FREE TRADE ZONE
& PRICING PREFERENCES
OF TAX DUE
BUSINESS LAWS TOP
The rules of commerce are
in general similar to West European practice.
Any Kuwaiti or GCC national
over 21 years of age may carry on commerce in Kuwait provided he or she
is not affected by a personal legal restriction. But a foreigner (non-GCC
national) may not carry on a trade unless he or she more Kuwaiti partners
and the capital owned by the Kuwaiti partners(s) in the joint business
is not less than 51 % of the total capital (60 % in the case of banks,
investments houses and insurance companies). A foreign firm (including
a partnership) may not set up a branch and may not perform any commercial
activities in the country except through a Kuwait agent. Foreign individuals
and firms may not acquire commercial licences in there own name nor may
they own real estate locally.
The main laws regulating
business in Kuwait, which have been amended several times since they were
issued, are (a) The civil code (Law 67 of 1980), (b) The commercial code
(Law 68 of 1980), and (c) The commercial companies law (Law 15 of 1960).
Business enterprises can
take several forms, viz. Kuwait shareholding company (KSC), company with
limited liability (WLL), and general partnership, The time and cost of
establishing and registering these entities ranges from one month and at
least KD500 for a general partnership to about three months and KD3.000
for a KSC.
To do business, lisences is necessary.
General trading, contracting, importing and industrial licences are issued by
the Ministry of Commerce & Industry (MCI). For particular commercial activities,
specific licences are requierd and these are often issued by the ministry that
controls that activity, eg publishing licences are granted by the Ministry of
Business licences are only issued to
Kuwaiti nationals and Kuwait companies and. In some cases, to GCC nationals and
companies. Costs are usually KD100 per licences, All licences require period
renewal, normally even two years.
FREE TRADE ZONE TOP
Kuwaitis new privately managed
free trade zone is located Shuwaikh and allows 100% foreign ownership of
business within the zone. There are no import duties and foreign corporate
income is tax-free. Commercial, Industrial and service licenses are a variety
of infrastructural services. Tel: 802808, Fax: 4822067 http: www.kuwaitfreezone.com,
The right to import goods
into Kuwait on a commercial basis is restricted to Kuwait individuals and
firms who are member of the Kuwait Chamber of Commerce & Industry (KCCI)
and who have import licences issued by the Ministry of Commerce & Industry
General import licences,
which must be renewed annually, allow any amount of a variety of products
from any country to be imported any number of times. But special licences
are needed to bring in regulated products such as arms, ammunition and
explosive, ethyl alcohol, drugs, pesticides, jewellery and precious stone,
weights and weighing machines, vintage cars, etc; these too must be renewed
annually. Special licences are also needed to import industrial equipment
and spare parts; these are issued to industrial firms upon the recommendation
of the public Authority for industry and are valid for a single use only.
To protect local morals,
alcoholic beverages and materials used in making them, pigs, pork, pork
and pigskin products (such as handbags, wallets and shoes), narcotics and
associated plants and seeds, pornographic and subversive materials, are,
among other items, prohibited. To protect local industry, items such as
vehicles over 5 years old and goods manufactured locally are prohibited.
Items injurious to health, such as air-guns, asbestos and cyclamates, are
banned import from Israel and Iraq are banned absolutely.
All imports, as well as
locally made items, must comply with Kuwaiti standard specifications (GCC),
a set of common standards being devised under the GCC’s Unified Economic
Agreement, apply, and if there is no suitable GCC, the product must adhere
to international standards.
To clear goods into Kuwait,
a minimum of four documents is needed; (a) Commercial invoice (b) certificate
of origin (c) official delivery order (d) packing list.
The required content of
these documents is shown in the books overleaf. The invoice, certificate
of reigin, and the delivery order (bill of lading or airway bill) must
be in three original copies and must be certified by a chamber of commerce
in the country of export, preferably a joint local-Arabic chamber, and
certified by the Kuwait counsulte in the country, the consulate of Saudi
Arabia (preferably) or any other Arab country (except Iraq) is acceptable.
