Executive summary

On 29 June 2025, Kuwait's Ministry of Finance (MoF), through Ministerial Decision No. 55 of 2025, issued the Executive Regulations (ERs) to implement Domestic Minimum Top-Up Tax (DMTT) in Kuwait, as prescribed in the Multinational Enterprise Group Tax Law (DMTT Law). The ERs were published in Kuwait AlYawm (Official Gazette) on 30 June 2025, according to press reports.

The ERs clarify, through 18 chapters and 116 articles, the tax obligations for in-scope multinational enterprises (MNEs), elaborating on many key terms, definitions and concepts relating to the DMTT Law. The ERs include provisions on the scope of the DMTT Law, tax residency, permanent establishments (PEs), computation of taxable income (i.e., Globe Anti-Base Erosion (GloBE) or GloBE income), covered taxes, minimum tax rate, effective tax rate (ETR) computation, corporate restructuring provisions, safe harbors and tax reliefs, transfer pricing (TP), tax registration, compliance, anti-avoidance rules and other relevant administrative procedures.

As stated in the ERs, the interpretation of the Kuwait DMTT Law and its ERs should be based on the GloBE Rules and related commentary.

Background

On 31 December 2024, Kuwait issued Decree-Law No. 157 of 2024 for the Tax Law on MNE Groups, imposing a DMTT and mandating that MNEs operating within Kuwait are subject to a minimum ETR of 15%. The provisions of the DMTT Law apply to MNEs for the tax periods commencing on or after 1 January 2025.

(For background, see EY Global Tax Alert, Kuwait implements domestic top-up tax on MNEs, dated 29 January 2025).

Highlights of the DMTT Law

Who is in-scope of the DMTT Law?

A group would be in-scope of the Kuwait DMTT Law and its ERs if the group is considered an MNE (i.e., if it has a Constituent Entity (CE) in more than one jurisdiction, including Kuwait) and if the revenue, as per the consolidated financial statements, equals or exceeds €750m for two out of the four periods preceding the tested period.

Under these conditions, any entity operating in Kuwait that is part of an MNE group — excluding entities expressly exempt under the DMTT Law — will fall within the scope of the DMTT Law. An entity is regarded as a member of the MNE group if its financial results are consolidated on a line-by-line basis by the Ultimate Parent Entity (UPE) of the group, or if it is excluded from consolidation solely due to considerations of size or materiality or because it is held for sale.

Additionally, a GloBE PE located in Kuwait will also be treated as a CE.

Moreover, if an entity is equity accounted by the UPE, but the UPE maintains an ownership interest of 50% or more (e.g., a GloBE joint venture), the entity will also be deemed to be within the scope of the DMTT Law and its associated regulations.

How does the DMTT Law interact with other Kuwaiti tax regimes?

If an MNE group falls under the scope of the DMTT Law, then it would no longer be under the scope of Kuwait Corporate Income Tax (CIT) Law, Dividend Zone Law (DZ Law), National Labor Support Tax (NLST Law) or the Zakat Law.

What is a PE?

The ERs provide clarity on the controls and rules for the following types of PEs:

• Fixed place of business: This includes any location such as a management office, branch, store, factory, workshop, sales outlet, warehouse or any site used for the exploration and extraction of natural resources.
• Construction PEs: A construction site or project constitutes a PE if activities continue for more than six months within any 12-month period. The time spent by the nonresident entity and closely related enterprises is aggregated if certain conditions are met, such as activities exceeding 30 days.
• Service PE: If a nonresident entity provides services for more than six months in Kuwait during any 12-month period, this may constitute a PE, with the duration counted in aggregate. Actual presence in the country is not required to constitute a service PE.
• Agency PE: A PE is established if a person acts on behalf of the nonresident entity and habitually concludes contracts in its name, provided the person is not an independent agent.
• Deemed PE: A place of business that is not covered by the above definitions may constitute a deemed PE if the income from its activities is not taxed in the nonresident entity's home jurisdiction.

It is worth noting that Kuwait has adopted a negative list covering preparatory and auxiliary activities, closely related enterprise provisions, and anti-fragmentation rules.

In line with GloBE Rules, the DMTT Law has also adopted the hierarchical definition of a GloBE PE. Under this definition, an establishment is considered a GloBE PE if:

1. It is treated as a PE under an applicable tax treaty, and the jurisdiction taxes the income accordingly.
2. In the absence of a tax treaty, the jurisdiction taxes the income on a net basis similar to its tax residents.
3. The jurisdiction has no CIT system but would have the right to tax the income under the OECD Model Tax Convention.
4. Operations are conducted outside the jurisdiction where the entity is located, provided the jurisdiction exempts the income from taxation.

How to compute taxable income (GloBE income)

The starting point for the computation of the GloBE income or loss is the CE's Financial Accounting Net Income or Loss (FANIL), which is the CE's net income/loss before any consolidation adjustments eliminating intragroup transactions.

Under the DMTT Law, 100% of a CE's profits (regardless of the allocable shares and ownership interest held by the MNE group) would be included in the computation of taxable income and subject to top-up tax at 15% minimum tax rate.

The tax adjustments to be performed on the FANIL are in line with the GloBE Rules, such as the exclusion of dividends and equity gains/losses (subject to certain conditions), deduction of Tier 1 capital costs and inclusion of revaluation gains.

The definition and computation of Adjusted Covered Taxes is mostly in line with the GloBE Rules and includes taxes such as income tax recorded in financial statements and taxes on distributed profits. However, the ERs deviate from the GloBE Rules by additionally stating that Kuwait CIT, Divided Zone Law, zakat and NLST would not be accepted as a covered tax.

