Based on recent media coverage, the Kuwait government is discussing a tax proposal to introduce a Business Profit Tax (BPT) at a rate of 15% on all legal entities operating in the country. The proposal is largely driven by the impact that Kuwait may face due to the implementation of the OECD Pillar Two framework, which aims to ensure that multinational enterprises (MNEs) with global revenues above EUR 750 million pay a minimum tax rate on income in each jurisdiction in which they operate.
The BPT proposal is still in its early stages and, based on media coverage, is planned to be introduced in two phases:
The MOF plans to appoint a third-party firm to provide initial consultations with respect to policy options available for Kuwait’s adoption of Pillar Two. Once this is done, the MOF is likely to begin the process of drafting the necessary legislation for the introduction of Pillar Two and BPT, which will have to be presented to the relevant government committees and then parliament for further discussion and approval.
The BPT proposal is still in its early stages and, based on media coverage, is planned to be introduced in two phases:
- Phase 1: Effective 1 January 2025, BPT would apply to large MNEs with turnover exceeding EUR 750 million. Based on media coverage, this is likely to apply to approximately 15 Kuwait-parented MNEs, some of which are state owned.
- Phase 2: Effective 1 January 2026, BPT would apply to all other legal persons. In this phase, the proposal suggests the elimination of all existing direct tax laws in Kuwait
The MOF plans to appoint a third-party firm to provide initial consultations with respect to policy options available for Kuwait’s adoption of Pillar Two. Once this is done, the MOF is likely to begin the process of drafting the necessary legislation for the introduction of Pillar Two and BPT, which will have to be presented to the relevant government committees and then parliament for further discussion and approval.
Comments
Given the rapid international progress on the adoption of Pillar Two, combined with the risk of Kuwait losing out on potential tax revenue, the MOF has taken steps to study the possibility of introducing BPT and the Pillar Two rules. Significantly, on 15 November, the OECD announced that Kuwait formally signed up to the OECD Pillar Two framework. Kuwaiti MNEs that are within the scope of Pillar Two should begin preparing for its impact and not in-scope Kuwaiti companies should closely monitor tax developments in the country.
Rami Alhadhrami
BDO in Kuwait