Law No. 23 of 1961 on Kuwait Income Tax in the Specified Territory

Law No. 23 of 1961
on Kuwait Income Tax in the Specified Territory

Article 1

Paragraph One: An income tax shall be imposed for each taxable period ending after 31 December 1960 on every (body corporate), wheresoever incorporated, to which this Law applies, carrying on trade or business in the Specified Territory during such taxable period. The amount of such income tax shall be determined as follows:
(a) The appropriate percentage of the income of the body corporate from such trade or business in the taxable period shall be computed under paragraph (n) of Article (2).
(b) Where the percentage is 57, there shall be added to the sum of 100,000 Kuwaiti dinars the amount by which the income of the body corporate from such trade or business in the taxable period exceeds 500,000 Kuwaiti dinars; then
(c) There shall be deducted from the amount computed under paragraph (a) above or, where the appropriate percentage is 57, from the amount computed under paragraphs (a) and (b) above, whichever is less, a sum equal to the aggregate of all taxes (other than the tax imposed under this Law), royalties, rentals, duties, customs duties and similar exactions which accrue to or are received by the Ruler of the State of Kuwait in the taxable period in connection with the trade or business subject to tax under this Law that is carried on in the “Specified Territory” by the body corporate or by any other body corporate associated with it, provided that no such deduction shall be applied more than once for the benefit of taxpayers.
Without prejudice to any association existing between one body corporate and another body corporate by reason of one of them holding shares in the other, directly or indirectly, or by reason of a third body corporate or a third person holding, directly or indirectly, shares in both bodies corporate, a body corporate shall, for the purposes of this Law, be deemed to be associated with another body corporate if the trade or business carried on by both bodies corporate in Kuwait or the Specified Territory consists mainly in the production of commodities of the same or a similar nature, or the sale of or dealing in such commodities, or all of these activities, or consists in rights in such commodities, and if the two bodies corporate have, during the taxable period, traded with each other in Kuwait or the Specified Territory in such commodities or rights in the ordinary course of carrying on their respective trades or businesses.
Paragraph Two: Where
(1) a body corporate carries on the trade or business of extracting mineral substances or any natural substances from the Neutral Zone or the Specified Islands pursuant to a licence, contract or concession granted to it by the Ruler of the State of Kuwait; and
(2) that body corporate carries on trade or business in Kuwait of refining the mineral or natural substances extracted as stated above, or manufacturing, otherwise treating, transporting, storing or selling them,
there shall be imposed on that body corporate, for each taxable period in which it carries on the trade or business described in Clause (2) above, a tax on the income derived by it from that trade or business, and such tax shall:
(a) be imposed on and paid by that body corporate in respect of that trade or business in lieu of the tax imposed under Kuwait Income Tax Decree No. 3 of 1955;
and also (b) be imposed in addition to the tax imposed on the body corporate under the first paragraph of this Article in respect of the trade or business referred to in Clause (1);
and (c) be computed in the same manner as the tax imposed under the first paragraph of this Article is computed.

* The amount in Clause (b) was corrected from “1000000” to “100000” (one hundred thousand) Kuwaiti dinars by the erratum published in the Official Gazette (Kuwait Al-Youm, Issue No. 341, 27 August 1961).

