Corporate Tax in Kuwait: New 15% Tax Law to Impact 350 Foreign Firms

Kuwait’s new 15 percent corporate tax law takes effect from tax periods beginning on or after January 1, 2025, is poised to reshape the financial landscape for multinational corporations operating within the country. This tax reform comes with a nine-month grace period, allowing companies to register without facing administrative penalties, according to the Ministry of Finance.

Impact on Kuwaiti and foreign firms

The finance ministry has already begun identifying companies that could be affected by the law. Sources indicate that approximately 20 Kuwaiti firms are expected to fall within the new tax base, based on their 2023 revenues and financial performance through the first nine months of 2024. In addition, between 300 and 350 foreign multinational entities will likely face supplementary tax obligations in Kuwait. These supplementary taxes will apply when the actual tax rate of these entities falls below the 15 percent threshold, requiring a top-up to meet the minimum rate.

Revenue projections and economic goals

Initial estimates project that the tax could generate 250 million Kuwaiti dinars annually for the public treasury, with some forecasts suggesting up to 300 million dinars. This policy aligns with Kuwait Vision 2035, which seeks to diversify the nation’s economy and enhance financial sustainability by reducing reliance on oil revenues. Additionally, the reform aims to prevent revenue leakage and align Kuwait’s tax practices with international standards, particularly the OECD’s BEPS Pillar Two objectives. These objectives mandate a minimum effective tax rate of 15 percent for in-scope entities in every jurisdiction where they operate.

Key provisions of the new tax law in Kuwait

15 percent tax on MNEs

The 15 percent tax law targets multinational entities, defined as groups operating in Kuwait, including through permanent establishments, with total annual revenues of at least 750 million euros (approximately 240 million Kuwaiti dinars) in two of the four preceding tax periods.

For qualifying entities, the supplementary tax will be applied to net profits at a 15 percent rate. The actual tax rate is calculated by dividing the group’s total adjusted taxes paid by its total net income or loss. This includes all revenues and expenses, even from intergroup transactions.

Entities under the law include final or participating entities, joint ventures, and affiliated entities. Joint ventures with at least 50 percent ownership by the parent entity and meeting the revenue threshold will also be subject to the tax. The executive regulations will provide further details on implementation.

Consolidated financial reporting requirements

The law mandates consolidated financial statements, encompassing all revenues from participating entities, including those initially excluded, to determine whether the revenue threshold has been met. The consolidated statements must include assets, liabilities, income, expenses, and cash flows as part of the parent entity’s financials, ensuring comprehensive compliance.

Aligning with global tax reforms and promoting financial modernization

Kuwait’s adoption of the 15 percent corporate tax is a significant step towards financial modernization and alignment with global tax standards. While it poses challenges for multinational corporations, it shows the Gulf country’s commitment to fostering a diversified economy and ensuring fair tax practices. For foreign firms operating in Kuwait, understanding and preparing for these changes will be crucial to maintaining compliance and mitigating potential financial impacts.

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