Kuwait to impose a 15% tax on company profits from 2027

• The proposed draft does not impose any tax on individuals.

• Exemptions and privileges will be granted to companies engaged in vital activities within Kuwait.

• Companies with a business value of less than 1.5 million dinars will be exempt from the tax.

• A 30% tax rate will be applied to total income in the “divided zone,” with half of the tax due being paid to Kuwait.

• The loss incurred at the end of one tax period can be deducted from the income of the following tax period.

The draft law on business profits tax under review indicates a move to impose a minimum income tax of 15% on all Kuwaiti companies, including both multinational entities and local businesses. However, the law proposes an exemption for entities with annual business revenues not exceeding 1.5 million Kuwaiti dinars.

While the draft law does not include provisions for taxing individual income, it specifies that taxable business profits will be calculated based on actual revenues, with deductions allowed for the actual costs necessary to conduct business activities.

The tax administration reserves the right to assess taxable profits based on the neutral price if related parties establish commercial or financial terms that differ from those typically agreed upon by unrelated parties. This measure aims to prevent practices that could reduce the tax base or shift the tax burden from a taxable entity to one that is exempt or not subject to taxation.

The draft law stipulates that the tax will apply to resident legal entities on their income earned both within and outside the country, as well as to resident natural persons engaged in business activities, taxing their income derived from such activities regardless of its source. It also covers permanent establishments operating within the country, with the following exceptions:

1. Legal persons wholly owned by the State (includes entities or natural persons conducting activities through sole proprietorship, office, clinic, or other similar form of business operation).
2. Businesses carried out in the divided zone, where a tax rate of 30 percent is applied to the total income.
3. However, the taxpayer may claim 50 percent of the tax due if they pay 50 percent of the amount owed in Saudi Arabia.

According to the draft, a supplementary tax will be imposed on the income of a multinational group of entities if their effective tax rate is less than 15 percent, with the tax calculated based on the difference between the effective rate and the global minimum tax established under the second pillar rules.

Local companies within the targeted tax base will be given two years to prepare for the changes, with the opportunity to update their systems in line with the new tax regulations. The transitional phase between the current and targeted laws is expected to last two years, with implementation scheduled for 2027.

Kuwaiti multinational companies are expected to begin paying taxes by January 2025, in compliance with OECD rules and to safeguard Kuwait’s tax revenues, as per the Pillar 2 guidelines.

Delaying implementation could result in significant leakage of tax revenues from other countries or jurisdictions that have already adopted the Pillar 2 rules.

Sources informed Al-Rai that, as part of the State’s strategy, tax exemptions and privileges will be offered to certain companies that provide essential services and engage in vital activities within Kuwait.

According to the draft, a 5 percent withholding tax will be imposed on amounts originating from the State and paid to a non-resident person, without any deductions for costs, provided that these amounts are not associated with a permanent establishment of the non-resident within the State. These amounts include:

1. Benefits.
2. Royalties.
3. In return for services, including technical, consulting and administrative services.
4. Rent of movable and immovable property.
5. Dividends from stocks, except those issued by companies listed on the Kuwait Stock Exchange.
6. In exchange for sports or artistic activities.
7. Insurance premiums paid from a source in the country.

The tax is deducted from the taxable amounts, and the state is considered the source of income in the following cases:

1. Permanent establishment income.
2. Income from sports and artistic activities.
3. Income from the exploitation and disposal of real estate and the like.
4. Dividends from shares owned by legal persons residing in the country.
5. Capital gains achieved from the disposal of securities owned by legal persons.
6. Benefits paid by the government or any resident person or permanent establishment within the country.
7. Rent, licensing fees and royalties paid by the government or any resident person or permanent establishment within the country.
8. Insurance premiums paid to cover risks.
9. Enter any other activity.

Cost Deduction

The taxpayer may deduct the actual costs incurred to achieve taxable income on business profits, including:

1. Amounts paid to the Kuwait Foundation for the Advancement of Sciences, up to a maximum of 1 percent of the value of income for the tax period.
2. Goods and services required for the purposes of the taxable activity.
3. Salaries and wages.
4. Assets consumption according to the specified ratios, conditions and controls.
5. Expenses and costs specified in the executive regulations.

The following are not considered actual deductible costs:

1. 1 Non-activity costs.
2. Costs associated with income or revenues exempt from or not subject to tax on business profits.
3. Penal fines.
4. Expenses and costs specified by the executive regulations.

The taxpayer may deduct any loss incurred at the end of one tax period from the income of the following period.

If part of the loss remains after this deduction, it can be carried over to subsequent tax periods, up to a maximum of five tax periods following the period in which the loss occurred.

After that, any remaining loss can no longer be carried over. In all cases, the amount of losses that can be deducted may not exceed 75 percent of the taxable income for the respective tax period.

