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Kuwait Times
7 hours ago
- Business
- Kuwait Times
The importance of GloBE income for Kuwait
Beyond the balance sheet: Cornerstone of global minimum tax calculation KUWAIT: Kuwait's financial landscape is evolving rapidly with the recent implementation of the BEPS Pillar Two initiative, as enshrined in Law 157/2024. While the headline figure of a 15 percent global minimum corporate tax rate often captures attention, the mechanics behind this calculation are equally important. At the very core of determining whether a large multinational enterprise (MNE) owes additional tax under these new rules is a concept called 'GloBE income or loss'. This is not simply the profit you see on a company's financial statements or its taxable income under local Kuwaiti tax laws. GloBE income or loss is a specially defined and adjusted measure, designed to create a consistent and comparable tax base across all jurisdictions where an MNE operates. Understanding this foundational concept is crucial for grasping how the Pillar Two system truly works. The starting point: Financial accounting net income or loss The journey to calculating GloBE income or loss begins with the familiar: the financial accounting net income or loss (FANIL) of each individual 'Constituent Entity', ie, a company or branch that is part of the MNE group, in a particular jurisdiction. This is the 'bottom-line' profit or loss figure that companies prepare for their consolidated financial statements, typically in accordance with recognized accounting standards like International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP). This starting point makes sense because financial statements are already widely prepared by MNEs and provide a comprehensive view of their economic performance. However, different accounting standards and national tax laws can lead to significant variations in how profits are reported or taxed. This is where the necessary adjustments come in. Why adjustments are essential: Bridging the gaps If the GloBE Rules simply used accounting profit, they would not achieve their goal of a consistent global minimum tax. Accounting rules are designed for financial reporting to investors and stakeholders, not primarily for tax purposes. Similarly, domestic tax laws are shaped by national economic and social policies, leading to deductions, exemptions, and timing differences that vary widely from country to country. The purpose of GloBE adjustments is to neutralize these differences, ensuring that the 15 percent minimum tax is applied to a uniform and comparable profit base worldwide. Think of it as creating a common language for profit that all countries can understand and apply for Pillar Two purposes. Key adjustments: What gets added back or taken out? The GloBE Rules specify a comprehensive list of adjustments to the financial accounting net income or loss. While the details can be highly technical, we can group them into several common categories to understand their intent: Tax-related adjustments: • Net tax expense: A crucial adjustment is to exclude the income tax expense itself from the accounting profit. This is because we are calculating the effective tax rate, so we need to start with profit before taxes to correctly determine the tax burden. Non-income taxes, like property taxes or payroll taxes, are generally not adjusted out, as they are considered operating expenses. • Certain tax credits: Qualified refundable tax credits (QRTCs) – which are tax credits that are refundable in cash even if the company has no tax liability – are treated as income for GloBE purposes, not as a reduction in tax. This prevents them from artificially lowering the ETR. Non-refundable tax credits, however, are treated as a reduction in covered taxes. Exclusions for specific types of income or gain: • Excluded dividends: Dividends received from ownership interests, especially those where the MNE holds a significant stake, are generally excluded from GloBE Income. This prevents the same profits from being taxed multiple times as they flow up an MNE's ownership chain, ensuring that profits are taxed once at the operating entity level. • Excluded equity gains or losses: Gains or losses arising from the revaluation or disposal of certain equity investments, eg, holdings in other companies that are not part of the MNE group's core business, are often excluded. This aims to focus the GloBE calculation on the MNE's core operating profits. • Revaluation gains and losses: Gains or losses from the revaluation of property, plant, and equipment, if recognized in Other Comprehensive Income rather than the main profit and loss statement, are typically excluded unless they relate to certain types of financial instruments. Adjustments for policy reasons and distortions: • Illegal payments, fines and penalties: Expenses related to illegal payments, bribes, or fines and penalties that are not deductible for tax purposes in most jurisdictions are generally added back to profit for GloBE purposes. This