KUWAIT Law and Practice Contributed by: Sam Habbas, Luis Cunha, Hisham Al-Quraan and Mustafa Sayed, ASAR – Al Ruwayeh & Partners
of practice, natural persons, both Kuwaiti and non- Kuwaiti, are currently not subject to the Corporate Income Tax Law unless acting in a nominee capac - ity for a foreign company. Persons subject to the MNE Tax Law (defined below) are also excluded from the scope of the Corporate Income Tax Law. • Law of Taxation on Multinational Entities No 157 of 2024 (the “MNE Tax Law”): this law was issued pursuant to the global “base erosion and profit shifting” (BEPS) initiatives and the OECD Pillar II Model Rules. Under the MNE Tax Law, and subject to certain exemptions/qualifications, multinational entities operating in Kuwait which form part of a group which generates annual revenues of EUR750 million or more are subject to a tax of 15% on their Kuwaiti profits. The MNE Tax Law covers various entity types, including companies, joint ventures, and permanent establishments of foreign entities in Kuwait. However, government entities, non-profit organisations, international organisations, pension funds, investment funds, real estate investment vehicles, and certain entities directly owned by any of these excluded entities may be able to take advantage of exemptions under the Law. It is noteworthy that these two tax laws do not apply in parallel. Where an entity is subject to the MNE Tax Law, the Corporate Income Tax Law does not apply. The Department of Income Tax (DIT) also seeks to tax foreign corporate bodies under the Corporate Income Tax Law in their capacity as shareholders in a Kuwaiti company by taxing their percentage interest. The DIT would likely seek to apply the same practice to foreign corporate shareholders of GCC companies operating in Kuwait and/or where a foreign corporate shareholder appoints an individual nominee to hold its shares in a Kuwaiti company on its behalf. While, strictly speaking, there is currently no “with - holding” tax in Kuwait, there is a requirement under the Corporate Income Tax Law for government agen - cies and private entities in Kuwait to notify the DIT of all contracts entered into by them, and to retain 5% of the contract value (in practice, this is achieved by retaining 5% of all payments made to the counterpar - ty) until the counterparty provides a tax clearance cer - tificate. Although this procedure is sometimes loosely
referred to as a withholding tax, it is, in essence, a retention mechanism to secure the counterparty compliance with its Kuwait income tax obligations, rather than a tax as such. That said, while this remains subject to formal confirmation, entities subject to the MNE Tax Law may be exempt from such retention requirements. While Kuwait has not yet introduced a value added tax (VAT), it is expected to implement a 5% VAT in line with the GCC Framework Agreement on VAT signed in 2016. As briefly mentioned in 3.1 Most Common Forms of Legal Entity , KSCs may be subject to addi - tional taxes (Zakat, etc) compared to other corporate forms such as WLLs. 5.3 Available Tax Credits/Incentives Given the restricted scope of taxes in Kuwait (rela - tively low flat tax rates, etc), there is limited scope for additional tax credits and incentives. It is of particular significance, however, that several tax credits are provided to parties operating under the FDIL. These tax credits are related to the commit - ments made to KDIPA and are set out below (with the figures given being the set percentage/multiplier value for calculating annual benefits). • Technology transfer: specialised equipment cost – 20% of the value of the specialised equipment cost. • Creating job and training opportunities for Kuwaiti nationals: (a) total expenditure on salaries paid to Kuwaiti employees – five times the annual salaries paid to the Kuwaiti employees in excess of the percentage covered under the applicable laws; and (b) total number of Kuwaiti employees – KWD36,000 for each Kuwaiti employee. • Expenditure on training of Kuwaiti employees – ten times the annual expenditure on training of Kuwaiti employees. • Utilisation of local resources: (a) rental of the local head office of the investment entity – equivalent to the value of the annual contracts with local suppliers; (b) contracts with local suppliers (especially in -
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