MAJOR DEVELOPMENTS
Commission Payments. Law No. 25 of 1996 requires that any party
entering into a contract valued at KD 100,000 or more with the Kuwait government or with a government agency should declare the details of any commission paid to any party in respect of that contract. The recipient of the commission is required to submit a similar declaration.
INCOME TAXES ON CORPORATIONS
1.Rates
Income tax was imposed by Law No. 3 of 1955, which has seen little amendment since enactment but has been subject to a series of interpretations and amplifications by the Minister of Finance and Economy, who is the Director of Income Taxes. In 1989 to 1990, a new draft law codifying and amending income tax practices was under discussion. This process was interrupted by the August 1990 invasion and has yet to be completed. For the time being, the original law and its subsequent amendments and interpretations remain in force. Action should not be taken based on the information in this summary without
professional advice on recent changes and developments.
There is no tax liability on 100% Kuwaiti-owned businesses in Kuwait. Only the profits and capital gains of foreign corporate bodies?conducting business and trade in Kuwait, directly or through an agent, or carrying on a business or trade in Kuwait as an agent of others are liable to income tax (see item 15).
INCOME TAXES ON INDIVIDUALS
9. Rates
There is no tax liability on individuals.
INCOME TAXES ON NONRESIDENTS
15.Liability to Tax
Only the profits and capital gains of a foreign corporate body (taxpayer? conducting business and trade in Kuwait, directly or
through an agent, or carrying on a business or trade in Kuwait as an agent of others are liable to income tax.
A corporate body is defined as an association that has a legal existence completely separate from that of its constituent members and registered as such under the jurisdiction of any country in the world.
Foreign partnerships, such as firms of lawyers or engineering or management consultants, fall within this definition even if they are not recognized as being a separate legal persons in their own countries.
Companies registered in other Gulf Cooperation Council (GCC) states wholly owned by their nationals are not liable to tax in Kuwait.
Non-GCC entities that are members of such companies, however, are liable for taxes in Kuwait on their share of the profit.
Conducting a trade or business includes:
q Purchases and sales in Kuwait and keeping a permanent place of business in Kuwait where contracts for such purchases and sales are executed (it does not include the mere purchase of properties, goods, or services in Kuwait);
q The operation of any industrial and commercial project in
Kuwait;
q The rental of properties in Kuwait;
q The provision of services in Kuwait.
For this purpose, Kuwait does not include the Divided Zone between Kuwait and Saudi Arabia, or certain small islands and their territorial waters.
In general, the following types of income are subject to Kuwaiti income tax:
q The net profits of a taxpayer operating within or outside
Kuwait to the extent that profits are connected with, or related to, operations within Kuwait (profits, in this case, do not include dividends, royalties, interest payments, or branch remittances);
q The proportion of the net profit of a Kuwait corporate entity attributable to the taxpayer;
q The proportion of the net profit of a Kuwaiti partnership or
joint venture attributable to the taxpayer.
In respect of the last two classifications, the taxpayer profit
includes amounts receivable for royalties, management fees, technical services, or interest.
Normally, income arising from activities outside Kuwait is not taxable, provided it is not connected with operations within Kuwait. Supply and installation contracts, however, present a special difficulty. In principle, the taxpayer must account for the full amount received under the contract, including the offshore supply element, unless it is specifically exempted under a double taxation treaty. In
the past, this difficulty could be overcome by having a separate contract for the supply of goods with no reference linking it to other parts of the main or other pertinent contracts. However, all contracts now are subjected to careful scrutiny in an attempt to limit such opportunities.
Previously, foreign companies could escape liability to tax if their interest in a Kuwaiti corporate entity or joint venture was registered in the names of individual nominees. However, it is understood that the tax authorities have moved in the last few years to close this loo
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