This law was originally proposed to support and encourage Zakat & contribution of Kuwaiti closed and listed shareholding companies in the state budget. This law enacted through Law No. 46 of 2006 which came into effect from 10 December 2007.It has been amended through Ministerial Resolution No. 58 of 2007. In addition, Ministry of Finance has issued detailed executive rules and regulations.
Zakat law is applicable for all Kuwaiti closed and listed Shareholding Companies excluding Governmental and Foreign entities.
It is mandatory for all Kuwaiti closed and listed shareholding Companies to register with Ministry of Finance and apply for the Zakat taxation card within thirty days from the date of incorporation.
Zakat is computed at 1% of annual net profit before Board of Director's remuneration, contribution to Kuwait Foundation for Advancement of Sciences, donations, grants, Zakat and NLST.
Annual Net Profit is arrived after deducting costs and expenses incurred by the Company subject to the following conditions:
- Expenses must be actual and accompanied by supporting documents after excluding provisions. However, provisions and reserves made by Insurance Companies, Investment Companies and Banks as per the rules and regulations implemented by regulatory authorities are allowed as deductions.
- Expenses must be relating to the activity and necessary to realise profit.
- Expenses must be relating to the subject period and accounted as per International Financial Reporting Standards (IFRS).
Furthermore, the following deductions are permitted:
- Cash dividends directly received by the company or through portfolio from companies already subject to the same law.
- Share of profit from direct associates or unconsolidated subsidiaries which have been subject to the same law.
- Reduction on retained earnings that was previously subject to the same law. Any additions to the retained earnings which are not previously subject to the same law should be also added to the annual net profit.
- Deduction of proportionate Zakat paid by direct consolidated subsidiaries out of Zakat to be paid by parent Company (to the extent of its ownership).
The Zakat declaration must be accompanied by the following documents:
- Audited financial statements.
- Documents supporting the cash dividends received from companies subject to the same law (if any).
- Statement clarifying the method of accounting the share of profit from associates or unconsolidated subsidiaries subject to the same law (if any), along with the supporting documents.
- Documents supporting Zakat payment made by direct consolidated subsidiaries subject to the same law (if any).
- Statement clarifying any change in the retained earnings for the previous years (if any), along with the supporting documents.
- Minutes of the Annual General Assembly meeting.
- Certified cheque in favour of Ministry of Finance for the due amount of Zakat (if any) as per declaration.
In case of losses, the company will not be subject to Zakat. However, such losses cannot be carried forward. It is still mandatory to file the Zakat declaration irrespective of the fact that the company has incurred losses.
Audited Zakat declaration must be filed with Ministry of Finance on or before fifteenth of the fourth month following the end of subject period and settle Zakat due as per declaration.
It is possible to obtain an extension of time for filing the Zakat declaration however; an application must be submitted before 1st day of third month following the end of subject period. The reasons for extension must be acceptable to Ministry of Finance. In case of no reply, the application is considered rejected. Approval may be granted for a maximum period of sixty days.
If the company didn't file the Zakat declaration, Ministry of Finance has the right to estimate their annual net profit on a deemed profit basis and levy Zakat accordingly. Ministry of Finance has also the right to inform other governmental authorities not to provide services until a clearance certificate is obtained. Non payment of Zakat incurs penalties up to KD 5,000 and/or imprisonment for a term not exceeding 3 years in addition to payment of Zakat due.
It is a normal practice for Ministry of Finance to carry out field inspection of every company's books and records to verify the income and expenses reported in the Zakat declaration to the supporting documents for all subject years without any exceptions. Based on the findings from the inspection, adjustments could be made to the annual net profit e.g. if deductions are not supported, then they will be disallowed at the time of the inspection. Following the inspection, Zakat assessment is issued.
If the Zakat assessment is not acceptable, the company has the right to file an objection with Ministry of Finance within 60 days from the date of the assessment letter. If the Zakat issue is not satisfactorily resolved within 90 days of filing the objection letter, the company has the right to have its case heard by the Tax Appeals Committee. Zakat appeal has to be filed within 30 days from the issuing date of Ministry of Finance letter in response to the Zakat objection or, in case of no response from Ministry of Finance, Zakat appeal has to be filed within 30 days after the end of the 90 days period from the date the objection letter was filed. If the company is still not satisfied with the Tax Appeals Committee's decision, then it has the right to pursue their Zakat dispute through civil courts for adjudication within 60 days from the date of the appeals committee's decision.