As Kuwait continues to modernize its economic infrastructure and align with global standards, a new draft of the Business Profits Tax Law (BPT) has reportedly surfaced, creating significant buzz among financial experts, businesses, and international investors. Although the law is yet to be officially published, public discourse has been ignited following recent reports and newspaper analyses referencing the draft. 

Context and Global Alignment 

The draft law represents Kuwait’s ambitious step toward international tax reform under the Organization for Economic Co-operation and Development (OECD)‘s Pillar Two framework. This framework, designed to combat tax base erosion and profit shifting, mandates a global minimum tax rate of 15% for multinational enterprises (MNEs) with revenues exceeding Euro 750 million. 

Kuwait joined the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in November 2023, demonstrating its commitment to global standards. The move aligns with the nation’s strategy to safeguard tax revenues and promote economic equity. 

Key Provisions of the Draft Law 

We understand that draft law includes the following provisions: 

• Applicability and Timelines: 

• • Effective January 1, 2025, the law will apply to Kuwaiti MNEs and permanent establishments (PEs) of foreign MNEs with annual revenues above Euro 750 million. 

• • From January 1, 2027, the law will cover all other legal persons, including natural persons engaging in commercial or investment activities. 

• • Businesses with annual turnovers below KD 1.5 million (approx. USD 4.9 million) are exempt from the tax.

• Tax Rates: 

• • A standard rate of 15% applies to taxable profits. 

• • A higher rate of 30% applies to income derived from activities in the Neutral Zone and Submerged Zone shared with Saudi Arabia. However, 50% of the tax can be waived if an equivalent amount is paid to Saudi Tax Authorities.

• Supplementary Tax: 

• • In line with Pillar Two, a top-up tax ensures MNEs meet the global minimum effective tax rate of 15%, addressing any shortfall in the effective tax rate.

•  Withholding Taxes (WHT): 

• • A 5% WHT will be imposed on payments made to non-residents, including interest, royalties, and service fees, excluding dividends from listed shares.

•  Tax Exemptions: 

• • Dividends and capital gains from participating interests are exempt if specific ownership and tax conditions are satisfied. 

• • Income from international transport activities may also qualify for exemptions.

•  Loss Carryforward: 

• • Taxpayers can carry forward losses for up to five years, with deductions limited to 75% of taxable income for the relevant period. 

Broader Implications 

The draft law not only consolidates Kuwait’s existing tax framework but also introduces advanced mechanisms to ensure compliance and prevent tax evasion. Key measures include: 

• Mandatory registration with the tax department within 30 days of commencing activities. 

• Enhanced transparency through stringent documentation and reporting requirements. 

• Comprehensive compliance procedures, including advance tax payments and structured appeal processes. 

• Anti-avoidance rules to address aggressive tax planning and ensure tax liabilities reflect economic realities. 

We believe that this law could transform Kuwait’s tax landscape, making it more competitive and transparent while ensuring alignment with international standards. However, concerns persist about the readiness of businesses to adapt to the proposed changes.  

Unanswered Questions 

Several aspects of the draft law remain unclear, including: 

• The specific mechanics of the Supplementary Tax and whether Kuwait will adopt the Income Inclusion Rule (IIR) and Domestic Minimum Top-Up Tax (DMTT). 

• The transitional rules for businesses shifting from existing tax regimes. 

• Potential penalties for non-compliance and how they will be enforced. 

Moving Forward 

While the law’s official publication is awaited, businesses and stakeholders are encouraged to stay informed and seek professional guidance. Executive regulations, expected following the law’s approval, will provide further clarity on implementation. 

This is a pivotal moment for Kuwait’s economy, marking a significant shift toward global integration and fiscal responsibility. Businesses operating in or with Kuwait should proactively assess the potential impacts and prepare for compliance with the new regime. 

Contact us for more information and to discuss how these changes may impact your business, as well as potential strategies to minimize their effects.