Kuwait’s proposed tax amendments, including the introduction of a 15% corporate tax rate starting January 1, 2025, are closely tied to global tax developments, even if the connection isn’t immediately obvious. Both are part of efforts to align with the international tax standards set by the Organisation for Economic Co-operation and Development (OECD), particularly through the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS). 

Why the 15% Tax Rate and €750 Million Revenue Threshold? 

The 15% corporate tax rate and the €750 million revenue threshold are not arbitrary figures. Kuwait, along with the UAE, has adopted these as part of the OECD’s two-pillar solution designed to address aggressive tax avoidance under the BEPS initiative. As members of the OECD/G20 Inclusive Framework on BEPS, Kuwait and other GCC countries are committed to implementing international tax standards and collaborating on 15 measures aimed at curbing tax avoidance. 

Understanding BEPS 

The BEPS initiative aims to combat practices used by multinational corporations to shift profits from higher-tax jurisdictions to lower-tax regions or tax havens. For instance, a US-based company might sell software to its affiliate in a tax haven at a low price, allowing the affiliate to earn royalties while the US headquarters reports minimal profits. By transferring intellectual property rights to the tax haven, the company reduces taxes in high-tax countries and shifts profits to jurisdictions with lower or no taxes. 

The OECD’s Two-Pillar Framework 

In response to these practices, the OECD introduced a two-pillar framework: 

  • Pillar 1: Targets large multinationals with global revenues exceeding €20 billion and profits above 10% of revenue. It reallocates 25% of profits above this threshold to jurisdictions where the profits are generated. For example, if a company earns 50% of its revenue in France, 30% in Germany, and 20% in the UK, the profits would be reallocated proportionally to these countries. 
  • Pillar 2: Establishes a global minimum tax rate of 15% for multinational groups with revenues above €750 million. This ensures that such companies pay at least 15% tax in every jurisdiction where they operate. Countries like the UAE have had to introduce a “top-up tax” to meet this minimum, as the local tax rate is below the 15% threshold. 

Implications for Kuwait and the UAE 

The introduction of the 15% corporate tax rate in Kuwait and the UAE aligns with the OECD’s BEPS standards. Multinational companies have been preparing for this change since the GCC states joined the Inclusive Framework and began implementing corporate tax laws. Even when the UAE had a 9% tax rate, affected companies had been paying “top-up taxes” in their home countries to meet the OECD’s minimum tax rate. 

The 15% corporate tax rate in Kuwait and the UAE is a significant step toward complying with the global tax standards outlined by the G20/OECD Inclusive Framework on BEPS. This move continues the region’s commitment to fair tax practices, which began with the introduction of VAT in the UAE in 2017. 

Awaiting Official Changes 

Although the rationale for these reforms is clear, both Kuwait and the UAE are expected to release formal amendments to their corporate tax laws. These changes will provide further clarification on how the OECD framework will be implemented, reinforcing the countries’ commitment to global tax compliance. 

By adopting these reforms, Kuwait and the UAE demonstrate their commitment to upholding fair tax practices on the global stage while supporting their broader economic objectives. 

Conclusion

Kuwait’s adoption of the 15% corporate tax rate marks a pivotal step in aligning with global tax reforms under the OECD’s BEPS framework. This move not only strengthens Kuwait’s commitment to fair and transparent taxation but also positions the country alongside peers like the UAE in meeting international standards. As formal amendments are awaited, businesses should begin preparing for a more standardized and globally integrated tax environment.