Kuwait

If a foreign company conducts more than one business activity in Kuwait, one tax declaration aggregating the income from all activities is required to be submitted in Kuwait. In addition, in case two affiliates are involved in similar lines of business or work on the same project, their taxable results may be aggregated for the assessment of tax by the Department of Inspection and Tax Claims (DIT), a department of the Kuwait Tax Authority. On the other hand, it is also possible that the DIT would assess each company separately, depending on the facts.

Transfer pricing

Executive Rule No. 49 to the Kuwait CIT Law states that inter-company transactions should be comparable to transactions among companies that are not legally or financially associated. It also states that the Kuwait Tax Authority is entitled to inspect such transactions to ensure that they are made on an arm’s-length basis and not made for obtaining illegal tax privileges.

For companies subject to Kuwait DMTT Law, the DMTT Executive Regulations adopt transfer pricing concepts and definitions broadly aligned with the
OECD Transfer Pricing Guidelines. Key requirements are set out in the Executive Regulations in Article 22 (Arm’s Length Principle) and Chapter 10 (Articles 69–74) on transfer pricing between related persons.

A high-level overview of the transfer pricing regulations is provided below:

• Scope of applicability: The transfer pricing rules apply to MNEs headquartered in Kuwait as well as foreign MNEs with operations in Kuwait, with global consolidated revenues of at least EUR 750 million in at least two of the previous four fiscal years.
  
• Arm’s length principle: All intercompany transactions, whether domestic or international, must be carried out on terms that would be agreed upon by independent parties in similar situations.
• Definition of related persons: Persons are considered related if they are connected with each other or with a third person through ownership, control, or significant influence.
• Transfer pricing methods: the regulations have introduced methods that are consistent with the OECD Guidelines, i.e. - 1) Comparable Uncontrolled Price method, 2) Resale Price method, 3) Cost Plus method, 4) Transactional Net Margin method and 5) Profit Split method.
• Documentation requirements:
  o Master file: To be submitted within 30 days upon request of the tax authority
  o Local file: To be submitted within 30 days upon request of the tax authority
  o Disclosure form: Audited by an approved firm and submitted with the annual tax return.
• Transfer pricing adjustment: The tax authorities have the right to adjust prices of related party transactions if the arm’s length principle is not followed.

Thin capitalisation

Executive Rule No. 38 of the Kuwait CIT Law deals with the tax treatment of interest and letters of credit. Through this rule, the DIT will accept the interest paid by a company, provided it is fully supported, paid to a financial institution, and related to the Kuwait operations. However, the tax law provides the DIT with the right to determine the proper tax treatment on a case-by-case basis (if required).

Controlled foreign companies (CFCs)

There are no CFC rules in Kuwait.