Article 2 - Permanent Establishment

A Permanent Establishment (PE) is the place where a Non-Resident Entity carries out Activities in the State, wholly or partially, including the following cases:

1. The fixed place of business, whether it is a place of management, branch, store, office, factory, workshop, sales outlets, warehouse, mine, oil well, gas well, quarry, or any other place for exploration, extraction, and exploitation of natural resources.

2. Construction site, building project, assembly, installation, or supervisory activities related to this site or project, on the basis that the site, project, or activities continue for more than six months within any twelve-month period. For the purpose of calculating this duration, the time spent by the Non-Resident Entity and any closely related enterprise shall be aggregated if the following conditions are met:

   1. If a Non-Resident Entity performs Activities in the State at a place constituting a construction site, building, assembly, installation, or supervisory or consultancy activities related to that place or project, carried out over one or more periods totaling more than thirty days but less than six months within any twelve months.

   2. If connected activities are carried out in the State at the same building site, construction, assembly, or installation project during different periods of time, each exceeding 30 days, by one or more Non-resident Entities that are closely related to the Non-resident Entity mentioned in sub-clause (a).

3. Provision of services by the Non-Resident Entity, on the condition that these activities are carried out over one or more periods totaling more than six months in the State during any twelve-month period. The duration is counted in aggregate without requiring the actual presence of the Non-Resident Entity during that time.

4. Existence of an agent acting on behalf of the Non-Resident Entity. The Non-Resident Entity is considered to have a PE in the State if a Person acts on its behalf in the State and meets the following two conditions:

   1. The person habitually concludes contracts in the name of the Non-Resident Entity or plays a principal role leading to the conclusion of contracts on behalf of that Entity, whereby contracts are regularly concluded without substantial modification by the Non-Resident Entity, provided that these contracts:

      First: Are concluded in the name of the Non-Resident Entity.

      Second: Have the purpose of transferring ownership of assets owned by the Non Resident Entity or the right to use them or grant others the right to use those assets.

      Third: Have the purpose of providing services by the Non-Resident Entity.

   2. The Person is not an independent agent acting in the ordinary course of business.

      A Person is not considered independent if any of the following apply:

      First: The Person acts exclusively or almost exclusively for the Non-Resident Entity.

      Second: The person is not independent from the Non-Resident Entity due to legal or economic reasons.

5. A deemed PE is also considered for any place of business (other than the cases mentioned in the preceding clauses) through which a Non-Resident Entity carries out an Activity in the State, provided that the income attributable to such Activities is not subject to tax in the state or Jurisdiction to which the Non-Resident Entity belongs.

   An exception to clause (1) of the preceding paragraph, a place of business shall not be considered a PE in the State if Activities conducted there are limited to preparatory or auxiliary functions, in any of the following cases:

   1. Using facilities in the State solely for the purpose of storage, display, or delivery of goods or merchandise owned by the Non-Resident Entity.

   2. Maintaining a stock of goods or merchandise owned by the Non-Resident Entity in the State only for storage, display, or delivery.

   3. Maintaining a stock of goods or merchandise owned by the Non-Resident Entity in the State solely for processing by another Entity.

   4. Maintaining a fixed place of business in the State solely for purchasing goods or merchandise, or for collecting information on behalf of the Non-Resident Entity.

   5. Maintaining a fixed place of business in the State solely to carry out any one or more of the activities listed in clauses (1) to (4) above, provided that the overall Activity of that place remains preparatory or auxiliary in nature.

The provisions of the previous paragraph shall not apply to a place of business that is used or maintained by the Non-resident Entity if the same Entity or a closely related entity carries on business activities in the State at the same place or at another place in the State provided that:

1. That place or another place constitutes a PE for that Entity or the closely related enterprise.

2. the overall activity resulting from the combination of the activities carried on by the two Entities at the same place or at the two different places in Kuwait, is not of a preparatory or auxiliary; provided that those overall activities constitute complementary functions that are part of a cohesive business operation.

An establishment shall be considered a PE in any of the following cases:

1. A place of business, or a deemed place of business, situated in a Jurisdiction and treated as a PE in accordance with an applicable Tax Treaty in force provided that such Jurisdiction taxes the income attributable to it in accordance with a provision similar to the “Business Profits” Article of the OECD Model Tax Convention on Income and on Capital;

2. If there is no applicable Tax Treaty in force, a place of business, or a deemed place of business, in respect of which a Jurisdiction taxes under its domestic law the income attributable to such place of business on a net basis similar to the manner in which it taxes its own tax residents;

3. If a Jurisdiction has no corporate income tax system, a place of business, or a deemed place of business, situated in that Jurisdiction that would be treated as a PE in accordance with the OECD Model Tax Convention on Income and on Capital provided that such Jurisdiction would have had the right to tax the income attributable to it in accordance with “Business Profits” Article of that treaty;

4. A place of business, or a deemed place of business, that is not already described in paragraphs (1) to (3) through which operations are conducted outside the Jurisdiction where the entity is located provided that such Jurisdiction exempts the income attributable to such operations.

For the purposes of clauses (2) and (3) of the paragraph above, the DMTT Law shall be deemed equivalent to an income tax law and considered part of the local legislation in force in the State.

An Entity is considered to be closely related to another Entity if one controls the other, or both are controlled by a third Entity, based on all relevant facts and circumstances. In any case, an Entity is deemed to be closely related to another in either of the following two situations:

1. If one Entity owns directly or indirectly more than 50% of the Ownership Interests in the other Entity.

2. If a third Entity owns directly or indirectly more than 50% of the Ownership Interests in both Entities.

Unless otherwise stated in these ERs, a PE is considered a separate and independent Entity from the Main Entity to which it belongs, and from any other PEs of that Main Entity.