Recently, the KTA issued a new Circular2 setting out new guidance regarding the submission of tax declarations in Kuwait. Overall, the circular appears to shift the burden of tax inspection work that would typically be carried out by the tax inspector to the taxpayer. The circular appears to impose greater requirements at the time of filing the annual tax declaration. In return, taxpayers’ tax assessments should be issued more quickly, allowing companies to obtain release of their tax retentions earlier.
The regulations appear to supply the KTA with more information (especially on subcontractors used) in order to identify companies that may not be currently complying with their tax obligations in Kuwait, potentially leading to higher tax collections. There is also greater emphasis on reviewing the application of the tax retention regulations3, which are inconsistently applied in practice.
The Circular also requires companies that file their tax declaration on an actual basis to formally submit a report to the KTA within three months of filing their tax declaration. The report should provide a computation of tax and incorporate adjustments applied by the KTA in its most recent tax assessment for the company (for 2009 or later). The KTA will review this report during the tax inspection process for potential increases or decreases in the amounts disallowed in the past assessment, and this review will form the basis of the final tax assessment for the current year.
In the past, we have seen the KTA issue assessments that exempt from Zakat the share of profit of a Kuwait shareholding company attributable to a shareholder that is a Kuwait governmental authority. This was considered to be in accordance with the Zakat law4, which appeared to provide an exemption from Zakat to the Kuwait government.
The KTA has been reviewing this matter, and we are now receiving rulings from the KTA stating that a company must be entirely owned by the Kuwait government in order to be exempt from Zakat. As a result, companies that are partially owned by the Kuwaiti government do not qualify for any exemption from Zakat for their share of profit attributable to the Kuwait government shareholding.
The KTA is currently reviewing the taxability of contracts undertaken in the partitioned neutral zone between Kuwait and Saudi Arabia with the goal of issuing formal guidance. When the guidance will be issued is uncertain. In the meantime, companies should consider discussing with the KTA the taxability of specific contracts signed for work to be conducted in the PNZ on a case-by-case basis.
1Kuwait tax law is defined by Decree No. 3 of 1955 as amended by Law No. 2 of 2008 and the Executive Bylaws to Law No. 2 of 2008.
2Circular No. 1 of 2013.
3Under Article 37 of the Executive Bylaws of Law No. 2 of 2008.
4Article 4 of Law No. 46 of 2006.