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  • Service: Tax
  • Type: Business and industry issue
  • Date: 7/23/2014

Kuwait – tax retentions, declarations, clearances and Zakat changes 

The Kuwait Tax Authority (KTA) has recently tightened tax retention rules, introduced a new format for corporate income tax declarations, and changed its policy on issuing tax clearance certificates. The KTA has also made changes to the application of Zakat on GCC entities and Kuwait government holdings.

Tax retention regulations tightened


Historically, did not strictly apply tax retention regulations to pure supply arrangements (i.e., arrangements with no provision to render services either inside or outside Kuwait, even under a separate contract). The rationale was that, in practice, the KTA did not consider income from pure supply to be taxable in Kuwait.


Now, KPMG in Kuwait understands that the KTA is putting more emphasis on reviewing whether tax retentions should apply to pure supply arrangements and, in cases of non-compliance, disallowing the related costs claimed in the tax declaration.


As contract owners are increasingly likely to retain on supply arrangements, in the case of a pure supply arrangement, KTA officials have indicated informally that the supplier should approach the KTA together with a copy of the contract/ purchase order and obtain clarification on whether the contract owner is required to deduct tax retentions.


New format for Kuwait corporate income tax declarations


The KTA is currently discussing a new format for the annual corporate income tax declaration. While the new format is not yet publicly available, it will likely require a much more detailed breakdown of revenue and costs than the current format. It appears the KTA aims to encourage tax declarations filed on the basis of actual accounts rather than deemed profits. In addition, the KTA is encouraging tax declarations to be filed in compliance with all of the KTA’s executive regulations.


Tax clearance certificates for Kuwait/GCC entities


Based on the recent experience of KPMG in Kuwait, the KTA is not issuing tax clearance certificates for Kuwaiti entities where either the company or any of its shareholders are in non-compliance with Zakat and/or National Labor Support Tax (NLST) regulations.


KPMG in Kuwait understands that this change is intended to increase enforcement of the Zakat and NLST regulations on Kuwaiti/GCC entities.


Zakat on GCC entities


In recent practice, the KTA has been requiring Gulf Cooperation Council (GCC) shareholding entities operating in Kuwait to file a Zakat declaration for their operations in Kuwait in the same manner as Kuwait shareholding companies. This is in accordance with a ministerial order1 providing that all GCC entities should be treated equally to Kuwaiti entities.


KPMG in Kuwait understands that GCC entities are required to file Zakat declarations in Kuwait regardless of any physical presence in Kuwait.


Zakat on Kuwait government shareholdings


In the past, the KTA did not impose Zakat on the share of profit of Kuwaiti entities attributable to Kuwait government shareholdings. However, through recent Zakat assessments of Kuwaiti entities that the Kuwait government partially owns, the KTA has confirmed that Zakat should be imposed on the entire income – including the share of profit attributable to the Kuwait Government shareholding.


KPMG in Kuwait understands that entities that are wholly and directly owned by the Kuwait Government are not considered subject to Zakat.




1Ministerial Order No 3 of 1989.
 

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