What is the Tax on Restaurants in Kuwait City?

what is the tax on restaurants in kuwait city

As of January 2025, Kuwait does not impose a value-added tax (VAT) or sales tax on goods and services, including those provided by restaurants in Kuwait City. This means that customers dining in restaurants are not subject to additional taxes on their bills.

However, significant changes are underway in Kuwait’s tax landscape, particularly concerning corporate taxation. The Kuwaiti government has introduced a 15% corporate income tax (CIT) targeting multinational enterprises (MNEs) operating within the country. This move aligns with global tax standards and aims to diversify Kuwait’s income sources beyond oil revenues.

Corporate Income Tax Implementation

The new tax regime is being implemented in phases:

  1. January 1, 2025: Kuwaiti multinational enterprises and permanent establishments of foreign MNEs with annual revenues exceeding €750 million will be subject to a 15% CIT. Additionally, a supplementary tax will be imposed if their effective tax rate falls below the global minimum of 15%, in accordance with the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two guidelines.
  2. January 1, 2027: The CIT will expand to encompass all other legal persons, including natural persons engaged in business activities. Businesses with annual turnovers below 1.5 million Kuwaiti Dinars (approximately USD 4.9 million) will be exempt from this tax, providing relief to smaller enterprises.

Implications for Restaurants

For restaurants operating in Kuwait City, the impact of the new tax laws will depend on their ownership structure and revenue levels:

  • Multinational Chain Restaurants: If a restaurant is part of a multinational group with revenues exceeding the specified threshold, it will be subject to the 15% CIT starting in 2025. This could affect the restaurant’s net profits but should not directly influence the prices charged to customers, as there is no VAT or sales tax to pass on.
  • Local Restaurants: Independent restaurants with revenues below 1.5 million Kuwaiti Dinars will be exempt from the CIT, even after the broader implementation in 2027. This exemption aims to support small and medium-sized enterprises within the country.

Supplementary Tax and Withholding Tax

To ensure compliance with international tax standards, the Kuwaiti government has introduced additional measures:

  • Supplementary Tax: Multinational groups with effective tax rates below 15% will be subject to a supplementary tax to bridge the gap, ensuring adherence to the OECD’s global minimum tax rules.
  • Withholding Tax: A 5% withholding tax will apply to certain payments made to non-residents, including dividends, royalties, technical services, and rent for movable and immovable property, unless these payments are connected to a permanent establishment in Kuwait. This measure is designed to prevent tax base erosion and profit shifting.

Compliance Requirements

Businesses subject to the new tax laws must adhere to specific compliance obligations:

  • Registration: Taxable entities are required to register with the Tax Administration within 30 days of commencing operations.
  • Tax Returns: Entities must submit tax returns within six months following the end of their financial year, accompanied by audited financial statements.
  • Advance Payments: Quarterly advance tax payments based on estimated earnings are mandated, with adjustments made upon final tax assessments.
  • Record Keeping: Businesses are obligated to maintain financial records for a period of 10 years to ensure transparency and facilitate audits.

Penalties for Non-Compliance

Failure to comply with the new tax regulations can result in penalties:

  • Late Filing: Delays in submitting tax returns can incur fines ranging from 5% to 20% of the tax due, depending on the length of the delay.
  • Incorrect Returns: Submitting inaccurate tax returns that understate tax liability by more than 10% may attract a penalty of 25% of the understated amount, unless corrected before detection by the tax authorities.

Conclusion

While there is no direct tax on restaurant services in Kuwait City, the introduction of the 15% corporate income tax represents a significant shift in the country’s fiscal policy. Restaurants that are part of large multinational groups will need to assess their tax positions and ensure compliance with the new regulations. Local establishments, particularly smaller ones, may benefit from exemptions, allowing them to continue operations without the additional tax burden.

It’s essential for all businesses to stay informed about these developments and seek professional tax advice to navigate the changing landscape effectively.

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