ensures that a company cannot reduce its effective tax rate through illicit activities. • Asymmetric foreign currency gains/losses: Certain foreign exchange gains or losses that are treated differently for accounting and tax purposes, leading to asymmetric outcomes, are adjusted to ensure consistency. • Prior period errors and changes in accounting principles: Adjustments are made to ensure that the impact of correcting errors or changing accounting policies in the current year does not distort the GloBE Income of that specific year, especially if they relate to periods before Pillar Two applied. • Accrued pension expenses: Adjustments are made for certain pension-related expenses or income to align them with actual contributions or distributions. • Stock-based compensation: Differences in accounting and tax treatment of stock-based compensation can lead to adjustments. • Intra-group financing: Specific rules apply to inter-company financing arrangements to prevent artificial shifting of income or expenses. Allocation rules: Where does the income belong? Once the adjustments are made at the individual entity level, the GloBE rules also provide for specific allocation rules. For instance: • Permanent establishments (PEs): The income or loss of a PE, ie a fixed place of business in another country, like a branch, is generally considered to belong to the jurisdiction where the PE is located for GloBE purposes, reflecting its separate economic activity. • Flow-through entities: For entities that are transparent for tax purposes, meaning their income is taxed directly in the hands of their owners, eg partnerships, specific rules determine how their income or loss is allocated among the MNE group members. The importance of GloBE income for Kuwait For Kuwait and its implementation of Pillar Two, the precise calculation of GloBE Income or Loss for each Constituent Entity within our borders is paramount. When we talk about the qualified domestic minimum top-up tax (QDMTT) – Kuwait's strategic mechanism to collect its share of the top-up tax – the QDMTT relies directly on this GloBE Income figure. If an MNE's constituent entities in Kuwait collectively have a positive GloBE Income, but their effective tax rate (ETR), GloBE Income divided by Adjusted Covered Taxes, falls below 15 percent, then a top-up tax will be triggered. This top-up tax is calculated on the 'excess profit' which is directly derived from the GloBE Income, after accounting for a 'substance-based income exclusion (SBIE)', which allows for a routine return on tangible assets and payroll. ETR, top-up tax, excess profit and SBIE are the subject matter of our next articles, so please stay tuned! Challenges and preparations for MNEs in Kuwait For MNEs operating in Kuwait, preparing for GloBE Income calculations presents significant challenges: • Data granularity: Companies need to collect and analyze financial data at a highly granular, entity-by-entity and jurisdictional level – often far more detailed than their current tax or even accounting systems might readily provide. • System readiness: Existing accounting and enterprise resource planning (ERP) systems may not be configured to automatically generate GloBE-compliant income figures, necessitating significant system upgrades or manual adjustments. • Expertise: Understanding and correctly applying the numerous GloBE adjustments requires specialized tax and accounting expertise. A new era of profit measurement The concept of GloBE Income or Loss is a cornerstone of the global minimum tax framework. It represents a shift from diverse national tax bases to a standardized, internationally agreed-upon measure of profit, specifically designed to identify and tax undertaxed income. For Kuwait, mastering the intricacies of GloBE Income calculation is not just about compliance; it is about effectively leveraging the Pillar Two rules to secure our fair share of global corporate profits, ensuring a more stable and prosperous economic future for our nation. As companies adapt, the precision in defining and measuring this 'GloBE Income' will be fundamental to the success of this transformative tax reform. NOTE: Hassan M Abdulrahim is a Senior Instructor (Business) at Canadian College Kuwait and CEO & Co-founder of Visionary Consulting Company
Kuwait Times
15-07-2025
- Business
- Kuwait Times
The engine of fairness: How Pillar Two ensures a global minimum tax
