Kuwait Business Profit Tax - Draft Law
Kuwait Business Profit Tax - Draft Law
The draft of the much-anticipated Kuwait Business Profit Tax (“BPT”) Law was recently published by various local Kuwaiti news agencies. Based on the copy of the draft law published by Aljarida on 6 December 2024, we have summarized below the key aspects of the draft BPT law.
The draft BPT law is planned to be applied in two phases:
1) Effective 1 January 2025, Kuwaiti Multinational Enterprises (“MNEs”), and permanent establishments of foreign MNEs with an annual revenue above Euro 750 million will be subject to 15% BPT. Additionally, and when applicable, a Supplementary Tax will be imposed on such entities if the Effective Tax Rate (“ETR”) is below the global minimum tax rate of 15% as per Pillar Two rules.
2) Effective 1 January 2027, all other legal persons including natural persons that carry out activities will be subject to BPT. A generous tax exemption is available if the turnover does not exceed KD 1.5 million (approx. USD 4.9 million).
Scope of BPT
The draft law adopts the principles of tax residence and introduces a definition of a permanent establishment (“PE”). The following are deemed to be taxable persons (“Taxable Persons”):
Legal and natural persons resident in Kuwait are taxable on their worldwide income, whereas PEs of foreign entities are taxable only on their Kuwait income. Taxable Persons with an annual turnover not exceeding KD 1.5 million are exempt from BPT.
Legal Persons
The draft law subjects all forms of entities incorporated under Kuwait Companies Law of 2016 to the BPT law, in addition to any authority, public institution, fund, or any legal person established under any law or decision. Further, unincorporated partnerships are generally within the scope of the BPT Law.
A natural person becomes subject to BPT law if he/she carries out activities through a sole proprietorship, clinic, offices, or any other form.
The term "activities" is defined as activities of commercial or investment nature such as the trading of goods, provision of services, agency, brokerage, property developments, speculative trading, use of movable and immovable properties, etc. Income from employment is outside the scope of the BPT.
Tax Residency Criteria
A legal person is deemed to be a tax resident of Kuwait if it is incorporated in Kuwait or is effectively managed in Kuwait. A natural person becomes a tax resident of Kuwait if he / she has a permanent place of abode in Kuwait or stays in Kuwait for a period greater than 183 days during a taxable period.
Tax Rates
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The draft BPT law is planned to be applied in two phases:
1) Effective 1 January 2025, Kuwaiti Multinational Enterprises (“MNEs”), and permanent establishments of foreign MNEs with an annual revenue above Euro 750 million will be subject to 15% BPT. Additionally, and when applicable, a Supplementary Tax will be imposed on such entities if the Effective Tax Rate (“ETR”) is below the global minimum tax rate of 15% as per Pillar Two rules.
2) Effective 1 January 2027, all other legal persons including natural persons that carry out activities will be subject to BPT. A generous tax exemption is available if the turnover does not exceed KD 1.5 million (approx. USD 4.9 million).
Scope of BPT
The draft law adopts the principles of tax residence and introduces a definition of a permanent establishment (“PE”). The following are deemed to be taxable persons (“Taxable Persons”):
- Legal persons resident in Kuwait.
- Natural persons resident in Kuwait who carries out commercial or investment activities.
- PE of a foreign entity.
Legal and natural persons resident in Kuwait are taxable on their worldwide income, whereas PEs of foreign entities are taxable only on their Kuwait income. Taxable Persons with an annual turnover not exceeding KD 1.5 million are exempt from BPT.
Legal Persons
The draft law subjects all forms of entities incorporated under Kuwait Companies Law of 2016 to the BPT law, in addition to any authority, public institution, fund, or any legal person established under any law or decision. Further, unincorporated partnerships are generally within the scope of the BPT Law.
A natural person becomes subject to BPT law if he/she carries out activities through a sole proprietorship, clinic, offices, or any other form.
The term "activities" is defined as activities of commercial or investment nature such as the trading of goods, provision of services, agency, brokerage, property developments, speculative trading, use of movable and immovable properties, etc. Income from employment is outside the scope of the BPT.
Tax Residency Criteria
A legal person is deemed to be a tax resident of Kuwait if it is incorporated in Kuwait or is effectively managed in Kuwait. A natural person becomes a tax resident of Kuwait if he / she has a permanent place of abode in Kuwait or stays in Kuwait for a period greater than 183 days during a taxable period.
Tax Rates
- 15% business profit tax is proposed to be applied on profits of Taxable Persons, unless exempted.
- Additionally, MNEs in-scope for Pillar Two will be subject to a Supplementary Tax in Kuwait if the ETR as per Pillar Two rules is below 15%. See below for more details.
- Entities operating in the Neutral Zone of Kuwait - Saudi Arabia will be subject to a flat tax rate of 30% of which 50% will be payable to Kuwait. However, such entities will need to prove that the remaining 50% of the taxes were paid to the tax authority in Saudi Arabia otherwise the entire 30% will become payable in Kuwait.
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