Doing Business Guide Understanding Kuwait's Tax Position
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Doing business guide Understanding Kuwait’s tax position Doing business guide | Understanding Kuwait’s tax position Contents 04 05 07 08 Kuwait fact sheet Business environment Audit and accounting Filing requirements requirements 09 10 13 14 Laws of labor and Foreign Direct Investment Public Private Partnerships Capital markets employment Incentivizing investment in Promoting investments in the Promoting investment in Kuwait Kuwaiti public sector Kuwait 15 17 20 21 Kuwait tax law Tax administration Tax retention rules Amendments to existing executive rules 22 23 24 25 Divided Neutral Zone (DNZ) Taxability of joint ventures Tax treaties Offset program 26 27 28 Taxes on Kuwaiti Other taxes Potential expansion in companies Kuwait tax regime 03 Doing business guide | Understanding Kuwait’s tax position Kuwait fact sheet Geography Government Location Southwest Asia Type Constitutional monarchy. Most executive power resides with the Amir (ruler); the Area 17,818 sq km prime-minister and deputy- prime ministers are Boundaries Bordering the Persian Gulf, appointed by the monarch between Iraq and Saudi Arabia Constitution Adopted 11 November 1962 Coastline 499 km Amir Sheikh Sabah Al-Ahmad Terrain Mostly flat plain desert Al Sabah Divisions 6 governorates (muhafazat) Climate Extreme hot summers and short which are further divided into winters districts City Kuwait City Politics Mainly stable with few public protests and minimum effect Time zone GMT +3 on the economy Legal system Civil Law jurisdiction; Kuwaiti Laws are derived from Egyptian Laws and French People Laws with Sharia’ (Islamic Law) as the main source of Population 3.82 million (1 million locals legislations and the remaining expatriates) Ethnic groups 45% Kuwaiti, 35% Arabs, 9% Economy Asian, 7% Iranian, 4% European/American National GDP USD 135.31 Billion (IMF estimate for FY 2018) Language Arabic is the official language while English is widely spoken Real GDP growth 1.3% (IMF estimate for FY 2018) Religion Islam; 85% of the population are Muslims Currency Kuwaiti Dinars (KD) / 1 KD = US$3.33 (as of March 12, Demographics The largest percentage of the 2018) total population is between 25 and 55 years representing more than 50% Inflation 3.5% (2015 est.) Unemployment % 3.5% (2015 est.) Imports US$24.42 billion (2013 est.) Exports US$112 billion (2013 est.) 04 Doing business guide | Understanding Kuwait’s tax position Business environment The Kuwaiti legal system allows for company and the approval by the • Following this transfer, 1% is required as the establishment of a wide range of Ministry of Commerce and Industry contribution to the Kuwait Foundation commercial entities and business (MOCI). for the Advancement of Sciences (KFAS). structures. • Annual transfers of at least 10% of net Public K.S.C.s must also pay 2.5% of net profits are to be made to a legal reserve profits towards Kuwait’s National Labor The following are some of the most until the reserves amount to 50% of the Support Tax and 1% of net profits common business structures in Kuwait: capital of the company. The legal reserve towards Zakat/Contribution to State’s may be used to ensure payment of a Budget (CSB). Limited Liability Company (W.L.L) cash dividend of up to 5% in years in • This is the easiest to incorporate and which profits are insufficient to justify a Partnerships administer, and the most common form dividend of this size. • This form is applicable to non-corporate adopted by foreign investors entering investors (individuals) and there are Kuwait. A limited liability is a company Kuwaiti Shareholding two types of partnerships that can be where the members of the company Company (K.S.C.) established under the Companies Law shall only be responsible for their share • The liability of a shareholder in a K.S.C. as follows: of capital contribution in the entity. is limited to the value of their subscribed - General partnership: consists of two or • Number of members: Between a shares. Shares cannot be disposed off more persons who are jointly liable for minimum of 2 and a maximum of 50 prior to three years from the date of partnership liabilities to the extent of members. A corporate body may be a inception. their personal wealth (unlimited member. The process of forming a • K.S.C. entities require a minimum of 51% liability). W.L.L. is simple, and it takes Kuwaiti shareholding. - Limited partnership: can have two approximately three months. • A longer time is required to form a K.S.C. types of partners, general partners • W.L.L. entities require a minimum of company compared to a W.L.L. with unlimited liability and partners 51% Kuwaiti shareholding unless the company. with limited liability. These partnerships venture receives approval under the • The actual capital costs will depend on are considered to have a separate legal Foreign Direct Investment or Public the objects chosen for any such entity for any business transaction. Private Partnerships regulations allowing company