Kuwait’s Domestic Minimum Top-Up Tax (DMTT): What Multinationals Need to Know

Kuwait’s new Domestic Minimum Top-Up Tax aligns the country with OECD Pillar Two, ensuring large multinationals pay a 15 percent minimum tax on Kuwait profits. The Executive Regulations introduce extensive compliance and reporting requirements, pushing MNEs to review structures and strengthen local substance.

Kuwait has taken a significant step toward aligning its tax framework with emerging global standards through the release of the Executive Regulations for Law No. 157 of 2024 (“Top-Up Tax Law” or “Decree-Law No. 157”), which establishes a Domestic Minimum Top-Up Tax (DMTT) consistent with the OECD’s Pillar Two model.

The move positions Kuwait among the Gulf jurisdictions embracing the global minimum tax to enhance transparency, curb profit shifting, and ensure that multinational enterprise (MNE) groups contribute a fair level of taxation where economic activity occurs. This reform aligns Kuwait with the OECD/G20 Inclusive Framework and reflects broader regional and international pressure to modernize tax systems in line with the Base Erosion and Profit Shifting (BEPS) agenda.

The adoption of the DMTT also forms part of Kuwait’s domestic strategy to strengthen fiscal sustainability amid fluctuating hydrocarbon revenues. By introducing a unified minimum tax on MNEs with substantial global revenues, Kuwaiti authorities aim to reduce dependence on oil-linked income and diversify revenue channels while maintaining competitiveness as an investment destination.

Kuwait’s Top-Up Tax Law and subsequent Executive Regulations

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Decree-Law No. 157, issued on December 30, 2024. and effective for fiscal years beginning on or after January 1, 2025, provided the statutory foundation for the DMTT. The Executive Regulations, issued on 29–30 June 2025 under Ministerial Resolution No. 55 of 2025 (hereinafter, the “2025 Executive Regulations”), now offer detailed guidance on applying the law, defining the scope of taxable entities, identifying covered business structures, and laying out compliance and reporting procedures.

Together, the Top-Up Tax Law and the 2025 Executive Regulations introduce a comprehensive regime designed to ensure that in-scope MNEs operating in Kuwait pay an effective tax rate of at least 15 percent on their Kuwait-sourced profits.

For multinational groups, the new framework represents a structural change with broad implications. The DMTT affects not only tax liabilities but also compliance burdens, transfer pricing requirements, internal reporting systems, and the treatment of permanent establishments and joint ventures.

As a result, the issuance of the 2025 Executive Regulations is a critical development for businesses assessing their fiscal exposure in Kuwait and adapting their operational structures to meet both global and local tax expectations.

Scope of application

Who is in-scope

The DMTT applies exclusively to multinational enterprise (MNE) groups that meet the global revenue threshold set out under the OECD Pillar Two framework. Under Law No. 157 of 2024, an MNE group falls within the scope of Kuwait’s DMTT regime if its ultimate parent entity (UPE) reports consolidated revenues of EUR 750 million (approx. US$882 million) or more in at least two of the four preceding fiscal years. This threshold mirrors the standard adopted across jurisdictions implementing Pillar Two and ensures that the regime targets only large multinational groups with substantial cross-border activity.

Within Kuwait, the law applies broadly to all constituent entities of an in-scope MNE group. This includes companies that are incorporated in Kuwait as well as those effectively managed in the country, even if their legal incorporation lies elsewhere.

The regime also captures permanent establishments (PEs) in Kuwait of nonresident entities belonging to the MNE group, extending the top-up tax to a wide range of foreign operational forms.

The 2025 Executive Regulations further clarify the treatment of joint ventures (JVs). A JV is considered in-scope where the UPE holds, directly or indirectly, 50 percent or more of the entity and accounts for it under the equity method. This approach aligns with international guidance and ensures that significant joint venture operations in Kuwait are not structurally separated from the Pillar Two calculation.

