Kuwait’s Domestic Minimum Top-Up Tax: Scope, Compliance, and Procedures

Kuwait’s new 15 percent Domestic Minimum Top-Up Tax brings the country in line with OECD Pillar Two, introducing comprehensive rules on scope, PEs, transfer pricing, and consolidated group reporting for large MNEs.

Here is a concise two-line summary of the Kuwait DMTT article:

Kuwait’s new 15 percent Domestic Minimum Top-Up Tax brings the country in line with OECD Pillar Two, introducing comprehensive rules on scope, PEs, transfer pricing, and consolidated group reporting for large MNEs.
In-scope groups should urgently assess exposure, register by the deadlines, and upgrade tax, TP, and compliance systems to manage ETR risks and qualify for available substance-based reliefs.

On December 30, 2024, Kuwait enacted Decree-Law No. 157 of 2024 (“Top-Up Tax Law” or “Decree-Law No. 157”), introducing a domestic minimum top-up tax (DMTT) of 15 percent on profits of multinational enterprise (MNE) groups operating in the country.

The measure, effective for financial years beginning on or after January 1, 2025, aligns Kuwait with the OECD/G20 Inclusive Framework on BEPS Pillar Two, advancing the nation’s fiscal diversification beyond hydrocarbons and introducing new compliance, audit, and reporting obligations for global investors.

On June 30, 2025, the Ministry of Finance (MOF) issued Executive Regulations to implement Decree-Law No. 157, providing clarity on scope, registration, return filing, permanent establishment (PE) definitions, and transfer pricing documentation requirements.

Scope of Kuwait’s domestic minimum top-up tax

Decree-Law No. 157 applies to MNE groups whose ultimate parent entity (UPE) has annual consolidated revenues of EUR 750 million (approx. US$882 million) or more in at least two of the four preceding fiscal years, based on the consolidated financial statements of the UPE.

Once in scope, the law covers all activities within Kuwait, including those in the divided zone and submerged divided zone, resource-sharing territories jointly administered with Saudi Arabia.

The DMTT supersedes existing tax regimes, including:

• Corporate Income Tax Law (Decree No. 3 of 1955 and amendments);
• Zakat Law (Law No. 46 of 2006); and
• Partitioned Neutral Zone Tax Law (Law No. 23 of 1961).

However, Law No. 19 of 2000 (National Labor Support Tax) remains in force. Notably, listed MNEs on the Kuwait Boursa will not be subject to both NLST and DMTT simultaneously.

Taxable entities and group composition

The Executive Regulations (June 2025) define the taxable population more precisely:

• Kuwaiti entities that are incorporated or effectively managed in Kuwait, and members of an in-scope MNE group;
• PEs in Kuwait of non-resident entities belonging to MNE groups; and
• Joint ventures (JVs) where the UPE of an MNE group holds a direct or indirect ownership interest of 50 percent or more.

A JV is specifically defined as an entity whose financial results are reported by the UPE under the equity method of accounting, provided the UPE’s ownership meets the 50 percent threshold.

Exclusions

As per the law and regulations, DMTT does not apply to:

• Government entities;
• Non-profit and international organizations;
• Pension and investment funds acting as UPEs;
• Real estate investment instruments; and
• Entities (other than pension services) that are at least 95 percent owned by excluded entities or 85 percent owned where most income is derived from dividends or equity gains.

PE rules

The Executive Regulations clarify four PE categories for DMTT purposes:

• Place of Business PE
• Construction PE (threshold: six months)
• Service PE (threshold: six months in any 12-month period, regardless of physical presence)
• Agency PE

A “stateless PE” may arise where a non-resident entity conducts operations in Kuwait and the income is tax-exempt in its home jurisdiction.

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The regulations further adopt BEPS Multilateral Instrument (MLI) principles to prevent contract splitting and address commissionaire arrangements. Certain preparatory or auxiliary activities, such as limited marketing or data collection, are excluded from PE classification.

Tax calculation and substance-based exclusion

Taxable income begins with local accounting profit, adjusted by specified add-backs and deductions outlined in the Executive Regulations.

A substance-based income exclusion allows deductions linked to payroll costs and tangible assets, ensuring tax relief for genuine local economic activity.

The tax is zero if:

• Excluded income (based on substance) equals or exceeds total net income, or
• The effective tax rate (ETR) of the entity is 15 percent or higher.

Registration and filing procedures

Entities must register for DMTT within 120 days of becoming subject to the law.

For the first year (2025), the registration deadline is extended to 30 September 2025.

Each MNE group will register as a single group, and one appointed constituent entity will file a consolidated DMTT return on behalf of all in-scope entities and JVs.

• Filing Deadline: Within 15 months after the end of the relevant fiscal year.
• Audit Requirement: Returns must be audited by an approved audit firm.
• Zero-Tax Reporting: A DMTT return must still be filed even if no tax is due.

Transfer pricing and documentation

The regulations introduce mandatory transfer pricing (TP) documentation requirements consistent with OECD standards.

Transactions between group entities inside and outside Kuwait must comply with the arm’s length principle, using approved TP methods.

Each taxable entity must maintain:

• A Local File and a Master File, to be submitted within 30 days of an MOF request;
• A Transfer Pricing Disclosure Form, filed along with the DMTT return and audited by an approved audit firm.

Additional TP rules and templates are expected in forthcoming MOF guidance.

Transitional safe harbors and exemptions

To facilitate early compliance, transitional provisions remain available for limited periods:

• Country-by-country reporting safe harbor;
• Simplified calculation safe harbor; and
• Exclusion for initial international activities.

These provisions offer relief to new entrants and allow gradual adaptation of systems and controls.

Sectoral implications

Oil and gas

Heavy use of capital allowances and accelerated depreciation can suppress ETRs below 15 percent in early project phases.

Operators should model top-up liabilities, forecast annual ETRs, and restructure capex schedules to optimize the substance-based exclusion.

Financial services

Banks and insurers face branch-level ETR volatility.

The new TP and group-filing rules require granular branch P&L analysis and alignment of repatriation and capital allocation frameworks.

Manufacturing and industrials

Entities benefitting from investment allowances or tax holidays will see those advantages neutralized under DMTT.

Firms should quantify incentive-driven deductions, model post-DMTT returns, and adjust operational or workforce strategies.

Logistics and retail

Companies leveraging warehouse or distribution incentives will experience reduced net benefits.

Stakeholders may seek alternative incentives (e.g., customs reliefs) and demonstrate local job creation to maintain preferential treatment.

Key steps for companies

Multinational enterprises operating in Kuwait should now:

1. Assess in-scope status and group composition under the Executive Regulations.
2. Register by the applicable deadlines and designate a responsible filing entity.
3. Develop systems for consolidated reporting, effective tax-rate tracking, and top-up tax modelling.
4. Implement transfer pricing documentation frameworks in alignment with OECD and MOF standards.
5. Engage early with tax advisors and auditors to manage compliance costs and stakeholder expectations.
6. Monitor ongoing MOF guidance and future clarifications impacting sector-specific implementation.

Conclusion

Kuwait’s new domestic minimum top-up tax regime marks a pivotal shift in the country’s corporate tax landscape.

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By introducing OECD Pillar Two-aligned rules with detailed implementing regulations, Kuwait signals its intent to modernize its fiscal framework, enhance transparency, and align its business environment with international tax standards while expanding non-oil revenue sources.

Global groups operating in or through Kuwait should act swiftly to model their ETR exposure, update compliance systems, and document intercompany transactions to avoid penalties and optimize substance-based exclusions.

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