Internal Revenue Bulletin:  2014-23 

June 2, 2014 

Announcement 2014–24

U.S. – Kuwait Reciprocal Tax Exemption Agreement


The Government of the United States of America and the Government of the State of Kuwait have signed a memorandum of understanding evidencing a reciprocal tax exemption for income derived from the international operation of aircraft for taxable years beginning on or after January 1, 2015.

The principal author of this announcement is Patricia Bray of the Office of the Associate Chief Counsel (International). For further information regarding this announcement contact Patricia Bray at (202) 317-4974 (not a toll-free number).

The text of the agreement is as follows:

MEMORANDUM OF UNDERSTANDING BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE STATE OF KUWAIT FOR THE RECIPROCAL TAX EXEMPTION ON INCOME DERIVED FROM THE OPERATION OF AIRCRAFT

The Government of the State of Kuwait and the Government of the United States of America (hereinafter referred to as the “Contracting Parties”);

Desiring to strengthen the cooperation between them in the field of civil aviation towards mutual coordination between them in respect of the income derived from the international operation of aircraft between the State of Kuwait and the United States of America;

Have agreed as follows:

Article 1

Taxes Covered

1. The Government of the United States of America, in accordance with sections 872 (b) and 883 (a) of the U.S. Internal Revenue Code of 1986, agrees to exempt from U.S. federal income tax gross income derived from the international operation of aircraft by individuals who are residents of the State of Kuwait (other than U.S. citizens or residents) and corporations that are organized in the State of Kuwait, in each case, that are engaged in the international operation of aircraft. This exemption shall be granted on the basis of equivalent exemptions granted by the State of Kuwait to individuals who are residents of the United States (other than Kuwaiti citizens or residents) and to corporations organized in the United States that are not subject to tax by the State of Kuwait on the basis of residence. In the case of a Kuwaiti corporation, the exemption shall apply only if the corporation meets the ownership or public trading requirements of U.S. law.

2. The Government of the State of Kuwait agrees to exempt from taxes imposed by the State of Kuwait gross income derived from international operation of aircraft by individuals who are residents of the United States (other than Kuwaiti citizens or residents) and corporations that are organized in the United States, in each case, that are engaged in the international operation of aircraft. This exemption shall be granted on the basis of equivalent exemptions granted by the United States to individual residents of the State of Kuwait (other than U.S, citizens or residents) and to corporations organized in the State of Kuwait that are not subject to tax by the United States on the basis of residence.

Article 2

Definitions

Gross income derived from the international operation of aircraft includes:

a) Income from the rental on a full (time or voyage) basis of aircraft used in international transport;

b) Income from the rental on a bareboat basis of aircraft used in international transport;

c) Income from the rental of containers and related equipment used in international transport that is incidental to income from the international operation of aircraft;

d) Gains from the sale or other alienation of aircraft used in international transport;

e) Income derived by an individual or corporation otherwise engaged in the international operation of aircraft from active participation in a pool, an alliance, joint venture, international operating agency, or other venture, that is itself engaged in the international operation of aircraft; and

f) Income from the carriage of passengers or cargo.

Article 3

Entry into Force

The Contracting Parties shall notify each other in writing through diplomatic channels when their respective legal procedures for entry into force of this Memorandum of Understanding have been met. This Memorandum of Understanding shall enter into force on the date of the later of the notifications required pursuant to this Article and shall have effect with respect to taxable years beginning on or after January 1st following such later notification.

Article 4

Termination

This Memorandum of Understanding may be terminated by either Contracting Party giving written notice of termination through diplomatic channels. Termination shall take effect on the date of notification, unless the notification otherwise provides.

Done at Kuwait this 28th day of March 2011 corresponding to 23rd of Rabi II 1432 H in two originals in the Arabic and English languages, both texts being equally authentic.

FOR THE GOVERNMENT OF THE UNITED STATES OF AMERICA:

Deborah K. Jones Ambassador of the United States of America

FOR THE GOVERNMENT OF THE STATE OF KUWAIT:

Khalifa M. Hamada Undersecretary for Ministry of Finance

FOR THE GOVERNMENT OF THE STATE OF KUWAIT:

Khalifa M. Hamada Undersecretary for Ministry of Finance


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