Decree No. 3 of 1955 on Kuwait Income Tax

Decree No. 3 of 1955
on Kuwait Income Tax

Article 1

An annual income tax shall be imposed on the income of every body corporate carrying on business or trade, on its activity in the State of Kuwait, wherever incorporated, and in particular on:
1- Profits realised from any contract performed wholly or partly in the State of Kuwait.
2- Amounts received from the sale or lease of, or the grant of a concession to use or exploit, any trademark, patent design, or copyright and printing rights.
3- Commissions due or arising from commercial representation or brokerage agreements.
4- Profits of industrial and commercial activity.
5- Profits realised from the disposal of assets.
6- Profits resulting from the purchase and sale of property, goods or rights therein, and the opening of a permanent office in the State of Kuwait in which contracts of sale and purchase are concluded.
7- Profits resulting from the letting of any property.
8- Profits resulting from the rendering of services.
The amount of the tax under this Law shall be fixed at 15% of the net taxable income.
Profits of the body corporate resulting from trading operations on the Kuwait Stock Exchange, whether carried out directly or through portfolios or investment funds, shall be exempt from the tax imposed under this Law.

* Replaced by Article 1 of Law No. 2 of 2008 (Kuwait Al-Youm, Issue No. 856, 3 February 2008).

Article 2

When used in this Decree:
(a) the term “taxpayer” means any body corporate subject to the income tax imposed by this Decree;
(b) the terms “each taxable period”, “any taxable period”, “such taxable period” or “the taxable period” mean the taxable period as defined in Article 5, to the intent that the charge to income tax under this Decree shall be in substitution for, and shall operate to the exclusion of, the charge to income tax under the Kuwait Income Tax Decree of 1951 as regards any taxable period as defined in Article 5 of this Decree; and in particular the expression “taxable year” as used in the said Kuwait Income Tax Decree of 1951 shall not apply for the purposes of this Decree;
(c) the term “Director” means the Director of Income Taxes appointed by the Ruler;
(d) the term “personnel of the Director” means the officials and other persons employed by the Director in carrying out the duties of the office of the Director;
(e) the term “body corporate, wherever incorporated, carrying on business or trade in Kuwait” includes any body corporate carrying on business or trade in Kuwait either directly or through an agent, and also any body corporate carrying on business or trade in Kuwait as an agent for others;
(f) the agent referred to in paragraph (e) is the person authorised by his principal to carry on business or trade, or any of the activities set out in Article (1) of this Law, or to conclude a binding agreement with a third party on behalf and for the account of his principal and within the authority conferred upon him; provided that the profits of a Kuwaiti merchant resulting from his sale of goods which he has purchased and transported for his own account shall not be subject to this tax;
(h) the term “income” means the gains and profits of any body corporate derived from carrying on business or trade in Kuwait.

* Paragraph (e) is paragraph (f) as replaced by Decree No. 2 of 1957 (Kuwait Al-Youm, Issue No. 155, 29 December 1957); that paragraph took the place of paragraph (e) by virtue of Article 3 of Law No. 2 of 2008 (Kuwait Al-Youm, Issue No. 856, 3 February 2008); that Article repealed paragraphs (e), (g), (i) and (j) and added paragraph (f).

Article 3

Taxable income shall be determined after deducting all expenses and costs incurred to generate that income, in particular:
1- Salaries, wages, end-of-service gratuities and the like.
2- Taxes and fees, other than the income tax payable under this Law.
3- Depreciation of assets, in accordance with the rates specified in the Executive Regulations.
4- Donations, contributions and subsidies paid to licensed Kuwaiti public or private entities, within the limits of the rates specified in the Executive Regulations.
5- Head office expenses, in accordance with the rates specified in the Executive Regulations.

* Replaced by Article 1 of Law No. 2 of 2008 (Kuwait Al-Youm, Issue No. 856, 3 February 2008).

Article 4

Repealed.

* Repealed by Article 3 of Law No. 2 of 2008 (Kuwait Al-Youm, Issue No. 856, 3 February 2008).

Article 5

The taxable period in respect of which income tax is imposed under this present Decree 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 the calendar year, unless the Director, upon the taxpayer’s request, has authorised the taxpayer in writing to keep its records on a basis other than the calendar year;
(b) the period authorised under such substituted basis shall not exceed a period equal to one calendar year plus one-half of the next succeeding calendar year;
(c) any such authorisation by the Director shall not be withdrawn, revoked or varied save at the taxpayer’s request;
(d) in respect of a taxpayer which was not subject to the provisions of the Kuwait Income Tax Decree of 1951, no taxable period may begin before 1 January 1955; accordingly, the income of such a taxpayer earned during an accounting period beginning before 1 January 1955 but ending after that date shall be apportioned on a time basis;
(e) any authorisation by the Director under (a) above may be given subject to such conditions as the Director deems appropriate, or, if the provisions of (d) above are in operation, the Director, when giving the authorisation, may impose such conditions as he deems appropriate with regard to which of the percentages stated in Article 2 (j) shall be appropriate for the purposes of Article [1] (a) and (b), having regard to the length of the taxable period and the amount of the income during such period.

* The term “calendar year” replaced the term “Western Christian year” by virtue of Article 3 of Law No. 2 of 2008 (Kuwait Al-Youm, Issue No. 856, 3 February 2008).
* The article number [1] has been completed from the English text published with the Decree in the Official Gazette (Article 1 (a) and (b)).

