Kuwait To Introduce Profit Tax

by Lorys Charalambous, Tax-News.com, Cyprus

09 November 2006

Kuwait's parliament earlier this week approved a bill which will require domestic companies to pay 1% of their profits in tax or charitable contributions.

The tax bill was drafted in an effort by the Kuwaiti government to diversify its resources from reliance on oil revenues, but it has opened a breach between rival Muslim factions in parliament on the correct interpretation of a part of Shariah law known as zakat, or alms giving.

Under the new legislation, companies can opt out of paying the tax, but must make an equivalent contribution to the state-run Zakat House. However, Sunni Muslims, who are in the minority in Kuwait, pay zakat differently to the majority Shiites.

Critics of the bill have contended that the legislation has little to do with zakat since companies will only pay 1% of their profits and not the usual 2.5% expected under Islamic law, and is more concerned with raising money for the government's coffers.

The legislation also introduces a tough penalty regime for incorrect filing or failure to file tax data in the form of a KD5,000 (US$17,000) fine, a three year prison term, or both.

Foreign companies have been exempted from the bill.

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