Based on recent media coverage, the Kuwait government is discussing a tax proposal (“the Proposal”) to introduce a Business Profit Tax (“BPT”) at a rate of 15% on all legal entities operating in Kuwait. The Proposal is largely driven by the impact that Kuwait may face due to Pillar Two framework of the OECD. As a background, the OECD’s Pillar Two framework aims to ensure multi-national enterprises (MNEs) with global revenues above €750 million pay a minimum tax rate on income within each jurisdiction in which they operate. Please see our website for earlier publications on Pillar Two.
The Proposal is still in its early stages and, based on media coverage, is planned to be applied in two phases as follows:
1) Phase one: Effective 1 January 2025, BPT is to apply to large MNEs with turnover exceeding €750 million. Based on media coverage, this is likely to apply to approx. 15 Kuwait parented MNEs some of which are state owned.
2) Phase two: Effective 1 January 2026, BPT is to apply to all other legal persons. At this phase, the Proposal suggests the elimination of all existing direct tax laws in Kuwait.
The Ministry of Finance (“MOF”) has not yet made any formal announcement regarding BPT. However, during a recent parliamentary discussion, the Ministry of Finance clarified that it is currently studying policy options for Kuwait to collect any taxes payable by Kuwait MNEs in-scope for Pillar Two.
The Ministry of Finance (“MOF”) plans to appoint a consultant to provide initial consultations with respect to policy options available for the adoption of Pillar Two. Once done, the MOF is likely to begin the process of drafting the necessary legislation for the introduction of Pillar Two and BPT, which will then have to be presented to the relevant governmental committees and then the Parliament for further discussions and approval.
Given the rapid international progress on the adoption of Pillar Two, combined with the risk of Kuwait losing out on potential tax revenue, the MOF has taken steps to study the possibility of introducing BPT and Pillar Two rules in the country. Kuwait is yet to formally sign-up to OECD Pillar Two framework but has expressed its intention to do so. It remains to be seen whether the MOF will receive support from other regulatory bodies and the Parliament to progress with the Proposal.
Kuwaiti MNEs in-scope for Pillar Two should begin preparing for the impact of Pillar Two, if not already started. Kuwaiti companies not in-scope for Pillar Two should monitor the tax development in Kuwait closely.
Please feel free to reach out to us if you have any questions or if you wish to discuss the above further.