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The Kuwait-UAE agreement covers residents of either nation and allows income earned from property in one country to be taxed locally.
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According to the new law, profits derived from operating ships or aircraft in international traffic are taxable only in the contracting state where the effective management center of the enterprise is located.
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The new law states that investments, income from those investments, and profits from their sale by one contracting state in another are taxable only in the first contracting state.
Kuwait has issued a decree-law to implement the shared goal of enhancing economic ties and cooperation in tax matters with the UAE, the Q8 Press reported.
This law confirms Kuwait’s approval of an agreement aimed at avoiding double taxation on income and capital and preventing tax evasion and avoidance between the two countries.
The law, published in the Official Gazette on the 14th of this month, incorporates provisions from the agreement concluded between the two countries on February 11 in Dubai. It specifies the individuals covered by the agreement, who may be residents of either or both countries, and allows income earned by a resident in one contracting state from immovable property situated in the other contracting state to be taxable in that state.
The agreement, under the new law, applies to taxes on income and capital imposed by a contracting state or its political subdivisions or local authorities, regardless of their method of imposition. It also covers taxes on gains from the sale of movable or immovable property, taxes on total wages and salaries paid by enterprises, and taxes on capital gains.
The law specifies that business profits are taxable only in the contracting state where the activity is carried out, unless the enterprise operates through a permanent establishment in the other contracting state.
According to the new law, profits derived from operating ships or aircraft in international traffic are taxable only in the contracting state where the effective management center of the enterprise is located.
The law also allows joint projects to be subject to taxation in the other contracting state under certain conditions: when an enterprise of one contracting state directly or indirectly participates in the management, control, or capital of an enterprise of the other contracting state, and when the same individuals are directly or indirectly involved in the management, control, or capital of enterprises in both contracting states.
Cross-border taxation on property and business profits
The law permits taxation on profits realized by a resident of one contracting state in the other contracting state from the sale of immovable property, as well as profits derived from the sale of movable property that forms part of the business assets of a permanent establishment owned by an enterprise of one contracting state in the other contracting state. Additionally, it allows taxation on profits arising from the sale of ships or aircraft engaged in international traffic, among other provisions.
Income from employment, salaries, wages, and similar remuneration received by a resident of a contracting state is taxable only in that state, unless the employment is performed in the other contracting state.
The law also stipulates that pensions and similar benefits paid to individuals residing in a contracting state for past services are taxable solely in that state.
The law also clarified a special provision regarding other income, stating that income items of a resident of a contracting state, regardless of their source and not covered by previous articles of this agreement, are taxable only in that contracting state. Additionally, it allows for the taxation of capital represented by immovable property owned by a resident of a contracting state and situated in the other contracting state.
Government investments
The new law specifies that investments made by a contracting state in the other contracting state, income from such investments, and profits from the sale of these investments shall be taxable only in the first-mentioned contracting state.
The explanatory note accompanying the law outlines procedures for eliminating double taxation, stating that individuals holding the nationality of one contracting state shall not be subject in the other contracting state to any tax or related obligations that are more stringent or different from those applied to individuals holding the nationality of that other contracting state in similar circumstances.
Taxes for artists and athletes
Article 16 of the new tax law states, “Where income arises from personal activities performed by an entertainer or sportsperson in their professional capacity, and this income is not received by the entertainer or sportsperson but by another party, such income may be taxed in the contracting state where the activities are performed.”
The provisions of the preceding paragraphs do not apply to income earned by an artist or sportsman who is a resident of one contracting state from their activities in the other contracting state, if the visit to the other state is primarily funded by public funds from the first-mentioned state. Nor do they apply to income earned by nonprofit organizations from such activities, provided that none of their income is paid to or available for the personal benefit of their owners, founders, or members.