As well as being shown on
the packing list, the country of origin must also be marked on each packing
To clear customer many products
must be accompanied by additional certificate showing that they comply
with health and safety regulation issued by the Ministry of Public Health,
The Municipality and the MCI. Goods failing to clear customers must be
re-export within a month. The minutiae of import regulation tend to change
frequently and these changes are published in Al-Kuwait Al Your, The Official
Kuwait customer duties are
the lowest in the region, though there are protective tariffs on some goods.
However commercial samples worth up to KD5.000 may be brought in temporarily.
Duty is levied as a percentage
of the CIF value of the goods up, but excluding unloading in Kuwait, its
calculated and must be paid in Kuwait Dinar (KD). Where import are invoiced
in foreign curries. Customs use a list of standard exchange rates to translate
the CIF value into KD. There rates change infrequently and a list in Arabic
is available for 250files from customers.
The standards rates of duty
is 4%, But most goods may be imported duty free, including:
· Food products,
medicines, essential consumer goods, live animals, bulling , printed matters,
etc, except where these (such as bread) are manufactured locally;
· Industrial and
farm products from other GCC states provided they have at least 4% added
value in the GCC exporting country; and
· Raw materials,
semi-processed goods, equipment and spare parts for new industrial establishments
provided an exemption has been obtained.
But imported hydrocarbon
products that are also manufactured locally, such as lubricating oils,
are subject to duties for 100%. The duty on cigarettes and tobacco is 75%.
But some goods of Arabic origin are subject to only 50% or 75% of the duty
imposed on similar goods of non-Arabic origin.
Many locally products are
protected by tariffs. To qualify for protection, an industrial firm must
show that it meets, or will be able to meet, at least 40% of demand in
the local market for products concerned. The varies according to the value
added y domestic production.
Agency & Service Agreement
Only Kuwait individuals
or firms may act as commercial agents in Kuwait, while foreign individuals
or firms, except for GCC nationals, are not allowed to carry on commercial
activities in the country except through a commercial agent. All arrangements
between a foreign entity and its local agent are governed by Articles 260
to296 of the Commercials Code.
of an Agreement TOP
An agency agreement must
be in witting and must be register with the MCI. Its terms must cover the
activities to be undertaken, the scope of the agent’s authority, his remuneration,
and the duration of the agency (if limited). Generally speaking, the parties
to the agency agreement have full freedom of contract, but a few privations
of the code override what the parties might wish to agree and any terms,
which contradict these privations, are void.
If an agent is required
to erect premises then the contract must be for at least five years.
The agent is entitled to
his remuneration (a) on all matters concluded by him, (b) on transactions
which would have been concluded but for some act of his principal, and
(c) on transactions concluded either directly by the principal or by others
acting on behalf of the principal in the area of the agent’s operations,
unless otherwise agreed in writing.
Compensation on Termination
If a principal terminates
an agency when his agent is not at fault, the agent the agent may seek
copesation for loss of icome. And, if an agent abandons his agency at an
unsuitable time and without reasonable cause, his principal may seek compensation
for damages. Any clause to the country in an agency agreement is void.
Even where an agency is
for fixed term, the law expects it to be renewed on expirty. If the principal
dose not renew it, the agent may seek fair compensation (even if the country
is stated in their agreement) provided the agent has not been at fault
nor negligent in his performance. If a principal replaces his agent and
the termination was due tocollusion between the principal and the new agent,
the new agent will be held jointly responsible with the principal for settling
any compensation due to the former agent.
There is no set legal formula
for calculating compensation. However an action for compensation must be
started within 90% days of the end of the agency.
To open a branch in Kuwait,
a foreign firm must enter as agency agreement with a Kuwaiti sponsor or
service agent. Under such as arrangement the agent is merely the foreign
entity’s legal representative in the country and doses little more than
take care of licensing formalities, obtain visas for the principal’s executives
and employees, and represent the principal officially. The agent will expect
a fee for his sponsorship and the use of his licences.
An agency agreement is not
enforceable under Kuwaiti law unless it has been registered in the Commercial
Agencies Register at the MCI. Application for registration must be made
within two months of the agency being created. Before applying to the MCI,
the agreement must be registered with the KCCI.
application for registration can only be made by the Kuwaiti agent. It
must be made in two original copies of the official MCI form and must be
An original copy of the agency agreement
A translation of the agreement into Arabic
A copy of the agent’s commercial licences
A copy of the agent’s nationality document or registration in the commercial
A certificate of registration from the KCCI
If the agency agreement
was executed overseas, the original must be attested at the principal’s
location by an official authority and the Kuwaiti consulate. Where it was
executed in Kuwait, it must be notarised by a Kuwaiti Notary Public.
