A new tax in Kuwait will raise around KD250m ($800m) a year and impact around 300 local and international companies, according to government forecasts.
The Kuwaiti Finance Ministry is set to up the pace of tax management as part of Kuwait’s vision to improve the business environment, cope with developments, overhaul the tax system, meet global standards and slash reliance upon oil earnings.
The Kuwaiti Cabinet had recently approved a draft law imposing a 15 per cent tax on multinational enterprises (MNEs), which run business in more than one country or jurisdiction.
New Kuwait tax
The law, which came into effect early January 2025, is primarily meant to:
- Diversify the Gulf country’s income
- Lessen dependence on oil revenues
- Build a resilient economy
- Overcome future challenges
In 2023, Kuwait joined the comprehensive framework of the Organisation for Economic Co-operation and Development (OECD) and endorsed its two-pillar reforms, with 137 countries, including the Gulf Cooperation Council (GCC) members, having endorsed this international tax reform.
Kuwaiti Minister of Finance and Minister of State for Economic Affairs and Investments Nora Al Fassam expected the country to earn roughly KD250m ($800m) in estimated taxes per annum as a result of the application of this law.
As many as 300 groups, including 45 Kuwaiti and Gulf groups and 255 foreign ones operating in Kuwait, are subject to the 15 per cent tax on multinational enterprises (MNEs) she remarked.
She underlined in earlier remarks that economic reforms adopted by the State of Kuwait within the framework of Kuwait Vision 2035 are backed by pieces of governmental legislation purposed to diversify the country’s non-oil revenues.
The minister elaborated that the targeted reforms include sustainable non-oil resources in a bid to ensure financial equilibrium through a governmental action plan to build a diversified economy, upgrade the quality of legislation, draw foreign investments and create jobs for young people.
She pointed out that the imposition of taxes on multinationals is considered to be a first step towards making reforms in line with international commitments, ensuring tax justice and avoiding tax evasion worldwide.
Experts stressed the significance of this step towards increasing the State’s revenues due to the prevention of tax evasion, and serving Kuwait’s public treasury.
Dr. Sara Al Sultan, a specialist in tax and financial laws and professor of Kuwait University’s Law College, spoke highly of the 15 per cent tax on multinational enterprises as a step on the right direction.
She said the legislation aligns with the international trend of closing international tax law’s loopholes exploited by world companies to avoid tax and limit tax competition among countries.
She added that in 2021, more than 135 countries agreed on new international tax rules that would establish a minimum tax rate of 15 per cent on multinational corporate income regardless of where it was reported.
It was called the “international tax agreement” that was reached under the umbrella of the Organisation for Economic Co-operation and Development (OECD) and in collaboration with the G20 or Group of 20.
It is part of the base erosion and profit shifting (BEPS) – where multinationals shift profits to low or no-tax locations where they have little or no economic activity or erode tax bases through deductible payments like interest or royalties.
The BEPS relates to tax planning strategies that multinational enterprises use to exploit loopholes in tax rules to artificially shift profits to low or no-tax locations as a way to avoid paying tax.
The OECD/G20 BEPS Project equips governments with rules and instruments to address tax avoidance, ensuring that profits are taxed where economic activities generating them take place and where value is created.
Since early 2024, many countries worldwide have been making fresh tax rules in their national laws in tandem with the international tax agreement of 2021, the expert pointed out.
She underlined that Kuwait’s new law imposing a 15 per cent tax on multinational enterprises comes in line with international initiatives aiming at closing some loopholes of the international tax system, but does not affect Kuwait’s capability of roping in foreign direct investments.
However, the Kuwaiti academic underlined that it is still necessary to adopt a package of tax incentives in order to draw more foreign direct investments to the country, expecting the recently approved move to help Kuwait get projected additional earnings of roughly KD250m ($800m) per annum.
On his part, Mohammad Ramadhan, an economist, said that the Organisation for Economic Co-operation and Development (OECD) is seeking to bridge the gap among multinational companies by pressing countries to impose a minimum tax of 15 per cent on these companies.
He added that the OECD had to take this step as some companies run unjustifiably growing business in the countries that do not impose taxes, noting that to close this gap, an international leverage group was created in a bid to push different world countries to impose taxes on multinationals.
Therefore, Kuwait has no choice but to impose the 15 per cent tax on multinational companies operating in the country, he said, defending that the tax is not meant to make financial gains or burden these companies.
Former chairman of Kuwait Accountants and Auditors Association (KAAA) Ahmad Al Fares said that the new tax law would be useful to Kuwait as banks operating in Kuwait also operate outside it and the taxes levied on them are directed abroad, so it would be better for the opposite to be the case.
Al Fares underlined that some bodies like, inter alia, Kuwait Banking Association and Union of Investment Companies should voice views on the tax application mechanism.
He added that the Ministry of Finance would bear the bigger burden of applying the tax since shifting the tax system would require mega investments in information technology infrastructure.
However, he called for setting up a new independent tax agency, particularly amid the developments around the world, noting that Kuwait is one of the few countries that do not have such a tax body.
Al Fares added that the law, which came into effect early January, would lead to maintaining Kuwait’s tax revenues, upgrading the tax system in line with international standards and promoting fair tax practices.
Al Shall Consulting’s recent report spoke highly of the issuance of the fresh tax law by decree as a step in the right direction as it marks the beginning of tax system reforms in Kuwait.
It stressed that the contribution of taxes to financing Kuwait’s public budget is among the lowest, perhaps in the world, considering that axes are not just a source of revenue for the public treasury, but a fundamental tool in fiscal policy.
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