KUWAIT: Kuwait's recent enactment of Law 157/2024, alongside its executive regulations, has set the stage for a new era of corporate taxation. This legislation, which implements the BEPS Pillar Two initiative and the GloBE Model Rules, is built upon a fundamental principle: ensuring that large multinational enterprises (MNEs) pay a minimum 15 percent effective tax rate on their profits, wherever they operate. But how exactly is this minimum tax collected? The GloBE Rules employ a sophisticated, interconnected system of 'Charging Mechanisms' to ensure that any shortfall below the 15 percent minimum is captured. These are primarily the Income Inclusion Rule (IIR), the Undertaxed Profits Rule (UTPR), and a critical addition for countries like Kuwait: the Qualified Domestic Minimum Top-up Tax (QDMTT). Understanding how these rules interact is key to appreciating the global reach and local benefits of Pillar Two. The primary mechanism: The Income Inclusion Rule (IIR) At the heart of the GloBE Rules lies the Income Inclusion Rule (IIR). This is considered the primary enforcement mechanism for the global minimum tax. Imagine an MNE group as a large family business with its head office, the 'Ultimate Parent Entity' or UPE, in one country and numerous branches, ie subsidiaries or 'Constituent Entities', scattered across the globe. The IIR works on a 'top-down' approach: If a subsidiary of this MNE group is located in a country where its effective tax rate (ETR) on its GloBE Income falls below the 15 percent minimum, the IIR allows the parent company, which is typically the Ultimate Parent Entity or an Intermediate Parent Entity, to apply a 'top-up tax.' This means the parent company in its home country will be liable to pay the difference needed to bring that subsidiary's effective tax rate up to 15 percent. For example, if a Kuwaiti MNE group has a subsidiary in a country where the local tax rate results in an ETR of only 10 percent, the IIR would mean that the Kuwaiti parent company would need to pay an additional 5 percent top-up tax on that subsidiary's income, of course adjusted for specific GloBE rules, including the Substance-Based Income Exclusion. The beauty of the IIR is its efficiency and directness. It encourages countries where parent companies are located to implement Pillar Two, as it grants them the first right to collect any top-up tax that arises from their low-taxed subsidiaries worldwide. This ensures that profits are taxed fairly at the group level. The backstop: The Undertaxed Profits Rule (UTPR) While the IIR is the primary rule, the system needs a safety net. This is where the Undertaxed Profits Rule (UTPR) comes into play. The UTPR acts as a 'backstop' mechanism, designed to collect any remaining top-up tax that was not fully captured under the IIR. Why would the IIR not capture everything? This could happen if, for instance, the Ultimate Parent Entity (UPE) of an MNE group is located in a country that has not implemented a Qualified IIR, or the UPE is in a low-tax jurisdiction itself, meaning there is no higher-tier entity to apply the IIR. In such scenarios, the UTPR allows other countries where the MNE group operates, and that have implemented the UTPR, to collect the top-up tax. How does it do this? The UTPR typically operates by denying deductions for expenses or making equivalent adjustments to the taxable income of Constituent Entities within their jurisdiction. This effectively increases the tax liability of the MNE's entities in that country, ensuring that the undertaxed profits are subjected to the minimum 15 percent rate. The amount of top-up tax allocated under the UTPR to a particular country is typically based on a formula, often linked to the MNE's tangible assets and number of employees in that jurisdiction. This ties the tax collection to the real economic substance present in the country. The UTPR ensures that even if the IIR is not fully effective, the undertaxed profits of large MNEs will not entirely escape the global minimum tax. Kuwait's strategic advantage: The Qualified Domestic Minimum Top-up Tax (QDMTT) op-up Tax (QDMTT) Now, let's turn to a critical component that empowers Kuwait to directly benefit from Pillar Two — the Qualified Domestic Minimum Top-up Tax (QDMTT). This rule is a powerful tool that gives countries like Kuwait the first right to tax any shortfall in their own jurisdiction. Let's think of it this way: When an MNE's entities in Kuwait have an effective tax rate below 15 percent, a top-up tax arises. Without a QDMTT, this top-up tax would generally be collected by a foreign parent company under the IIR or by other foreign entities under the UTPR. This would mean Kuwait effectively loses out on potential tax revenue generated by economic activity within its own borders. By implementing a QDMTT, as Kuwait has done with law 157/2024, our nation ensures that: •Any top-up tax calculated on the low-taxed profits of MNE entities within Kuwait is paid directly to the Kuwaiti tax authorities. •This payment extinguishes, or reduces, the liability for that same top-up tax under the IIR or UTPR in other countries. In essence, the QDMTT takes precedence. This is a strategic move that secures Kuwait's share of the global minimum tax. It prevents revenue from flowing out to other jurisdictions that might otherwise collect the top-up tax. It reinforces Kuwait's fiscal sovereignty and contributes directly to the national budget, funding public services and development projects right here at home. The interplay: How IIR, UTPR and QDMTT Work Together The rules are designed to work in a specific order to avoid double taxation and ensure the top-up tax is collected efficiently: first: If a