Upon registration, the MCI
gives the agent a signed and stamped copy of the application, and advertises
the the registration in the official gazette.
Amendments to the agreement
must also be register and when an agency terminates it must be removed
from the register. The register may be searched by the names of agent,
the names of principals and the trade names of goods.
Intellectual property Right
Expect for trademarks, the
protections of intellectual property rights in Kuwait was quite poor unit
1999 when, to satisfy Kuwait’s obligations under WTO agreements, comprehensive
legislation’s to protect intellectual property was promulgated by Amiri
Decree under article 71 of the constitution. There laws were being reviewed
by the National Assembly in November 1999 and revised versions were expected
to be promulgated early in 2000.
The protection of trademarks
is governed by articles 61 to 85 of the commercial code, as amended by
Decreed Law # 3 of 1999. A Trademark Register, open to public inspection,
is maintained in the Patent & Trademark Department at the Ministry
of commerce & industry (MCI). Under the new law, the definition of
a trademark extends to audible and olfactory marks. There is no registry
of service marks.
The person who registers
a trademark is considered the sole owner with the exclusive right to use
the mark on the products for which it is registered. Registration initially
protects a mark for ten years from the date of application to register.
Registration can be renewed indefinitely for further periods of ten years
each. The registrar must notify the owner that the period of protection
has expired within one month of expirty and if the owner dose not apply
for renewal within six months of expiry, the mark is automatically deleted
from the register.
A trademark may be sold
but the change in ownership must be entered in the Register and published
in the official gazette. A person who infringes a registered trademark
is liable to a fine of KD600 or imprisonment or both, and to pay compensation.
To register a trademark,
an application must be submitted in Arabic to the Trademark control Office
along with a fee of KD24. Once the application has been accepted, it must
be advertised in three consecutive issues of the official gazette. Objectors
have 30 days after the third advertisement to challenge the registration
in writing. The registrar must give a copy of the objections to the applicant,
who has 30 days to submit a replay. Thus the overall time needed to register
a trademark is not less than three months.
Patents & Industrial
Under law 4 of 1962, a patent
may be issued for any new invention suitable for industrial use, which
has not been used in Kuwait during the previous 20 years. Kuwait nationals,
foreign residents, foreign businessmen with a local presence and foreigners
in Kuwait. All documents for ciprocal rights to Kuwaitis have the right
to be granted patents in Kuwait. All documents for filling a patent application,
including the specification of the invention, must be in Arabic.
Under law 4 of 1962 patent
holders are protected against unauthorised use of their invention or design
for an initial period of 15 years, renewable for a further 5 years. Under
the new law the period of protections will be 20years, though patents registered
in other countries will only be granted protection for the remainder of
the period of protection where they are registered. The new law also extends
the period of protection for drawings, models and integrated circuils from
5 years to 10 years, which may be renewed for a further 5 years, The law
will, in addition, allow improved versions of existing patents to be protected
for 7 years patent holders may license their patents to others.
Until 1999 there was no
general copyright law under which the rights in intellectual works could
be protected effectively.
The only protected works
were audio and visual recordings of Kuwaiti, Arab, American and British
origin. In addition, public institutions were not allowed to buy pirated
Under the new law protection
is to be given to all literary works (written and oral) theatrical shows,
musical works (written or without lyrics), choreographic works, motion
pictures, audio, video and radio works, artistic works (painting, sculpture,
carving, architecture and decoration), photographs, applied art (craft
or industrial designs), illustrations, maps, designs and models, computer
works (software and database), and translated works.
The period of copyright
protection will be 50 years from the death of the author. But works published
under a pen name of after the author’s death, motion pictures, photographs,
applied art, computer works, and works owned by corporate bodies will be
protected for 50 years from the end of the year in which they are first
published. Writers, composers and directors of theatrical, choreographic,
and TV and radio works will enjoy 50 years protection from the end of the
year in which the works were first performed or recorded.
