Kuwait Enacts its Domestic Minimum Top-Up Tax

Legislation

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.

This follows a previous draft law issued on December 9, 2024.  The draft law consisted of 5 Articles, whereas the enacted law includes 41 Articles divided into 8 Chapters.

In scope-MNE groups will be MNE groups with revenue that exceeds the 750 million Euro revenue threshold (as provided in Article 1 of the Law).

Article 4 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.

General

Chapter Three of the Law includes provisions for the application of a DMTT broadly based on the mechanics of the OECD Model Rules. However, most of the detail is to be provided in the Executive Regulations.

Article 9 does provide for some GloBE income adjustments, including:

1 – Excluding income resulting from dividends.

2 – Excluding gains or losses of ownership rights, including capital gains or losses from shares.

3 – Excluding revenue resulting from the assignment of debts of a taxable entity.

4 – Excluding income resulting from international maritime transport and shipping activities.

Article 10 provides for the substance-based income exclusion (at a high level with the detailed transitional rates to be provided in the Executive Regulations).

Article 13 of the Law provides for the de minimis exclusion, broadly based on the OECD Model Rules.

Article 4 of the Law does track (at a very high level) 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 and investment fund in Article 1 of the Law also replicates the definition in the OECD Model Rules.

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

OECD Administrative Guidance

Not specifically included in the Law. The detailed operation will be provided in the Executive Regulations.

Safe Harbour and Penalty Relief Guidance

Article 14 of the Law specifically provides for the Simplified Calculations Safe Harbour (with the detailed rules to be provided in 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). Further detail is to be provided in the Executive Regulations.

Domestic Minimum Tax

Chapter 3 of the Law provides that a top-up tax (DMTT) will be imposed on the profits of a multinational groups of persons based on the difference between the actual rate of tax and 15%, according to the rules as provided in the Executive Regulations. This will apply for accounting periods beginning on or after January 1, 2025.

The Law includes few detailed provisions for the operation of the DMTT.

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.

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.

Registration

Article 19 of the Law provides that taxpayers must register with the Tax Administration within 120 days from the date of commencement of the in-scope activity. However, under Article 2 of the introductory provisions in-scope MNE groups must register for DMTT purposes within 9 months from the date of entry into force of the provisions of the Law to avoid an administrative fine.