Any body corporate, wherever incorporated, is subject to income tax in Kuwait if it carries on trade or business in the State of Kuwait and realizes income during the taxable period, regardless of its legal form, the status of its partners, or the nature of its activity, under Kuwait Income Tax Decree No. 3 of 1955 as amended by Law No. 2 of 2008 on certain amendments thereto.
Definition of the Taxable "Body Corporate"
The executive bylaw of the Income Tax Decree defines a "body corporate" as any entity enjoying legal personality, wherever incorporated, if it carries on trade or business in the State of Kuwait directly or through an agent, or carries on trade or business in the State of Kuwait as an agent for others.
Under the same bylaw, a body corporate that carries on an activity in the State of Kuwait and realizes income during the taxable period is subject to tax regardless of its legal form, the status of its partners, its place of incorporation, or the nature of its activity. In other words, the test is carrying on an activity in Kuwait and deriving income from it, not the company's nationality or place of registration.
The Role of the Agent
The bylaw defines the "agent" as any natural or legal person authorized by his principal to carry on the trade, business, or any of the activities provided for by law, or to conclude a binding agreement with a third party on behalf of and for the account of his principal and within the authority granted to him, such that the profits of a Kuwaiti merchant arising from selling goods he purchased and transported for his own account are not subject to this tax.
Examples of Income Deemed Derived from Kuwait
The executive bylaw sets out examples of income deemed to be derived from the State of Kuwait, including:
- Activities or works executed wholly or partly in the State of Kuwait, including the supply or sale of goods or the rendering of services.
- Commissions due or arising from representation or commercial mediation agreements.
- Profits arising from any industrial or commercial activity in the State of Kuwait, and profits realized from the disposal of assets.
- Income arising from lending money within the State of Kuwait.
- Opening a permanent office in the State of Kuwait where sale and purchase contracts are concluded.
- Profits arising from rendering administrative, technical, or advisory services.
On the other hand, Law No. 2 of 2008 exempts the profits of a body corporate resulting from trading operations within the Kuwait Stock Exchange from this tax, whether executed directly or through portfolios and investment funds.
Relationship with Zakat and National Labor Support
Zakat Law No. 46 of 2006 excludes from its application the companies to which Income Tax Decree No. 3 of 1955 applies, so Kuwaiti public and closed shareholding companies are instead subject to the separate Zakat and National Labor Support regimes. This reflects the distinction between the income tax regime, aimed at foreign bodies operating in Kuwait, and the other two regimes aimed at Kuwaiti shareholding companies.
Legal References
- Ministerial Resolution No. (29) of 2008 issuing the Executive Bylaw of Kuwait Income Tax Decree No. (3) of 1955 as amended by Law No. (2) of 2008 – Article (1) definitions of "body corporate" and "agent", and Article (2) scope of taxation and sources of income.
- Law No. 46 of 2006 on Zakat and the Contribution of Public and Closed Shareholding Companies to the State Budget – Article 4 (exclusions).
For questions about your specific situation, you can ask the Kuwait Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.