Under the new law the penalty
for piracy is a maximum of one year in goal and a fine of KD500. A shop
selling pirated works can be closed down for up to six months.
sector Contracting TOP
As a general rule, a public
authority in Kuwait may only buy equipment and commodities, and commission
works, by way of an independently administered tendering process. Public
tending is governed by law 37 of 1964, Law 18 of 1970 and Law 81 of 1977
Committee (CTC), though
the client body (ie the public body requiring the service) draws up the
specification and particular conditions it requires, reviews pre-qualifying
companies, and evaluates bids technically. However some public institutions
have their own tendering procedures. But no matter who administers a tender,
the procedures are in essence the same as CTC procedure, and all activities
relating to public tenders, such as tender announcements, invitations to
pre-quality, pre-tender meetings, and amendments to conditions and specification,
are only published in Al-Kuwait Al-Youm, the gazette.
Funding for major projects
is normally provided by the government. In recent years other forms of
financing, such as credit facilities supported by export credit agencies
(ECAs) and build-own-transter (BOT)types schemes, have been tried.
& Registration TOP
A tenderer for a public
contract must be a Kuwaiti merchant who is (a) registered with the KCCI
and the MCI, and (b
) registered as an approved
supplier or contractor.
The CTC and client bodies
maintain lists of approved suppliers of equipment and materials. To get
on the lists, the main requirement for suppliers is that they be Kuwaiti
Applications for registration
are usually made to the client body.
The CTC also maintains lists
of approved contractors for works, before getting one these lists a contractor
must be classified according to the size of project he is deemed capable
of undertaking. The size limited for the first three categories represents
the cumulative size of all contracts being undertaken at the same time
by a contractor, eg a category (4) contractor cannot bid for a contract
worth more than KD50.000if, at the time of his bid, he is already undertaking
projects with as total value of KD200.000. Foreign companies are not classified,
as they must prequalify each time they bid for public sector contracts.
Participation in some public
tenders is restricted to firms who have been pre-qualified, ie judged capable
of undertaking the particular project. To pre-qualify, a firm submits a
standard set of documents outlining its financial and technical capabilities
to the CTC. Foreign firms must prequality each time they bid for a public
contract. Their Kuwaiti agent and must be accompanied by an authenticated
copy of the agency agreement.
Forthcoming tenders are
announced as invitations to bid Al-Kuwait Al-Youm. To collect the documents,
a written requested in Arabic plus the fee (for which a receipt is given)
is needed. A foreign firm must show an authenticated copy of the agreement
with its local agent.
Firms who have purchased
the documents may be invited to pre-tender meeting with the client body.
Sometimes these are mandatory and bidders who do not attend find themselves
excluded from the tender. The scope of work may be amended after the tender
documents have been issued or after a pre-tender meeting. When this happens
the administering committees issues a formal addendum, which can only be
collected on production of the original receipt for the tender documents.
Notices of pre-tender meeting and tender amendment are announced in AlKuwait
Al-Youm and tenders are seldom advised directly.
A bid only is submitted
on the original official tender documents issued to the company making
the bid. All pats must be completed in full and the documents may not be
altered in any way. The bid must conform to the tender terms exactly and
alternative terms are never acceptable. All prescribed supporting documentation
must be appended.
The tender documents are
expected to be submitted without erasures or corrections.
Where alternative offers
are allowed, a tenderer must buy a separate set of documents for each offer
he submits, with each bid clearly marked to show that it id an alternative.
& Pricing Preferences TOP
Contractors must usually
be priced on a lump-sum fixed-price basis, though unit pricing is normal
in maintenance type contracts. Most bids must be priced in Kuwaiti Dinar,
Prices must be stated on a cash-basis.
Public sector contracts
must by law be awarded to the bidder who offers the lowest price provided
his bid conforms with technical requirements and he has adequate resources.
But where a firm has submitted an artificially low bid and it appears that
it will be unable to perform to the required standard, the contract may
be awarded to the next lowest bidder.