Article 2

When used in this Law:
(a) the term “taxpayer” means any body corporate subject to the income tax imposed under this Law.
(b) the terms “each taxable period”, “any taxable period”, “such taxable period” and “the taxable period” mean a taxable period as defined in Article (5).
(c) the term “Director” means the Director of Income Taxes appointed by the Ruler under Kuwait Income Tax Decree No. 3 of 1955.
(d) the term “personnel of the Director” means the officials and other persons employed by the Director to carry out the duties vested in the Director by virtue of his office.
(e) the term “Specified Territory” means the Neutral Zone and the Specified Islands.
(f) the term “Specified Islands” means the islands of “Kubbar”, “Qaruh” and “Umm al-Maradim” and their territorial waters.
(g) the term “Neutral Zone” means the Kuwaiti–Saudi Arabian Neutral Zone, sometimes called the Saudi Arabian–Kuwaiti Neutral Zone, and includes:
(1) the territorial waters of that zone.
(2) the islands (if any) appertaining to that zone and the territorial waters of those islands.
(3) the seabed and subsoil lying beneath the waters of the Arabian Gulf contiguous to the territorial waters of the Neutral Zone and appertaining to the Neutral Zone.
(h) the term “Kuwait” means the State of Kuwait excluding the Specified Territory.
(i) the term “body corporate, wheresoever incorporated, to which this Law applies” means any body corporate carrying on trade or business subject to tax under this Law, whether directly or through an agent. It likewise means any body corporate carrying on trade or business subject to tax under this Law as an agent for others.
(j) the term “duties” does not include import duties.
(k) the term “income” means the gains and profits realised by the taxpayer from carrying on trade or business subject to tax under this Law.
(l) the term “carrying on trade or business in the Specified Territory” includes:
(1) purchasing and selling in the “Specified Territory” property, goods or rights relating thereto, and maintaining a permanent office in the Specified Territory where contracts of purchase and sale are concluded.
(2) operating any other productive, industrial or commercial enterprise in the Specified Territory.
(3) letting any property located in the Specified Territory.
(4) rendering services in the Specified Territory.
The foregoing applies, in the case of operations in the Neutral Zone, pursuant to a licence, contract or concession granted by the Ruler of the State of Kuwait, but does not include the mere purchasing, in any part of the Specified Territory, of property, goods or rights relating thereto.
(m) the terms “carrying on trade or business subject to tax under this Law” and “the carrying on of trade or business subject to tax under this Law” mean, in relation to liability to tax under the first paragraph of Article (1), carrying on trade or business in the Specified Territory or the carrying on of such trade or business. In relation to liability to tax under the second paragraph of Article (1), they mean carrying on trade or business such as is referred to in Clause (2) of the second paragraph of Article (1), or the carrying on of such trade or business.
(n) the term “appropriate percentage” of income means the percentages shown in the following table:
On income not exceeding 500,000 Kuwaiti dinars, the percentage shall be 20%.
On income exceeding 500,000 Kuwaiti dinars, the percentage shall be 57%.

Article 3

In computing income, the following amounts, wheresoever incurred, shall be allowed as deductions:
(a) The cost to the taxpayer of goods sold or services rendered by it in connection with the carrying on of trade or business subject to tax under this Law.
(b) Expenses which accrue against or are paid by the taxpayer (excluding the amounts mentioned in Article (1) which accrue to or are received by the Ruler, as well as amounts which are capital expenditures) in the taxable period in connection with the carrying on of trade or business subject to tax under this Law, including, without in any way limiting the generality of the foregoing, expenses of exploring for petroleum, drilling for its extraction and developing it or any other hydrocarbon properties; administrative, establishment and personnel expenses; and contributions, wages and remunerations for services rendered by others, whether they accrue or are paid directly to the persons who rendered those services or to other persons in respect of insurance, pension or other plans established for the benefit of the persons rendering the services.
(c) A reasonable amount in each taxable period as an allowance for exhaustion, depreciation or obsolescence of properties used in the carrying on of trade or business subject to tax under this Law during the taxable period. In respect of the properties specified in the following schedule, the reasonable amount, on a twelve-month basis, shall be the percentage shown in the schedule of their value as determined under Article (4) (in the absence of proof to the contrary), save that no reductions shall be made for amounts previously allowed as deductions in prior periods as an allowance for exhaustion, depreciation or obsolescence.

	Percentage
Buildings, such as offices, dwellings, stores, hospitals and clubs	4
Roads and bridges	4
Tanks, pipelines, jetties and wharves	5
Office furniture and equipment	15
Plant, machinery and equipment other than those mentioned below	10
Motor cars and motorcycles	33 1/3
Lorries and trailers	25
Marine craft	7 1/2
Aircraft	25
Drilling tools	33 1/3
General service plant (including construction and road-paving equipment, workshops, equipment, handling equipment and others)	25
Service station buildings and driveways	10
Servicing, greasing and other service station equipment	15
Carts	20
Refining plant, pipelines (within the refinery) and small tanks	10

(d) Losses sustained during the taxable period in connection with the carrying on of trade or business subject to tax under this Law and not compensated for by insurance or otherwise, including, without in any way limiting the generality of the foregoing, bad debts, losses arising from claims for damages brought against the taxpayer, and losses resulting from damage to, destruction of or loss of stock in trade or any property used in carrying on the trade or business.

