KUWAIT CITY, Jan 6: The 15% tax law, set to take effect for multinational entities starting from tax periods beginning on or after January 1, includes a nine-month grace period for companies to apply for registration without incurring administrative penalties. The Ministry of Finance officials have already started compiling a list of both Kuwaiti and foreign companies operating in the local market that may be subject to the new tax provisions.

According to informed sources, the Ministry of Finance expects that approximately 20 Kuwaiti companies could fall under the new tax base based on the revenues reported in their 2023 budgets and the financial statements for the first nine months of 2024. In addition, between 300 and 350 multinational foreign entities are projected to be subject to supplementary tax payments to Kuwait. These taxes will be calculated at a rate equal to the difference between the actual tax rate and the 15% minimum, if the entity’s actual tax rate falls below that threshold.

Initial estimates suggest that the implementation of this multinational corporation tax could generate around 250 million Kuwaiti dinars annually for the public treasury, with some forecasts even suggesting 300 million dinars. This move is aligned with Kuwait Vision 2035, which aims to foster a diversified economy and improve financial sustainability by reducing dependency on a single source of income. The tax reform also aims to curb revenue leakage and enhance tax practices, in line with global trends.

The new law applies to multinational entities, which includes any group operating in the country, even through a permanent establishment. To qualify, the group's total annual revenues must have reached or exceeded 750 million euros (approximately 240 million Kuwaiti dinars) for at least two of the four tax periods immediately preceding the relevant tax period.

Under the law, the supplementary tax will be levied at a rate of 15% on the net profits of multinational companies meeting the revenue threshold of 750 million euros. The actual tax rate for a taxpayer will be determined based on the total adjusted taxes paid by taxable entities within the group, divided by the group’s total net income or loss. Net income is calculated from the financial statements, factoring in all revenues and expenses, including transactions within the group.

Furthermore, the law stipulates that any entity in the country that is part of a multinational group, whether as a final or participating entity, as well as any joint venture or affiliated entity, will be subject to the multinational corporation tax. This applies if the joint venture has a 50% or greater share owned by the final parent entity of the group, and if the total revenues of the joint venture and its affiliated entities exceed the revenue threshold. The executive regulations will define the specific conditions and controls for implementing these provisions.

The law also requires that consolidated financial statements include all revenues generated by participating entities, even from excluded entities that need to be considered when determining whether the revenue threshold has been met. The group consists of entities linked by ownership or control, with all assets, liabilities, income, expenses, and cash flows included in the ultimate parent entity's consolidated financial statements, or excluded based on size or material importance.