Local manufactures have
a price advantage. Subject to technical acceptance, goods made in Kuwait
may be priced up to 10% higher than comparable items made abroad and be
deemed the lowest priced. Goods made in other GCC countries have a 5% price
preference; but if the goods are not made in Kuwait then GCC goods have
a 10% advantage. Local contractors for the performance of works do not
enjoy any pricing advantage.
A bidder’s offer must be
irrevocable unite the end of its period of validity which initially contact
be more than 90 days. An unconditional bank guarantee for the entire initial
period of validity, issued in Arabic by a Kuwaiti bank, must be submitted
with the bid. These bonds vary from 2% to 5% of the bid. If a bidder is
successful but refuses to sign the contract, the bond is forfeit.
Bidder is often asked, towards
the end of the initial period of validity, to extend their offers. If they
wish to do so then the bid bond must also be extended.
Submission of Bids
Tender documents must be
signed by the bidder and stamped with his seal. If a foreign firm submits
a bid directly, rather than through its local agent, both its stamp and
the agent’s stamp must appear on every page. Proof of the signatory’s capacity
to bind the bidding firm is always required and this usually takes the
form of a notarised power of attormey.
If the tender documents
include a bid envelope, this must be used to submit the bid. The name of
the bidder may not appear on the envelope, which must be sealed with wax.
Bids must be submitted to
the tender committee at the place, date and time stated in the conditions.
Where the CTC is administering the tender, bids must be submitted in the
CTC’s office in Sharq, which is done by placing the envelop in the box
designated for that tender by a notice in Arabic (only). The closing time
is usually 1:00pm and the box is always sealed the very second time is
Evaluation & Award
Where the CTC administering
the tender, bidder may get a copy in Arabic of the list of bidder and their
prices from the CTC’s Sharq office, about a week or so after bidding close,
by showing a copy of the original receipt for the documents. But other
tender committees do not normally provide such lists.
In most tenders a technical
study, to ensure that bids comply with the required specification, is usually
carried out by the client body. During these studies, a bidder may be invited
to answer queries orally or he may be sent a list of questions requiring
a written reply.
Ones technical studies are
completed, a contract it’s awarded on the basis of the price from among
the bids that comfort with the tender specification. The administering
committee notifies a successful bidder in writing, but the latter dose
not have any contractual rights until he has signed his contract with the
client body. If the winner fails to sign the contract within a specified
time of being invited to do so, he is deemed to have withdrawn.
Before signing the contract,
a successful bidder must replace his initial guarantee with a final guarantee
or performance bond from a Kuwait bank. This is typically 10% of the contract
value and must be valid for the duration of the contract including a maintenance
period. A contract that fails to present this guarantee is deemed to have
Public sector contractors
always contain penalty clauses, and minor delays and faults in execution
usually result in penalties being imposed.
Contractors for the performance
of works normally receive as advance of 10% to cover costs of mobilisation.
Stag payments on account of work-in-progress are also made. Most contractors
allow the client body to retail 10% from work-in-progress payments until
the end of the contract and to recoup the advance pro-rata from work-in-progress
payments, so that during the maintenance period the client body is holding
a retention of 10%.
Public sector contracts
normally include a maintenance period of a year, during which the contractor
is liable for any faults in the equipment or work. The period is covered
by retention, in the case of works, and the performance bond.
When a project of works
is completed, the contractors usually receive a provisional completion
certificate, which is replaced by a final certificate release, him from
further liability and enables him to claim his final payment. Before he
can receive his final payment, a foreign contract must obtain a tax clearance
Contertrade Offset Programme
Under Kuwait’s counter-trade
offset programme, a foreign contractor who signs contracts to supply government
institution with goods or services that are cumulatively worth more than
KD1milion in any fiscal year (July to June) incure an offest obligation
that required him to set up a budiness benefical to Kuwait.
