Kuwait is gearing up for a significant tax system overhaul as part of its bid to join the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS). The move comes as Kuwait is the only Gulf Cooperation Council state yet to become a member of this framework.
BEPS refers to tax planning strategies employed by multinational enterprises to exploit gaps and mismatches in tax rules, enabling them to avoid paying taxes. The Kuwaiti government plans to introduce the “Business Profits Tax Law” (BPT) as a key component of a comprehensive tax framework revamp. The reform will be implemented in two stages, with full implementation expected by 2025.
The BPT proposes a 15 percent tax on the profits of various operating structures, including corporate entities, partnerships, and businesses with separate legal existence in Kuwait. However, individuals, micro, and small enterprises will be exempt from this tax. Currently, only foreign companies conducting business or trade in Kuwait are subject to tax on their profits and capital gains income.
Starting from January 1, 2025, Kuwaiti multinational companies, including government entities operating overseas with annual revenues exceeding €750 million ($806 million), will fall under the purview of the proposed BPT. The reform suggests implementing the BPT as an amendment to existing tax laws, aligning with the global Pillar Two framework.
Under the existing Kuwait corporate income tax law, any body corporate earning income from Kuwait source is subject to tax. Currently, no income tax is imposed on companies in the Gulf Cooperation Council (GCC) entirely owned by GCC citizens. Corporate income tax is only applicable to income earned by non-GCC (foreign) companies.
The shift towards tax reform reflects the impact of globalisation and digitalisation on businesses. Tax authorities have observed multinational corporations strategically shifting their profits from high corporate tax rate countries to those with lower rates to reduce their overall global tax burden.