Client Alert Regulation Update on Decree-Law No. 4 of 2025 on Limitation Periods for Tax Obligations

On 19 January 2025, a Decree Law was published in official gazette Kuwaiti AlYoum amending Article 441 of the Civil Law No 67/1980. Previously, article 441 provided that “1- In the event of denial, a claim for taxes and fees due to the state shall not be heard after the lapse of five years. This period shall begin to run for annual taxes and fees from the end of the year in which they are due…”

The amendment reads as follows: The phrase “ten years” shall be replaced with the phrase “five years” stipulated in Clause 1 of Article 441 of the aforementioned Civil Code.”

We touch upon the implications of this amendment from a warranties’ standpoint. In a standard purchase agreement (be it securities, or assets), the seller is more often than not, requested to provide a standard set of warranties, including, a tax warranty. The tax warranty’s survival period typically extends beyond completion date, with sellers and buyers negotiating the term, each to its benefit.

With the introduction of this amendment, a purchase document governed by Kuwaiti laws, will need to consider extending the warranty’s survival period to align with the amended limitation period of 10 years.

Extending the statute of limitations for tax obligations provides several benefits to the state, including:

Increased Time to Identify Errors or Fraud: Extending the statute allows tax authorities more time to detect and address errors, omissions, or fraud in tax filings.

Improved Revenue Collection: By extending the statute, the state has a greater opportunity to collect unpaid taxes, penalties, and interest. This ensures that more revenue due to the state is recovered, supporting public programs and services.

Fairness Across Taxpayers: An extended statute of limitations helps ensure compliance among taxpayers. Those who underreport income or fail to file returns can be held accountable, promoting fairness for those who comply with tax laws.

Discouragement of Tax Evasion: Knowing that the statute of limitations is longer can deter businesses from attempting to evade taxes, as the risk of discovery remains for a more extended period.

Adjustment for Complex Tax Cases: Tax cases, especially for large businesses, often involve detailed audits and investigations. A longer timeframe allows for a thorough review of these cases without being constrained by an overly short deadline.