The Office Obligation
The office obligation is
expressed in the same currency as the supply contractors and is nominally
30% of their value. The contractor earns ‘credits’ for expenditures relating
to his offset business venture (OBV) and when these credits amount to 30%
of his supply contracts he has fulfilled his obligation. Actual expenditures
will be much less than 30% because most expenditure earn credits at a rate
greater than 1:1 and, in practice, offset expenditures amount to about
30% of a contractor’s supply contracts. But before a contractor may embark
on his OBV, the business must be official approved. The programme is administered
by the objective of Kuwait’s offset programme are:
· To promote long-term
mutually beneficial collaborative business venture between foreign enterprises
and Kuwaiti companies with an emphasis on the private sector;
· To achieve sustainable
economic benefits (such as export sales and import substitution
· To enhance the
high-tech capabilities of the private sector by creating and expanding
education and training opportunities of the private sector by creating
and expanding education and training opportunities for Kuwaiti nationals
locally and abroad;
· To facilitate the
transfer of state-of-the-art technology into the private sector; and
· To support Kuwait’s
foreign aid programs.
These objectives provide
the criteria by which prop0osed OBVs are evaluated.
A contractor obligation
is being when he signs the supply contract that creates it. The total time
allowed to fulfill the obligation is 10 years, ie 24 months for approved
of the OBV and eight years thereafter to generate the credits needed to
extinguish the obligation, with 50% being settled within four years. A
contractors OBV must include Kuwait businesses or entrepreneurs as equity
partners, and it must exist and operate under Kuwait’s Commercial Companies
A contractor who refuse
to participate in the programme or ceases to participate before he accumulates
credits equal to 10% of his obligation, incurs a penalty of 6% of the value
of his supply contracts. If he fails to continue after completing 10% or
more of his obligation, the penalty is reduced by the percentage of the
obligation which has been completed.
Once the foreign contractor
has signed the supply contract that triggers his obligation, he must acknowledge
this obligation by signing a memorandum of agreement with the Ministry
of finance. He must then submit business ideas to the PEO in order to obtain
approved for an OBV. For each idea he must submit in turn a concept paper,
a proposal and a business plan, and each of these documents must be approved
before the next one is submitted.
The concept paper is essentially
a brief summary of the proposed business. A proposal is similar to a traditional
feasibility study and is the key document upon which approval of the OBV
rests. The business plan must be fulfilled.
The proposed OBV must pass
normal evaluation criteria for commercial, technical and financial viability.
The business is also evaluation on its ability to futher capital accumulation
and promote economic development in Kuwait, on the contribution it can
make to developing a highly-skilled experienced globally-competitive work
force and on whether it will transfer inwards technology appropriate to
the development of new industries in Kuwait.
Calculation of Credits
Once his business plan has
been approved the foreign contractor establishes and operates the OBV with
his Kuwaiti associates. He is awarded offset credits annually on the basis
of the expenditure relating to the OBV as shown by its audited financial
All the OBV’s expenditures,
except for costs incurred in administering the programme, are eligible
for credits, But instead of being just aggregated to calculate the credits,
these expenditure are classified and weighed according to the preference
given to them under the government’s economic policy objectives. First
the expenditures are classified, according to the internal functions of
the OBV, into micro-categories. The actual expenses in each micro-category
are then multiplied by the appropriate micro-multiplier. The result is
then multiplied by the approved macro-multiplier. The final result is the
amount of credits earned in that particular micro-category. The credits
earned in each micro-category are then summed to arrive at then summed
to arrive at the total number of credits generated by the OBV for that
After a contractors current
obligation has been fulfilled, additional credits generated by his OBV
may be carried forward and set against offset obligations arising from
any future supply contracts he signs. These future credits may not be transffered
to other contractors.
Third Party Fulfilment
Subject to PEO approval,
a foreign contractor may designate a theird party to fulfil his offset
obligations, though the contractors remain responsible for the outcome.
Contractors unable to find suitable OBVs may be allowed to fulfil their
obligations by investing in approved investment funds, which proved, finance
for ventures acceptable under the offset programme.
Several local funds, which
provide finance for this purpose by the Ministry of Finance.
Income Tax TOP
In Kuwait there are personal
income taxes, property, gift or inheritance taxes. The only tax paid by
Kuwaiti shareholding companies is a 20% levy for the Kuwait Fund for the
Advancement of Science. But corporate income tax is levied on the net income
of foreign firms.
The Liability to Corporate
Corporate income tax is
governed by Law # 3 of 1955, as supplemented by directives issued by the
Director of Income Taxes, ie the Minister of Finance, from time to time.
The filling of tax declaration and accounts, the assessment of libilities
and the payment of taxes are administered by the Tax Department in the
Ministry of Finance. All tax declaration, supporting, schedules, financial
statements, and correspondence must be in Arabic.