Exclusions

At the same time, the DMTT excludes several categories of entities that traditionally fall outside global minimum tax frameworks. These include:

• Government bodies;
• International organizations;
• Qualifying pension and investment funds; and
• Certain real estate or investment vehicles with specific legal characteristics.

Local companies that are not part of a multinational group meeting the revenue threshold are also outside the scope, as Kuwait’s DMTT is not designed to function as a general corporate tax but rather as a targeted measure aligned with global BEPS reforms.

Key definitions and operational mechanisms

Understanding how Kuwait defines the entities covered under the DMTT is essential for multinational groups assessing their compliance obligations. The 2025 Executive Regulations adopt terminology consistent with the OECD’s Pillar Two framework and provide extensive clarification on the types of entities included in the DMTT calculation.

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At the core of the regime is the concept of the Constituent Entity (CE). A CE refers to any entity that forms part of an in-scope multinational enterprise group based on the consolidated financial statements of the Ultimate Parent Entity (UPE). This includes not only fully owned subsidiaries but also partially owned entities that appear in the consolidated accounts under standard financial reporting rules.

The definition is intentionally broad to prevent tax planning structures that shift profits into entities or jurisdictions where they might otherwise escape the minimum tax.

The UPE is the entity at the top of the group’s ownership chain, typically the parent company responsible for preparing consolidated financial statements. It serves as the reference point for determining whether the group meets the global revenue threshold and for identifying the entities to be included in the Pillar Two calculations.

Where a multinational has complex layers of ownership, the 2025 Executive Regulations also recognize intermediate parent entities, which may sit between the UPE and operating subsidiaries but do not change the way the group’s scope is assessed.

Kuwait’s rules encompass not only traditional corporate subsidiaries but also a range of operational structures commonly used by multinational groups. These include permanent establishments (PEs), which are treated as CEs even though they do not have a separate legal identity.

Similarly, joint ventures are included when the UPE holds, directly or indirectly, 50 percent or more of the ownership and accounts for the JV using the equity method, a standard international accounting practice. This approach ensures that joint arrangements with significant economic ties to the group cannot fall outside the minimum tax regime.

Calculation of the DMTT in Kuwait

Kuwait’s DMTT is designed to ensure that in-scope multinational groups pay an effective tax rate (ETR) of at least 15 percent on their Kuwait-sourced profits. T

he calculation follows the OECD Pillar Two GloBE methodology, using adjusted GloBE income and covered taxes to determine whether a top-up is required. If the calculated ETR for Kuwait falls below the 15 percent minimum, the difference becomes the DMTT payable.

The 2025 Executive also incorporate the Substance-Based Income Exclusion (SBIE), which allows companies to deduct a portion of income linked to genuine economic activity in Kuwait, specifically payroll costs and tangible assets.

Interaction with existing Kuwait tax regimes

The introduction of the DMTT significantly changes how in-scope entities are taxed in Kuwait. For MNE groups subject to the new regime, the DMTT effectively replaces several existing taxes, including:

• The corporate income tax under Decree No. 3/1955;
• Zakat obligations under Law No. 46/2006; and
• Applicable taxes relating to the Kuwait–Saudi Arabia Neutral Zone.

This consolidation reflects Kuwait’s effort to streamline the tax environment for large multinationals and align its framework with the global minimum tax architecture. However, certain domestic levies or sector-specific fees may still apply depending on an entity’s classification and activities, meaning companies must continue to assess their overall compliance profile beyond the DMTT itself.

Compliance obligations

Registration requirements

MNE groups with in-scope entities operating in Kuwait must complete mandatory registration for the DMTT. The 2025 Executive Regulations set clear deadlines:

• For groups already in scope when the law entered into force: Registration must be completed within nine months, by September 30, 2025.
• For newly in-scope entities: Registration must be completed within 120 days of meeting the conditions.

These timelines emphasize the need for early internal assessments to avoid administrative non-compliance.

