Expat Tax for Americans in Kuwait – What You Need To Know

Expat Tax In Kuwait – Expat Living In Kuwait

Kuwait has a very open economy and a well-educated workforce made up predominantly of foreign workers. The business center is the capital, Kuwait City, with large industrial areas located in Shuwaikh, Sabhan, and Shuaiba. Read on to discover important tips on US Expat Tax In Kuwait.

Home to around 10 percent of the world’s oil reserves, business in Kuwait largely revolves around the oil industry. Expats doing business in Kuwait will find themselves in a tiny Gulf state that is one of the world’s richest countries, thanks to its oil reserves. The government has begun to limit the number of foreigners living and working there, and lucrative relocation packages are far more difficult to come by. Nevertheless, there is a large ex-pat population in Kuwait, and around 70 percent of the country’s workforce is foreigners. Expats moving to Kuwait with children will be glad to know that education in the country is outstanding and literacy rates are high.

The Top 10 Cities In the Kuwait for expats: (in no particular order):

• Kuwait City
• Al Asimah
• Salmiya
• Mahboula
• Al Ahmadi
• Al Jahra
• Salwa
• Al Farwaniyah
• Jabriya
• Mubarak Al-Kabeer

About Kuwait

Kuwait has a robust cultural heritage, and most inhabitants are Muslims. Despite its strong religious and cultural heritage, Kuwait accounts for more expats than actual citizens.

Kuwait City has large industrial areas located in Shuwaikh, Sabhan, and Shuaiba, which are home to most businesses, and many expats will find themselves working here. With about ten percent of the world’s oil reserves, many Kuwait businesses are in the oil industry. Other major sectors include construction, finance, and water desalination. The country is also a major exporter of plant fertilizers, but, aside from fishing, there is virtually no agricultural industry.

Arabic is the official language, although English is spoken in Kuwaiti business circles. Western ex-pats should therefore not struggle to communicate with local associates. The majority of the local population is Muslim, and Islam dominates most life facets in Kuwait, including business practices.

Guide To U.S. Expat Tax In Kuwait

The Tax Samaritan country guide to U.S. expat tax in Kuwait intends to provide a general review of expat tax in Kuwait and how that will impact your U.S. expatriate tax return as a U.S. Expat In Kuwait.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting. For most expatriates, you have a requirement to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline).

The tax treatment for different classes of income can vary greatly from Kuwait and the U.S. For example, certain benefits may be tax-free or excluded from taxable income in Kuwait. Still, in the U.S., these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are many considerations related to US  U.S. expat tax in Kuwait, and this brief article will address a few of those considerations.

Kuwait Expat Income Taxes

Who Is Liable For Income Taxes In Kuwait

Kuwaiti nationals pay social security taxes, but expats do not. There are ongoing discussions about the initiation of a small remittance tax on expat salaries; however, a decision is forthcoming. A proposal for up to 5% tax on expat money transfers out of Kuwait of 500 KWD is also in the decision process. There is currently no income tax in Kuwait. Kuwait also does not have a sales tax for any goods or services.

Any Kuwait income tax you pay can be a credit against the tax liability on your U.S. return on the same income.

Tax Year In Kuwait And Tax Filing And Payment Rules

Kuwaiti employees must contribute 7% of salary to the Public Institution for Social Securities; the employer also contributes 11%. Determination of a foreign entity’s taxable presence is by whether it carries on a trade or business in Kuwait and not on whether it has a permanent establishment or place of business in Kuwait.  Income tax is levied on the net profit (i.e., revenue less allowable expenses) earned from the carrying on of a trade or business in Kuwait. Royalties and franchise, license, patent, trademark, and copyright fees received by overseas foreign entities from Kuwait are subject to income tax in Kuwait. A tax exemption is possible for profits by entities from trading operations on the Kuwait stock exchange, whether directly or through portfolios of investment funds.

Expat Tax Withholding In Kuwait

As an ex-pat living abroad, you get an automatic extension to file until June 15th of the following calendar year-end. However, you must pay any tax that may be due by April 15th to avoid penalties and interest. You can get an extension to file until October 15^th if properly requested.

The taxpayer must file an annual income tax return for all resident years. The taxpayer must also file an annual income tax return for the year in which the assignee leaves Kuwait, provided that in the year concerned, the taxpayer performed activities in Kuwait and is not protected by a double tax treaty. The tax return filing must occur within the statutory deadline(s) for filing.

In the years following the expatriation year, the assignee does not generally have any filing requirements, as long as the assignee is a tax non-resident and has no Kuwait-source income. As a U.S. citizen or green cardholder, you have a legal requirement to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.

Any Kuwait income tax you pay can be a credit against the tax liability on your U.S. return on the same income.

What You Need To Know About U.S. Income Taxes

Some of these preferential tax treatments or benefits for U.S. expat tax in Kuwait include:

• If you are a U.S. citizen or a green card holder of the United States and live in Kuwait, your U.S. expat tax in Kuwait is based on your worldwide income, and as such, you must file a U.S. return for all the years that you are residing in Kuwait. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation ($107,600 for 2020). You can also exclude or deduct certain foreign housing amounts depending on other factors if you exceed the initial exclusion. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.

Avoid The Common Dangerous Mistake

A common but dangerous mistake is the assumption that if there are zero taxes with these tax benefits. Then, there is no U.S. tax filing requirement. This is not true. If you are working overseas, it is likely that you meet the filing requirements and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit, are not granted automatically and must be claimed on a properly filed U.S. tax return.

Kuwait Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to  U.S. expat tax in Kuwait is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1)

The FBAR filing deadline is April 15th (or the preceding business day if April 15th falls on a holiday or weekend) of the following year. Unfortunately, requesting an extension on your individual return does not extend the FBAR due date. However, in years past, the Treasury Department has granted an automatic six-month extension to October 15th for those who miss the April 15th due date. Any reports after this date are a delinquent FBAR. Also, the FBAR is different than many other tax forms in that there must be receipt by the deadline date.

Where To File The FBAR

The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other types of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at the National Bank of Kuwait, Kuwait Finance House, Evli Bank PLC, Aktia Savings Bank, or at another bank in Kuwait or any other foreign country, you may meet the filing requirement to disclose your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Kuwait Social Security Totalization Agreement

The United States has entered into agreements, called Totalization Agreements, with several nations to avoid double taxation of income for social security taxes.

These agreements are important to consider when determining whether an alien is subject to the U.S. Social Security/Medicare tax or whether any U.S. citizen or resident alien is subject to a foreign country’s social security taxes.

As of this time, Kuwait has not entered into a Totalization Agreement with the United States. Thus, there is no opportunity to avoid double taxation of social security income for US ex-pat tax in Kuwait.

U.S.- Kuwait Tax Treaty And Tax Relief For U.S. Expat Tax In Kuwait

The United States does not currently have a separate tax treaty with Kuwait. The US Internal Revenue Code offers tax credits against any Kuwait income tax. See our Tax Samaritan Takeaways below for other valuable references.

Tax Samaritan Takeaways For U.S. Expats In Kuwait

Please click on the hyperlinks below for additional takeaways for your expat tax in Kuwait:

IRS Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad

Top banks in Kuwait

U.S Embassy in Kuwait

Kuwait Ministry of Foreign Affairs