All foreign corporate bodies
carrying on a trade or business in Kuwait are liable to income tax, with
the exception of companies incorporated in the GCC that are wholly owned
by the GCC citizens, A foreign corporate body means any business entity,
formed under the laws of any state, which has a legal existence separate
from that of its owners. The term includes foreign partnerships. Where
a foreign firm operates through a local service agent, it is taxed on its
share of the company’s profit.
Taxable income includes
net profits, whether distributed or not, and amounts receivable on account
of interest, royalties, technical services and management fees, etc, whether
actually paid or not. Where the foreign firm is a shareholder in a local
company, the foreign entity bears the tax and the Kuwait Company has no
liability. There is no withholding tax on dividends, interest payment and
Net taxable income is computed
on the basis of the net profits disclosed in audited financial statements
as adjusted for tax purposes. Where the taxpayer is a shareholder in a
local company, the foreign element in total adjusted profits is isolated.
Gross income is all income
from business and trade, including amounts receivable as rents, royalties,
premiums, devindeds and interest, as well as capital gains on the sale
of assets and on the sale of shares by a foreign shareholder, where the
source is in Kuwait. The source of income is Kuwait if the place where
services are performed is in Kuwait. Work done outside Kuwait is deemed
to be performend in Kuwait where it is part of a contract that includes
activities within Kuwait, eg, in a supply and installation contract, the
full value of the contract including the foreign supply element is assessable.
Gross billings, excluding
advance payments, less the costs of work incurred in an accounting period
are used to assess income from contract work and percentage accounting
or completed contract accounting methods are usually not acceptable.
Where a foreign firm has
more than one activity in Kuwait, its income from a;; activities must be
aggregated for tax purposes, even if its different activities are organised
through separate local companies.
All normal business expenses
are allowable on an accrual basis provided they are incurred in the generation
of income in Kuwait. But the following may be noted:
· Accounting provisions,
whether specific or general, are not allowable. Bad debts are only allowed
once they have proved irrecoverable. Other provision, such as labour indemnities,
is only allowed when they are actually paid.
· Depreciation of
fixed assets is allowed but only at particular rates for different classes
of assets on a straight-line basis. Losses on the disposal of fixed assets
below their tax written-down value are allowable.
· Interest charges
are allowable provided they are payable to a Kuwaiti bank and are reasonable
in relation to the business activities carried out in Kuwait.
· Commission paid
to the taxpayer’s local agent are limited to 3% of revenue.
· Losses brought
forward are allowable. Losses may be carried forward indefinitely and deducted
from income in later periods, provided there has been no intervening cessation
of activities, But losses in later period cannot be carried back to an
· Management fees
receivable by a foreign corporate shareholder in a local company and expensed
in the latter’s books are not allowable. But direct expenses incurred by
the foreign taxpayer are allowable provided they are supported by adequate
· As a contribution
to a foreign corporate body’s head office expenses, deductions may be claimed
· By foreign consultants
or contractors operating through a local agent: 3.5% of revenues ( net
of amounts payable to subcontractors and reimbursable costs).
· By foreign shareholders
in a WLL or KSC: 2% of revenues (net of amounts payable to subcontractors
and reimbursable costs).
· By foreign insurance
companies: 3.5% of net premiums.
Inventory is usually valued
at weight average cost, though FIFO ( first in first out ) is becoming
more popular, but any valuation method in general use is acceptable.
of tax Due TOP
The tax due on net taxable
income is reckoned, These are not progressive, ie tax is charged on all
profits at the rate of the level into which total profits reach. For example,
if taxable profits are KD50.000 tax of 15% is levied on the whole KD50.000
and the tax payable is KD7.500.
Some relief is available
where taxable profits reach marginally into a higher level. This is obtained
by calculating the total tax thus payable at the top of the band just below
the highest band into which taxable income falls and to the tax thus calculated
the whole of the income in excess of this band is added. Where the resulting
amount is less than the tax payable as calculated normally, the lower amount
become the tax payable.
