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Friday, 12 January 2007

Kuwait Zakat law

KUWAIT : In November, 2007, Kuwait passed a law requiring all Kuwaiti public and shareholding companies to pay Zakat every year. This law became effective on Dec 10, 2007.
The following questions and answers detail the application of Zakat Law in Kuwait:1) From when Zakat law is effective? Law No 46 of 2006 concerning Zakat and contribution of Public and Closed Share holding Companies in the Kuwait state’s budget has been issued on Nov 27, 2006. Ministerial resolution no. 58 of 2007 has been issued on Nov 25, 2007 setting out executive regulations published in the official gazette on Dec 9, 2007 issue no.848. Accordingly Zakat law is effective from Dec 10, 2007.
2) Who is liable to Zakat? All Kuwaiti public and Closed Shareholding companies excluding government companies and foreign companies.
3) Is it mandatory to register the company with the Ministry Of Finance? Yes. It is mandatory for all existing Closed Shareholding Companies to register with the Ministry Of Finance on or before March 6, 2009. Closed Shareholding Companies incorporated after Dec 9, 2007 must register themselves within 30 days from the date of incorporation.
4) How is Zakat computed? Zakat is computed at 1 percent of annual net profit. For the financial year ended Dec 31, 2007, Zakat is computed for 22 days only as Zakat law is effective from Dec 10, 2007.
5) How is the annual profit arrived? Annual Net Profit is arrived after deducting costs and expenses incurred by the company subject to the following conditions:
a) Expenses should be actual and accompanied by supporting documents after excluding provisions. However, provisions and reserves made by insurance companies and banks as per the rules and regulations implemented by regulatory authorities are allowed as deduction.
b) Expenses must be relating to the activity and necessary to realise profit; and
c) Expenses must be relating to the subject period and accounted as per accounting principles and generally accepted accounting standards.
Further the following deductions are permitted: a) Cash dividends obtained by the company from other companies that are already subjected to this law; and
b) Share of profits directly received by the company from unconsolidated subsidiaries and associate companies which have been subjected to this law for the same subject period.
6) What documents must be filed with Zakat declaration? The Zakat declaration must be accompanied by the following documents: a) Audited financial statements,
b) Proof of cash dividends,
c) Minutes of Annual General Assembly.
7) How losses are treated? In case of losses the company shall not be subject to Zakat. However, such losses can not be carried forward.
8) What are due dates for filing Zakat declaration and payment of Zakat? Only audited Zakat Declaration must be filed with the Ministry of Finance on or before fifteenth of the fourth month following the year end and settle Zakat due as per Zakat declaration.
9) Is it possible to obtain extension of time for filing Zakat declaration? Yes it is possible. However, an application must be submitted before 1st day of third month following the end of subject period. The reasons for extension shall be acceptable to the Ministry of Finance. In case of no reply, the application is considered rejected. Approval may be granted for a period of maximum of 60 days.
10) What if Zakat declaration not filed or Zakat not paid? a) In case of companies not filing Zakat declaration, the Ministry of Finance has the right to estimate their net profit on a deemed profit bases and levy Zakat accordingly. b) The Ministry of Finance has also the right to inform other government authorities not to provide services to such companies until a clearance certificate is obtained.
11) Are there any delay fines? There is no delay fines stipulated in the Ministerial Resolution.
12) Are there any field inspection / assessment procedures? a) It is a normal practice for the 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 the years without any exception.
b) Based on the findings from the field inspection, adjustments are normally made to the net profit e.g. if deductions are not supported, then they are disallowed at the time of the field inspection.
c) Following the inspection, Zakat assessment is issued.
13) Are there any objection / appeal procedures in case of disputes with the Ministry of Finance? a) If the Zakat assessment is not acceptable to the company, the company has the option to file an objection within 60 days from the date of the Zakat assessment letter with the Ministry of Finance.
b) If the Zakat issue is not satisfactorily resolved within 90 days of raising the objection letter, the company has the right to have its case heard by the Appeal Committee.
c) Appeal has to be filed within 30 days from the date of rejection by the of Ministry of Finance in response to the objection or, in case of no response from the Ministry of Finance, then appeal has to be filed within 30 days after the end of the 90 days period from the date the objection letter was filed.
d) If the company is still unsatisfied with the outcome of the Appeal Committee’s decision, then the company has the option to refer the case to The Settlement Division. If the company still unsatisfied with the decision of The Settlement Division, then has right to pursue their dispute through civil courts for adjudication within 60 days from the date of appeal committee’s decision. The company however, must pay Zakat as per the appeal committee decision even though they have filed a case in the court.
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