Tax BasisThere is no tax liability imposed on individuals and wholly owned Kuwaiti businesses. Tax is imposed only on foreign corporate bodies, including foreign partnerships, that conduct business in Kuwait directly or through an agent. Income tax is imposed on net profits of the foreign corporate body which is connected with or related to operations within Kuwait as well as on capital gains. Furthermore, the foreign corporate body is subject to tax on that proportion of the net profits of a Kuwaiti corporate entity, partnership or a joint venture, which may be attributed to it such as royalties, management fees, technical service fees or interest.
Conducting business in Kuwait may include: (1) the purchase and sale in Kuwait of properties, goods or rights and the keeping of a permanent place of business; (2) operation of any industrial or commercial project in Kuwait; (3) rental of properties; or (4) provision of services. A foreign corporate body for the purpose of taxation is defined as an association that has a legal existence completely separate from its members. Certain foreign partnerships, which in their country of origin may not be defined as a separate legal entity, may also be included in the term. In the event that there is more than one corporate body in a Kuwaiti entity or joint venture, each one is taxed separately.
The tax is imposed on profits. In calculating taxable profits, the following can be deducted: (1) expenses incurred; (2) depreciation; (3) head office and overhead expenses at specific rates; and (4) commissions to agents, up to a limited percentage.
Income gained by activities outside Kuwait is not taxable provided the activities are not connected to operations within Kuwait.
Losses can be deducted from profits in subsequent taxable years, indefinitely, but may not be carried back.
Tax RatesThe income tax is imposed at a fixed rate determined by a graduated schedule ranging from 5 percent for income in excess of KD 5,250 up to 55 percent for income in excess of KD 375,000. Tax is calculated as the lower of: (1) the whole profit taxed at the highest applicable tax rate; or (2) the profit amounting up to the upper limit of the previous tax bracket at the rate applicable to that bracket plus the excess profit over the upper limit of the previous bracket.
Deductions are allowed for business expenses, depreciation of assets and loss carry forwards. A small percentage of revenues may be deducted for office overhead expenses.
Tax AdministrationThe taxpayer must submit its tax return within three and one half months of the end of the tax period. Upon a taxpayer's request, the Director of Income Taxes can modify the taxpayer's tax year.
The tax return and supporting documentation must be certified by a recognized firm of accountants approved by the Director of Income Taxes.
There is no administrative appeals process over the Director's decisions, and both sides may challenge such decisions in civil court. The tax is payable in four equal installments on the fifteenth day of the fourth, sixth, ninth and twelfth month following the tax period, unless modified by a decision of the Director of Income Taxes.
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