Kuwait to introduce new corporate tax initiative

Kuwait is taking a significant step towards modernizing its tax system by introducing the “Business Profits Tax Law,” part of a comprehensive plan to revamp its existing tax framework. This move is driven by the nation’s desire to align with the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS), making it the final Gulf Cooperation Council state to pursue membership in this framework.

The Kuwaiti government aims to implement this corporate tax initiative in two phases, with full realization expected by 2025. BEPS involves the exploitation of tax rule gaps and inconsistencies by multinational enterprises to minimize tax liabilities.

The Business Profits Tax (BPT) will impose a 15% tax on the profits of various operating entities, including corporate structures, partnerships, and businesses with distinct legal existence, all established or operating within Kuwait. However, individuals and micro/small enterprises will be exempt from this tax.

The BPT will be integrated as an amendment to existing tax laws, aligning with the globally applied Pillar Two framework. The current Kuwait corporate income tax law levies taxes on the income of any corporate entity, regardless of its place of incorporation, earning income from Kuwait.

As of now, only foreign companies conducting business in Kuwait are subject to taxation on their profits and capital gains. Starting on January 1, 2025, Kuwaiti multinational companies, including government entities, operating in international markets and generating annual revenues exceeding €750 million ($806 million), will fall under the proposed BPT.

Notably, companies incorporated in the GCC and fully owned by GCC citizens are currently exempt from income tax. Corporate income tax primarily targets income generated by non-GCC (foreign) companies.

As globalization and the digital transformation of businesses continue to evolve, tax authorities worldwide are addressing the profit-shifting practices of multinational corporations. These companies have been strategically relocating profits from high corporate tax rate countries to those with lower tax rates to reduce their overall tax liabilities.