A. OVERVIEW: A number of taxation regulations and related laws are applicable to foreign entities doing business in Kuwait and include:

• Corporate Income Tax (CIT) Decree No 3 of 1955 as amended by Law No 2 of 2008;

• Zakat Law No 46 of 2006;

• Contribution to the Kuwait Foundation for the Advancement of Sciences (KFAS);

• National Labour Support Tax No 19 of 2000, which regards taxes for listed companies;

• Social Security Law No 61 of 1976; and

• Law No 23 of 1961, which regards taxes for enterprises operating in a “specified zone”. Kuwait also offers investment and tax-related incentives, which are detailed under the following laws:

• Leasing and Investment Companies Law No 12 of 1998;

• Industry Law No 56 of 1996;

• Direct Foreign Capital Investment Law No 8 of 2001;

• Free Trade Zone Law No 26 of 1999; and

• Article 1 of Law No 2 of 2008, which regards capital earned when dealing in securities. A number of miscellaneous laws are also relevant for tax-related purposes when doing business in Kuwait and they cover the following issues:

• Avoidance of double-taxation agreements;

• Anti-avoidance rules;

• Retention of payments to subcontractors;

• Withholding tax on dividends;

• The Kuwaiti offset programme; and

• Public-private partnerships (PPPs). The main laws governing how business is conducted in Kuwait are the following:

• Kuwaiti Commercial Code; and

• Kuwait Company Law No 25 of 2012. B. MAIN REGULATIONS & LAWS CIT: The payment of CIT is governed by Decree No 3 of 1955, as amended by Law No 2 of 2008 and executive bylaws. Foreign corporate entities are subject to taxation in Kuwait if they carry out any trade or business activities in the country, directly or through an agent. Entities owned by Kuwaitis or GCC nationals are not taxed. The CIT rate is a flat 15%.

ZAKAT: Under the Zakat Law No 46 of 2006, zakat, or a religious tithe, is levied on all Kuwaiti shareholding companies at a rate of 1% of their net annual profit. Ministerial Order No 58 of 2007 provides rules for the application of zakat. Regulations regarding the KFAS: The KFAS was formed by Kuwaiti businesses to support scientific progress. All shareholding companies should pay at least 1% of net profits annually as a contribution to the KFAS. The net profit minus accumulated losses brought forward and minus the transfer to statutory reserve for the year is the basis for calculations. National Labour Support Tax: This law was enacted in 2000 to support and encourage the employment of Kuwaiti nationals in non-government entities. Under the law, schemes intended to encourage the employment of local workers in the private sector are funded by a 2.5% tax on the profits of all companies listed on the Kuwait Stock Exchange (KSE). Ministerial Order No 24 of 2006 provides additional rules for the application of this tax.

SOCIAL SECURITY: The provision of social services is covered under Social Security Law No 61 of 1976. The social security system is organised in the form of a social insurance programme administered by the Public Institution for Social Security under the supervision of the Ministry of Finance (MOF). The programme provides covers for medical care in old age, disability and death. There are two social insurance schemes: a basic scheme established in 1976 and a supplementary scheme established in 1992.

Under the basic scheme, Kuwaiti employers and employees who are citizens of other GCC countries are subject to social security contributions. Contributions must be paid monthly by employees and employers for monthly salaries between KD250 ($892.90) and KD1250 ($4464) at a rate of 11% for employer and 7.5% for the employee.

The supplementary scheme is applicable to Kuwaiti employees with monthly earnings of over KD1250 ($4464) and up to KD2250 ($8036), as well as for the self-employed. Rates under this scheme are 10% for employers, 5% for employees and 15% for workers who are self-employed.

TAXES ON SPECIFIED ZONES: Law No 23 of 1961 covers enterprises located in a “specified zone”. Companies operating in the area, which includes the shared neutral zone with Saudi Arabia and the islands of Kubbar, Qaruh and Umm Al Maradim and their territorial waters, are considered to be part of the “specified zone”. Entities operating in this zone are not subject to the provisions of Decree No 3 of 1955 regarding CIT. Instead they are subject to Law No 23 of 1961, which governs income tax and specifies the tax rate on net profits at the following rates:

• 20% for taxable income which does not exceed KD500,000 ($1.78m); and

• 57% for taxable income which exceeds KD500,000 ($1.78m) C. INVESTMENT & TAX INCENTIVES Leasing and Investment Companies Law No 12 of 1998: This law allows for the formation of investment and leasing companies that have their principal place of business located in Kuwait with Kuwaiti or foreign shareholders. The law grants a five-year tax holiday to non-Kuwaiti founders and shareholders of such companies, beginning from the date of the establishment of the company. Industry Law No 56 of 1996: To encourage investment in local industrial undertakings the industry law offers the following incentives:

• Reduced import duties on equipment and raw materials;

• Protective tariffs against competing imported goods;

• Low-interest loans from local banks;

• Export assistance; and

• Preferential treatment for government supply contracts; Direct Foreign Capital Investment Law No 8 of 2001: This law provides the following benefits for new and existing foreign capital investment projects:

• Opportunity for investment in excess of 50% (and in some cases up to 100%) in Kuwaiti companies by non-Kuwaitis;

• Full or partial exemption from Customs duties on certain imports and other government charges for approved projects;

• A tax holiday of up to 10 years with respect to non-Kuwaiti shareholders’ shares of the profits from qualifying projects;

• A guarantee of repatriation of profits and capital invested in the project;

• Double-taxation treaties and investment promotion and protection agreements;

