment amendment letter. 12
Executive Rule No. (11) Concerning Appeal against Zakat Assessment Article No. (12) of the executive bylaws of Law No. 46/2006 First: The subject company may appeal against the rejection decision issued by Tax Department before concerned Tax Appeal Committee within thirty days from the date of being notified with the rejection decision or from the expiry of the period fixed for considering the objection without receiving a reply. Second: Appeal is made through an application submitted to the Tax Appeal Committee accompanying all appeal supporting documents. In case the period indicated in the first paragraph expires without the subject company filing its appeal, the assessment shall be final and the due amount shall be mature. Third: Concerned Tax Appeal Committee shall consider the appeal, issue its decision and notify Tax Department and the subject company. Fourth: Tax Department and the subject company may appeal the decision of the Tax Appeal Committee before concerned court within sixty days from the date of being notified of the Tax Appeal Committee decision. In case the abovementioned period expires without filing appeal, the decision of the Tax Appeal Committee shall be final and the due amount shall be mature. 13
Executive Rule No. (12) Concerning reissuing assessments or correcting errors Articles No. (13) and (14) of the executive bylaws of Law No. 46/2006 First: Tax Department may reissue the assessment on a subject company relevant to previously assessed years in the following cases: A. In case Tax Department discovered information pertaining to revenues not disclosed by the subject company and has not been charged for; B. Discovering any income added to retained earnings if it is proved that such income has not been taxed under the same law; C. In case the subject company resorted to a fraudulent ways such as: Non disclosure of any information or disclosure of wrong statements whether in the declaration or the documents submitted to the Tax Department which is relevant to determining the income subject to Zakat law. Fabrication of incorrect accounts, books or documents or demolishing or hiding correct ones. Concealing one or more activities subject to Zakat law. Re-issuance of assessment is made within 5 years from the date of discovering the information or fraudulent ways. Re- issuance of assessment shall include the bases on which the assessment is established and be notified to the subject company. Second: Tax Department may correct any accounting or material errors whether on request of the subject company or on its own. In all cases, the subject company may object and appeal against re-issuance of the assessment or error correction as per provisions of the executive bylaws No. 3 and 4 hereof. 14
Executive Rule No. (12) Concerning settlement of the assessment letter or correcting errors Articles No. (13) and (14) of the executive bylaws of Law No. 46/2006 First: Tax Department may reissue the assessment on a subject company relevant to previously assessed years in the following cases: D. In case Tax Department discovered information pertaining to revenues not disclosed by the subject company and has not been charged for; E. Discovering any income added to carried forward profits if it is proved that such proved that such income has not been charged under the same law; F. In case the subject company resorted to a fraudulent way such as: Non disclosure of any information or disclosure of wrong statements whether in the declaration or the documents submitted to the Tax Department which is relevant to determining the income subject to Zakat Law. Fabrication of incorrect accounts, books or documents or demolishing or hiding correct ones. Hiding one or more activities subject to Zakat law. Re-issuance of assessment is made within 5 years from the date of discovering the information or fraudulent ways. Re- issuance of assessment shall include the bases on which the assessment is established and be notified to the subject company. Second: Tax Department may correct any accounting or material errors whether on request of the subject company or on its own. In all cases, the subject company may object and appeal against re-issuance of the assessment or error correction as per provisions of the executive bylaws No. 3 and 4 hereof. 15
Executive Rule No. (13) Concerning settlement of due amount procedures Articles No. (15), (16) & (17) of the Executive Bylaw of Law No. (46) of 2006 First: collection of the amount due: A. Subject companies shall pay the amount due in accordance with the tax declaration as lump sum. B. In case where Tax Department agrees to grant the Subject companies an extended period for submitting the tax declaration, the company is committed to pay the amount due as lump sum at the date of submission. C. If the Zakat assessment issued on the Subject companies includes an additional tax amount exceeding the amount due as per the tax declaration, difference of the amount due shall be paid within 30 days from the date of notification of the assessment letter. D. The Subject companies must commit to pay the amount due as lump sum within 30 days from the date of notification of the revised assessment letter. E. In case where the date of objection or appeal expires, the subject company shall commit to pay the amount due within 30 days from the date on which the amount becomes a final debt. Second: Settlement of the amount due: A. Settlement shall be made in the domicile of Tax Department (Collection Division) through a letter submitted by the subject company indicating types of settled amount (amount as per Declaration, amount as per assessment) and the related fiscal year with a certified cheque of the amount and a copy of (the tax declaration, the assessment letter). B. Subject companies that settle through bank transfers shall settle the amounts at the Ministry of Finance revenues account No, 04204053 with the Central Bank Of Kuwait (CBK). The payment notice shall include the name of the company, type of settled amount (amount as per Declaration, amount as per assessment) and the related fiscal year thereon. 16
Executive Rule No. (14) Concerning allocating the collected amount Articles No. (15), (18), (19) & (20) of the Executive Regulation for Law No. (46) of 2006 The Subject companies while paying the amount due thereon must commit to the following: First: specify the amount of their Zakat out of the amount settled as per the financial declaration, and in case the Zakat amount is not explicitly specified, the Ministry of Finance shall spend the collected amount in one item of the public budget of the State. Second: specify the amount given to any of the public services out of the amount settled as per the financial declaration to one of the services mentioned below, and in case the amount to be given to the public services is not specified, the Ministry of Finance shall spend the collected amount in one item of the public budget of the State. Security and justice. Defense. Educational services. Health services. Social solidarity and social affairs. Information services. Religious services. Housing. Utilities. Electricity and water. Agriculture and Fisheries. 17
