Domestic Minimum Top-up Tax

The DMTT Law applies to multinational entities operating in more than one country (even through a Permanent Establishment), including Kuwait, whose total revenues meet or exceed annual revenues of  EUR 750 Million in the consolidated financial statements of the ultimate parent entity for at least two of the four tax periods immediately preceding FY 2025. These consolidated financial statements must include all revenues generated by the participating entities under control, including those of excluded entities considered for the purposes of determining whether the revenue threshold is met.

The DMTT Law encompasses all activities conducted by these entities within the State of Kuwait, including its rights in the divided zone and the submerged divided zone that contains shared wealth or natural resources. These resources are distributed equally between the State of Kuwait and the Kingdom of Saudi Arabia, according to the boundaries and coordinates established in the agreements and memoranda of understanding concluded between them.

Starting from 1 January 2025, the DMTT Law will apply to multinational entities for tax purposes. Consequently, the following decrees and laws will no longer be applicable to these entities:

• Corporate income tax law – Decree No. 3 of 1955 and its amendments;
• Zakat Law – Law No. 46 of 2006; and
• Partitioned Neutral Zone tax law – Law No. 23 of 1961.

Law No. 19 of 2000 for National Labour Support Tax (NLST) on Kuwait Shareholding Companies is expected to remain in force with exclusion of Paragraph (1) of Article (12) and Paragraph (2) of Article (14). Therefore, it is expected that Kuwaiti multinational entities that are listed on Kuwait Boursa will not be subject to 2.5%  NLST in addition to the DMTT.

The following entities are considered as subject to tax under the DMTT Law:

• Any entity in Kuwait that is part of a multinational group, whether it is an Ultimate Parent Entity (“UPE”) or a participating entity/Constituent Entity (“CE”).
• Any joint venture (“JV”) or its subsidiary in Kuwait, if any of conditions are met
  • JV has ownership interest of 50% or more by an ultimate parent entity of a multinational group whose revenue excluding the JV has met or exceeding the revenue threshold.
  • The total revenues of the JV and its subsidiaries has met or exceed the revenue threshold.

The JV shall be considered an ultimate parent entity, and its subsidiaries shall be considered participating entities.

• Any entity not subject to any country or jurisdiction that operates in Kuwait  i.e., an entity considered a permanent establishment or an entity that passes through income and is not considered an ultimate parent entity.

The following entities, whether Kuwaiti or non-Kuwaiti, are not subject to tax:

1. Government entities.
2. Non-profit organisations.
3. International organisations.
4. Pension funds.
5. Investment funds that are the main parent companies.
6. Real estate investment instruments that are the main parent companies.
7. Any entity, except pension services entities, that is at least 95% owned by one or more of the above entities and operates mainly to hold assets or invest funds for their benefit.
8. Any entity, except pension services entities, that is at least 85% owned by one or more of the entities listed in points 1 to 6, provided most of its income comes from dividends or equity gains or losses, which are not included in the calculation of net income or loss.

A Permanent Establishment is the place through which a non-resident entity conducts its activity in the state, wholly or partially, including the following cases:

• The establishment's premises, whether related to the management headquarters, branch, store, office, factory, workshop, sales outlets, warehouse, mine, oil or gas well, quarry, or any other place for exploring, extracting, and exploiting natural resources.
• A construction site, installation project, assembly, or related supervisory activities, provided that this site, project, or activities continue for more than six months within any twelve months.
• Providing services by the non-resident entity, provided that the activities of this type continue within the state for a period or periods totaling more than six months within any twelve months.
• The agent according to the conditions and controls specified by the Executive Regulations.

Any place of work other than the cases mentioned in the previous items, through which the non-resident entity conducts operations in the state, shall be considered a permanent establishment, provided that the income attributed to these operations is exempt from tax in the state or the jurisdiction of the non-resident.

Taxpayers must register with the tax administration within 120 days of becoming subject to tax. They must notify the tax administration of any changes in their activity or registration data within 120 days. Deregistration is required within 120 days of completely ceasing activity or losing the conditions for being subject to tax. For the year 2025, registration deadline for multinational enterprises has been extended up to 30 September 2025.

Excluded income for the taxpayer is calculated based on the substance of the activity and shall be total of following or Substance based Exclusion (SBIE):

• Total salary costs incurred, with a maximum of 9.6% and a minimum of 5% of the salary costs.
• The average value of tangible assets at the beginning and end of the tax period, with a maximum of 7.6% and a minimum of 5% of the book value of those assets.

Taxes recorded in the financial accounts of the entity from its  income or profits, or its share of the income or profits of an entity in  which it holds an ownership interest, paid to the state or any other country  or jurisdiction, and the tax is not considered covered tax.