Article 4

The value of properties on the basis of which the amount of deductions for exhaustion, depreciation or obsolescence under paragraph (c) of Article (3), and the amount of deductions for property losses under paragraph (d) of Article (3), are determined shall be the original cost of the property, increased by all expenditure that is capital expenditure and decreased by the amount of losses and also (except as otherwise provided in paragraph (c) of Article (3)) by the exhaustion, depreciation or obsolescence previously allowed in respect of that property. In the case of properties acquired by any body corporate before the commencement of the first taxable period in which that body corporate is liable to the income tax provided for in this Law, the adjustment for exhaustion, depreciation and obsolescence previously allowable shall be computed, for the purposes of this Article, as if the income tax imposed by this Law, and in particular the percentages stated in paragraph (c) of Article (3), had been in full force and effect and applicable during the period of ownership before the commencement of the first taxable period referred to above. If a property is transferred by one body corporate to another body corporate as part of a reorganisation of those bodies, the value of the property in the hands of the transferee (whether for the purposes of paragraph (c) of Article (3) or for the purposes of this Article) shall, for tax purposes, be exactly equal to its value as it would have been in the hands of the transferor had the transfer not been made.

Article 5

The taxable period in respect of which income tax is imposed under this present Law means the accounting period used by the taxpayer in keeping its records, provided that:
(a) the taxpayer shall, in the ordinary way, keep its records on the basis of a Gregorian calendar year, unless the Director, upon the taxpayer’s request, has authorised the taxpayer in writing to keep its records on another basis substituted for the Gregorian calendar year.
(b) the period authorised under such substituted basis shall not exceed a period equal to one Gregorian calendar year plus one half of the following Gregorian calendar year.
(c) any such authorisation by the Director shall not be withdrawn, revoked or varied except at the taxpayer’s request.
(d) a taxable period may not commence before 1 January 1961; accordingly, the income of a taxpayer earned during an accounting period commencing before 1 January 1961 and ending after that date shall be apportioned on a time basis.
and (e) any authorisation by the Director under Clause (a) above may be given subject to such conditions as the Director deems appropriate or, if the provisions of Clause (d) above are in operation, the Director may, in giving the authorisation, impose such conditions as he deems appropriate regarding which of the percentages stated in paragraph (m) of Article (2) shall be appropriate for the purposes of Clauses (a) and (b) of the first paragraph of Article (1), having regard to the length of the taxable period and the amount of income during such period.

* Thus in the original; the percentages are set out in paragraph (n) of Article (2).

Article 6

Income shall be computed as provided in this Law and in accordance with the method of commercial accounting usually and regularly employed by the taxpayer in keeping its records. If the method so employed does not fairly reflect the taxpayer’s income, the computation shall be made in accordance with such method as gives a true picture of the income. The accrual method of commercial accounting (that is, the method under which incoming amounts and deduction amounts are taken into account in the taxable period in which they accrue or, in other words, in which the rights to or liabilities for such amounts arise, so that the determination of such amounts becomes reasonably possible) shall be considered a method that gives a true picture of the income. The taxpayer shall be entitled to use its own method followed in its records for converting amounts expressed in one currency into another currency, if such method is generally recognised in commercial accounting.
The terms “accrue to or are received by”, “accrue against or are paid by”, “accrue or are paid” and “derived from”, when used in this Law, shall be applied and construed in accordance with the method of commercial accounting on the basis of which income is computed. Accordingly, if income is computed on the accrual method of commercial accounting, all items of incomings shall be taken into account in the taxable period in which they accrue to the taxpayer, and all items of deduction shall be deducted in the taxable period in which they accrue against the taxpayer. Whereas, if income is computed on the cash receipts and disbursements method of commercial accounting, all items of incomings shall be taken into account in the taxable period in which they are received, and all items of deduction shall be deducted in the taxable period in which such amounts were paid by the taxpayer.

