KUWAIT Law and Practice Contributed by: Sam Habbas, Luis Cunha, Hisham Al-Quraan and Mustafa Sayed, ASAR – Al Ruwayeh & Partners
populated primarily by Kuwaiti employees, and such arrangements are by no means mandatory. Article 109 of the Labour Law requires employ - ers to provide their employees with copies of all laws and regulations relating to their rights and duties. Additionally, Article 35 of the Labour Law requires employers to inform employees in advance of the penalties to which they may be subject. 5. Tax Law 5.1 Taxes Applicable to Employees/ Employers Natural persons are not generally subject to tax in Kuwait. As such, no taxes are typically pay - able in the context of an employment relation - ship. However, with respect to the employment of Kuwaiti nationals, such persons and their employers are subject to the Social Security Law of Kuwait and are obliged to make certain social security contributions (ie, 10.5% of the employee’s salary from the employee and 11.5% from the employer). 5.2 Taxes Applicable to Businesses Under Decree Number 3 of 1955 (the “Tax Law”), each corporate body carrying on business in Kuwait should pay tax on its Kuwait operations. In practice, tax is imposed under the Tax Law on non-Kuwaiti corporate bodies only. However, GCC nationals and corporate bodies incorpo - rated within GCC countries are granted the same treatment as Kuwaiti companies, and are thus not presently subject to income tax under the Tax Law. Kuwaiti and non-Kuwaiti individuals are not subject to income tax. Outlined below are some additional considerations that apply in relation to certain multinational entities.
The Department of Income Tax (DIT) also seeks to tax foreign corporate bodies under the 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 “withholding” tax in Kuwait, there is a require - ment under the 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 counterparty) until the counterparty provides a tax clearance certificate. This proce - dure is sometimes loosely referred to as a tax withholding, but it is in essence a retention to secure the satisfaction by the counterparty of its Kuwait income tax obligations and not a tax as such. While it has not yet done so, Kuwait is expected to introduce a 5% value added tax (VAT) in line with a GCC Framework Agreement on VAT that was signed in 2016. As briefly mentioned in 3.1 Most Common Forms of Legal Entity , KSCs may be subject to additional taxes (Zakat, etc) compared to other corporate forms such as WLLs. Significantly, the Kuwait Law on Taxation of Multinational Entities (MNEs), which was enact - ed in 2024, applies to specified entities whose tax periods begin in 2025 and beyond. The MNE Tax Law introduces a new tax regime for MNEs, aligning Kuwait with international efforts to address tax base erosion and profit shifting.
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