Bank proposes deducting 1% scientific progress levy from 15 percent corporate tax
. . . points to the broader financial implications for companies entering the 15 percent tax bracket.
- Under the applicable framework, such companies are no longer required to pay the 2.5 percent contribution supporting national employment and the additional zakat obligation applicable to companies outside the multinational entities tax regime, with the combined burden not exceeding 4.5 percent of net profits, including the scientific progress contribution.
A Kuwaiti bank has opened discussions with the Ministry of Finance over the tax treatment of the 1 percent contribution to the Kuwait Foundation for the Advancement of Sciences (KFAS), proposing that the amount be deducted from the 15 percent corporate income tax imposed on major Kuwaiti companies operating across local and international markets.
The proposal concerns Kuwaiti companies with annual revenues starting at 750 million euros that fall within the scope of the 15 percent tax regime introduced on January 1, 2025. The bank argues that the 1 percent contribution represents a financial obligation to a state institution and is calculated on the same net profits and for the same financial year as the corporate tax.
Under existing rules, joint-stock companies are required to allocate 1 percent of their annual net profits to KFAS. Their auditors must also include evidence of payment of the contribution among the items disclosed in the companies’ financial reports.
Bank officials argue that continuing to apply the 1 percent contribution separately from the 15 percent corporate tax effectively raises the overall tax burden on affected Kuwaiti companies to 16 percent. They contend that this creates a disparity with foreign companies subject to the 15 percent rate and raises concerns over tax fairness and equal treatment.
The bank also pointed to the broader financial implications for companies entering the 15 percent tax bracket. Under the applicable framework, such companies are no longer required to pay the 2.5 percent contribution supporting national employment and the additional zakat obligation applicable to companies outside the multinational entities tax regime, with the combined burden not exceeding 4.5 percent of net profits, including the scientific progress contribution.
The bank therefore considers the 1 percent KFAS contribution effectively a direct levy on the net profits of Kuwaiti multinational companies and argues that its treatment should be reviewed as part of tax incentives aimed at supporting major Kuwaiti companies and maintaining equal opportunities between local and foreign businesses.
The Ministry of Finance has not given a direct response to the proposal, with the matter understood to remain under legal and tax review. The ministry is expected to determine the approach it considers most beneficial to Kuwait.
However, a legal view cited in the discussion argues against deducting the KFAS contribution from the 15 percent corporate tax. Under this interpretation, treating the 1 percent payment as a tax for purposes of the minimum-tax framework could allow another member country of the Organisation for Economic Co-operation and Development (OECD) to impose a supplementary tax on Kuwaiti companies covered by the regime.
The argument is that tax payments counted for the relevant minimum-tax calculation are limited to amounts paid to the state’s public treasury rather than contributions made to an institution to support its activities. Under such a scenario, Kuwait could forgo part of the 15 percent tax revenue while another jurisdiction could potentially collect the equivalent amount as a supplementary tax.
The issue therefore remains subject to legal and tax assessment, with the final decision expected to balance the proposed relief for major Kuwaiti companies against the potential impact on Kuwait’s tax revenues and international tax treatment.
