Kuwait's Tax Strategy To Improve Kuwaitis' Quality Of Life

By introducing the "Business Profits Tax Law," Kuwait is taking a significant step towards modernizing its tax system. The law is part of a comprehensive plan to revamp its tax system. As the final Gulf Cooperation Council state to seek membership in the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS), this move was driven by the nation's desire to align with the framework.

Tax rule gaps and inconsistencies are exploited by multinational enterprises to minimize tax liabilities. This corporate tax initiative will be implemented in two phases, with full implementation expected by 2025.

Business Profits Tax (BPT) will impose a 15% tax on the profits of various operating entities within Kuwait, including corporations, partnerships, and businesses. Individuals and micro/small businesses, however, are exempt from this tax.

Profits and capital gains of foreign companies conducting business in Kuwait are currently subject to taxation. Kuwaiti multinational companies, including government entities, operating in international markets and generating annual revenues higher than €750 million ($806 million), will be subject to the proposed BPT on January 1, 2025.

Additionally, the BPT will be integrated as an amendment to existing tax laws, aligning with the global Pillar Two framework. Corporate entities earning income from Kuwait are taxed under Kuwait's current corporate income tax law, regardless of their place of incorporation.

Currently, companies incorporated in the GCC and fully owned by citizens of the GCC are exempt from income tax. Income generated by non-GCC (foreign) companies is primarily taxed under corporate income tax.

Globalization and the digital transformation of business continue to evolve, and tax authorities are addressing the profit-shifting practices of multinational corporations. In order to reduce their overall tax liabilities, these companies have strategically relocated profits from countries with high corporate tax rates to those with lower ones.

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