Tax Exemptions

The draft exempts the following cases:

1. Dividends obtained by a resident person from the participation shares they own in a resident legal entity, or from the participation shares they own in a non-resident legal entity, provided that the participation percentage is not less than 10 percent for at least 12 months prior to the distribution of the dividends. Additionally, the participation shares must be subject to tax in the non-resident country at an effective rate of no less than 15 percent.
2. Capital gains achieved by a resident person from the disposal of participation shares they own in a resident legal entity, provided that the participation percentage is not less than 10 percent for at least 12 months before the disposal. Similarly, capital gains from the disposal of participation shares in a non-resident legal entity are also included, provided that the ownership percentage is not less than 10 percent for at least 12 months prior to the disposal, and that the participation shares are subject to tax in the non-resident country at an effective rate of not less than 15 percent.
3. The income of a non-resident person generated in the State through a permanent establishment, from operating aircraft or ships in international traffic, from the following activities:

• International transport of passengers, goods, livestock, mail or parcels.
• Leasing of aircraft or ships, whether with or without crew.
• Rental of basic equipment for sailing ships or flying aircraft used in international traffic.

Provided that reciprocity is granted to a resident person, who carries out any of the activities mentioned in Clause 3 in the country where the non-resident person resides.

Government entities, Kuwaiti non-profit organizations, and taxable persons are also exempt from the tax.

Entities excluded from the supplementary tax, whether Kuwaiti or non-Kuwaiti include: governmental entities, non-profit organizations, international organizations, pension funds, and investment funds that are considered “ultimate parent entity” as well as real estate investment vehicles that is an “ultimate parent entity.”

The taxpayer is required to maintain the books, records, documents, and information necessary for preparing financial statements and determining the tax base, in accordance with the nature of their activity, for a period of 10 years starting from the end of the tax period.

In case of violation of this requirement, the Tax Administration has the right to assess the taxpayer’s tax based on any available data, without prejudice to the imposition of fines and penalties specified in the law.

Grievance Committee

A decision by the Minister shall establish one or more committees, known as the Tax Grievances Committee, which will be chaired by a senior employee of the Tax Administration, with a rank not lower than Assistant Undersecretary.

The committee will consist of at least six members, as follows:

1. At least 3 employees of the tax administration.
2. 2 persons with expertise in tax matters, nominated by the Minister in coordination with the relevant authorities, provided that they are not employees of the Tax Administration, audit offices, or employees of entities subject to tax laws, or members of their boards of directors.
3. A member of the Fatwa and Legislation Department, whose rank is not less than that of advisor, nominated by the head of the department.

Late Payment Penalty

A fine of at least 1,000 Kuwaiti dinars shall be imposed on anyone who is late in submitting the tax return as follows:

1. 5 % of the final tax if less than a month late.
2. 10 % if delayed more than one month and less than 3 months.
3. 15 % if delayed more than 3 months and less than a year.
4. 20 % if it is delayed for more than one year and before the date of issuance of the tax assessment.

A fine of 25 percent of the final tax, with a minimum of 5,000 dinars, will be imposed if the taxpayer fails to submit the declaration by the date of issuance of the tax assessment.

A fine of 1% of the value of the unpaid or undelivered amounts shall be imposed on the taxpayer or tax deductor for every 30 days or part thereof, in the following cases:

1. The taxpayer fails to pay the tax due within the legal deadlines for submitting the declaration, and the fine will apply starting from the day following the expiration of the deadline for submitting the declaration.
2. The tax deductor fails to pay the tax deducted at source within the legal deadlines for submitting the declaration, and a fraternity penalty will apply starting from the day following the expiration of the deadline specified for submitting the declaration.
3. If the advance payments are not made within the legal deadlines, a late payment penalty will apply starting from the day following the expiration of the deadline for paying the advance payment.
4. If the taxpayer or tax deductor submits an incorrect tax return, and the differences between the final tax and the tax based on the return exceed 10 percent of the value reported, a fine of 25 percent of the difference will be imposed on the taxpayer or tax deductor. However, if the taxpayer or tax deductor corrects the error before it is discovered by the tax administration, the fine will be reduced to 15 percent.

The final tax due is as follows:

1. The same tax value stated in the declaration.
2. Rejection of the objection and the expiry of the deadlines for filing a grievance before the Grievance Committee without filing a grievance.
3. The deadline for objecting to the tax assessment has expired without any objection.
4. Partial acceptance of the objection and the deadlines for filing a grievance before the Tax Grievances Committee have expired without a grievance, or the objection is fully accepted.
5. The grievance was rejected and the appeal deadlines before the court expired without an appeal.
6. Accepting the grievance in part or in full, and the appeal deadlines before the court have expired without an appeal.
7. Agree with the taxpayer regarding the tax debt in accordance with the conditions.
8. Issuance of a final judgment on the tax debt.