Foreign Shareholder, Non-Deductible Items and an Unwithheld Consultant Fee
Al-Noor Trading & Contracting KSC is a Kuwaiti shareholding company whose shareholders are Kuwaiti nationals (70%) and Gulf Holding Co. BSC (Bahrain, 30%). For the year ended 31 December 2025 it reports net profit of KWD 1,250,000 after charging: a donation of KWD 30,000 to a non-approved charity; a fine of KWD 15,000; an increase in the provision for end-of-service benefits of KWD 60,000 (the tax-approved accrued balance is KWD 150,000, while the accounting balance is KWD 210,000); and accounting depreciation of KWD 200,000 against tax depreciation of KWD 260,000. It also paid KWD 200,000 to a Bahraini consultant for services performed entirely outside Kuwait and did not withhold tax. No tax return has been filed yet.
1. Compute the income tax, zakat, KFAS and National Labor Support Tax liabilities, showing the adjustments and the reasoning for each.
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Start with accounting net profit of KWD 1,250,000. Add back the donation of KWD 30,000 because a donation to a non-approved charity is not deductible. Add back the fine of KWD 15,000 because fines and penalties are not deductible. Add back the KWD 60,000 increase in the end-of-service benefit provision because the provision is not deductible until paid or otherwise approved; the tax-approved balance is KWD 150,000 against an accounting balance of KWD 210,000. Deduct the KWD 60,000 excess of tax depreciation over accounting depreciation.
Adjusted profit is KWD 1,250,000 + 30,000 + 15,000 + 60,000 - 60,000 = KWD 1,295,000. Income tax applies only to the foreign shareholder's share: 30% x KWD 1,295,000 = KWD 388,500, at 15% = KWD 58,275 under the Income Tax Law No. 3 of 1955 as amended.
Zakat is 1% of net profit, KWD 12,500 under the Zakat Law No. 46 of 2006. KFAS is 1% of net profit, KWD 12,500. The National Labor Support Tax is 2.5% of net profit, KWD 31,250. The total liability is KWD 114,525. These levies are generally computed on net profit and are not reduced by the tax adjustments; zakat is a company-level obligation, not a shareholder-level one.
2. What is the withholding tax position on the KWD 200,000 paid to the Bahraini consultant, and what are the consequences of the failure to withhold?
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Payments to non-resident persons for services are subject to 5% withholding under Kuwait's income tax rules. The fact that the consultant performed the services entirely outside Kuwait does not remove the obligation where a Kuwaiti taxpayer makes the payment; the tax department's practice is to look at the nature of the payment and the non-resident status of the recipient. The company should have withheld KWD 10,000 (5% x KWD 200,000) and remitted it.
Because it did not withhold, the company is liable for the KWD 10,000 itself. It cannot recover the amount from the consultant unless the contract allows a gross-up or deduction. The payment should be disclosed in the tax return, and the company should regularise the position before the return is filed. Late remittance will attract penalties and may prompt a withholding audit.
The auditor should obtain the consultant's contract, invoice, evidence of non-resident status and the payment instruction. If the contract is silent on withholding, the company should consider whether the KWD 200,000 was a net amount and whether a gross-up is required. The failure should be reported to those charged with governance and provided for in the financial statements if the liability is probable and can be estimated.
3. Explain the filing deadlines and the documentation the company needs to support the return.
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The income tax return is due within four months of the end of the taxable period, so for a 31 December 2025 year-end the deadline is 30 April 2026. The zakat, KFAS and National Labor Support Tax filings are made with the same return cycle. Late filing and late payment attract penalties under the Income Tax Law and the Zakat Law, and the penalties continue to accrue until the return is filed and the tax is paid.
The company needs the audited financial statements, the tax adjustment schedule, the fixed-asset register reconciling accounting and tax depreciation, the end-of-service benefit computation and payment evidence, the donation and fine documentation, and the shareholder register showing the 30% foreign holding. It also needs the consultant's contract, invoice, proof of non-resident status and the withholding computation.
Because the foreign share is 30%, the company must maintain a clear allocation of profit and tax to the foreign shareholder and be ready to support the 30% apportionment. The auditor should test the arithmetic, agree the shareholder register to the commercial registration, and confirm that the return was filed and the tax paid before concluding on the tax provision in the financial statements.