Multinational Companies Prepare For Tax Implementation In Kuwait

A time for imposing taxes is fast approaching for Kuwait's multinational companies, as indications suggest that this may soon be the case. Initially, the government and relevant entities persuaded these companies to pay taxes locally, but it appears that persuasion has evolved into concrete action, reported Al-Rai Daily.

Kuwait recently submitted a formal application to join the Organization for Economic Cooperation and Development (OECD), marking the beginning of potential taxation. Multinational companies operating in Kuwait will have to adjust their financial plans in response to this request.

Major banks and multinational corporations have assembled teams of financial experts and engaged auditors to assess the expected financial impact. According to the new tax law, companies must pay 15 percent of their local profits in taxes. Kuwait's government is unlikely to impose a rate higher than the minimum.

The impact of this new tax varies depending on the size and revenue of the companies. Some anticipate costs ranging from one million to 70 million dinars. The tax is expected to affect about 20 companies, including government entities with multiple markets.

The implementation of this tax is not expected to affect the 2023 budget; rather, it will probably start in 2024 or 2025. As a result, companies are focusing on accounting preparation in order to determine its impact on their capital adequacy ratio, commitment size, budget allocations, and net profits.

Companies are grappling with important questions amid these changes. Notably, how is the tax calculated for companies already paying taxes in their foreign markets? At present, there is no consensus on how to deduct externally paid taxes from consolidated profits.

There are also questions regarding the redistribution of taxes for multinational companies operating in multiple countries. How will the tax be distributed, according to the concept of fines or as a percentage of income?

OECD aims to prevent companies from using "tax residency" to take advantage of low tax rates in tax havens that do not impose sufficient taxes on major corporations. A global minimum tax and a fair distribution of tax rights between countries are the OECD's proposed reforms.

 

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