One of the most attractive features of working in Kuwait for expats is its tax-free personal income environment. In most countries around the world, income taxes can significantly reduce personal earnings. This makes Kuwait's policy of not levying any personal income tax on residents stand out as a significant financial advantage.
Not having any income tax means that expats are able to retain all of their earnings, making Kuwait an ideal destination for skilled professionals and workers from around the globe. This financial benefit, combined with the country's high standard of living and vibrant expatriate community, makes Kuwait a strong choice for those seeking both professional opportunities and a rewarding lifestyle.
Though individuals do not need to worry about income tax in Kuwait, this does not mean that the country is completely free of taxes.
Corporate tax in Kuwait
The primary form of taxation in Kuwait is corporate tax. Foreign businesses in Kuwait pay a flat corporate income tax rate of 15%. This is applicable to all types of business activities, including trading, contracting and providing professional services.
Foreign companies must file annual tax returns and maintain accurate financial records to comply with local tax regulations in Kuwait. Failure to comply with tax obligations can result in penalties and legal consequences.
Kuwaiti-owned businesses and companies within the GCC are exempt from this tax. Kuwait is a signatory to the Arab Tax Treaty and the GCC Joint Agreement, both of which allow for the avoidance of double taxation in most areas. Double taxation agreements are also in place with certain countries regarding international air and sea travel.
Comprehensive double taxation treaties are available with Algeria, Austria, Belarus, Belgium, Canada, China, Cyprus, Croatia, Ethiopia, France, Germany, Hungary, Indonesia, Italy, Jordan, Korea, Lebanon, Mauritius, Mongolia, the Netherlands, Pakistan, Poland, Romania, Russia, Serbia and Montenegro, Singapore, South Africa, Switzerland, Syria, Tunisia, Turkey, Ukraine and the United Kingdom.
Zakat in Kuwait
All Kuwaiti shareholding companies must pay Zakat at a rate of 1% of their net profits. Zakat is a form of donation in Islam and is a unique feature of Kuwait's tax system.
If a company fails to file its Zakat declaration, the Ministry of Finance has the right to estimate its annual net profit on a deemed profit basis and levy Zakat accordingly. The Ministry of Finance also has the right to inform governmental authorities not to provide services to the said company until a clearance certificate is obtained. Failure to pay Zakat incurs penalties of up to 5,000 KWD and/or imprisonment for a term not exceeding 3 years, in addition to the payment of Zakat due.
Important:
All companies subject to paying Zakat are required to submit their declaration by the 15th day of the fourth month after the end of the fiscal period.
National Labor Support Tax in Kuwait
All shareholding ‘joint-stock' entities in Kuwait are required to pay the National Labour Support Tax (NLST), which is 2.5% of the company's net profit.
Companies subject to paying the NLST tax are required to submit a declaration audited by an audit firm approved by the Ministry of Finance on or before the 15th day of the fourth month from the end of the fiscal period.
The purpose of the NLST law is to encourage the national labor force to work in the private sector by closing the gap in salaries and benefits between the public and private sectors.
Contribution to Kuwait Foundation for Advancement of Sciences
The Kuwait Foundation for the Advancement of Sciences (KFAS) was established in 1976 by an Amiri decree and is an institution dedicated to fostering scientific, technological, and intellectual growth in Kuwait. KFAS aims to promote a culture of innovation and research by funding scientific projects, supporting educational initiatives, and facilitating collaboration between researchers and institutions. The foundation plays a critical role in advancing the country's knowledge economy, focusing on areas such as environmental sustainability, health sciences, engineering, and information technology.
Kuwaiti shareholding companies are required to pay a contribution to the Kuwait Foundation for Advancement of Sciences at a rate of 1% of their profits. This contribution supports scientific progress in Kuwait. KFAS also provides sponsorships and grants for scientific research projects in the country, all of which are supported by this contribution.
Custom duties in Kuwait
Customs duties are another example of indirect taxation in Kuwait. Almost all goods imported into Kuwait are charged customs duties, which are typically levied at a rate of 5% of the goods' value. Certain goods, such as foodstuffs, medicines, and medical supplies, may either be exempt from customs duties or enjoy reduced rates. Customs duties are collected by the General Administration of Customs and contribute to the government's revenue.