Executive Rule No. (15) Concerning the auditor's report The audit firms accredited by the Ministry of Finance which approve the financial declarations shall commit to do the following: First: review and approve the declaration filed by the subject company and preparing a report to express the opinion in accordance with the form designated for that purpose. Second: preparing the report in accordance with International Review Standards applied in the State of Kuwait and in accordance with National Labor Support Law and its rules and executive regulations. Third: disclose in the report all violations included in the declaration as per the Law and its rules and executive regulations. In case the auditor ignored to refer explicitly to such violations intentionally or unintentionally in his report, he would be subject to provisions of the Ministry of Finance Order concerning the approval of audit firms. 18
Executive Rule No. (8) Concerning Auditors Report Form Auditor s report to The Ministry of Finance, Tax Department Auditor s report on the audit of the Zakat declaration submitted by.. Company for the fiscal year ended /../.. We have audited the accompanying declaration of Zakat & Public and Closed Shareholding Companies Contribution in the State Budget of (the Company ), for the fiscal year ended on / /. The management of the Company is responsible for the preparation of this Zakat declaration under the provisions of law No. 46 of 2006 concerning Zakat & Public and Closed Shareholding Companies Contribution in the State Budget, the executive bylaws No. (58) of 2007 and the executing regulations thereof. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of Zakat declaration. Our responsibility is to express an opinion on Zakat declaration based on our audit. We conducted our audit in accordance with International Standards on Auditing relating to auditing compliance. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether Zakat declaration is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in Zakat Declaration. The procedures selected depend on the auditors professional judgment, including the assessment of the risks of material misstatement of the Zakat declaration, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of Zakat declaration in order to design audit procedures that are appropriate for the circumstances. We believe that the audit evidences we have obtained are sufficient and appropriate to provide reasonable basis for our audit opinion on Zakat declaration. In our opinion, Zakat declaration present fairly, in all material respects, the amount due on the Company for the fiscal year ended.../ / computed in accordance with Law No. 46 of 2006 concerning Zakat & Public and Closed Shareholding Companies Contribution in the State Budget, its executive bylaws No. 58 of 2007 and the executing regulations thereof except for: 1. ----------------------------------------------------------------------------------------- 2. ----------------------------------------------------------------------------------------- We are responsible for this certificate with regard to compliance with accounting and audit profession and in accordance with Law No. 46 of 2006 concerning Zakat & Public and Closed Shareholding Companies Contribution in the State Budget, the executive bylaws No. 58 of 2007 and the executing regulations thereof. 2008 Kuwait NAME OF THE AUDITOR: LICENCE NO. 19
SIGNATURE: Executive Rule No. (16) Concerning the legal procedures The Tax Department must notify the Department of Legal Affairs at the Ministry to initiate judicial proceedings against: First: Companies refusing to pay their dues. Second: Companies that submit false data in order to evade paying their dues. In accordance with the penalties stipulated in Article (1) of the Law by punishment of imprisonment for a term not exceeding three (3) years and a fine not exceeding five thousand Dinars (KD 5,000) or either penalty provided payment of the amount required. 20
Executive Rule No.(17) Concerning Tax Appeal Committee Formation& Work procedures Article No. (12) of the Executive Regulation for Law No. (46) of 2006 First: One or more Tax Appeal Committees shall be formed under a resolution by the Minster of Finance headed by a consultant from Fatwa and Legislation Department and membership of the following: A. an accountant from the tax Department Staff; B. an accountant from Zakat House; C. An accounting expert from the Ministry of Justice. The convention of the appeal committee shall not be valid unless attended by the head of Committee and at least two members. In case of the head absence, the oldest member shall reside. Second: The tax appeal committee shall be competent to settle all disputes arising between the Tax Department and the incorporated body with regard to cases pertaining to Zakat assessment and collection. Third: The Tax Appeal Committee shall notify both the Tax Department and the Taxpayer of the meeting date for considering the appeal before being held. The Tax Appeal Committee shall be entitled to request the Tax Department and the taxpayer to provide the committee with the statements and papers it deems necessary. The taxpayer or its representative shall have to appear before the Committee; otherwise the Committee shall pass its resolution on the appeal in light of statements and documents provided unless the taxpayer expresses an excuse accepted by the Committee. Fourth: The incorporated body shall have to provide evidence of overstatement assessment or evaluation. Fifth: The sessions of the committee shall be confidential and the resolutions thereof shall be issued after deliberation with the majority of votes. In case of equal votes, the head shall have the casting vote. The resolution shall be signed by both the head of the committee and the secretariat. Sixth: Tax Appeal Committees shall keep the following registers: A. Tax Appeal Register in which appeals received by the committee shall be registered as per the date of receiving. The Entry shall include the information of each appeal with regard to the years of dispute and the net profits. B. Any other books required by work nature. Tax Appeal Committee Secretariat: A secretariat for the Tax Appeal Committee shall be formed and shall have enough staff who will be assigned with the following works: 1. Receiving the incoming tax appeals and record the same in the tax Appeal Register as per the date of receiving them and assign a number for each appeal; 2. Saving all appeal related documents in an easy way for reference; 3. Submitting appeals to the committee head to determine a date for consideration. 4. Notifying the Tax Department and the taxpayer or its representative with the place and timing of the committee meeting; 5. Drafting the minutes of the meetings; 6. Notifying the Tax Department and the taxpayer of the decision issued by the Committee. The Notification shall be made by a registered mail. 21
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