Kuwait to introduce 15% tax on multinational companies

The law is in line with global tax standards and its goal is to curb evasion

Kuwait will impose a new tax on multinational companies operating there from January 1, 2025. Reuters

Kuwait will impose a new tax on multinational companies, the state-run Kuna news agency reported on Tuesday.

Those business operating across several countries are to pay a 15 per cent tax effective from January 1, 2025.

The Kuwaiti cabinet approved the draft law at the weekly meeting led by Prime Minister Sheikh Ahmad Al Ahmad Al Sabah.

The proposed tax is in line with global tax standards and its goal is to combat tax evasion and stop tax revenues from being diverted to other countries.

Deputy Prime Minister Shereeda Al Mousherji said the law will take effect on January 1, 2025.

No other details were given.

Kuwait's introduction of a 15 per cent tax on multinational corporations in 2025 may lead some MNCs to restructure operations and form local partnerships, said Anurag Chaturvedi, chief executive of Anderson, a UAE-based tax firm.

“The tax could affect employment, particularly expatriate jobs … While it will diversify government revenue, businesses might face higher costs and competitive challenges,” he said.

“Ultimately, MNCs will need to reassess their strategies, balancing the tax burden with the potential benefits of operating in Kuwait.”

“Multinational corporations may restructure operations, forming local partnerships or relocating regional headquarters to mitigate tax impact. The tax could affect employment, particularly expatriate jobs, and disrupt local market dynamics. While it will diversify government revenue, businesses might face higher costs and competitive challenges in the Gulf. Ultimately, multinational corporations will need to reassess their strategies, balancing the tax burden with the potential benefits of operating in Kuwait.”

The UAE has imposed a new tax on large companies as part of changes to its corporate tax law this month.

Large multinational enterprises are to pay a minimum of 15 per cent tax on the profits generated in the UAE (up from the current corporate tax rate of 9 per cent), effective for financial years starting on or after January 1, 2025, the Ministry of Finance said this month.

The domestic minimum top-up tax (DMTT) will apply to multinational enterprises with consolidated global revenues of €750 million ($793 million) or more in at least two of the four financial years immediately preceding the financial year in which the tax applies.

The Organisation for Economic Co-operation and Development's Pillar Two programme has set up a global minimum corporate tax to ensure large multinational enterprises pay a minimum 15 per cent tax on profits in each country where they operate.

The proposed global minimum tax is expected to result in annual global revenue gains of about $220 billion, or 9 per cent of global corporate income tax revenue, the OECD said last year.

More than 140 jurisdictions have signed up for the reform programme, which was announced in October 2021. The global minimum tax is in effect in more than 30 jurisdictions, and an increasing number of other jurisdictions have announced their intention to implement the rules within the next year, the OECD said in May.

Bahrain said in September that it would also introduce DMTT starting from January 1 next year on large multinationals.

The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent starting from the financial year beginning on or after June 1 last year.

It brought the income of companies exceeding Dh375,000 ($102,096) within the taxable bracket. Taxable profits below that level will be subject to a tax of zero per cent.

The Ministry of Finance also announced in May last year that business owners in the country would be subject to corporate tax only if their turnover in a calendar year exceeds Dh1 million, ensuring that only business or business-related activity income is taxed.

The GCC region is gradually changing from a zero-tax haven into a low-tax jurisdiction, with several countries, such as the UAE and Kuwait, introducing new taxes, according to Arun Leslie John, chief market analyst at Century Financial.

“This tax regime is supposed to support increased diversification policies against the historic reliance on oil-derived revenues,” he said.

“For years, the International Monetary Fund has been calling upon GCC countries to take their economies off the dependence on oil, thereby improving state finances and insulating their economies against growing global protectionism. In the long run, this will contribute to private sector growth, given new taxation avenues, among other key policy imperatives.”

This month, the IMF said Kuwait's economy is expected to remain in a recession this year following voluntary Opec+ production cuts.

Kuwait's gross domestic product contracted by 3.6 per cent last year, due largely to a 4.3 per cent contraction in its oil sector because of Opec+ production cuts. Meanwhile, its non-oil sector shrank by 1 per cent.

Kuwait's economy shrank by 1.5 per cent on an annual basis in the second quarter of this year due to a 6.8 contraction in the oil sector, which was only partially offset by 4.2 per cent growth in its non-oil sector.

“The economy is highly exposed to a variety of global risks through its oil dependence, in particular to commodity price volatility, a global growth slowdown or acceleration and the intensification of regional conflicts,” the IMF said.

The IMF projects Kuwait's economy to grow by 2.6 per cent next year as Opec+ production cuts unwind.