In line with international corporate tax standards, Kuwait has enacted Decree-Law No. 157 of 2024, introducing a Domestic Minimum Top-Up Tax (DMTT) of 15% applicable to large-scale multinational groups. This measure, effective from January 1, 2025, marks a significant step forward in the country’s alignment with the OECD/G20 Inclusive Framework on BEPS Pillar Two and reinforces its commitment to diversifying its revenues beyond the hydrocarbon sector.
Scope of the rule
The DMTT applies to groups whose ultimate parent entity has generated consolidated revenues equal to or greater than EUR 750 million (US$882 million) in at least two of the four fiscal years prior to 2025. The tax obligation covers all activities carried out by such entities in Kuwait, including those within the divided zone and the divided submerged zone, shared with Saudi Arabia under border agreements.
This tax is prevalent, partially replacing previous laws such as:
- The Corporate Income Tax Law (Decree No. 3 of 1955 and its amendments),
- The Zakat Law (Law No. 46 of 2006),
- The Neutral Zone Law (Law No. 23 of 1961).
However, Law No. 19 of 2000 on the National Labor Support Tax (NLST) remains in force.
Main tax provisions
The tax base is calculated on the basis of local accounting profit, subject to specific adjustments defined in the future by regulatory provisions. A substance-based exclusion is allowed, which reduces the tax base by taking into account payroll costs and tangible assets, thus recognizing the actual economic activity.
The effective DMTT rate will be zero if:
- The income excluded for substance equals or exceeds the total net income, or
- The taxpayer already pays tax at an effective rate equal to or greater than 15%.
Transitional provisions include:
- Safeguards linked to country-by-country reporting (CbCR),
- Simplified calculation,
- Exclusions for recent international activities.
Entities subject to the DMTT must register with the Kuwait Tax Authority within 120 days of becoming subject to it, with an exceptional extension until September 30, 2025.
Affected parties
The rule applies to:
- Kuwaiti entities that are part of multinational groups that meet the income thresholds;
- Joint ventures with at least 50% ownership by the multinational group;
- Permanent establishments of non-resident entities and pass-through structures.
The following are excluded from the DMTT:
- Government entities, non-profit and international organizations;
- Pension funds and real estate investment vehicles acting as parent companies;
- Entities at least 95% owned by excluded entities or 85% with predominantly passive income.
Sectoral impact
Oil and gas
Accelerated depreciation regimes can bring the effective tax burden below 15% in the early stages of projects. It is recommended to model tax projections and optimize investments in tangible assets to maximize substance exclusions.
Financial services
Given that profitability may vary between branches, results should be reviewed at the entity level and adjustments to transfer pricing and repatriation structures should be considered.
Manufacturing and industry
The tax benefits of special economic zones may be neutralized by the DMTT. It is suggested to evaluate existing incentives, their possible renewal, and their effects on net profitability.
Logistics and retail
Incentives such as tax holidays lose their effectiveness with the implementation of the DMTT. Companies should consider alternative incentives such as tariff reductions and demonstrate local investment and employment.
Recommendations for companies
With the new tax regime coming into force, multinational companies should adopt a proactive and strategic stance. It is essential to thoroughly review Decree-Law No. 157 with your tax advisors to determine whether your group falls within its scope. A rigorous assessment of the impact this measure will have on their operations in Kuwait, their financial planning, and future profitability will be essential for proper adaptation.
Likewise, the implementation of the DMTT will require adjustments to internal tax compliance systems, from the collection of accounting data to the accurate calculation of the effective tax rate. Anticipation and transparency will be key to avoiding penalties, so it is advisable to maintain fluid communication with the tax authorities, especially regarding substance criteria, calculation methodology, and use of the exclusions provided by law.
Finally, companies should remain attentive to future clarifications, amendments, or supplementary regulatory provisions that may affect their tax status. In an evolving regulatory environment, the ability to adapt and the strength of documentation will make the difference between timely compliance and exposure to tax contingencies.
Source: MiddleEastBriefing