Income Tax

Although Kuwait is deemed by many as a tax heaven 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 in Kuwait:

What are the Governing Laws for Income Tax for companies operating in Kuwait?

1. Decree No. 3 of 1955 on Kuwait Income Tax, as amended by Law No. 2 of 2008 and its Executive Regulations.
2. 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:

1. 20% of the income that doesn’t exceed KWD 500,000.
2. 57% of the income that exceed 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 Kuwait 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 filing 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 company 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.

How does a company obtain a tax inspection appointment?

The Kuwait 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 filing date.

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.

Why is the Kuwait Income Tax Consulting important?

Income tax consulting is critical for foreign business entities subject to income tax in Kuwait, as it ensures compliance with tax regulations, identifies key tax considerations to be taken into account before entering into contracts for business operations in Kuwait, and effectively manages the risks of tax-related penalties and fines.

What is the scope covered when representing the clients in their tax affairs regarding income tax?

Baker Tilly’s role in representing the clients include several stages with the Ministry of Finance (MoF) namely:

1. Tax registration with Ministry of Finance, (Only in the first year).
2. Prepare tax declaration and auditor’s report, gather supporting documents, and payment of any tax dues, if any
3. Inspection of the tax declaration documentation by the Ministry of Finance
4. Issuing the letter of tax assessment and settlement of the tax differences, if any
5. Obtain tax clearance certificate enabling restoration of tax retention

What is the procedure that allows a foreign company to challenge the tax assessment issued by the Ministry of Finance?

1. Prepare and file the tax objection report:

   The foreign company appoints a certified auditor to perform an independent assignment to establish the basis for objecting to the tax assessment. A detailed and justified tax objection report is prepared and submitted to the Ministry of Finance to respond according to the applicable procedures.

2. Prepare and file the tax appeal report:

   If the tax objection is not accepted or if the foreign company continues to challenge the assessment, a tax appeal report is prepared and submitted before a tripartite committee formed within the Ministry of Finance.

3. Appeal before the judiciary:

   If the foreign company continues to dispute the tax assessment after utilizing the administrative procedures, it has the right to file a lawsuit before the competent Kuwaiti courts to consider and resolve the dispute.

What are the services offered by Baker Tilly Kuwait?

1. Tax consulting

   Provide comprehensive consulting to foreign business entities that are subject to the income tax before concluding contracts for their operations in the State of Kuwait to define the tax considerations

2. Represent the clients in their tax affairs in the State of Kuwait

   Represent the foreign businesses subject to tax before Tax Department of the Kuwait Ministry of Finance, including the tax file registration, preparing independent auditor’s report on income tax dues, up to obtaining the Tax Clearance Certificate

3. Prepare tax objection and tax appeal reports related to the tax assessment

Why Baker Tilly?

1. Baker Tilly in Kuwait is a member of Baker Tilly International network based in the UK, ranked amongst the top 10 global accounting networks.
2. Auditors in Baker Tilly Kuwait are licensed by Ministry of Commerce and Industry and are registered with Kuwait Ministry of Finance (MOF) to provide tax services.
3. Extensive experience in providing Income Tax service to companies operating across various business sectors in the State of Kuwait.
4. Highly experienced bilingual team with specialized academic qualifications and professional certifications.
5. Commitment to performing Income Tax engagements according to predefined timelines, with no delays and responsiveness to client requirements.