Source: https://rivet.global/blog/kuwait-five-percent-retention-contract-payments
Published: 2026-10-10 · Updated: 2026-10-10 · By William Sunjo M.

# Kuwait's 5 percent retention on contract payments: what companies paying foreign contractors must do

Kuwaiti entities must retain 5 percent of payments to contractors until a tax clearance certificate is shown. How the retention works and when it is released.

## Key takeaways

- Kuwaiti entities must retain 5 percent of each payment to contractors and subcontractors, including foreign companies, until a tax clearance certificate is presented.
- The retention protects Kuwait's tax claims on foreign companies' income from Kuwaiti contracts.
- Contracts must be notified to the tax department under the executive regulations.
- A payer that releases the retention without clearance can become liable for the contractor's tax.

A Kuwait City developer hires a European engineering firm for KWD 480,000 of design and supervision work on a residential tower. Each month it pays 95 percent of the firm's invoice and holds 5 percent. At the end of the project the firm asks for the retained amount. The developer replies that it needs to see the firm's tax clearance certificate first. That is the rule.

## The retention rule

Kuwait taxes foreign companies on income from activities in Kuwait. To secure that tax, the income tax executive regulations require Kuwaiti entities that contract with contractors and subcontractors to:

- notify the tax department of the contract,
- retain 5 percent of each payment, or of the final payment if that is larger,
- release the retention only when the contractor presents a tax clearance certificate from the Ministry of Finance.

The rule covers foreign companies doing work and services in Kuwait.

## Why the payer cares

If a Kuwaiti company releases the retention without clearance, it can be held liable for the contractor's unpaid tax. The 5 percent is the payer's protection, so finance teams hold it firmly.

## Planning with contractors

1. Put it in the contract. State that 5 percent is retained until clearance, so the contractor plans for it.
2. Notify the contract to the tax department as required.
3. Track retentions per contractor and project.
4. Release promptly once clearance arrives.

## Paying the 95 percent

The regular payments still have to reach the contractor. Foreign contractors receive international transfers from Kuwaiti banks, usually in dollars or euros. Agree the currency and who bears transfer charges in the contract.

## Where Rivet fits

Rivet does not handle Kuwaiti tax filings or clearance. A Rivet business account accepts registered companies after verification, including Kuwaiti companies, subject to local rules, and pays contractors in 120+ countries from dollar and euro balances, with each payment matched to its invoice so retained amounts are easy to track. Rivet is not a bank; regulated partner institutions hold the funds.

## Questions

### What is the 5 percent retention in Kuwait?

A requirement under Kuwait's income tax executive regulations that entities retain 5 percent of contract payments, or of the final payment if larger, until the contractor provides a tax clearance certificate from the Ministry of Finance.

### Does it apply to foreign suppliers of goods?

It applies to contracts and subcontracts for work and services in Kuwait. Pure supplies of goods from abroad are treated differently. Check your contract type.

### When can the retention be released?

When the contractor presents a tax clearance certificate showing it has met its Kuwaiti tax obligations.

### What happens if a company releases it early?

It can be held liable for taxes due from the contractor.