Article 7

Where any body corporate, in carrying on trade or business subject to tax under this Law, sustains a loss during a taxable period (such loss being computed in the same manner as income is computed under the provisions of this Law), and the body corporate has not been granted full relief for such loss under this Law, that body corporate may claim that the portion of the loss for which it has not obtained any relief be carried forward and, so far as possible, deducted from or set off against the income derived from that trade or business in the following taxable periods.
Any relief under this Article shall be given, as far as possible, in the first taxable period of the following taxable periods referred to above, and in so far as this is not possible, the relief shall be given in the period following that first period, and so on.

Article 8

(a) Every taxpayer shall file with the Director at his office in Kuwait City an income tax declaration on or before the fifteenth day of the fourth month following the end of the taxable period for which the declaration is made. Every taxpayer required to file an income tax declaration as aforesaid shall pay to the Director, for the account of the Ruler, the amount of income tax shown in the declaration in four equal instalments, and such income tax shall be paid in pounds sterling (United Kingdom), United States dollars or Kuwaiti dinars. The instalments shall fall due, respectively, on the fifteenth day of the fourth, sixth, ninth and twelfth months from the end of the taxable period. The Director may grant reasonable extensions of time for filing declarations and paying the income tax imposed under this Law when the taxpayer shows that such extensions are necessary. In case of failure to file the declaration or to pay the amount of tax due in accordance with the provisions of this Article (except where such failure is due to a reasonable cause), a fine of 1% for each thirty days or fraction thereof during which such failure continues shall be added to the amounts due.
(b) Where a taxpayer carries on, in the same taxable period, trade or business in the Specified Territory and also trade or business in Kuwait of the kind referred to in Clause (2) of the second paragraph of Article (1), the taxpayer shall file two separate declarations, each in respect of its income from one of those two trades or businesses, and shall, when preparing and submitting the two declarations, apportion the income derived from the trades or businesses carried on in the two areas in such appropriate and reasonable manner as the Director approves. The taxpayer’s records shall be kept in such a manner as fairly reflects the income derived from carrying on the said trades or businesses. All items of incomings and deductions and all other items affecting the amount of the income tax due from it shall be attributed to the trade or business in the Specified Territory or in Kuwait, as appropriate, or apportioned between them, and the Director shall have the right to make appropriate arrangements with any such taxpayer for the submission of a combined declaration in respect of such two trades or businesses.
(c) A taxpayer to which Kuwait Income Tax Decree No. 3 of 1955 also applies in respect of the same taxable period shall file two separate declarations for the purposes of this Law and for the purposes of Kuwait Income Tax Decree of 1955, unless the Director has issued instructions to the contrary. The taxpayer shall keep its records in such a manner as fairly reflects its income taxable under this Law and its income taxable under Kuwait Income Tax Decree No. 3 of 1955. All items of incomings and deductions and all other items affecting the amount of the income tax due from it shall, where necessary, be capable of being attributed to or apportioned between its different trades or businesses.
(d) Where the income of any taxpayer is subject to income taxes under both the first paragraph and the second paragraph of Article (1), such income taxes shall be determined by reference to the percentages specified in paragraph (n) of Article (2) of this Law that apply to a taxpayer whose income equals the aggregate of the two incomes derived by the taxpayer in the taxable period from carrying on the trades or businesses referred to in Clause (1) of the second paragraph of Article (1) and from the trade or business referred to in Clause (2) of the same paragraph of that Article. Where the taxpayer has sustained a loss in a taxable period, such as the loss specified in Article (7), in either of the two trades or businesses, such loss shall, for the purposes of determining the amount of income tax due under this Law, first be deducted from the income (if any) derived from the other trade or business [or] set off against that trade or business for the same taxable period. If such loss exceeds that income, the difference shall be carried forward and, so far as possible, set off against the income derived from the two trades or businesses in the following taxable periods.
(e) The income tax due from the taxpayer under this Law and under Kuwait Income Tax Decree No. 3 of 1955 in respect of any taxable period shall be determined by reference to the percentages specified in paragraph (n) of Article (2) of this Law and paragraph (j) of Article (2) of Kuwait Income Tax Decree No. 3 of 1955 that apply to a taxpayer having an income equal to the aggregate of the taxpayer’s income in the taxable period under this Law and its income in the same taxable period as determined under Kuwait Income Tax Decree No. 3 of 1955, provided, however, that:
(1) where such a taxpayer has sustained a loss during the taxable period, such as the loss provided for in Article (7) of Kuwait Income Tax Decree No. 3 of 1955, as a result of carrying on trade or business subject to tax under that Decree, any portion of the loss for which full relief has not been given under the provisions of Kuwait Income Tax Decree No. 3 of 1955 shall be carried forward in the manner specified in Article (7) of that Decree, and shall not be applied to make deductions from the income derived from carrying on trade or business subject to tax under this Law.
(2) where the taxpayer has sustained during a taxable period a loss such as that provided for in Article (7) of this Law as a result of carrying on trade or business subject to tax under this Law, any portion of the loss for which full relief has not been given under the provisions of this Law shall be carried forward in the manner provided for in Article (7) of this Law, and shall not be applied to give deductions from the amount of income derived by the taxpayer from carrying on trade or business subject to tax under Kuwait Income Tax Decree No. 3 of 1955.

