Kuwait Issues a Draft Law to Introduce a Domestic Top-Up Tax from 2025

General

On December 9, 2024, the Kuwaiti Ministry of Finance issued a draft law that includes a 15% domestic minimum top-up tax (DMTT) as part of its overhaul of the Business Profits Tax Regime (see our English Translation of the Draft Law).

The draft law governs the operation of a new 15% corporate income tax as well as the new DMTT that will apply only to in-scope MNE groups.

Whilst most of the draft law relates to the operation of the corporate income tax, the First introductory provision states that the new DMTT will apply to MNE groups from tax periods beginning on or after January 1, 2025.

To ensure MNE groups have sufficient time to prepare for the requirements of the new DMTT, the advance payment requirements in Article 21 of the draft law, will be effective from tax periods beginning on or after January 1, 2026.

Article 6 of the introductory provisions states that Executive Regulations will be issued within six months from the date of publication of the law. It is therefore expected that the Regulations will contain the detailed operation of the new DMTT.

DMTT Application

Article 5 of the draft law provides that a top-up tax (DMTT) will be imposed on the profits of multinational groups based on the difference between the actual rate of tax and 15%, in accordance with the OECD Pillar 2 Rules.

Article 1 of the draft law defines a multinational group as any group that carries out its activity, even if through a permanent establishment, in more than one other jurisdiction aside Kuwait, and whose turnover is within the scope of the OECD Pillar 2 rules. This will therefore apply the DMTT to MNE groups with revenue above the 750 million euro threshold as provided in Article 1.1.1 of the OECD Model Rules.

It also includes some definitions with reference to the OECD Pillar 2 Rules:

– Top-up tax: The tax imposed on a multinational group on the difference between the OECDs global minimum tax rate and the effective tax rate based on the OECD Pillar 2 Rules.

– Pillar 2: Global action within the BEPS project, issued by the OECD, which sets a global minimum tax rate on multinational groups.

-Effective tax rate: The tax rate that is calculated on a multinational group according to the rules issued by the OECD Pillar 2 Rules.

– Global minimum tax rate: the 15% tax rate and any adjustments, as determined by the OECD Rules on Pillar 2.

There is therefore no detail on the calculation of the effective tax rate and it provides that the Executive Regulations will determine how to calculate the top-up tax and the rules for its application.

The intention from the draft law is to apply the OECD Model Rules. Whether this will be a direct transposition of these (as for instance Switzerland, Guernsey and Liechtenstein have done) or whether they will draft detailed regulations to reproduce the Pillar 2 rules will be determined in the Executive Regulations.

Excluded Entities

Article 16 of the draft law does track (at a very high level) Article 1.5.1 of the OECD Model Rules for Excluded Entities.

It provides that the following entities, whether Kuwaiti or non-Kuwaiti, are excluded from the DMTT:

. Government entities.
. Non-profit organizations.
. International organizations.
. Pension funds.
. Investment funds that are the ultimate parent entity.
. A real estate investment vehicle that is an ultimate parent entity.

The definition of a Government entity in Article 1 of the draft law also replicates the definition in Article 10.1.1 of the OECD Model Rules.

The Executive Regulations may delete or add other excluded entities if amendments are made to the OECD Pillar 2 Rules.

QDMTT?

The draft law includes no detailed provisions for the operation of the DMTT aside from a provision for Excluded Entities.

As such there are none of the mandatory or optional deviations for the design of the DMTT rules as provided by the OECD Administrative Guidance (eg no provisions on push down taxes or the accounting standard to be used). As such, it is not possible to determine whether the DMTT will be a QDMTT under the OECD Model Rules.

Registration

Article 3 of the introductory provisions provides that MNE groups must register for DMTT purposes within 6 months from the date of entry into force of the provisions of the draft law to avoid an administrative fine.