30 July 2025 • 4 minute read
Kuwait issues Domestic Minimum Top-Up Tax Implementing Regulations
Introduction
On 30 June 2025, Kuwait's Ministry of Finance issued MR No. 55 of 2025, setting out the Implementing Regulations (Regulations) to the Domestic Minimum Top-Up Tax (DMTT) Law. Our earlier alert on the DMTT Law can be accessed here.
The Regulations provide essential guidance on the application of the DMTT Law, which came into effect for financial years beginning on or after 1 January 2025. Under the DMTT Law, Kuwaiti constituent entities of large Multinational Enterprise (MNE) groups – groups with consolidated revenue exceeding EUR 750 million – are broadly subject to a 15% minimum tax in Kuwait.
Key features of the Regulations
The Regulations provide detailed guidance on the application of the DMTT Law and align closely with the OECD's GloBE Model Rules. Key features include:
- Scope: The Regulations confirm that the DMTT applies to Kuwaiti constituent entities of in-scope MNE groups, including permanent establishments, transparent entities, and joint ventures (subject to control and ownership thresholds).
The Regulations adopt a broad definition of a permanent establishment, encompassing activities performed by a non-resident in Kuwait through a fixed place of business or as part of an installation and construction project. Additionally, services performed in Kuwait can give rise to a permanent establishment, as can business conducted through an agent acting on behalf of the non-resident - provided that the relevant duration and activity thresholds are met.
- Top-Up Tax Calculation: The starting point remains the financial accounting net income, with adjustments for excluded dividends, equity gains/losses, and disallowed expenses. Covered taxes include taxes on income and profits and taxes that are imposed in lieu of a tax on income or profits, including taxes on retained earnings and corporate equity.
- Substance-Based Income Exclusion (SBIE): The Regulations provide detailed formulas for calculating the SBIE based on eligible payroll and tangible assets in Kuwait. The SBIE essentially serves to exclude a portion of the income of Kuwaiti constituent entities from top-up tax based on a measure of the entity's economic substance in Kuwait.
- Safe Harbors: Transitional safe harbors are confirmed for MNEs using Qualified Country-by-Country Report data and simplified effective tax rate tests, consistent with OECD guidance.
- Registration and Filing: In-scope entities in Kuwait are required to register with the Kuwait Tax Authority (KTA) within 120 days of becoming subject to the Law. DMTT returns should also be submitted, and the due tax settled, within 15 months from the end of the relevant financial year.
- Recordkeeping and Penalties: In scope entities must maintain documentation for at least 10 years. Penalties apply for late filing, non-payment, and inaccurate disclosures.
- Dispute Resolution: The Regulations set out a structured process for handling objections and disputes. Taxpayers may file an objection with the KTA within 60 days of receiving a tax assessment or decision. The KTA is required to review and respond to the objection within 90 days.
If the taxpayer does not agree with the KTA’s decision, they may escalate the matter to a specialized Tax Objection Committee. Decisions of this Committee may, in turn, be appealed before the competent Kuwaiti courts.
In addition, the Regulations provide for the possibility of settlement procedures between the taxpayer and the KTA, offering an alternative dispute resolution mechanism aimed at resolving matters without formal litigation.
Transfer Pricing Rules
The DMTT Law and Regulations include specific TP provisions, requiring Kuwaiti constituent entities to ensure that their transactions with Related Parties are conducted on an at arm's length basis. In addition, Kuwaiti constituent entities must comply with the following documentation requirements:
- TP Disclosure form for related party transactions, to be submitted alongside the DMTT return;
- TP Local File and TP Master File, which must be submitted within 30 days upon request by the KTA.
For purposes of these rules, Related Parties are defined as entities that are related through ownership or control. This includes situations where:
- One entity holds, directly or indirectly, 50% or more of the share capital in another entity.
- Two entities are commonly controlled by a third party.
- An individual shareholder, alone or together with related persons, holds 50% or more of the capital in a Kuwaiti constituent entity.
Additional indicators of control include voting rights, the authority to appoint or dismiss board members, and financial control, among others.
Key takeaway
The Law on the Taxation of Multinationals represents a significant development for Kuwaiti constituent entities of in-scope MNE groups. The Regulations provide much-needed clarity on the practical application of the DMTT Law, including on the transfer pricing obligations in Kuwait.