Kuwaiti multinational companies are navigating the intricate world of taxation, as indications suggest that the time for imposing taxes is fast approaching. While the government and relevant entities have initially sought to persuade these companies to pay taxes locally, it seems the persuasion stage has evolved into concrete action, reported Al-Rai Daily.
In a notable development, Kuwait officially submitted a request to join the Organization for Economic Cooperation and Development (OECD), marking the start of a shift towards potential taxation. This request signifies that multinational companies operating in Kuwait will face an adjustment to their financial plans.
As preparations intensify, major banks and multinational corporations have assembled teams of financial experts and engaged with auditors to assess the expected financial impact on their budgets. The new tax law stipulates that companies must pay 15 percent of their local profits in taxes. However, Kuwait’s government is unlikely to impose a rate higher than the minimum requirement.
The estimated annual impact of this new tax varies, depending on the size and revenue of the companies. Some anticipate costs ranging from one million to 70 million dinars. Approximately 20 companies, including government entities with multiple markets, are expected to be subject to the tax.
The implementation of this tax is not projected to affect the 2023 budget; instead, it is more likely to begin in 2024 or 2025. In the interim, companies are focusing on accounting preparation to determine its potential impact on their capital adequacy ratio, commitment size, budget allocations, and the anticipated impact on net profits.
Amid these changes, companies are grappling with important questions. Notably, how is the tax calculated for companies already paying taxes in their foreign markets? There’s currently no consensus on how to deduct externally paid taxes from total payments due from consolidated profits.
Also, questions persist about the redistribution of taxes for multinational companies with operations spanning various countries. How will the tax be distributed, according to the concept of fines or as a percentage of income?
The Organization for Economic Cooperation and Development (OECD) aims to prevent companies from using “tax residency” to benefit from attractive tax rates while operating in tax havens that do not impose sufficient taxes on major corporations. The OECD’s proposed reform is based on a fair distribution of tax rights between countries and the imposition of a global minimum tax.
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