* Completed from the context.

Article 9

The taxpayer shall enter in its books of account all items of incomings and deductions and all other items affecting the amount of its income tax for the taxable period, and the taxpayer shall file its declaration on the basis of records which are correct and which give a true picture of its income. If a public or chartered accountant who is a member of an internationally recognised body of accountants, previously approved by the Director for the taxable period, certifies that the records for the taxable period are correct and give a true picture of the taxpayer’s income computed under the provisions of this Law, and that the declaration is in conformity with those records, the declaration shall, in the absence of proof to the contrary established by the Director, be accepted as correct, and the income tax shown in such declaration shall be deemed to have been finally determined. In the absence of a certificate under the provisions of this Article, the Director may accept the taxpayer’s declaration as correct or, when the established facts so require, may decide that it is necessary to adjust the amount of income tax shown in the declaration. The amount stated in the declaration may not in any event be increased, unless the increase results from a decision of the courts or from arbitration under Article (13), or unless the taxpayer has agreed thereto.

Article 10

The Director shall administer this Law, and shall collect the income taxes due and pay them directly to the Ruler. Upon request, the Director shall give the taxpayer a receipt certifying the amount of income taxes paid by the taxpayer and the period or periods for which such taxes were paid.
If the Director so requests, the taxpayer’s records and books of account shall be made available to the Director and his personnel for inspection when necessary for the purpose of carrying out the provisions of this Law.

Article 11

Declarations shall be confidential and may not be open to examination or inspection by any person other than the Ruler, the Director and his personnel. It shall be unlawful, if done without the consent of the taxpayer, to divulge or make known in any manner whatsoever to any person other than them the amount or particulars of any items of incomings, deductions or any other items set forth or disclosed in any declaration or in the taxpayer’s records and books of account. The same applies to permitting any person other than them to see or examine any declaration or copy thereof, or any record or book containing extracts or particulars thereof. Any contravention of the foregoing provisions shall be punishable by a fine not exceeding one hundred Kuwaiti dinars.

Article 12

Any person who knowingly (a) makes alterations in the taxpayer’s records with intent to give false information therein, or (b) makes any false statement affecting any declaration or certificate required for the purposes of this Law shall be deemed to have committed an offence against this Law and shall, upon conviction, be liable to imprisonment for a term not exceeding two years, or to a fine, or to both penalties.
If such alterations are made in the taxpayer’s records with intent to give false information therein, or if a false statement is made affecting the declaration or certificate of such a taxpayer, the taxpayer shall have committed an offence against this Law and shall, upon conviction, be liable to a fine.

Article 13

Any dispute arising between the Director and the taxpayer in connection with the application of this Law or the amount of income tax due thereunder may be referred by either party to the courts for adjudication, unless the two parties agree to submit the dispute to arbitration.

Article 14

The provisions of Kuwait Income Tax Decree No. 3 of 1955 shall not apply with respect to any income derived by a taxpayer from carrying on trade or business subject to tax under the provisions of this Law in any taxable period ending after 31 December 1960.

Article 15

The President of the Department of Finance and Economy shall implement this Law, which shall come into force on the second day of Safar 1381 AH, corresponding to the fifteenth day of July 1961. It shall be published in the Official Gazette.

Issued on 15 July 1961 and published in the Official Gazette Kuwait Al-Youm on 23 July 1961.