Taxes and death are two unavoidable aspects of life – and so it is in Kuwait for foreign companies. Keep in mind that the Kuwaiti government imposes stiff penalties including monetary charges, fines and surcharges, even business dissolution, for non-compliant corporations. Indeed, the importance of paying the right income taxes at the right time to the right agency cannot be overemphasised.
Here are a few income tax matters that matter for investors in Kuwait.
Entities Covered by Income Tax
Not every company with operations in Kuwait are required to pay income taxes. According to the Law No. 2 of 2008, only foreign companies operating in Kuwait are subject to a 15% flat tax rate on their income. Companies that are either fully owned by Gulf Cooperation Council (GCC) citizens or incorporated in the council countries are not subject to income tax in Kuwait.
It must be noted that only the foreign corporation’s share of profits earned in Kuwait is subject to income tax in case said company operates via a:
- joint venture
- consortium partner in a limited liability company
- shareholder in a closed shareholding company
Foreign registered partnerships and all foreign companies with operations inside the neutral zone are both subject to income taxes, the latter under the Income Tax Law No. 23 of 1961. This is true for foreign companies without a permanent place of business in the country; for as long as the income earned comes from Kuwait, then the government considers it as taxable income.
Income covered by income tax usually include:
- Income from the sale of products and the supply of services;
- Income earned from selling, renting, or granting franchise rights for the use of any design, patent, trademark, and copyrights, among other intellectual property rights; and
- Commissions from commercial brokerage agreements, among others.
Determination of Taxpayer’s Status
The Kuwaiti government requires all corporate entities to comply with the rules and regulations on self-reporting for tax purposes, thus, ensuring that taxable entities are accounted for. But there are other ways that the identity of taxpayers can be determined.
The most effective method involves the strict implementation of Ministerial Order No. 44 of 1985. The order requires any establishment with business operations in Kuwait to submit copies of its legal contracts, including the names and addresses of contractors and sub-contractors, to the income tax department. In addition, the order also prevents companies from making final payments without a valid tax clearance certificate. Thus, the taxpayer’s existence comes into the attention of the tax authorities because of said third party declaration.
Yet another method involves the submission of information to the tax department for contracts involving the Kuwaiti government. Basically, any ministry, agency and instrumentality of the Kuwaiti government must negotiate contracts via the Central Tendering Committee. Upon contract approval, the tax department should be provided with the pertinent information.
Keep in mind that the above mentioned information is just the tip of the iceberg. You must work with a reliable consultancy firm, such as Aeon Gulf, about tax matters so as to comply with the applicable laws.