RIYADH: Kuwait is poised to reform its tax system in its efforts to join the OECD/G20 Inclusive Framework on base erosion and profit shifting, as it is the only Gulf Cooperation Council state that has yet to become a member.
BEPS refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax, according to the official website of the Organisation for Economic Co-operation and Development.
The Kuwaiti government is set to introduce a new corporate tax initiative, known as the “Business Profits Tax Law,” as part of a complete plan to revamp the existing tax framework. This reform will be implemented in two stages and is expected to be fully phased out as early as 2025.
The BPT would impose a 15 percent tax on the profits of a wide range of operating structures, including corporate entities, partnerships, and businesses with separate legal existence, all established, incorporated, or operating in Kuwait. However, individuals, micro and small enterprises will be exempt.
Currently, only foreign companies exercising business or trade in Kuwait are subject to tax on their profits and capital gains income.
Effective Jan.1, 2025, Kuwaiti multinational companies including government entities operating in overseas markets, with annual revenues exceeding €750 million ($806 million) will be subject to the proposed BPT.
It is also proposed that the BPT will be implemented as an amendment to the existing tax laws. This is in line with the Pillar Two framework being implemented globally.
The existing Kuwait corporate income tax law imposes a tax on the income of any body corporate, wherever incorporated, earning income from Kuwait source.
In practice, no income tax is currently imposed on companies incorporated in the GCC and entirely owned by citizens of the GCC. Corporate income tax is currently only imposed on income earned by non-GCC (foreign) companies.
Due to globalization and the digitalization of businesses, tax authorities observed that multinational corporations were shifting their profits from countries with a high corporate tax rate to countries with a low tax rate, in order to reduce their global effective tax rate.