Article 6

Income shall be computed as provided in this Decree and in accordance with the method of commercial accounting 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 the method that fairly reflects the income.
The accrual method (that is, the method under which items of incomings and items of deduction are taken into account in the taxable period in which those amounts accrue, or in other words, in which the right thereto or the liability therefor arises and the amount thereof becomes reasonably determinable) shall be considered a means of fairly reflecting income. The taxpayer shall be entitled to use its own method followed in its records for converting one currency into another, if such method is generally recognised in commercial accounting.
The expressions “accrue to or are received by”, “accrue against or are paid by”, “accrue or are paid”, “incurred or paid” and “derived from”, when used in this Decree, 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 for the taxable period in which they accrue to the taxpayer, and all items of deduction shall be deducted for 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 for the taxable period in which they are received, and all items of deduction shall be deducted for the taxable period in which they are paid by the taxpayer.

Article 7

If the accounts of any year close with a loss, such loss shall be deducted from the profits of the following year. If the profit is insufficient to cover the whole loss, the balance shall be carried forward to the second year, and if any loss then remains from that year, it shall be carried forward to the third year. The balance of the loss may not be carried forward beyond the third year. The loss shall not be carried forward in the event of cessation of activity, evidenced by the body corporate notifying the Ministry thereof or submitting a tax return devoid of any revenue arising from its principal activity.
Periods of compulsory cessation of the activity shall not be counted among the periods provided for in the preceding paragraph.

* Replaced by Article 1 of Law No. 2 of 2008 (Kuwait Al-Youm, Issue No. 856, 3 February 2008).

Article 8

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; provided that a taxpayer whose income for any taxable period does not exceed KD 5,250 shall not be required to file an income tax declaration unless directed by the Director to do so. 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. Such income tax shall be paid in pounds sterling (United Kingdom) or in dinars. The instalments shall be due, respectively, on the fifteenth day of the fourth, sixth, ninth and twelfth months following the end of the taxable period. The Director may grant reasonable extensions of time for filing the declarations and paying the income tax imposed by this Decree when the taxpayer shows that such extensions are necessary. In case of failure to file the declaration or to pay the amount of income tax due in accordance with the provisions of this Article (except where such failure is due to a reasonable cause), there shall be added to the amounts due a fine amounting to 1 per cent for each thirty days or part thereof during which such failure continues.

* “KD 5,250” and “dinars” were originally “70,000 rupees” and “rupees”, and were replaced by virtue of Article 1 of Law No. 9 of 1985 (Kuwait Al-Youm, Issue No. 1616, 9 June 1985), which substituted the word “dinar” for the word “rupee” wherever it appears in the laws and adjusted amounts at the rate of seventy-five fils per rupee.

Article 9

The taxpayer shall enter in the records of its accounts all items of incomings and deduction and all other items affecting the amount of its income tax for the taxable period. The taxpayer shall file its declaration on the basis of records which are correct and which fairly reflect its income. If a public or chartered accountant who is a member of an internationally recognised firm of accountants approved by the Director for the taxable period submits a certificate that the records for the taxable period are correct and fairly reflect the [income of the] taxpayer computed as provided by this Decree, and that the declaration is in conformity with such 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. The Director shall issue each year a list of the names of two or more internationally recognised firms of accountants which he approves in respect of the taxable periods in such year. In the absence of a certificate as provided in this Article, the Director may accept the taxpayer’s declaration as correct or, if the established facts so require, may decide that it is necessary to adjust the amount of income tax stated in the declaration. In no event may the amount stated in the declaration be increased, except as a result of a decision of the courts or of arbitration under Article 13, or if the taxpayer has agreed thereto.

* The words [income of the] have been completed from the English text published with the Decree in the Official Gazette (the taxpayer’s income).

Article 10

The Director shall administer and enforce this Decree. He shall collect the income taxes due and pay them directly to the Ruler, and, 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.
Upon the request of the Director, the taxpayer’s records and books shall be made available to the Director and his personnel for inspection when necessary for the purposes of carrying out the provisions of this Decree.

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, without the consent of the taxpayer, to divulge or make known in any manner to any person other than themselves the amount or particulars of any items of incomings or deduction or any other items set forth or disclosed in any declaration or in the taxpayer’s records and books, or to permit any person other than themselves to see or inspect any declaration or copy thereof or any record or book containing any extracts or particulars thereof. Any violation of the foregoing provisions shall be punishable by a fine not exceeding KD 112.5.

* The amount was originally 1,500 rupees and was converted into dinars by virtue of Article 1 of Law No. 9 of 1985 (Kuwait Al-Youm, Issue No. 1616, 9 June 1985), which substituted the word “dinar” for the word “rupee” wherever it appears in the laws and adjusted amounts at the rate of seventy-five fils per rupee.

Article 12

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

Article 13

Any dispute arising between the Director and the taxpayer in respect of the administration of this Decree or the amount of income tax due thereunder may be referred by either party to the courts for adjudication, unless both parties agree to submit the dispute to arbitration.

Article 13 bis

The Government’s right to claim the taxes due to it under this Law shall not lapse except upon the expiry of five years from the date on which the body corporate submits its tax return, or from the date on which the Director becomes aware of the elements of the activities which the body corporate did not disclose in its tax return, or becomes aware of the information which it concealed relating to its tax obligations.
The limitation period shall also be interrupted by notifying the body corporate of the tax assessment by registered letter, by serving notice on it to pay the taxes, or by a decision of a tax appeals committee.

* Added by Article 2 of Law No. 2 of 2008 (Kuwait Al-Youm, Issue No. 856, 3 February 2008).

Article 13 bis A

The Minister of Finance shall issue the Executive Regulations within 6 months from the date of publication of this Law in the Official Gazette.

* Added by Article 2 of Law No. 2 of 2008 (Kuwait Al-Youm, Issue No. 856, 3 February 2008).

Article 14

The provisions of the Kuwait Income Tax Decree of 1951 aforesaid shall not apply with respect to any taxable period ending after 31 December 1954, the intent being that this Decree shall be in substitution for the said Kuwait Income Tax Decree of 1951.