The Adjusted Covered Tax is covered tax according to tax costs  calculated on an accrual basis, or losses, included in the taxpayer's  financial statements during the tax period, and any adjustments specified by the Executive Regulations.

The tax is calculated by multiplying the tax rate by the taxable income. The tax will be zero in either of the cases:

• The excluded income based on the substance of the activity equals or exceeds the total net income of the entities subject to tax in the group.
• The effective tax rate (ETR) is equal to or exceeds 15%.

The legislation clearly states that no tax exemptions apply to the DMTT Law. 

I Compute ETR for Kuwait CE = Amount of Adjusted Covered Taxes/GloBE Income 

2 Where ETR is below minimum rate of 15%, compute Top-up tax rate:

Top Up Tax rate = Minimum tax rate (15%) – ETR in 1 above 

3 Top Up Tax payable : Excess profit of Kuwait CEs x Top-up Tax Rate in 2 above 

The due tax on the taxpayer will be zero for any tax period if:

• The average total revenues of the entities subject to tax in the group are less than EUR 10 Million or its equivalent.
• The average total net income of the entities subject to tax in the group is less than EUR 1 Million or its equivalent.

These averages are calculated for the tax period mentioned and the two preceding periods. This article does not apply to investment entities and entities not subject to any country or jurisdiction.

The due tax on the taxpayer will be zero for any tax period starting on or before 31 December 2026, excluding the tax period ending after 30 June 2028, in any of the cases:

1. The total revenues of the entities subject to tax in the group are less than EUR 10 Million or its equivalent and The total income of the entities subject to tax in the group is less than EUR 1 Million or its equivalent.
2. The effective tax rate for the taxpayer is equal to or exceeds 16% for tax periods starting in 2025 and 17% for tax periods starting in 2026.
3. The profit or loss of the taxpayer is equal to or less than the excluded income based on the substance of the activity.

The above shall be computed based on the exchange of information under the country-by-country reporting (CBC) between Kuwait and other country.

The above would not apply to i) entities not subject to any country or jurisdiction ii) where the CBC report does not include information about these entities iii) the report is not qualified as per the rules defined in the Executive Regulations 

The tax on the taxpayer will be zero during the initial phase of international activity if the multinational entities group meets the following conditions:

• It has members located in no more than six countries or jurisdictions, including Kuwait.
• The total net book value of tangible assets does not exceed EUR 50 Million, except for the country or jurisdiction with the highest value of tangible assets when these rules are applied first time.
• No ownership interests are held in the entities located in Kuwait by the parent entity, that applies the income inclusion rules.

This provision does not apply to any tax period starting after five tax periods from the first tax period in which the group was subject to the Pillar II rules.

Fines for late submission of tax returns are as follows with the minimum fine being KD 1,000 before the issuance of the tax assessment:

• If delayed by 30 days or lower, the percentage of the final tax value will be 5%.
• If delayed by more than 30 days and up to 90 days, the percentage of the final tax value will be 10%.
• If delayed by more than 90 days and up to 365 days, the percentage of the final tax value will be 15%.
• If delayed by more than 365 days, the percentage of the final tax value will be 20%.

A fine of 25% of the final tax value, with a minimum of KD 5,000, is imposed if the taxpayer does not submit the return until the date of issuing the tax assessment.

Fine for late settlement of taxes:

• A fine of 1% of the unpaid tax will be imposed on the taxpayer for every 30 days, or part thereof, if the tax is not paid by the deadline. This fine will start from the day after the deadline.

Fine for submitting an incorrect tax return:

• If the taxpayer submits an incorrect tax return and the difference between the final tax and the tax from the return exceeds 10%, a fine of 25% of this difference will be imposed. If the taxpayer corrects the error before it is discovered by the tax administration, the fine will be reduced to 10%.

Fines for various administrative violations include KD 3,000 for the following:

• Failure to register within the deadlines, failure to notify the tax administration of changes in registration data or activity, failure to provide requested documents or information within 30 days, preventing or obstructing tax administration employees from performing their duties, and failure to retain records and accounting books for the specified period.

A fine of KD 5,000 is imposed for disclosing taxpayer information without legal authorisation.

• Taxpayers can object to tax assessments within 60 days of notification.
• The tax administration must respond within 90 days. If no response is given, the objection is considered implicitly rejected.
• Taxpayers can further contest the tax assessment to the Tax Complaints Committee within 60 days of the rejection.
• The committee must decide within 90 days, extendable up to 365 days.
• Both the tax administration and the taxpayer can appeal the committee's decision to the competent court within 60 days.

The right of the tax administration to claim tax debt expires after ten years from the date of submitting the tax return or from the end of the legally specified period for submission. The limitation period is interrupted by various actions, including notification of assessment letters, submission of objections, and payment demand letters.

The taxpayer's right to request a refund of excess tax amounts paid expires after five years from the date of the right to a refund.