Kuwait Petroleum Corporation faces 15% tax under new global rules

• As 100% government-owned entities, Kuwait Petroleum Corporation and its subsidiaries are exempt from local tax but remain liable to a 15% tax on profits transferred to Kuwait.

• As the implementation of tax rules for multinationals with revenues over 750 million euros approaches, Kuwait Petroleum Corporation officials have prepared a study on the matter.

• The Kuwait Investment Authority and General Insurance Corporation invest abroad via managed portfolios, exempting them from direct taxes.

Under the OECD’s framework for the second pillar of global tax reform on companies and businesses, not all multinational entities owned by the Kuwaiti government are guaranteed immunity from direct taxes expected to take effect in January 2025.

For example, while the Kuwait Investment Authority and the General Insurance Corporation may remain tax-exempt in their foreign markets, this exemption is not anticipated to extend to Kuwait Petroleum Corporation (KPC) and its subsidiaries. The distinction lies in the nature of their operations and how tax policies apply to entities fully owned by the government.

In this context, responsible sources revealed to Al Rai newspaper that, with the approaching implementation of the model rules for taxing multinational companies with revenues exceeding 750 million euros (or equivalent) in at least two out of the four financial years preceding the year of application, officials of the Kuwait Petroleum Corporation prepared a study on the matter.

This study included various questions addressing legal, tax-related, and accounting aspects, most notably: Are Kuwaiti oil sector entities operating abroad subject to the multinational companies’ tax, or are they exempt by virtue of being government-owned?

KPC entities abroad face global tax scrutiny

The sources further indicated that preliminary discussions in this regard revealed that the entities affiliated with the Kuwait Petroleum Corporation (KPC) and operating in foreign markets are commercial companies generating total annual revenues exceeding 750 million euros (or the equivalent).

This places them within the scope of the multinational companies’ tax base, requiring an effective tax rate of at least 15 percent on profits earned in each country or jurisdiction where they operate. They noted, however, that the prevailing opinion on this matter is still subject to further legal and tax studies.

It is worth mentioning that, to align with international practices, Kuwait joined the Comprehensive Framework for Preventing Base Erosion and Profit Shifting (BEPS) on November 15, 2023. This framework, which includes over 140 countries and jurisdictions, aims to combat international tax evasion and promote a more transparent global tax environment.

In this context, a draft law is being prepared to impose a local supplementary business income tax of at least 15 percent on Kuwaiti multinational and local companies. This measure is designed to enhance tax practices, reduce local revenue leakage, and positively impact public treasury revenues.

The tax, which has become mandatory under the “second pillar” of global tax reform, ensures that if profits are not taxed locally, they will be subject to taxation globally.

KPC subsidiaries face global tax despite local exemption

The sources highlighted that, since the Kuwait Petroleum Corporation and its subsidiaries are 100 percent government-owned entities, the supplementary tax law cannot be applied locally to these multinational companies. Consequently, they remain externally liable to a 15 percent tax when transferring their annual profits to Kuwait.

The sources highlighted that the primary distinction between Kuwaiti oil companies, on the one hand, and the Kuwait Investment Authority and General Insurance Corporation entities, on the other, lies in their business models. This distinction justifies the application of international tax in one case but not the other. Oil sector companies outside Kuwait engage in direct investments by owning specific stakes in entities.

In contrast, the Kuwait Investment Authority and General Insurance Corporation channel most of their funds into foreign markets through managed portfolios overseen by international managers. These investments are within a broader investment framework that includes other investors, exempting them from direct tax obligations.

Even in cases of direct investments attributable to both entities, the sources noted that such investments are minimal and limited to markets that offer sovereign capital relief.

Taxably exposed petroleum companies

Regarding oil companies potentially subject to a 15 percent tax in foreign markets, the sources revealed that the Kuwait Petroleum Corporation and its subsidiaries wholly own two companies in this regard: the Kuwait Foreign Petroleum Exploration Company (KUFPEC), classified as an international oil exploration and production company, and Kuwait Petroleum International. The latter manages refineries, operates gas stations, and supplies fuel to international airports.

Kuwait Petroleum International operates about 5,000 gas stations across Europe

Kuwait Petroleum International operates approximately 5,000 gas stations across Europe and manages three refineries in partnership with international stakeholders: the Duqm Refinery, the Vietnam Refinery, and the Milazzo Refinery. Additionally, the company supplies fuel to several international airports.

In addition, the Kuwait Petroleum Corporation has external partnerships through the Petrochemical Industries Company, with the total annual revenues of these companies exceeding 750 million euros.