On 31 December 2024, Kuwait published Decree-Law No. 157 of 2024, which implements a domestic minimum top-up tax (DMTT) at an effective rate of 15% that is aligned with the OECD Pillar Two Global Anti-Base Erosion Model Rules (Globe Rules). The law, which is effective for fiscal years starting on or after 1 January 2025, ensures that in-scope multinational entities (MNEs) pay a minimum tax rate of at least 15% on their profits. Kuwait has not legislated an income inclusion rule or undertaxed profit rule.
The DMTT law applies to all entities in Kuwait whether as ultimate parent entities (UPEs) or as constituent entities e.g., subsidiaries or permanent establishments (PEs) of a group that satisfy both of the following criteria:
Broadly, an entity is deemed to be “in Kuwait” if it is a tax resident of Kuwait or 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 if 50% or more owned by an in-scope MNE group.
The law contains a definition of a PE that is aligned with the definition in the UN model tax treaty. There is a six-month duration test for the creation of a construction/installation PE and the provision of services.
The following entities—whether or not Kuwaiti entities—are excluded from the law, although their revenue is included in the revenue test for the MNE group:
Penalties will be imposed for failure to comply with the minimum tax rules:
Rami Alhadhrami
BDO in Kuwait
Entities subject to DMTT
The DMTT law applies to all entities in Kuwait whether as ultimate parent entities (UPEs) or as constituent entities e.g., subsidiaries or permanent establishments (PEs) of a group that satisfy both of the following criteria:
- The group is a multinational group (i.e., present in more than one jurisdiction through a subsidiary, branch, PE or similar form of presence); and
- The UPE of the group has a consolidated revenue of at least EUR 750 million (approximately KWD 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 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 if 50% or more owned by an in-scope MNE group.
Permanent Establishments
The law contains a definition of a PE that is aligned with the definition in the UN model tax treaty. There is a six-month duration test for the creation of a construction/installation PE and the provision of services.
Excluded Entities
The following entities—whether or not Kuwaiti entities—are excluded from the law, although their revenue is included in the revenue test for the MNE group:
- Government bodies;
- International organizations;
- Not for profit organizations;
- Pension funds; and
- Investment funds/real estate funds that are UPEs.
Exemption from Existing Tax Laws
Entities that fall within the scope of the DMTT will not be subject to the following domestic taxes as from fiscal years starting on or after 1 January 2025:- Zakat;
- National Labor Support Tax;
- Income Tax under Decree No. 3 of 1955, as amended; and
- Income tax on activities in the Kuwait-Saudi Arabia Neutral Zone.
Safe Harbours
In line with OECD guidance, the law includes the following safe harbours aimed at simplifying tax compliance for eligible MNEs:- Transitional CbCR safe harbour;
- Simplified calculation safe harbour; and
- Exclusion for initial international activities.
Compliance
In-scope entities must register within 120 days from the date of becoming taxable under the law, except that registration deadlines are extended through 30 September for tax year 2025. Tax declarations and tax payments are due by the 15th month following the end of the tax year. Records must be retained for 10 years.
Penalties
Penalties will be imposed for failure to comply with the minimum tax rules:
- Late filings will incur a penalty of at least KWD 1,000 or 5% - 20% of the final tax due depending on the delay, whichever is higher.
- If the tax assessed exceeds 10% of the declared tax, a 25% penalty on the difference will apply. However, the penalty will be reduced to 10% for voluntary corrections.
- Failure to file will attract a penalty of not less than KWD 5,000 or 25% of the final tax due, whichever is higher.
- A late payment penalty of 1% of the tax due will be levied for every 30 days of delay (or part thereof).
- A penalty of KWD 3,000 will be levied for administrative violations.
Rami Alhadhrami
BDO in Kuwait