Kuwait Proposes 15% Corporate Tax for All Businesses Under New Draft Rules

Kuwait’s Ministry of Finance has proposed the introduction of a 15% corporate income tax on all businesses, both local and foreign-owned, according to multiple reports. The draft legislation, known as the Business Profits Tax Law, outlines significant changes to the country’s tax system, marking a departure from the existing framework where the flat 15% rate applied exclusively to foreign-owned businesses.

Under the proposed rules, with few exceptions, the new tax rate would be imposed on profits earned by all companies operating in Kuwait starting January 1, 2025. However, smaller businesses generating less than 1.5 million Kuwaiti dinars ($4.9 million) in annual revenue and entities wholly owned by the state would be exempt from the new tax.

Kuwait is also considering the introduction of a top-up tax in alignment with the OECD’s pillar two rules. This measure would target multinationals with an effective tax rate below 15%, ensuring they meet the minimum rate through a supplementary tax. Local companies falling under the pillar two tax base are expected to receive a grace period until 2027 to comply, while multinationals would begin paying the top-up tax in 2025.

Additionally, the proposed legislation includes plans for a 5% withholding tax on payments to non-residents. This would apply across various income types, including royalties, rent, dividends, and insurance premiums.

The move reflects Kuwait’s commitment to international tax standards, following its announcement in November 2023 to join the OECD’s Inclusive Framework on BEPS (Base Erosion and Profit Shifting), including its two-pillar solution. By joining this framework, Kuwait aims to ensure that multinational enterprises pay their fair share of taxes wherever they operate.

The proposals are part of a broader trend in the Middle East, which has seen a notable shift towards corporate taxation in recent years. In November, the United Arab Emirates, a jurisdiction historically without a corporate tax regime, released a taxpayer guide for its newly introduced corporate tax system.

Kuwait’s latest tax reforms are poised to bring significant changes to its business environment, with the new rules signaling a decisive shift towards broader corporate tax implementation in the region.

By fLEXI tEAM