Kuwait income tax is levied at a flat rate of 15% of the net taxable income realized by a body corporate during the tax period, under Law No. 2 of 2008 amending Kuwait Income Tax Decree No. 3 of 1955.
The Flat 15% Rate
Law No. 2 of 2008 provides that the tax imposed under this law shall be fixed at a flat rate of 15% of net taxable income, replacing the previous bracket-based (progressive) calculation. Profits of a body corporate arising from trading operations within the Kuwait Stock Exchange, whether executed directly or through portfolios and investment funds, are exempt from this tax.
What Is "Taxable Income"?
The executive bylaw defines "net income" as the gross income realized by the taxpayer after deducting the allowable deductions, and provides that "taxable income" is the net income itself. The taxable period is defined as a calendar year of twelve (12) months ending on 31 December, unless the tax administration approves an alternative basis not exceeding 18 months.
A Worked Example from the Executive Instructions
The executive rules and instructions of the Income Tax Decree include a worked example of the tax calculation after carrying forward a prior loss: a body corporate's tax assessment showed a loss of KD 500,000, and the entity then realized profits of KD 200,000 in year one, KD 250,000 in year two, and KD 100,000 in year three. After carrying the loss forward against the following years' profits, the net taxable profit in year three was KD 50,000, so the tax due is 15% of this amount, namely KD 7,500 in total.
- Original loss carried forward: KD 500,000 in full.
- Year one profit of KD 200,000 is deducted from the loss, leaving a balance of KD 300,000 unrelieved.
- Year two profit of KD 250,000 is deducted from the remaining loss, leaving a balance of KD 50,000 unrelieved.
- Year three profit of KD 100,000, after deducting the remaining loss of KD 50,000, gives a net taxable profit of KD 50,000 for that year.
- Tax due equals 15% multiplied by KD 50,000, which is KD 7,500 payable.
Withholding Tax on Investment Fund Profit Distributions
In addition to the tax imposed on a body corporate's income, the executive rules and instructions require fund managers, investment trustees, and companies to withhold and remit 15% of profits due to be distributed to the tax administration at the Ministry of Finance, within 30 days of the date of the distribution decision.
Legal References
- Decree No. 3 of 1955 concerning Kuwait Income Tax as amended by Law No. 2 of 2008 – Article (1).
- Ministerial Resolution No. (29) of 2008 issuing the Executive Bylaw of Income Tax Decree No. 3 of 1955 – Article (1), definitions of "net income" and "taxable period".
- Administrative Resolution No. 875 of 2013 issuing the executive rules and instructions of Income Tax Decree 3-1955 – Executive Rule No. (46) on the loss carry-forward calculation method, and Executive Rule No. (21) on withholding tax on profit distributions.
For questions about your specific situation, you can ask the Kuwait Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.