country, like Kuwait, has implemented a QDMTT, this rule is applied first. Any top-up tax due on the profits of MNE entities in Kuwait, because their ETR is below 15 percent, is collected by Kuwait. This prioritizes the taxing rights of the jurisdiction where the low-taxed profits arise. second (top-down): If, after the application of any QDMTT, there is still a top-up tax amount outstanding for a low-taxed entity, e.g., if the host country did not have a QDMTT, or if the QDMTT did not fully cover the top-up amount due to slight rule differences, the IIR comes into play. The parent entity higher up in the ownership chain, if it is located in an IIR-implementing jurisdiction, will be liable to pay the remaining top-up tax. This process continues down the ownership chain until the top-up tax is fully covered. Last (Backstop): Only if the IIR has not fully captured all the outstanding top-up tax, for instance, if no IIR-implementing jurisdiction is found in the ownership chain for a particular low-taxed entity, does the UTPR act as the final backstop. The remaining top-up tax is then allocated among UTPR-implementing jurisdictions based on a formula involving employees and tangible assets, and collected through mechanisms like denial of deductions. This hierarchy ensures that the top-up tax is collected once and by the appropriate jurisdiction, prioritizing the country where the actual economic activity generating the undertaxed profits occurs. Why Kuwait's approach is prudent Kuwait's decision to enact a QDMTT reflects a comprehensive understanding of the Pillar Two mechanics. It is not merely about complying with global standards, but about optimizing national revenue collection in a new global tax environment. By ensuring that any top-up tax generated in Kuwait is paid to Kuwait, the government safeguards its tax base and maximizes the benefits from this international tax reform. For multinational companies operating in Kuwait, this means a clear understanding of these mechanisms is paramount. Compliance will require detailed calculations of GloBE Income and Adjusted Covered Taxes on a jurisdictional basis, and a precise application of these charging rules. GloBE Income or Loss and Adjusted Covered Taxes are the subject matter of our coming articles, so stay tuned! Hence, the IIR, UTPR and especially Kuwait's QDMTT form a robust system designed to enforce the global minimum tax. These mechanisms ensure that large MNEs contribute their fair share, ultimately fostering a more equitable global economy and securing vital resources for national development in countries like Kuwait. NOTE: Hassan M Abdulrahim is a Senior Instructor (Business) at Canadian College Kuwait and CEO & Co-founder of Visionary Consulting Company
Kuwait Times
08-07-2025
- Business
- Kuwait Times
Unpacking the scope of GloBE rules: Who pays and why Kuwait benefits
A closer look at the global minimum tax in the land of prosperity KUWAIT: Kuwait's recent publication of executive regulations for Law 157/2024 has ignited a significant shift in our nation's tax landscape. This legislation, centered on the OECD's BEPS Pillar Two initiative and the Global Anti-Base Erosion (GloBE) Model Rules, represents a global movement towards fairer corporate taxation. While the overarching goal of a 15 percent global minimum tax is clear, understanding who exactly falls under the purview of these complex rules, and why this is particularly advantageous for Kuwait, is crucial. This article delves into the 'scope' of the GloBE Rules – clarifying which multinational enterprises (MNEs) are targeted, which are exempt, and how Kuwait's strategic decision to implement a Qualified Domestic Minimum Top-up Tax (QDMTT) ensures our nation secures its rightful share of global corporate profits. The threshold: Identifying in-scope multinational enterprises The very first step in applying the GloBE Rules is determining if an MNE group is even 'in scope.' The rules are not designed to apply to every business, but rather to the largest global players. The primary determinant is a revenue threshold: an MNE group is generally subject to the GloBE Rules if its annual consolidated revenues, as reflected in its consolidated financial statements, equal or exceed EUR 750 million (approximately KWD 250 million) in at least two of the four fiscal years immediately preceding the tested fiscal year. This threshold is a deliberate design choice by the OECD/G20 Inclusive Framework, a coalition of over 160 countries, including Kuwait. By setting this high bar, the aim is to minimize the compliance burden on smaller businesses and focus enforcement efforts on the companies with the largest global footprints and the greatest potential for profit shifting. It ensures that the spirit of Pillar Two – addressing large-scale base erosion and profit shifting – is maintained. Beyond the numbers: What constitutes an 'MNE group'? It is important to understand that the GloBE Rules apply to an 'MNE Group.' This is not just a single company; it encompasses all the entities that are part