Tax Laws

The general rule is that individuals (Kuwaiti or foreign nationals) and Kuwaiti or GCC companies are not subject to taxes on income. However, a foreign corporate body engaged in commercial activities in Kuwait is subject to income tax. The tax rates applicable under the Income Tax Law No. 3 for the year 1955 prior to its amendment were ranging from 5% to 55%. These rates were applied progressively to income brackets. As per the amendment issued to the Income Tax Law (Law No. 2 for the year 2008) a flat rate of 15% will be applied as income tax on the net taxable income. This amendment was passed by the National Assembly on December 26, 2007 and signed by the Amir as Law No. 2 for the year 2008 on February 8, 2008. By virtue of this amendment, the hitherto rigorous tax regime has been replaced with a more liberal one, aimed at market liberalization and attracting foreign investments. In addition to lowering the income tax rates, the profits earned by foreign entities or individuals through trading in shares on the Kuwait Stock Exchange are not taxable under the recent amendment.

The Zakat Law No. 46 for the year 2006 has been passed by the National Assembly levying Zakat (tax according to Islamic Sharia principles) on all Kuwaiti shareholding companies. According to this law, one percent of the profits of the company are required to be paid to the government as Zakat. The company may select the entity or project to which the payment is to be applied by the government from the list provided under the law.

Law No. 19 for the year 2000 was enacted in respect of supporting and encouraging national manpower to work in the non-governmental sector. In addition to granting a social and children allowance to nationals and a cash allowance for every unemployed Kuwaiti who is unable to find a job, the law also obligates the government to share the costs of training the national manpower in the non-governmental sector. Article 9 of that law obligates individual entities to adhere to the minimum percentage of national manpower required to be recruited, as determined by the cabinet. Kuwaiti shareholding companies listed on the Kuwait Stock Exchange are also required to pay a tax amounting to 2.5% of their net annual profits. Non-observance or evasion of the same may attract various penalties.

KFAS was organized in 1976 by virtue of Amiri Decree promulgated on December 12, 1976 for the purposes of providing aid and assistance to science students and researchers for their education and training and for scientific research and development in general. Under Article 6 of the Memorandum of Association of KFAS, it is provided that a source of KFAS's funding shall be from the payment of all Kuwait Shareholding Companies (a "KSC") of five percent of such companies' net profits to KFAS.

While as a legal matter a KSC is not strictly speaking obligated to pay five percent of its net profits to KFAS (under Article 48 of the Kuwait Constitution, taxes may be levied only by a duly promulgated law), it has become the general and accepted practice in Kuwait for KSC's to make such payments to support KFAS's beneficial scientific activities. The failure of a KSC to make such payments may result in such KSC facing administrative difficulties in dealing with Kuwait government agencies and instrumentalities.