A new draft law on business profits tax is currently under review in Kuwait. The proposed law seeks to impose a minimum income tax of 15% on all Kuwaiti companies, including multinational corporations and local businesses. However, businesses with annual revenues under 1.5 million Kuwaiti dinars will be exempted.

Details of the Proposed Tax Framework

Taxable Business Profits and Deductions

Taxable business profits will be based on actual revenues, with the ability to deduct necessary business costs. The law introduces a provision allowing the tax administration to assess taxable profits based on neutral pricing to ensure fairness and prevent tax avoidance.

Taxable Entities and Scope

Tax will apply to:

• Resident legal entities' worldwide income.
• Resident natural persons engaging in business activities.
• Permanent establishments operating within Kuwait.

Exceptions include businesses in the divided zone (taxed at 30%) and government-owned entities.

Supplementary Tax Rules and Implementation Timeline

A supplementary tax will be applied to multinational groups whose effective tax rates fall below 15%. This ensures compliance with global tax minimums as established under OECD Pillar 2 guidelines. Kuwaiti multinational corporations are expected to comply by January 2025, with a two-year transitional phase leading up to 2027.

5% Withholding Tax on Non-Resident Payments

The draft introduces a 5% withholding tax on payments made to non-residents, including:

• Benefits.
• Royalties.
• Technical, consulting, and administrative services.
• Rental income and dividends (excluding Kuwait Stock Exchange-listed entities).
• Payments for sports and artistic activities.
• Insurance premiums.

These taxes will apply unless a permanent establishment is involved in the transactions.

Deductible Costs and Exceptions

Taxpayers can deduct actual costs incurred to achieve taxable income, including:

• Goods and services necessary for taxable activities.
• Salaries and wages.
• Assets consumption in accordance with specified ratios.

However, the following are not deductible:

• Non-business activity costs.
• Penalties and other specified costs by regulations.

Exemptions Under the Proposed Law

The draft proposes exemptions for certain financial activities, including:

• Dividends from resident legal entities or non-resident legal entities with a tax rate of 15% or more.
• Capital gains from the sale of ownership shares in legal entities subject to tax at the required effective rate.
• Income related to international transport activities by non-residents through permanent establishments.

Government entities, non-profits, and international organizations will also be exempt.

Tax Compliance and Penalties

Failure to comply with the proposed tax rules could lead to severe penalties. A late submission of tax returns incurs fines of:

• 5% of the final tax if less than a month late.
• 10% for delays between one month and three months.
• 20% for delays longer than a year.

Additionally, incorrect tax returns leading to discrepancies over 10% could incur a 25% fine unless corrected before tax administration discovery.

Grievance Committee and Tax Appeals

A Tax Grievances Committee will oversee disputes related to tax assessments. This committee will consist of:

• Tax administration officials.
• Independent tax experts nominated by the Minister.
• A legal advisor from the Fatwa and Legislation Department.