and approval by the MOCI. up to 100% foreign ownership after • K.S.C.s are required to transfer 10% of Joint venture certain required conditions are fulfilled. their annual net profits to a statutory • Pursuant to Article 57 of the Kuwaiti • The actual capital costs will depend reserve. Companies Law, joint ventures are on the objects chosen for any such formed under simple contracts between two or more persons and are not considered a legal entity. Entities can operate in Kuwait through • Each party is independently liable for its obligation. legal business structures such as • There are no restrictions on foreign participation in joint ventures. limited liability and shareholding • Registration with the commercial registrar are not required. companies, or through contractual • This type of entity is common among foreign contractors involved in major relations such as joint ventures and projects in Kuwait. sponsorship agreements. 05 Doing business guide | Understanding Kuwait’s tax position Sponsorship agreement - In a commission agency, which is • A Kuwaiti merchant or a Kuwaiti entity is provided for in Articles 287 through Free Trade Zone appointed as an agent of the foreign 296 of the Commercial Code, the agent • In order to conduct business in the entity – referred to as the sponsor. enters into contra cts in his own name. Free Trade Zone (FTZ), an entity Commercial agencies act as a means for The principal's name may not be must be established and must a foreign company to do business in disclosed without his permission. obtain a FTZ license to carry on one Kuwait without participating in a Kuwaiti • Various laws and regulations protect of the permitted activities outlined business, since all the trade and commercial agents in Kuwait, and any in the KFTZ Law. Setting up business commercial licenses are issued to unlawful termination of an agency through the KFTZ Law would only Kuwaiti merchants or entities, except agreement can result in the agent be applicable if it limits all of its under special laws. seeking compensation through court operations to the FTZ only. • Law No. 36 of 1964 on the Regulation of proceedings. • There are no limits on foreign Commercial Agencies and the Kuwaiti ownership, or branches of foreign Commercial Code regulate commercial Commercial representatives companies established in the KFTZ. agencies; non-Kuwaitis may not act as • Duties and obligations of commercial A foreign company could operate commercial agents in Kuwait as per representatives are regulated under independently in the KFTZ without Article 1 of Law No. 36 of 1964. articles 297 and 305 of the Kuwaiti having to appoint a Kuwaiti agent or • A commercial agency is not valid prior Commercial Code No. 68 of 1980. establish a Kuwaiti company. to its registration with the Ministry of • Commercial representatives are Kuwaiti However, the managing authority, Commerce, which is to be finalized individuals or entities appointed by the Public Authority for Industry, is within three months of the appointment foreign companies to represent their no longer issuing any new licenses. of a local agent. business interests in Kuwait. • Benefits under the KFTZ Law • Appointment of a commercial agent may • Relative to agents, the authority granted include tax and customs give rise to taxable presence in Kuwait. to commercial representatives is much exemptions and no restrictions on • There are three types of agents: more limited. When signing documents importing and exporting activities - In a contracts agency, the local agent, on behalf of the foreign company, (although there are some limitations by contract, undertakes to promote the commercial representatives are to on the attachment or seizure of principal's business on a continuous include their name, the foreign company capital invested by foreign basis in the territory and to enter into name and specify that they are the companies). transactions in the name of the commercial representative. principal in return for a fee. • Fees of commercial representatives - A distributorship entails a local agent can be either a commission, percentage as the distributor of the principal’s of profits, or a fixed amount. product in a defined territory in return • The foreign company is responsible for a percentage of the profit (Article for the actions of their commercial 286 of the Kuwait Commercial Code). representative and are fully liable, Distributorships are governed by the assuming the company is aware of those same general rules as contracts actions, and they fall within the scope of agencies if the distributor is the sole the “Commercial Representation distributor for the whole country. Agreement.” 06 Doing business guide | Understanding Kuwait’s tax position Audit and accounting requirements Kuwait follows International Financial Companies incorporated in Kuwait must Reporting Standards (IFRS) and have annual audits and comply with International Standards on Auditing (ISA). International Accounting Standards (IASs). This mandate is made in accordance with the Ministerial Resolution No.