Kuwait has initiated a momentous stride towards modernizing its tax system through the introduction of the “Business Profits Tax Law,” a crucial component of its comprehensive plan to overhaul the existing tax framework. This strategic move is propelled by the nation’s commitment to align with the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS), solidifying its position as the final Gulf Cooperation Council state to pursue membership within this framework.
BEPS involves the exploitation of gaps and inconsistencies in tax regulations by multinational enterprises, enabling them to minimize their tax obligations. The Kuwaiti government envisions the implementation of this corporate tax initiative in two distinct phases, with complete integration anticipated by 2025.
Under the Business Profits Tax (BPT), a 15% tax will be levied on the profits of various operating entities, including corporate structures, partnerships, and businesses with distinct legal existence, all established or operating within Kuwait. Notably, individuals and micro/small enterprises will be exempt from this tax regulation.
Presently, only foreign companies conducting business in Kuwait are subject to taxation on their profits and capital gains. Effective from January 1, 2025, Kuwaiti multinational companies, including government entities, engaging in international markets and yielding annual revenues surpassing €750 million ($806 million), will fall under the purview of the proposed BPT.
Moreover, the BPT will be seamlessly integrated as an amendment to existing tax laws, aligning with the globally applied Pillar Two framework. The current Kuwait corporate income tax law encompasses the taxation of income from any corporate entity, irrespective of its place of incorporation, generating income from Kuwait.
It is noteworthy that corporations incorporated in the Gulf Cooperation Council (GCC) and wholly owned by GCC citizens are presently exempt from income tax. Corporate income tax chiefly targets revenue generated by non-GCC (foreign) companies.
In an era of escalating globalization and the digital transformation of businesses, tax authorities globally are proactively addressing the profit-shifting strategies adopted by multinational corporations. These companies have been strategically reallocating profits from jurisdictions with high corporate tax rates to those with lower tax rates, thereby diminishing their overall tax obligations.