of a multinational enterprise and are included in its consolidated financial statements for accounting purposes. This broad definition ensures that the rules capture the entire structure of a large global business, including its subsidiaries, branches, and even permanent establishments (PEs) operating in different jurisdictions. For instance, if a large international corporation has its headquarters in one country and operates through a subsidiary in Kuwait, that Kuwaiti subsidiary would be considered a 'Constituent Entity' within the MNE group and would be subject to Kuwait's Pillar Two rules if the overall group meets the revenue threshold. Key exclusions: Who is not affected? While the scope is broad for large MNEs, the GloBE Rules also provide for specific exclusions. These are important for clarity and to avoid unintended consequences for entities that serve a public or specific policy purpose. Generally, the following entities are excluded from the application of the GloBE Rules, even if they are part of an MNE group that meets the revenue threshold: •Governmental entities: Public bodies, ministries, and state-owned enterprises that fulfill governmental functions. •International organizations: Bodies established by international treaties or agreements (e.g., the United Nations). •Non-profit organizations: Entities whose primary purpose is charitable, religious, educational, or similar, and whose income is not primarily for the benefit of private individuals. •Pension Funds: Entities that are established and operated exclusively or almost exclusively to administer or provide retirement benefits and ancillary or incidental benefits to individuals. •Investment funds that are Ultimate Parent Entities (UPEs): Certain types of investment funds, when they are at the top of an MNE group's ownership structure. •Real Estate Investment Vehicles (REIVs) that are Ultimate Parent Entities (UPEs): Similar to investment funds, specific REIVs are excluded when they are the UPE of an MNE group. These exclusions reflect a policy decision to exempt entities that are not engaged in commercial activities aimed at generating private profit in the same way as typical MNEs. Their inclusion would complicate the rules unnecessarily and would not align with the core objective of ensuring large commercial enterprises pay a minimum tax. The 'de minimis' exclusion: A practical simplification Beyond the fundamental exclusions, the GloBE Rules also incorporate a 'de minimis exclusion.' This practical simplification is designed to reduce the compliance burden for MNEs in jurisdictions where their operations are very small. If, in a particular jurisdiction, an MNE group has: •Average GloBE revenue of less than €10 million, and •Average GloBE Income or Loss that is either a loss or less than €1 million (computed on a three-year average basis), then the top-up tax for that jurisdiction is considered to be zero. This means that even if the Effective Tax rate (ETR) in that small jurisdiction falls below 15 percent, no top-up tax would be due, simplifying reporting for MNEs with minor presences in many countries. Kuwait's strategic move: The qualified domestic minimum top-up tax (QDMTT) This brings us to a crucial aspect for Kuwait: The implementation of a Qualified Domestic Minimum Top-up Tax (QDMTT). Kuwait's Law 157/2024 explicitly incorporates a QDMTT (also sometimes referred to as a Domestic Minimum Top-up Tax, or DMTT). This is a strategic and highly beneficial decision for our nation. Under the GloBE Rules, if a constituent entity of an MNE group is located in a country where its effective tax rate is below 15 percent, a top-up tax is due. Without a QDMTT, this top-up tax would primarily be collected by the parent company's jurisdiction under the Income Inclusion Rule (IIR) or, as a backstop, by other countries under the Undertaxed Profits Rule (UTPR). IIR and UTPR are the subject matter of our next article, so please stay tuned! By implementing a QDMTT, Kuwait ensures that any top-up tax arising from low-taxed profits of MNE entities within Kuwait is collected by Kuwait itself. This means the revenue stays within our borders, directly benefiting our national budget and allowing for greater investment in our public services and infrastructure. It is about securing our rightful share of the tax base generated by economic activity on our soil, rather than letting it be collected by another country. Estimating the impact in Kuwait While specific official figures on the exact number of MNEs in Kuwait that will be subject to Pillar Two are still emerging, preliminary estimations suggest a meaningful impact. Recent statements from the Ministry of Finance indicate that the MNEs Tax Law is expected to apply to approximately 20 Kuwaiti-headquartered companies, 25 GCC-headquartered companies, and around 255 foreign companies with a presence in Kuwait. These numbers, while subject to refinement, highlight that a significant segment of the large corporate landscape in Kuwait will be directly impacted by these new rules. This also