Transfer Pricing Landscape in Kuwait
The current related party rules are included in Income Tax Law No. 28/2009 effective 1 January 2010. Broadly similar related party rules were also included in the old Income Tax Law, the Law of Income Tax on Companies of 1981.
While the current tax law includes related party provisions, there are no formalized tax rules on transfer pricing documentation. However, the Kuwait Tax Authority expects that appropriate TP documentation will be made available under a tax audit or investigation.
Documentation Requirements
Local File
While a formal Local File requirement is not explicitly defined in the law, maintaining documentation that substantiates the arm's length nature of local intercompany transactions is highly recommended to defend against tax audits.
Master File
Multinational enterprises operating in Kuwait are encouraged to have Master File documentation available, providing the Kuwait Tax Authority with a high-level overview of their global business operations and transfer pricing policies.
Country-by-Country Reports
Kuwait has joined the OECD Inclusive Framework on BEPS and is taking steps to implement minimum standards, including Country-by-Country Reporting (CbCR) for applicable multinational enterprise groups.
Key Transfer Pricing Rules & Audits
Related Party Definition
While no strict statutory definition exists solely for TP purposes, the Kuwait Tax Authority (KTA) broadly looks at control, shared ownership, and significant influence when determining if entities are related under Income Tax Law No. 28/2009.
Tax Audits & Penalties
The KTA has increasingly scrutinized intercompany transactions during tax audits. If a transaction is found not to be at arm's length, the KTA may adjust taxable income, resulting in additional tax liabilities and potential delay fines.
Advanced Pricing Agreements
Currently, there is no formal Advance Pricing Agreement (APA) program in Kuwait. Taxpayers must rely on strong documentation and benchmarking to defend their pricing retrospectively during audits.
Accepted Methods
In practice, the KTA accepts the standard OECD transfer pricing methods (CUP, Resale Price, Cost Plus, TNMM, and Profit Split), with a strong preference for the CUP method when internal comparables are available.
Kuwait Quick Facts
- OECD Principles: Generally followed in practice despite no formalized local TP rules.
- Audits: Authorities actively expect substantiation during tax audits.
- BEPS: Member of the OECD Inclusive Framework.
- Databases: External benchmarking databases are crucial for defensibility.
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