Kuwait Proposes 15% CIT in 2025 Amid Phased Tax Reform

Multinational corporations (MNCs) operating in Kuwait should prepare for the upcoming changes in the country’s tax regulations as authorities seek to overhaul the CIT regime under a new Business Profits Tax Law. Businesses are advised to monitor developments related to finalizing the tax rules for implementation in 2025 and the phased approach for advance tax payments.

Kuwait is set to introduce a significant overhaul of its tax regime with the proposed implementation of a 15 percent corporate income tax (CIT) rate starting January 1, 2025. The tax is aimed primarily at multinational corporations and companies with substantial operations both within Kuwait and across borders. This move, announced by the Ministry of Finance and first reported by Al-Seyassah on October 27, 2024, comes as part of a broader strategy to align Kuwait with international tax norms and generate additional revenue streams.

Draft Kuwait Business Profits Tax Law: Key provisions

According to the draft of Kuwait’s Business Profits Tax Law, companies with annual revenues exceeding 1.5 million Kuwaiti dinars will be subject to the new tax rate, while those below this threshold would be exempt. The tax would specifically target profits generated by multinational enterprises, marking a major shift in Kuwait’s fiscal policy.

The implementation of the CIT will be phased. While the law will apply to profits from January 1, 2025, advance tax payments for businesses will be postponed until the beginning of 2026. A broader group of taxable businesses will be covered by the law from January 1, 2027. In a notable move, companies wholly owned by the state would be exempt from the tax.

A flat 15 percent rate would apply to taxable income, but income generated by legal entities fully owned by the state will be exempt from tax. Business income derived from the divided or submerged divided zone will be subject to a 30 percent tax rate, which will reduced by 50 percent if the taxpayer has already paid 50 percent of the tax owed to Saudi Arabia.

Multinational groups with effective tax rates lower than 15 percent would be subject to a supplementary tax, and a 5 percent withholding tax would be imposed on certain payments made to non-residents without deducting costs, including dividends, royalties, rent for movable and immovable property, technical services, and insurance premiums, unless those payments are linked to permanent establishments within Kuwait. The tax deductor is responsible for withholding these taxes and remitting them to the tax administration. This framework applies to income from various sources, including sports or artistic activities, real estate transactions within Kuwait, dividends from Kuwaiti-held shares, and capital gains.

Under the draft law, taxpayer compliance will require significant administrative efforts. Businesses will need to register with the tax authority within 30 days of beginning operations and submit tax returns within six months of their financial year-end, accompanied by audited financial statements. Taxpayers liable for supplementary taxes will have a 15-month period to submit their filings. Quarterly advance tax payments based on financial statements will be required, with any overpayments refundable upon final tax return reconciliation.

The draft law also outlines allowable deductions, including losses carried forward from previous tax periods, which can be used to offset taxable income for up to five years. However, these losses cannot exceed 75 percent of the taxable income for the relevant tax year.

Taxpayers will need to retain financial records for up to 10 years.

In case of a tax dispute or error, taxpayers have the right to challenge tax assessments through objections and appeals. Tax objections must be filed within 60 days of receiving the tax assessment, along with the necessary documentation. If the objection is rejected, taxpayers can escalate the matter to the Tax Grievances Committee, which has 90 days to address the grievance.

Further appeals can be made to the competent courts. The Tax Grievances Committee, established to handle such disputes, will be composed of members appointed by the Minister, including representatives from the Tax Administration, tax experts, and advisors from the Fatwa and Legislation Department. If tax debts are at risk of being unrecoverable, the Tax Administration may seek a court order to seize assets to recover the owed amounts, though taxpayers can halt such actions by providing sufficient guarantees.

Failure to comply with the law could result in fines. Late payments will incur a 1 percent fine for every 30 days during which the tax or remittance remains unpaid. This penalty applies in various situations, including failure to submit tax declarations on time, failure to remit withheld taxes, or delays in advance payments.

Summary

The draft tax law is designed to ensure a transparent, fair, and efficient taxation system that reflects Kuwait’s commitment to fiscal responsibility and international standards. While multinational groups will be the primary targets of the tax revamp, the reforms will have wide-reaching effects on local businesses as well.

With the Ministry of Finance working to finalize details, businesses operating in Kuwait should prepare for the upcoming changes and ensure they are ready to comply with the new tax laws in 2025.

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