Although Kuwait is deemed by many as a tax paradise for local and foreign companies, that is not seemingly the case.
Foreign companies operating in Kuwait are subject to specific income tax regulations. On the other hand, Kuwaiti companies and entities owned by GCC nationals are generally exempt from income tax unless a foreign company is a component of the ownership, where it will be subject to the income tax on their share.
It is worth mentioning that the competent authority handling the income tax in Kuwait is the Ministry of Finance – Tax Department.
The following questions and answers cover the full framework of income tax:
What are the Governing Laws for Income Tax for Companies Operating in Kuwait?
- Decree No. 3 of 1955 on Kuwait Income Tax, as amended by Law No. 2 of 2008 and its Executive Regulations.
- Law No. 23 of 1961 on Kuwait Income Tax in the Designated Zone.
What are the Applicable Income Tax Rates for Companies Operating in Kuwait?
Regarding Law No. (2) of 2008, annual net profits of foreign companies operating within Kuwait are subject to a 15% corporate tax rate.
Regarding Law No. 23 of 1961, companies operating within the Designated Zone (i.e., Designated Islands and Divided Neutral Zone between Kuwait and Saudi Arabia) are subject to income tax as per the following rates:
- 20% of the income that doesn’t exceed KWD 500,000.
- 57% of the income that exceeds KWD 500,000.
As per the details outlined in the law.
Are there Tax Treaties for Avoidance of Double Taxation in Kuwait?
The State of Kuwait has signed treaties with numerous countries for avoidance of double taxation and combat income tax evasion. Entities that are exempt are still obligated to file their annual tax declarations, accompanied by a statement acknowledging their exemption status.
What is the Deadline for a Foreign Company to Register with Ministry of Finance (MoF) Regarding their Operation in Kuwait?
Registration with the Tax Department in the Ministry of Finance (MoF) is mandatory within 30 days from the date of signing the contract in the State of Kuwait or from the date of starting activities.
What Is the Due Date for the Submission of the Tax Declaration?
The foreign company shall file the tax declaration no later than the 15th day of the 4th month following the end of the taxable period.
Can Foreign Companies in Kuwait Manage their Tax Process Directly with the Ministry of Finance?
No, as the tax declaration to be filed must be accompanied by a report certified by an auditor licensed by the Ministry of Commerce and Industry and registered with the Ministry of Finance. The foreign company must issue an authorization letter of the tax filing to be submitted to the Ministry of Finance.
What is the full Process Regarding Income Tax Management?
The process of income tax filing with the Ministry of Finance (MoF) is as follows:
- Tax registration with Ministry of Finance, (Only in the first year).
- Prepare tax declaration and auditor’s report and gather supporting documents.
- Payment of any tax dues, if any
- Submitting tax declaration and auditor’s report and tax payment evidence
- Inspection of the tax declaration by the Ministry of Finance and issuing the letter of tax assessment
- File tax objection, if any
- File tax appeal, if any
- Tax clearance certificate enabling restoration of tax retention
How Does a Company Obtain a Tax Inspection Appointment?
The Ministry of Finance assigns tax inspection dates. That is done by contacting the auditor one week prior to inspection.
It is worth mentioning that the tax file inspection date cannot be expedited, and the date set cannot be requested to change.
The Ministry of Finance has up to five years due to its Statute of Limitation to start inspection from the date of submission.
What is Tax Retention?
A tax retention is exemplified when Ministries, authorities, public institutions, companies, and individual firms who have entered a contract with foreign companies are required to withhold 5% of every invoice issued.
Amounts retained are held in trust for the benefit of the State Public Treasury until the foreign company settles the due tax. The retained amount is released upon issuing a tax clearance certificate from the Tax Department authorizing its release.
Are there Any Penalties Charged in Case of Delays?
Yes, there is a 1% penalty charged for every 30 days in case of delay in filing the tax declaration or settling the due income tax payment after the respective deadline.
What are the Services Offered by Baker Tilly Kuwait?
- Tax Planning Report before contracting
- Tax registration, Tax declaration filing and Inspection
- Tax objection report
- Tax appeal report
Why Baker Tilly?
- Hiring Baker Tilly offers you access to a team of industry experts with extensive knowledge in tax, audit, and advisory services, ensuring tailored solutions that meet your unique business needs.
- Their collaborative approach fosters strong client relationships, providing dedicated support and innovative strategies to navigate complex challenges effectively.