Filing requirements

The regime adopts a centralized filing system:

• Each MNE group files a single DMTT return, submitted by the designated constituent entity in Kuwait;
• The return is due 15 months after the end of the fiscal year, providing companies with additional time relative to standard corporate tax filings;
• A filing is required even when no top-up tax is due, ensuring consistency in reporting across all groups; and
• The return must be audited by a Ministry of Finance–approved auditor, reinforcing the importance of accurate financial reporting.

This approach aligns Kuwait with global best practices and ensures reliable data for tax administration.

Transfer pricing requirements

The 2025 Executive Regulations introduce an explicit transfer pricing (TP) framework built on the OECD arm’s length principle. Key obligations include:

• Transactions between related parties must follow recognized TP methods and reflect market conditions;
• Companies must prepare and maintain a Master File and Local File, which must be submitted to the Ministry of Finance within 30 days upon request; and
• A Transfer Pricing Disclosure Form, detailing related-party transactions and the methods applied, must accompany the annual DMTT return and be audited.

Additional guidance on TP documentation and review processes is expected, but the current requirements already represent a substantial increase in transparency for multinational groups operating in Kuwait.

Record-keeping and penalties

Companies must retain their accounting records, supporting documentation, and TP files for up to 10 years, consistent with Kuwait’s broader tax administration practices.

Failure to comply with DMTT obligations, including late registration, incomplete documentation, or inaccurate reporting, may lead to penalties, tax reassessments, and potential legal consequences. The compliance burden is therefore significant, particularly for groups with complex structures or extensive related-party transactions.

Business implications for multinationals

Risks and challenges

The introduction of the DMTT brings several strategic considerations for multinational groups operating in Kuwait:

• Neutralization of existing tax advantages: The DMTT reduces or eliminates the benefit of traditional tax exemptions or incentives offered under Kuwait’s previous corporate tax regime, particularly for entities with low effective taxation.
• Increased exposure for low-substance structures: Groups operating through limited-function entities or thinly staffed offices may face higher top-up tax liabilities, given the limited SBIE deductions available.
• Heightened PE and service-related risks: The expanded definitions of permanent establishments, especially service Pes, mean that activities previously considered outside Kuwait’s tax net may now create a taxable presence.

Together, these factors underscore the need for multinationals to reassess their operating models, substance levels, and tax governance frameworks in Kuwait.

Opportunities for high-substance investors

While the DMTT presents challenges for structures with limited presence in Kuwait, it also creates openings for companies with genuine economic activity in the country. The SBIE directly benefits investors who maintain real operations, including:

• Investments in tangible assets and facilities, which increase the deductible substance carve-out and lower the top-up tax burden.
• Hiring and expanding the local workforce, as payroll costs contribute to the SBIE and signal meaningful operational presence.
• Building a more transparent tax profile, which can reduce exposure to disputes across jurisdictions and mitigate the risk of double taxation under the global minimum tax framework.

For companies already embedded in Kuwait’s economy, or those planning to scale up, the new regime can therefore enhance predictability and reinforce the commercial value of maintaining substantive operations on the ground.

Strategic actions for MNEs

In light of the regulatory shift, multinational groups should consider a coordinated response to manage compliance obligations and optimize their tax position. Key steps include:

• Reassessing corporate structures and Kuwait operating models, including potential permanent establishment exposure, joint-venture arrangements, and the level of substantive activity in the country.
• Strengthening transfer pricing governance, ensuring that policies, intercompany agreements, and documentation align with the new disclosure and audit requirements.
• Implementing internal reporting systems capable of calculating jurisdictional effective tax rates and supporting DMTT return preparation.
• Conducting financial modelling to understand the cash flow implications of potential top-up tax liabilities and to plan for budgeting and forecasting needs.
• Designating the Filing Constituent Entity early and establishing clear internal workflows to manage data collection, audit requirements, and submission timelines.

Collectively, these actions position MNEs to comply with the new regime while minimizing operational disruption and maintaining visibility over potential tax exposures.

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