underscores the importance of the QDMTT. For these hundreds of in-scope MNEs, any shortfall below the 15 percent minimum effective tax rate on their Kuwaiti profits will now lead to a direct tax payment to the Kuwaiti tax authorities. This mechanism ensures that the benefits of Pillar Two are realized domestically. A fairer future for Kuwait's economy In effect, the meticulous design of the GloBE Rules' scope, coupled with Kuwait's proactive implementation of a QDMTT, marks a pivotal moment for our nation's economic future. By clearly defining who is in scope and who is not, the rules target significant global players while providing necessary carve-outs and simplifications. For Kuwait, this translates into: •Secured Revenue: Our ability to collect top-up tax on low-taxed profits within our jurisdiction. •Enhanced Fairness: A level playing field for our local businesses, ensuring large MNEs contribute their fair share. •Global Alignment: Strengthening Kuwait's position as a responsible and cooperative member of the international financial community. As MNEs in Kuwait and globally adapt to these new realities, the focus on the scope of the GloBE Rules reminds us that this is a precisely targeted, internationally coordinated effort to build a more equitable and sustainable global tax system, with direct and tangible benefits for countries like Kuwait. Note: Hassan M Abdulrahim is a Senior Instructor (Business) at Canadian College Kuwait and CEO & Co-founder of Visionary Consulting Company. Contact him at [email protected]
Kuwait Times
01-07-2025
- Business
- Kuwait Times
Kuwait takes bold step towards fairer global taxation
Monday June 30, 2025 marked a significant milestone for Kuwait's financial landscape with the Ministry of Finance publishing the executive regulations for Law 157/2024. This legislation is a pivotal move, ushering in the implementation of the OECD's Base Erosion and Profit Shifting (BEPS) Pillar Two initiative and the Global Anti-Base Erosion (GloBE) Model Rules. While these terms might sound complex, their essence is straightforward: to ensure that large multinational companies (MNEs) pay a fair share of tax wherever they operate, including right here in Kuwait. For years, the global tax system allowed multinational corporations to minimize their tax bills by shifting profits to countries with very low or no corporate taxes. This created an uneven playing field, making it harder for countries to fund public services and putting local businesses at a disadvantage. Pillar Two, developed by the OECD and agreed upon by over 160 countries, aims to change this. What is Pillar Two, and who does it affect? At its heart, Pillar Two introduces a global minimum corporate tax rate of 15%. This means that if an MNE operates in a country where its effective tax rate (the actual tax paid on its profits) falls below 15%, that company might have to pay, in its jurisdiction, an additional 'top-up tax' to bring its effective rate up to the minimum. Crucially, this new rule is not for every business. It specifically targets large multinational enterprises. In Kuwait, as per Law 157/2024, the rules apply to MNEs with annual consolidated revenues of EUR 750 million or more (approximately KD 250 million) in at least two of the four preceding financial years. This threshold ensures that the focus remains on the biggest global players, leaving smaller local businesses unaffected. Certain entities, such as government bodies, non-profit organizations, and international organizations, are generally excluded from these rules. The pillars of implementation: How the top-up tax is collected To achieve this 15 percent minimum tax, Pillar Two utilizes two main interlocking mechanisms: Inclusion Rule (IIR): This is the primary mechanism. It essentially allows a parent company, usually the ultimate parent entity (UPE) of an MNE group, to impose a top-up tax on its low-taxed subsidiary located in another country. Think of it as the head office ensuring its branches around the world pay their fair share. Profits Rule (UTPR): This acts as a backstop. If the IIR is not applied (for example, if the parent company's country has not implemented the IIR), the UTPR allows other countries where the MNE operates to deny deductions or impose an equivalent charge, effectively collecting the top-up tax that would otherwise have gone uncollected. In addition to these international rules, many countries, including Kuwait, are also implementing a Qualified Domestic Minimum Top-up Tax (QDMTT). This allows Kuwait to collect any top-up tax due on the profits of MNE entities located within its borders, ensuring that the revenue stays in Kuwait rather than being collected by another jurisdiction under the IIR or UTPR. Understanding the key numbers: GloBE income, covered taxes and effective tax rate To figure out if an MNE owes top-up tax, we need to understand a few key concepts: •GloBE Income or Loss: This is the starting point for calculating the MNE's profits in a particular country for Pillar Two purposes. It begins with