Kuwait Issues Executive Regulations for its Domestic Minimum Tax

On December 30, 2024, Kuwait published Decree-Law 157 of 2024 for the introduction of a Domestic Minimum Top-Up Tax (DMTT) for in-scope MNE groups from January 1, 2025.

Article 4 of the introductory provisions states that Executive Regulations will be issued within six months from the date of publication of the law. 

The Executive Regulations were issued on June 29, 2025, in Ministerial Resolution No. 55 of 2025.

Administrative Guidance

Various aspects of the OECD Administrative Guidance are included in the Regulations, including:

-Rebasing monetary thresholds in the GloBE Rules (Article 1.1)

-The exclusion of sovereign wealth funds from the definition of Ultimate Parent Entity (Article 1.4)

-The foreign exchange hedge election (Article 2.2)

-The debt release election (Article 2.4)

-Provisions for accrued pension expenses (Article 2.5)

-Excess negative tax carry-forward guidance (Article 2.7)

-Substitute loss carry forwards (Article 2.8)

-The equity gain or loss inclusion election (Article 2.9)

-Provisions on restricted tier one capital for insurance companies (Article 3.3)

-The portfolio shareholding election (Article 3.5)

-Deferred tax assets and tax credits under the transitional rules (Article 4.1)

-The transitional rules and transactions similar to asset transfers (Article 4.2)

-Asset carrying value and deferred taxes under the transitional rules (Article 4.3)

The following provisions of the Second Set of OECD Administrative Guidance (published on July 17, 2023), are included in the law:

-Marketable Transferable Tax Credits

-Interjurisdictional Employees/Assets for the Substance-based Income Exclusion

-Substance-based Income Exclusion: Other Assets

Safe Harbour and Penalty Relief Guidance

Article 14 of the Law specifically provides for the Simplified Calculations Safe Harbour (Article 60 of the Executive Regulations).

Article 15 of the Law provides for the Transitional CbCR Safe Harbour and it includes the three tests from the OECD Safe Harbour Guidance (De Minimis Test, ETR Test and the Routine Profits Test). Article 62 of the Executive Regulations provides for further rules that tie into the OECD Safe Harbour Guidance. However, the amendments in the December 2023 OECD Administrative Guidance (eg Hybrid Arbitrage Arrangements) are not specifically included.

Elections 

Most of the elections included in the OECD Model Rules and Administrative Guidance. The exception is the Distribution Tax Regime Election.

QDMTT Design Features

As the Law and Regulations only provide for a DMTT, the entire legislation is applied solely for DMTT purposes. This contrasts with many other jurisdictions that also implement an IIR/UTPR under the general GloBE rules and then apply the DMTT by referring to the general GloBE calculation, with a number of adjustments.

The implementation of the DMTT in the Kuwait Law/Regulations does follow the general OECD Model Rules/Commentary and includes a number of the optional/mandatory deviations including:

Accounting Standard

The GloBE Rules generally require the MNE Group to base its GloBE calculations on the accounts used for preparing the Consolidated Financial Statements of the UPE for the purposes of computing the GloBE Income or Loss of each Constituent Entity.

However, the definition of a QDMTT under the Model Rules expressly permits the calculations to be based on a Local Financial Accounting Standard.

Article 9 of the Executive Regulations provides that if the financial statements for all group entities in Kuwait for tax purposes are prepared under IFRS and are subject to an audit by an external auditor, the Kuwait QDMTT must be calculated using those financial statements.

If not all group entities in Kuwait meet these requirements,  or if the financial years for which the annual financial statements are prepared do not correspond, the Kuwait QDMTT is calculated on the basis of the Consolidated Financial Statements of the UPE.

Taxes Pushed Down

Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in Articles 33/37 of the Regulations.

This preserves Kuwait’s primary right to tax income accruing to a Kuwaiti member entity which is also a CFC. If there were no statutory derogation from the general GloBE rules for the calculation of the domestic minimum tax, and the CFC tax paid by the controlling company abroad were included in the included taxes of the Kuwaiti CFC, the effective tax rate would be increased. Therefore, excluding the CFC tax from the Kuwaiti CFCs covered taxes allows Kuwait to tax low-taxed income at a higher rate than would be the case under an IIR.

Articles 33/37 also prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (aside from Kuwait withholding tax on distributions).

Eligible Distribution Tax Regimes

The Regulations do not include the Distribution Tax Regime Election as this is not relevant  domestically.

Initial Phase of International Activity Exemption

The UTPR exclusion for MNEs in their initial phase of international activity does not need to be included in a QDMTT, however, it can be included. The Second Set of OECD Administrative Guidance provides jurisdictions with three options regarding the temporary UTPR exclusion in their QDMTT legislation.

Option one allows the jurisdiction not to adopt it.

Option two allows the jurisdiction to adopt it but limits it to cases where no Parent Entity is required to apply a Qualified Income Inclusion Rule with respect to Constituent Entities of an MNE Group located in the QDMTT jurisdiction.

Option three allows the jurisdiction to adopt it without any limitations. (Note, if a jurisdiction opts for Option three, for the purposes of the QDMTT Safe Harbour the Switch-Over Rule would apply).

Kuwait applies Option two in Article 16 of the Law.

100% of the Top-Up Tax

Article 8 of the Regulations provides that Top-up Tax that is subject to the QDMTT is based on the whole amount of the Jurisdictional Top-up Tax calculated, irrespective of the Ownership Interests held in the Constituent Entities located in Kuwait by any Parent Entity of the MNE Group.

Transitional Year

Article 115 of the Regulations provides for the transitional year refreshing rule.

A new transition year, arises in an accounting period in which the entities of an MNE fall within the scope of a qualified IIR or UTPR if this accounting period begins after the beginning of the transition year for QDMTT purposes.

In the new transition year the following attributes of the relevant Constituent Entities are refreshed:

-Any Excess Negative Tax Expense Carry-forward under Article 4.1.5 or Article 5.2.1 is eliminated at the beginning of the new Transition Year.

-The DTL recapture rule in Article 4.4.4 does not apply to any deferred tax liability that was taken into account in computing the ETR under the QDMTT and that was not recaptured prior to the new Transition Year.

-Any GloBE Loss Deferred Tax Asset that arose in a year preceding the new Transition Year must be eliminated. The Filing Constituent Entity may make a new GloBE Loss election in the new Transition Year.

– Article 9.1.2 shall apply to transactions occurring after 30 November 2021 and before the beginning of the new Transition Year.

– If QDMTT was payable due to the application of Article 4.1.5 in respect of a deferred tax asset attributable to a tax loss, the deferred tax asset is not treated as arising from items excluded from the computation of GloBE Income or Loss under Chapter 3 of the OECD Model Rules.

Filing

Article 20 of the Law provides that the designated filing entity of MNE groups subject to the DMTT is required to file a DMTT declaration to the tax administration (including the financial statements audited by an audit office approved by the Ministry of Finance) within 15 months from the end of the accounting period. This applies even if there is a zero return.

Article 80 of the Regulations provides that a group of taxable entities in Kuwait must designate one of the group entities to be responsible for submitting the DMTT return.

If the parent entity of the multinational group is located in Kuwait it must be the designated  filing entity. If there are multiple parent entities, one of these must be designated as the filing entity.