Kuwait’s government, in a significant move impacting on business, recently approved a 10% corporate tax on profits as well as the privatization of some public services to help close a widening budget deficit brought on by a plunge in global oil prices.

But what will be the real impact of the new tax on small to medium sized businesses and larger corporates?

It marks a big shift in policy, since at the moment, most Kuwaiti firms pay zero tax on profits, whilst most foreign firms do. A country’s tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed?

Foreign companies can carry on business in Kuwait either through an agent or joint venture or as a shareholder in a locally registered shareholding company.Tax is however levied on the foreign company’s share of the profit plus any amounts receivable for interest, royalties, commissions, technical services, management fees and so on.

When a business opens its doors, foreign companies are obliged to register themselves with Director of Income Taxes within 30 days and apply for a Tax Card. A taxpayer may follow one calendar year comprising 12 consecutive months as the first accounting period. For the first and last accounting periods, it’s possible to obtain approval for a period shorter or longer than 12 months up to a maximum of 18 months.

If a foreign company has more than one activity in a similar line of business in Kuwait, income from all activities needs to be aggregated for tax purposes. And business losses can’t be carried forward for more than three years.

The applicable flat tax rate is 15% on taxable income. However, no tax is payable if the taxable income is below KD 5,250. It is possible to pay the tax due in four equal installments if not paid as one deposit together with the Tax Declaration.

The move to introduce a 10% tax on indigenous Kuwait businesses and the impact it will have on the wider economy remains to be seen.

It should however, go someway in helping to level the playing field for all businesses in Kuwait, but not just that, it should also alleviate issues associated with the higher oil price and more importantly, help in giving back to the public purse to help make improvements for society in Kuwait.

For more information on setting up business in Kuwait, please contact girair.artinian@aeongulf.com