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Kuwait charts tax revamp with 15% corporate rate

KUWAIT CITY: The Ministry of Finance finds itself racing against time as discussions heated over the proposed introduction of a Corporate Income Tax, a development first highlighted by Al-Seyassah on October 27 under the headline ‘The Ministry of Finance is racing against time ... Corporate Income Tax in 2025’, reports the daily. According to a draft of the Business Profits Tax Law, the government is leaning toward imposing a 15 percent income tax on the business activities of companies operating within Kuwait and Kuwaiti companies operating across multiple markets. However, a significant exemption is proposed – companies whose annual business turnover does not exceed one and a half million dinars during the tax period would be exempt.

The draft indicates that the tax would apply to profits starting after January 1, 2025, specifically targeting multinational groups. Furthermore, advance tax payments would be delayed until the beginning of 2026. Broader categories of taxable businesses would fall under the law beginning on January 1, 2027. As noted in Al-Seyassah’s observations, the tax law proposes a flat 15 percent rate on taxable income. Yet, there are exceptions – income derived by legal entities wholly owned by the state would be tax-free. Business income originating from the divided or submerged divided zone would attract a tax rate of 30 percent. However, this would be reduced to 50 percent if the taxpayer has already paid 50 percent of the tax owed to Saudi Arabia.

A supplementary tax would also be implemented for multinational groups whose effective tax rates are lower than the minimum 15 percent. A 5 percent withholding tax would also apply to certain payments made to non-residents without deducting costs. This includes dividends, royalties, rent for movable and immovable property, technical services, and insurance premiums -- unless those payments are linked to permanent establishments within Kuwait. The proposed law outlines that these withholding taxes are the responsibility of the tax deductor to withhold and remit to the tax administration. Income originating from various sources, including sports or artistic activities, exploitation of real estate within Kuwait, dividends from Kuwaiti-held shares and capital gains, would fall under this framework. The draft law establishes that taxpayers must register with the tax administration within 30 days of commencing their business activities. Failure to do so would leave the tax administration authorized to register the entity based on available information and notify the entity appropriately. Furthermore, taxpayers must submit tax returns within six months of the end of their tax period, including audited financial statements. Taxpayers subject to supplementary taxes would have a 15-month window for submission. Advance tax payments are a significant part of the draft law, with taxpayers required to pay estimated taxes in four quarterly installments, based on financial statements submitted every three months. Any surplus paid through these advance payments can be claimed for refund when reconciling the final tax return. The tax law also provides details on allowable deductions. These include losses from prior tax periods, which can offset taxable income for up to five years after the period in which they were incurred. However, losses must not exceed 75 percent of the taxable income for the relevant tax year.

Additionally, certain costs such as salaries, wages, depreciation, technical services and contributions to the Kuwait Foundation for the Advancement of Sciences are allowable deductions, with specific limits and guidelines set in the executive regulations. Taxpayers must retain their accounting and financial records for ten years to ensure compliance with tax reporting requirements. In the event of a tax dispute or error, the taxpayer has the right to challenge tax assessments through objections and appeals. Tax objections must be submitted within 60 days of receiving a tax assessment, supported by proper documentation. If rejected, taxpayers may escalate their appeals to the Tax Grievances Committee, which has 90 days to respond to such grievances.

Further appeals can be made to the competent courts. A special Tax Grievances Committee will oversee these disputes, composed of members appointed by the Minister. The committee would consist of members from the Tax Administration, tax experts and other representatives such as advisors from the Fatwa and Legislation Department. If tax debts are deemed at risk of being lost, the Tax Administration may seek a court order to seize assets to recover owed sums, although taxpayers can lift these actions by providing sufficient guarantees. Late payment would result in a 1 percent fine for every 30 days that the tax or remittance remains unpaid. This fine would apply in several cases, such as the failure to submit timely tax declarations, failure to remit taxes withheld at the source, or delays in advance payments. The draft proposes comprehensive tax reforms that would reshape the fiscal landscape of Kuwait, impacting multinational corporations, small enterprises and local businesses alike. These new mechanisms aim to ensure a fair and transparent system for all taxpayers while aligning Kuwait with international tax standards.