The Gregorian solar calendar
is used for tax accounting. Tax periods are normally 12 months long, though
a period of up to 18 months may be allowed on commencement. The usual year-end
for tax accounting is 31st December, but a taxpayer may request another
year-old. Taxpayers are legally obliged to submit their tax declarations
to the Tax Department without being requested. The deadline for filing
tax declarations is the 15th day of the 4th month following the end of
the tax accounting period; eg where the usual end-of-December period end
is used, tax declarations must be submitted by 15th April. An extension
of 75 days may be allowed if audited accounts are filed.
Tax declarations and supporting
documention must be in Arabic and certified by a practising accuntant who
is registered with the MCI. The law is unclear on a number of issues and
final assessments are usually agreed by negotiation. There is no special
Tax must be paid in Kuwait
Dinar by certified cheque, in four equal installments on the 15th day of
the 4th, 6th, 9th and 12th, months following the end of the tax period.
No payment is required until accounts have been field.
The tax is payable in a
single lump sum where payments are delayed and also where an extension
of 75 days has been allowed for the filling of audited accounts. The penalty
for tardiness in filling declarations or paying by the due date is a fine
of 1% of the tax payable for every 30 days (or fraction thereof) of delay.
Tax Clearance Certificates
The final payment due to
a foreign contractor, which must not be less than 5% of the total contract
value, must be retained by all ministries, public authorities and private
companies (including foreign firms) operating locally until the contractors
has produced a tax clearance certificate from the Ministry of Finance confirming
that all tax liabilities have been settled.
All ministries, public authorities
and private companies with which they are doing business as contractors,
subcontractors or in any other form, together with a copy of the contracts,
to the Tax Department. When assessing liability to tax, the Director of
Taxes may disallow payments to subcontractors, which have not been reported.
The Director of Taxes tends
to look at the substance rather than the form of transactions and dose
not usually give binding ruling in advance on how tax will be determined
in unclear cases and so the scope for tax planing is rather limited. As
final assessments are a matter of negotiation, advice from a local practitioner
who has a good working relationship with the Tax Department can be helpful.
Kuwait is a signatory to
the GCC joint Agreement and to the Arab Tax Treaty. Kuwait has also double
taxation treaties with Belgium, China, Cyprus, France, Germany, Hungary,
Italy, Romania, South Africa and Thailand, and is negotiating treaties
with Australia, Austria, Canada, Finland, India, Japan, Malaysia, Singapore,
Switzerland, Turkey and the USA.
Sources of Information
Researching business opportunities
from outside Kuwait is easy. Data on exports to Kuwait by OECD countries
can be used to analyes the market. Foreign government trade promotion agencies
have information on market prospects and updates on new projects. These
agencies also orgnise trade mission to Kuwait, a cost-effective way of
marking local contracts.
There are several sources
of market-related information within Kuwait, Al-Kuwait Al-Youm, and the
official gazette, is the official source of government announcement but
is published in Arabic only. An English translation of all tender-related
and regulatory matters, with a local news update and business diary, is
issued by Kuwait publishing House at the same time as the official version.
The Ministry of planing
is the main source of government statistics. The Central Bank issues an
Annual Economic Report. Research units in the IBK, commercial banks and
Institute of banking Studies are worth contacting.
Foreign embassies have data
on opportunities. Local foreign business associations provide good networking
· The British Business
forum (BBF) is an association of British business people which aims to
foster British business interests and win business for the UK. The BBF
works closely with the British Embassy where business-relate meetings and
seminars are organised regularly. A meeting, open to all, is usually held
at 7.30 pm on the second Monday of each month. Membership is not restricted
to British nationals.
· The American Business
Council – Kuwait (ABC-K) serves as the local chapter of the US Chamber
of Commerce. Its objectives are the development of commerce and investment
between the USA and Kuwait, bringing a better awareness of the Kuwait market
to the USA, and providing a forum to pursue business interests and enhance
the business climate in Kuwait. Membership & meeting information: Brenda
· The India business
Advisory Council (IBAC) promotes economic and commercial relation between
India and Kuwait. Most prominent Indian businessmen in Kuwait are members,
The IBAC meets periodically to discuss business matters, Prominent Kuwaiti
businessmen, as well as well-known visiting Indian entrepreneurs, are invited
to meetings to exchange views on economic and commercial matters.