These customs duties are important for regulating trade and protecting local industries. The government has the right to adjust duty rates and exemptions based on the country's economic conditions and objectives. All companies engaged in import and export activities must comply with customs regulations and ensure that they pay the appropriate duties on imported goods.
Social Security Contributions in Kuwait
While this does not affect expats, this is another contribution that all Kuwaiti employees are obligated to make. Social Security contributions are paid monthly, and, as per the Social Security Law, the amount is split between the employee and the employer. The employer must contribute 11.5% of the employee's monthly salary, and the employee must contribute 8% of their monthly salary. This amount has a ceiling of 2,750 KWD per month.
Kuwait's Social Security Scheme is administered by the Public Institution for Social Security (PIFSS) and provides coverage for Kuwaiti citizens to ensure financial stability and support throughout different stages of life. Paying into Kuwait's Social Security scheme provides benefits such as pensions on retirement and allowances for disability, sickness, and death.
Withholding tax in Kuwait
Kuwait's tax law does not impose withholding tax at the moment. However, all public bodies and private entities are required to retain 5% from the contract, agreement, or transaction value or from each payment made to any incorporated body until the recipient of such payment presents a tax clearance certificate from the Ministry of Finance confirming that the respective company has settled all of its tax liabilities in Kuwait. The final payment should not be less than 5% of the total contract value.
Health insurance in Kuwait
While this isn't exactly a tax, it is a mandatory payment that needs to be made by expats. The government mandates that all expats have health insurance coverage, which might be done through an employer; otherwise, it will need to be purchased privately. You can also opt to go for the local health insurance card or get a wider, more comprehensive network with one of the bigger insurance companies.
Value-Added Tax (VAT) in Kuwait
As it stands, Kuwait has not implemented VAT or any similar indirect taxes. However, similar to other GCC countries, Kuwait is still studying the potential implementation of VAT as part of a GCC-wide project. Discussions and preparations for the implementation of VAT have been ongoing, and the framework in Kuwait is expected to be of the same standard as the GCC VAT Agreement. This agreement sets a common VAT rate of 5% and provides guidelines for exemptions and zero-rated supplies.
The potential introduction of VAT will have some impact on individuals, such as a general increase in the prices of goods and services. This will require an adjustment in budgeting and financial planning for most people, as it leads to a higher cost of living. Household expenses will need to be managed, essential purchases will need to be prioritized, and cost-saving measures will need to be looked into.
Public awareness campaigns should be launched to educate people about VAT and how it works to prepare the population for this change. This type of clear communication will make the introduction of a new tax system into a country that has never experienced individual tax much easier.
Tax services in Kuwait
There are many tax services available to help expats complete taxes for their home country if required. All United States citizens, for example, must file taxes regardless of where they live. The assistance of a well-qualified tax advisor familiar with expatriate laws and regulations will significantly ease the filing process.
Future prospects of taxation in Kuwait
A few years ago, the prospect of introducing taxes in Kuwait seemed almost impossible. However, with the recent political changes of the Amir dissolving the parliament, this type of change seems a lot more possible than ever before. The potential to introduce taxes in Kuwait is influenced by several factors, including global economic trends, oil price fluctuations, and domestic economic diversification efforts.
The government has long relied on oil revenue, which has historically allowed for a low-tax environment. However, as oil prices become more volatile and a global push towards renewable energy is seen, this reliance may not be sustainable.
It has become apparent that Kuwait has recognized the need to diversify its economy and reduce its dependence on oil. With this has come the Kuwait Vision 2035 initiative, which aims to transform the country into a regional financial and commercial hub. In order to support economic diversification and generate additional revenue, this initiative may also be a big part of an introduction of taxes.
As previously mentioned, there is a greater chance that this will start with VAT rather than individual income tax. This is the most likely route, as other GCC countries are following the same path. While income tax still seems like a far-fetched idea, the introduction of VAT will definitely have an effect on individual spending.
With the potential of an evolving tax landscape in Kuwait, the country will need to consider balancing the need for revenue generation with maintaining its appeal to foreign investors and skilled workers.
Until these changes are taken into effect, Kuwait's tax system remains very unique.
Useful links:
PWC - 2024 Tax Guide for Businesses in Kuwait
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