Submission of Tax Retention Returns Are you compliant? Compliance with Tax Retention Returns

Under Article 16 and 37 to 39 of the Executive By-Laws to Corporate Income Tax Law No.2 of 2008 (Law No.2 of 2008) issued by the Ministry of Finance (MOF), every business entity, authority and ministry operating in Kuwait are required to:

a)Inform the Kuwait Tax Authority (KTA) of contractor(s), sub- contractor(s), service provider(s), or any kind of beneficiaries with which they are doing business (collectively “Beneficiaries”) stating clearly each company’s name and address;

b)Submit a copy of the related contract(s) to the KTA; and

c)Retain 5% from all invoices paid to Beneficiaries (in principle, both GCC and non-GCC entities). These amounts are normally retained by the contract owner and released only when the Beneficiaries provide a valid Tax Clearance Certificate (TCC) and/ or No Objection Letter (NOL) issued by the KTA authorizing the contract owner to release the amounts retained.

Tax Retention Return covers the requirements under a) and b) above.  Should be submitted to the KTA periodically – ideally quarterly.

KPMG can assist clients with:

• Reviewing new service agreements and advise on the tax retention implications;
• Develop and/or implement processes to assist clients with tax retention compliance requirements.
• This includes:
  • Draft a template letter to vendors / services providers informing them of obligations under the tax retentions regulations;
  • Develop a checklist to guide internal compliance with tax retentions obligations.
• Submit the Tax Retention Return to the KTA on a periodic basis.
• Obtain TCC/NOL for vendors / services providers to enable you to release any tax retentions, where applicable.