According to international corporate tax standards, Kuwait has enacted Decree-Law No. 157 of 2024, introducing a 15% Domestic Minimum Top-Up Tax (DMTT) applicable to large-scale multinational groups. This measure, effective as of January 1, 2025, marks a significant step forward in the country’s alignment with the OECD/G20 Inclusive Framework on BEPS Pillar Two, strengthening its commitment to diversifying revenues beyond the hydrocarbon sector.
Rule Scope
The DMTT applies to groups whose ultimate parent entity has generated consolidated revenues equal to or greater than €750 million (US$882 million) in at least two of the four fiscal years preceding 2025.
The tax obligation covers all activities carried out by such entities in Kuwait, including those within the divided zone and the submerged divided zone, shared with Saudi Arabia under border agreements.
This tax is prevalent in nature, 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).
Conversely, Law No. 19 of 2000 on the National Labor Support Tax (NLST) remains in force.
Main Tax Provisions
The tax base is calculated from local accounting profit, subject to specific adjustments defined eventually by regulatory provisions. An allowed grounded exclusion may reduce the tax base by considering payroll costs and tangible assets, thereby recognizing the actual economic activity.
The effective DMTT rate will be zero if:
- The grounded excluded income equals or exceeds the total net income, or
- The taxpayer is already taxed at an effective rate of 15% or more.
Transitional provisions included:
- 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 after becoming subject to it, with an exceptional extension until September 30, 2025
Affected Parties
The rule applies to:
- Kuwaiti member entities of multinational groups meeting 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 DMTT does not include the following:
- Government entities and non-profit and international organizations;
- Pension funds and real estate investment instruments operating 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 reduce the effective tax burden to 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 can vary among branches, results should be reviewed on an entity basis, and adjustments to Transfer Pricing and repatriation structures should be considered.
Manufacturing and Industry
The DMTT may neutralize the tax benefits of special economic zones. You should evaluate existing incentives, their potential 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 must adopt a proactive and strategic stance. Decree-Law No. 157 must be thoroughly reviewed with tax advisors to determine whether the group to which they belong falls within the application scope. A thorough assessment of this measure’s effects on their operations in Kuwait, their financial planning, and future profitability will be essential for proper adaptation.
Likewise, implementing the DMTT will require adjustments to internal tax compliance systems, from gathering accounting data to accurately calculating the effective tax rate. Being proactive and transparent will be key to avoiding penalties for a communication open with the tax authorities, especially regarding ground criteria, calculation methods, and the use of the exclusions provided by law.
Finally, companies should stay attentive to future clarifications, amendments, or complementary regulatory provisions that may affect their tax status. In an evolving regulatory environment, the ability to adapt and the strength of documentation will distinguish between timely compliance and exposure to tax contingencies.
Source: MiddleEastBriefing