KUWAIT Law and Practice Contributed by: Sam Habbas, Luis Cunha, Hisham Al-Quraan and Mustafa Sayed, ASAR – Al Ruwayeh & Partners
• costs of imported materials to be resold in Kuwait – deductions cannot exceed 85–95% of the related value; • design costs incurred outside of Kuwait – deduc - tions cannot exceed 75–85% of the related value; and • foreign consulting expenses – deductions cannot exceed 70–80% of the related value. Depending on an entity’s status (ie, whether it is a head office, a related party or a third party), the appli - cable deduction allowed may be greater or lower within the range provided. Transfer pricing rules are also introduced under the MNE Tax Law, which broad - ly provides for concepts which align with the OECD Transfer Pricing Guidelines (including arm’s length principles etc). 5.7 Anti-Evasion Rules See 5.6 Transfer Pricing regarding the scrutinisation of related party transactions. Where there are reasonable grounds to believe that a taxpayer will not comply with its tax obligations, Article 35 of the executive regula - tions to the Corporate Income Tax Law empowers the DIT to make preliminary attachments (and potentially seek to dispose of the assets) and to ban the relevant management of the taxpayer from travelling. The fol - lowing may also be of possible relevance. • See 5.2 Taxes Applicable to Businesses in relation to the 5% tax retention required to be made from payments being made to counterparties. • Under Executive Rule No 57, the authorities can institute precautionary attachments when the Tax Department becomes aware that the taxpayer intends to: (a) leave the country forever; (b) cease its activity; or (c) dispose of its assets with the aim of evading the tax due. • Under Article 36 of the executive regulations to the Corporate Income Tax Law, if the final and payable taxes and penalties are not paid on the required date, the Tax Administration may approach the courts to attach the property of the taxpayer (including such assets of the taxpayer as may be in the possession of a third party). With respect to penalties, Article 34 of the executive regulations
to the Corporate Income Tax Law provides that a penalty of 1% per month (calculated on the taxes due) shall be imposed for failing to submit a tax return as from when the tax return was meant to be filed, and a further 1% per month (calculated on the taxes due) for failing to actually pay taxes as from when the tax was due to be paid. • Under Article 44 of the executive regulations to the Corporate Income Tax Law, the Tax Administration may cancel any agreement or procedure that has the intention of tax avoidance. Significantly, the MNE Tax Law also includes new rules regarding tax avoidance/evasion. The following is of particular importance. • Unlike previous tax legislation in Kuwait, the MNE Tax Law includes a provision which expressly seeks to combat manipulative structures which are aimed at reducing tax liability. In this regard, it is provided that an agreement/transaction shall be disregarded where its principal purpose or one of its principal purposes is to reduce, defer or be exempt from tax. • Without prejudice to any stricter penalty, a person can be subject to imprisonment for up to three years and/or a fine of up to three times the tax liability in relation to tax evasion by committing or contributing to forgery, fabrication, concealment or destruction of records. The MNE Tax Law also includes provisions for, amongst other things, precautionary attachments, administrative penalties (for late filing and payment of taxes) and increased penalties for repeat offences. 5.8 Tariffs The tariffs (customs duties) are regulated under the Unified Customs Law (enacted in Kuwait by Law No 10 of 2003) and the Kuwaiti regulations issued under the Unified Customs Law by Decree 200 of 2003. The General Administration of Customs (GAC) is the gov - ernment entity responsible for undertaking all tasks and duties related to the customs affairs, including implementing decisions issued by the government ministries and other departments in the State of Kuwait with respect to the importation of goods.
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