the financial accounting net income or loss (FANIL) of the MNE's entities in that jurisdiction, and then undergoes specific adjustments outlined in the GloBE rules. These adjustments ensure a consistent and standardized measure of profit across different countries, regardless of their local accounting rules. •Adjusted Covered Taxes: This refers to the taxes actually paid by an MNE in a particular country that are relevant for Pillar Two. It starts with the current and deferred tax expense as reported in the MNE's financial statements, and then specific adjustments are made. These adjustments are crucial to ensure that only the taxes directly related to the GloBE income are considered and that any temporary differences in tax recognition are properly accounted for. •Effective Tax Rate (ETR): This is the most crucial calculation. For each country where an MNE operates, the ETR is determined by dividing the total Adjusted Covered Taxes by the total GloBE Income for that jurisdiction. If this calculated ETR falls below the 15 percent minimum rate, then a top-up tax will be due. Calculating the top-up tax: Bridging the gap Once the ETR for a jurisdiction is found to be below 15 percent, the 'top-up tax percentage' is calculated as the difference between the 15 percent minimum rate and the actual ETR. This percentage is then applied to the MNE's 'excess profits' in that jurisdiction. The GloBE rules also include a Substance-Based Income Exclusion (SBIE), which reduces the amount of profit subject to the top-up tax based on the MNE's tangible assets and payroll costs in that jurisdiction. This is designed to reward real economic activity and discourage purely artificial profit shifting. The final top-up tax amount is then determined, with any QDMTT collected by Kuwait reducing the amount that would otherwise be due under the IIR or UTPR. What this means for Kuwait The implementation of Pillar Two through Law 157/2024 and its executive regulations signifies Kuwait's commitment to international tax cooperation and fairness. For multinational enterprises operating in Kuwait, this means: •Increased compliance: MNEs will need to gather and analyze significant amounts of financial data on a jurisdictional basis to comply with the new rules. This will require robust data management systems and close collaboration between tax, finance, and accounting departments. •Potential for Higher Tax Bills: Companies that have historically paid very low effective tax rates in Kuwait or other jurisdictions may see an increase in their overall tax burden. •Leveling the Playing Field: For local Kuwaiti businesses and smaller enterprises not subject to Pillar Two, this initiative helps to create a fairer competitive environment by ensuring large MNEs contribute their share. •Enhanced Revenue for Kuwait: More importantly, by implementing a QDMTT, Kuwait ensures that any top-up tax generated from low-taxed profits within its borders is collected locally, contributing to the national economy and supporting public services. This new tax era is a complex but necessary step towards a more equitable and stable global tax system. While the intricacies of Pillar Two can be challenging, Kuwait's proactive approach in implementing these rules demonstrates its commitment to responsible global citizenship and a more prosperous future for all. Note: Hassan M Abdulrahim is a Senior Instructor (Business) at Canadian College Kuwait and CEO & Co-founder of Visionary Consulting Company
Zawya
30-06-2025
- Business
- Zawya
Kuwait: Finance ministry issues regulations on MNE tax law
KUWAIT -- Kuwait's Ministry of Finance announced on Sunday the issuance of a decree introducing the executive regulations for the law on taxing multinational enterprise (MNE) groups marking a key step in the country's economic reform and commitment to fiscal balance and revenue diversification. In line with Kuwait Vision 2035, The Ministry said in a statement, the new decree (No. 55 of 2025) issues the executive regulations for Law No. 157 of 2024, which addresses the taxation of MNE groups. It introduced the Domestic Minimum Top-up Tax (DMTT) in compliance with the Organization for Economic Cooperation and Development (OECD) Pillar Two requirements. The Ministry said the regulation clarifies the law's provisions, outlines implementation procedures, and promotes transparency in accordance with international standards. Finance Minister and Minister of State for Economic and Investment Affairs, Eng. Nora Al-Fusam, stated that this regulation is pivotal for creating a fair investment environment and enhancing tax justice. It reflects Kuwait's effort to diversify income away from oil dependency, the statement continued. She added that expected annual revenues from the tax could reach around 250 million Kuwaiti Dinars, helping build a resilient and sustainable economy. The Ministry also plans to hold awareness workshops soon to explain the law and its executive regulations to the concerned parties. All KUNA right are reserved © 2022. Provided by SyndiGate Media Inc. (
