BDO Tax Alert - Kuwait Tax on MNEs

On 31 December 2024 Kuwait issued Decree No. 157 of 2024 which implements a domestic minimum top-up tax (“DMTT” or “the Law”) at an effective rate of 15% that is aligned with OECD Pillar Two Global Anti-Base Erosion Model Rules (“the Globe Rules”). This will help Kuwait collects tax revenue that may otherwise be collected by other jurisdictions trough Income Include Rule (“IIR”) or Undertaxed Profit Rule (“UTPR”).

Scope and applicability
 
The Law applies to all entities in Kuwait whether as Ultimate Parent Entities (“UPEs”) or as Constituent Entities (“CEs”) e.g. subsidiaries or permanent establishments (“PEs”) of a group that meet both of the following criteria:
  1. The group is a Multinational Group (i.e. present in more than one jurisdiction through subsidiary, branches, PEs or similar form of presence); and
  2. The UPE of the group has a consolidated revenue of at least EUR 750 million (approx. KD 240 million) in at least two out of the prior four accounting years.
 
Broadly, an entity is deemed to be “in Kuwait” if it is a tax resident of Kuwait or in case of a PE in Kuwait. An entity becomes a tax resident in Kuwait if it is incorporated in Kuwait or has its main / effective place of management in Kuwait.
The Law also applies to stateless entities as well as Joint Ventures (“JVs”) if owned 50% or more by an in-scope MNE group.
 
The Law is applicable from financial years beginning on or after 1 January 2025.
 
Abolishment of existing tax laws for MNEs
 
Entities in-scope of the DMTT will not be subject to the following existing domestic taxes effective from financial years beginning on or after 1 January 2025:
  • Zakat
  • National Labor Support Tax (“NLST”)
  • Income Tax under Decree No. 3 of 1955 as amended
  • Income Tax on activities in the Neutral Zone of Kuwait – Saudi Arabia
 
Compliance requirements
  • Tax registration must be completed within 120 days from the date of becoming taxable under this Law, except for the year 2025 where registration timelines are extended up to 30 September 2025.
  • Tax declaration and tax payments are due by the 15th month following the end of the tax year.
  • There is no provision for tax installments or advance payments.
  • Records must be kept for 10 years.
  • Statute of limitations is 10 years.
  • Conversion from foreign currencies to Kuwaiti Dinar is to be inline with the rates published by the Central Bank of Kuwait. Further guidance will be provided in the executive regulations.
 
The new tax rules are complex, will have both short and long-term impacts, and create demands on staff and technology, likely necessitating professional advice. In-scope MNEs should prepare for an increased compliance workload, which will involve complex calculations, identifying any potential gaps, and updating systems and refining existing compliance processes.
 
For further details, please download our Tax Alert
 
Download