Tax on Oil Profits in Kuwait

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Oil companies in Kuwait are expected to pay tax on income. According to latest tax scales, a company which posts profits in the range of KD 0-KD 500,000 pays 20 % as tax. From KD 500,000 upwards, a company pays 57 % of the revenue as tax.

 

Here are Taxable profit ranges

 

Applicable tax rate 0 – KD 500,000 20%

Over KD 500,000 57%

Oil and gas services companies

Companies providing oil and gas services are taxed on the same basis as those undertaking exploration and production activities. There is only one applicable tax rate in Kuwait of 15% and the same rules apply to both types of company

Incentives in the oil and gas industry

Tax Losses (All Activities)

Tax losses may be carried forward for 3 years, provided that none of the following situations arise in the fiscal period following the period in which the loss was recorded:

  • The tax declaration does not include any revenue from the business activities of the taxpayer in Kuwait;
  • Change in the legal structure of the taxpayer;
  • Merger of the taxpayer with another entity;
  • Liquidation or ceasing of the activities of the taxpayer in Kuwait; and/or
  • There is no option to carry back tax losses.

Foreign tax credit

Foreign taxes paid to a country with whom Kuwait has a Double Tax Treaty may be eligible for credit to the maximum of the Kuwaiti tax that would have been payable on such income.

Kuwait Free Trade Zone

Businesses set up in the Kuwait Free Trade Zone (KFTZ) which carry on specified operations are exempt from corporate and personal taxes on operations conducted in the zone. Foreign entities can own 100% of such businesses. Currently, the government of Kuwait has stopped issuing KFTZ licenses.

Public Private Partnership (PPP) LawIn line with the FDI Law, another form of investment has been invited in Kuwait through the PPP Law. The purpose of this Law is for potential investor(s) to implement a project of strategic importance to the national economy, while allowing the investor to make profits from the operations for a specified term. The Law further provides general guidelines on project procurement procedures to obtain necessary approvals, details relating to incorporation of the Project companies, and information related to investment terms and transfers of the project to the State.

The PPP Law, now provides opportunities for project companies to be foreign owned; enabling foreign investors to have equal opportunities for business, alongside their

Kuwaiti counterparts. The provisions of the PPP Law provide that if the total cost (capital expenditure) of a PPP project is expected not to exceed KWD 60 million, a successful investor can hold the entire share capital of the project company.

Withholding taxes

Treatment of dividends is not specifically addressed in the amended tax law or in its bylaws (except for dividends listed on the Kuwait Stock Exchange (KSE)).

Apart from the withholding tax on dividends arising from securities listed on the KSE, there are no other withholding taxes in the domestic law. However, the tax treaties apply varying interest, royalty and dividend withholding tax rates and it is unknown how or if the Kuwaiti government will require for these rates to apply to foreign companies.

There is also mechanism of tax retention applied in Kuwait through which government bodies and private entities are required to retain the final payment due to a contractor or subcontractor until presentation of a tax clearance certificate from the MoF confirming that the respective company has settled all of its tax liabilities. The final payment should not be less than 5% of the total contract value.

Capital gains tax

Capital gains on the sale of assets and shares by foreign shareholders are treated as normal business profits and are subject to tax at a 15% rate. In cases where the DIT is unable to identify the actual gain or loss on a sale of asset it deems a capital gain in the range of 20% fully subject to tax.

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