Kuwait has implemented the Budget Executive Regulations for FY 2026/2027, effective 1 April 2026, revising payment retention rules for government entities. Ministries, government bodies, and public institutions must retain 5% of payments under contracts, agreements, or transactions until a tax clearance certificate from the Ministry of Finance is provided.
Kuwait has implemented the Budget Executive Regulations for FY 2026/2027, effective 1 April 2026, introducing revisions to the retention (withholding) on payment rules.
Under the new regulations, Ministries, government bodies, and public institutions must retain 5% of payments made under contracts, agreements, or transactions until a tax clearance certificate from the Ministry of Finance is provided.
Payments to entities subject to the Domestic Minimum Top-Up Tax (DMTT) under Law No. (157) of 2024 are exempt from the 5% retention if the entity presents a valid DMTT registration certificate. Retention continues to apply to non-MNE payees.
The regulations introduce a five-year rule, requiring unclaimed retained amounts to be transferred to the Ministry of Finance. Government contracts may no longer include gross-up clauses that obligate the state to pay taxes on behalf of contractors or grant unauthorised tax exemptions. Entities must provide a tax clearance certificate before receiving government services.
The rules cover a wide range of payees, including suppliers, contractors, service providers, subcontractors, vendors, and manpower suppliers. Retained amounts must be tracked consistently across invoices, advance payments, and final settlements. Release of retained funds is only permitted upon submission of a formal clearance document such as a Tax Clearance Certificate, Retention Release Certificate, or No Objection Letter. Finance teams must maintain detailed records linking contracts, invoices, payments, and retention history to ensure compliance and support any potential inspection.