• Long-term leases of land in industrial estates at lower rents; and

• Employment of required manpower without being subject to restrictions contained in the labour law concerning employment of Kuwaiti nationals. Free Zone Law No 26 of 1999: The Kuwait Free Trade Zone (KFTZ) was established to encourage exporting and re-exporting and offers the following benefits for entities operating within the zone:

• Up to 100% foreign ownership is allowed;

• All corporate and personal income is exempt from any relevant taxes;

• All imports into and exports from the KFTZ are exempt from tax; and

• Capital and profits are freely transferable outside of the KFTZ and are not subject to any foreign exchange controls. BOT Projects: Kuwait has begun to use the build-operate-transfer (BOT) method when dealing with large infrastructure projects. A number of tax and tariff concessions may be built into BOT contracts. Capital gains from dealing in securities: Article 1 of Law No 2 of 2008 and Article 8 of the related bylaws provide for tax exemption for profits generated from dealings in securities on the KSE, whether directly or through investment portfolios. This exemption is intended to promote investment in Kuwaiti shares by international funds and companies. D. MISCELLANEOUS REGULATIONS Avoidance of double-taxation agreements: Kuwait has entered into taxation treaties with several countries and has concluded agreements to prevent double taxation arising from international sea and air transport activities with a number of countries. Kuwait is also a signatory to tax treaties with other Arab countries and other GCC partners which provide for relief from double taxation in many areas. Anti-avoidance rules: Transfer Pricing is addressed by Executive Rule No 24 of 2010. The tax authorities deem the following profit margins on materials imported by foreign entities operating in Kuwait to be taxable revenues:

• 0-15% on material imported from the head office;

• 6.5-10% on material imported from related com panies; and

• 3.5-6.5% on material imported from third parties. Retention of payments to subcontractors: Under Ministerial Order No 44 of 1985, all government departments, public bodies, privately owned firms and government-owned companies are required to withhold final payments due to entities, which should not be less than 5% of the total contract value, until such entities present a tax clearance from the Department of Income Taxes (DIT). Executive Rule No 5 and 6 of 2010 require every business entity operating in Kuwait to retain 5% from each payment due to contractors or subcontractors until the contractor or subcontractor provides a valid tax clearance certificate issued by the DIT and MOF. Withholding tax on dividends: Kuwait taxation laws do not provide for withholding taxes except in the case of dividend income earned by investors in companies listed on the KSE. Under Law No 2 of 2008, dividends received by the investors in companies listed on the country’s stock exchange are subject to a withholding tax rate of 15%. The taxes due must be withheld by the foreign investor’s custodian or broker in Kuwait. Article 46 of the relevant bylaws stipulates that investment companies or banks that manage portfolios or funds or act as custodians of listed company shares for foreign companies must withhold corporate tax due from the amount paid to such foreign entities. Kuwait offset programme: The Counter-Trade Offset Programme established by Decision No 694 of 1994 requires all foreign contractors who meet certain criteria to participate in the offset programme. The MOF issued Ministerial Order No 13 of 2005 to reactivate the offset programme. A foreign firm which wins government contracts above a certain threshold is required to make an investment that will add value to the economy.

The National Offset Company, a state-owned shareholding cooperation, is managing the offset programme on behalf of the MOF. Offset obligations apply to military contracts equal to or greater than KD3m ($10.7m), civilian contracts equal to or greater than KD10m ($35.7m), and oil and gas contracts. The foreign suppliers must invest 35% of the contract value in an approved offset business venture. PPPs: Law No 7 of 2008 provides the legal framework for PPP projects in Kuwait. Relevant legislation combines the objective of attracting increased private sector participation based on competitive and transparent rules with the social objective of ensuring that the economic benefits of private investment are shared with Kuwaiti citizens. MAIN LAWS GOVERNING BUSINESS IN KUWAIT Kuwait Commercial Code: Articles 23 and 24 of the Kuwait Commercial Code outline the basic premises for doing business in Kuwait. Article 23 states that non-Kuwaitis cannot engage in commerce in Kuwait without having a Kuwaiti partner whose equity holding is at least 51%. Article 24 states that a foreign company cannot establish a branch in Kuwait, and it may not engage in commercial activities in the country except through a Kuwaiti agent. Company Law No 25 of 2012: A foreign entity can only enter the Kuwaiti market and carry out business in one of the following ways:

• Establishing a company;

• Concluding a joint-venture agreement;

• Appointing a Kuwaiti commercial agent; and

• Appointing a commercial representative. 1. Establishing a company Kuwaiti law permits foreign persons or entities to establish permanent presence in Kuwait by forming and investing in the following Kuwaiti companies:

• Limited liability company;

• Closed joint stock company; and

• Public joint stock company. 2. Entering into a joint venture Foreign firms may enter the Kuwaiti market through joint-venture contracts with Kuwaiti companies. This option gives the parties more flexibility in their arrangement than the establishment of a company. Joint-venture agreements are common in relation to a specific project that has a limited term. 3. Appointing a commercial agent There are three types of commercial agents: a contract agent, described under Article 271 of the Kuwaiti Commercial Code; a distributorship, covered under Article 286 of the commercial code; and a commission agent, detailed in Article 287 of the country’s commercial code. 4. Appointing a commercial representative A commercial representative, described in Article 297 of the commercial code, is a Kuwaiti individual or entity engaged by a foreign company pursuant to a “Commercial Representation Agreement” contract to represent its business interests in Kuwait.