| Kuwait | Feb 24, 2016
In 2015, the government passed a new development plan that not only outlines major economic reforms set to take place between 2015 and 2020, but also focuses on setting into […]
In 2015, the government passed a new development plan that not only outlines major economic reforms set to take place between 2015 and 2020, but also focuses on setting into motion several development projects which will open up countless investment and business opportunities.
Foreign companies are not permitted to engage in commercial activity within Kuwait unless the Kuwaiti share of the business is equal to or exceeds 51% of the total amount of the capital, though this increases to 60% for banks, investment brokerages, and insurance companies. According to the US Chamber of Commerce, businesses are established in one of several forms, including a Kuwait Shareholding Company (KSC), a company with limited liability (WLL), and general partnerships. However, under the Law for the Promotion of Direct Investment in the State of Kuwait (PDISK), an investor can establish a 100%-foreign owned Kuwaiti company, a licensed branch, or a representative office of a foreign entity so long as they are not involved with the following sectors: crude oil, manufacture and extraction of natural gas, and real estate, among others.
Corporate taxation is determined on residence in Kuwait, and is determined by whether it conducts trade or business in Kuwait, rather than if it has a permanent establishment of place of business within the country. According to Deloitte’s 2015 investment highlights report, the income tax law is applied only “to foreign entities carrying on a trade or business in Kuwait, with the exception of entities that are registered in GCC countries and fully owned by Kuwaiti/GCC citizens. It is important to note that “carrying on a trade or business in Kuwait” is widely interpreted by the authorities and is generally meant as any activity that “give[s] rise to all Kuwait sources of income.“ Income tax is levied on net profits, and royalties and franchise, license, patent, trademark, and copyright fees received by any foreign companies are subject to income tax.
In regards to dividend taxes, any dividends paid by investment fund managers or investment trustees to foreign companies are subject to a 15% tax, which is automatically withheld as an advance payment. Any capital gains accrued from selling assets are taxed as normal business profits and are taxed at the standard income rate tax of 15%. Deloitte also notes that any losses suffered by an entity may be forwarded for up to three years in order to be offset against any future taxable profits. There are, however, exceptions to this rule, such as if the entity ceases all operations in Kuwait, if a tax return indicates no revenue as a result of the company’s main business activities, if the entity is liquidated, if the legal status of the corporate body has changed, or finally, if a merger has occurred.
According to Deloitte, it considered to be standard that there is no withholding tax on dividends that are paid to a nonresident. The standard 15% withholding tax is levied, however, on dividends distributed by fund managers, investment custodians, and corporate bodies. There are no withholding taxes to on interest, royalties, technical service fees, or branch remittances.
All Kuwait Shareholding Companies (KSCs)—listed or closed—are required to pay 1% of profits earned after the transfer of the statutory reserve, according to Deloitte. However, Kuwaiti shareholding companies that are listed on the KSE must pay 2.5% in an annual tax on net profits. Additionally, all corporate entities with operations in Kuwait must maintain 5% of the total contract value from a contractor or subcontractor until they settle their tax liabilities with the appropriate authorities. The designated contractor or subcontractor must obtain an original certificate the government.
There are no capital duty, payroll, or real property taxes stipulated in Kuwait.
Employers and Kuwaiti employees are each required to make social security contributions based upon the employee’s salary, though not to exceed KWD 2,750 per month. The employer must contribute 11.5% of the employee’s salary, while the employee must contribute 8%.
While English is widely spoken, especially in business environments, any contracts written will be done so in Arabic; if there is both an English and Arabic version, the Arabic version will take precedence. Like many other GCC countries, building and maintaining personal relationships with business partners is essential. Business attire is conservative, with men wearing high quality, conservative suits, while women should ensure that any skirts cover the knees and that sleeves cover the elbow and fasten at the neck. Titles are considered important, and it is advised to wait until one is personally invited to move to a first-name basis.