Taxes are collected in the country and paid directly to the government. In Kuwait, the income tax law does not apply to personal income earned by citizens or ex-pats underemployment. The income tax law is governed by Decree No. 3 of 1955 as amended by Law No. 2 of 2008. When residents pay the tax directly to the government without a third party, this is called a direct tax. However, if the taxes are paid on goods or services rendered, it is known as indirect tax. The tax system practiced within the nation is source-based; this means that only foreign companies pay taxes when they reside here and earn money from business operations.
If you are interested in setting up a business in Kuwait or learning about the tax system practiced here, this is a comprehensive article on its tax system and the different kinds of taxes the country have.
Who can pay the tax
In Kuwait, taxpaying entities are levied based on their income origin status. Any corporation that conducts business here and makes profits from it has to pay a certain type of tax. Foreign businesses with branches are only charged for revenue generated by such branches and not their gross income. Citizens do not pay a special type of tax on goods and services purchased from sales outlets within the territory. Likewise, they do not pay personal income tax for money paid as a salary.
Types of Tax
According to the Kuwait tax act, there are several types of taxes charged on income sourced by legal entities or individuals while operating here whether permanently or temporarily. They include; corporate income tax, withholding tax, Value Added Tax (VAT), etc. each tax has its rate and income class they apply except VAT which is based on the kind of goods or services in question. The income tax is charged on income earned by corporations, wherever incorporated, or conducting business. However, no income tax is levied on firms registered in the GCC and controlled by citizens of the GCC.
Personal income tax
There is no personal tax in the state, as the Kuwait tax act does not recognize the concept of resident, non-resident, and permanent establishment (PE). This means that citizens do not pay taxes here for all income regardless of their residency unlike in other countries of the world.
Corporate Income tax
The corporate income tax applies to representatives or employees of supplying and invoicing foreign corporations in the state. The tax is levied on the income earned by the branches of foreign entities only. As stated, companies run by native citizens do not pay this tax.
Withholding Tax
There is no withholding tax in the nation. However, regards to business firms, have to comply with Law No. 2 of 2008, enforced by the Ministerial Order No. 44 of 1985 (MO 44) and issued by the Ministry of Finance (MOF) which is supplemented by Articles 16 and 37 of the Executive Bylaw of Law No. 2 of 2008.
The amount deducted is usually with the contract owners and given out only when the contractor(s), sub-contractor(s), service provider(s), or any kind of beneficiary, provides a tax clearance certificate issued by the KTA approving the contract owner to give out the money retained.
Value-added Tax (VAT)
Value-added tax (VAT) is a type of tax that applies to goods and services sold in a country. Presently, the VAT rate is not charged for goods and services purchased here. Although this tax does not exist, there are rumors that it might be introduced into the taxation system soon.
