New 15% tax to impact 20 Kuwaiti and 350 foreign entities

• The implementation of new tax supports “Kuwait Vision 2035” for a diversified economy and financial sustainability.

• The multinational corporation tax applies to entities in multinational groups, joint ventures with 50% ownership from parent company.

• Kuwait’s Finance Ministry projects 250 million dinars annually from multinational corporation tax.

The 15% tax law, that took effect on January 1 for multinational entities, provides a nine-month grace period for registration applications without incurring administrative fines. In the meantime, Ministry of Finance officials have started listing both Kuwaiti and foreign companies operating in the local market that will be subject to the law’s provisions.

According to relevant sources who informed Al-Rai that based on the revenue figures in the 2023 budgets and the financial statements for the first nine months of 2024, officials at the Ministry of Finance anticipate that around 20 Kuwaiti companies could fall under the new tax framework.

Additionally, between 300 and 350 multinational foreign entities are expected to be liable for supplementary taxes in Kuwait. These entities may be subject to a tax rate difference, where the taxpayer will be charged the gap between the 15% minimum rate and their actual tax rate if it is lower.

Sources indicated that the Ministry of Finance expects the multinational corporation tax to generate approximately 250 million dinars annually for the public treasury, with some forecasts suggesting up to 300 million dinars.

The implementation of this tax aligns with Kuwait Vision 2035, which aims for a more diversified economy and financial sustainability, reducing reliance on a single income source. Additionally, the tax system reform is expected to curb revenue leakage and enhance tax practices in line with global trends.

The sources clarified that under the new law, the supplementary tax applies to a group of multinational entities operating in Kuwait, including those groups with a permanent establishment in the country.

It targets groups that operate across multiple countries or jurisdictions, with total annual revenues reaching or exceeding 750 million euros (approximately 240 million dinars) for at least two tax periods within the four tax periods immediately preceding the current tax period.

The sources reported that the tax will be levied at a rate of 15% on the net profits of multinational companies, with the obligation to pay the tax arising once their revenues reach 750 million euros.

Furthermore, the sources explained that the actual tax rate for the taxpayer will be determined according to the provisions of the law, based on the total adjusted taxes for the taxable entities within the group, divided by the total net income or loss of the group.

The income of the taxable entity will be calculated from the financial statements, taking into account all revenues and expenses, including transactions with other group members.

According to the provisions of the law, any entity in the country that is part of a multinational group, whether as a final or participating entity, as well as any joint venture or affiliated entity, is subject to multinational corporation tax. This applies if the joint venture is owned 50% or more by the final parent entity of the multinational group, whose revenues from outside the joint venture exceed the revenue threshold.

Additionally, if the total revenues of the joint venture and its affiliated entities meet or exceed the revenue limit, the tax applies. The law also covers entities not affiliated with any country or jurisdiction that operate within the country. The executive regulations will define the conditions and controls related to the application of these provisions.

Moreover, as per the law, consolidated financial statements must include all revenues generated by the participating entities under control, including the revenues of excluded entities that are considered when determining whether the revenue threshold has been met, as per the controls and conditions set by the executive regulations.

The law defines the group as entities linked through ownership or control, requiring that all assets, liabilities, income, expenses, and cash flows of those entities be included in the consolidated financial statements of the ultimate parent entity or excluded based on size or material importance.