The ERs also include the elections allowed under the GloBE Rules, such as the election to consolidate CE transactions within Kuwait, to spread capital gains over five tax periods, or to apply realization principle instead of fair-value accounting.

The DMTT Law and its ERs also introduce the Substance-Based Income Exclusions (SBIEs) in line with the GloBE Rules, allowing taxpayers to carve out a portion of their income based on tangible assets and payroll costs recorded in Kuwait. The value of the SBIE is computed by applying a percentage specified in the ERs to the carrying value of tangible assets and payroll expenses, thereby reducing the amount of income subject to DMTT.

What safe harbors and tax reliefs are available under the DMTT Law?

The DMTT Law allows for several safe harbors and reliefs that may allow taxpayers to reduce their top-up tax to zero and simplify compliance. Safe harbors were introduced under the following main categories.

Safe harbor by simplified calculation

Top-up tax is reduced to zero for a given tax period if the MNE group satisfies certain criteria/tests under simplified calculation methods such as Routine Profits Test, De Minimis test and ETR Test.

Transitional Country-by-Country Reporting (CbCR) Safe Harbors (TSCH)

These safe harbors are applicable to fiscal years starting on or before 31 December 2026 (excluding periods ending after 30 June 2028). An MNE group may test its eligibility for TSCH using the figures reported in its Qualified CbCR as defined in the ERs.

Safe harbor by simplified calculation method for nonmaterial CEs

Under this safe harbor, MNE groups are allowed to apply simplified methods specifically for nonmaterial CEs, which are entities not consolidated on a line-by-line basis in the UPE's financials due to size or materiality.

Who is eligible for tax relief as MNE groups in the Initial Phase of International activity?

An MNE group's tax liability in Kuwait may be reduced to zero if they are part of a MNE group that fulfills the following criteria:

• Jurisdiction Limit Test: The MNE group must have CEs in no more than six jurisdictions, including Kuwait.
• Tangible Asset Test: The total net book value of tangible assets across all jurisdictions must not exceed €50m, excluding the jurisdiction with the highest tangible asset value when the GloBE Rules are first applied (i.e., the reference jurisdiction).
• Income Inclusion Rule (IIR) Application Test: Ownership interest in entities located in Kuwait cannot be held by a parent entity that applies IIR.

These provisions will only apply for five tax periods starting from the day the MNE group became subject to the GloBE Rules.

What are the TP provisions under the DMTT Law?

The DMTT Law marks the introduction of a TP regime in Kuwait, defining related persons, enumerating clear methodologies for determining the pricing of related-party transactions and transfers, and providing compliance requirements.

Notably, the DMTT Law presents an expansive definition of Related Persons, which includes:

• Natural person and entity relationship: Natural persons are deemed related to an entity if they, alone or with related individuals, own or control 50% or more of the entity, either directly or indirectly.
• Entity ownership: Two entities are considered related if one entity, independently or with related persons, holds 50% or more of the ownership interest in the other entity or exerts control over it.
• Common control of entities: Two entities are classified as related if they are both under the common control of a person who, alone or with related individuals, owns 50% or more of both entities, directly or indirectly.

The DMTT Law also provides a comprehensive definition of control, which includes: (1) the ability to exercise 50% or more of the voting rights and determine board membership, including the authority to appoint or dismiss directors; (2) the entitlement to benefit from 50% or more of the capital or profits of the entity; (3) the capacity to manage the entity and make significant decisions that influence its operations; and (4) the provision of 50% or more of the loans and 25% or more of the guarantees for the entity, excluding those provided by financial institutions.

The DMTT Law has also introduced TP compliance for taxable entities in the state, requiring them to prepare a Master File, a Local File and a Disclosure Form.

What are the DMTT compliance requirements?

Registration

Registration is due within 120 days starting from the date of becoming subject to DMTT. However, for the first year of application (i.e., 2025), in-scope MNE groups should register before 30 September 2025. One of the CEs must be designated to represent the MNE Group. If the UPE of the MNE group is located in Kuwait, it must be the designated CE. The MNE group will be registered with the tax administration as a group, as well as every CE of the MNE group, should be separately registered (if not already registered).

DMTT return and tax payment

The DMTT return is due within 15 months after the fiscal year-end of the MNE group and must be audited by an audit firm approved by the MoF. The tax payment is due alongside the DMTT return.

Audit requirements

Along with the DMTT return, MNE groups are required to submit audited stand-alone financial statements for all entities under the scope of the DMTT. If MNE groups cannot submit audited standalone financial statements for any reason, the audited consolidated financial statements of the UPE may be submitted instead. The MoF is likely to release further guidance regarding this point.

TP compliance

MNE groups should submit an audited Disclosure Form for transactions undertaken with related persons along with the DMTT return and submit the Master File and the Local File within 30 days of the tax authorities' request.

Tax assessment process

A tax inspection may be conducted for each fiscal year or on a sample basis, based on the discretion of the tax administration. Should the taxpayer disagree with the tax assessment, the following steps may be taken to contest the tax assessment:

• Tax objection: Submitted to the tax administration within 60 days of receiving the tax assessment
• Tax grievance: Submitted to the Tax Grievance Committee within 60 days of receiving the response to the tax objection
• Tax appeal: Filed by the tax administration or the taxpayer (to appeal the Tax Grievance Committee's decision) within 60 days before the competent court

Penalties and fines

The DMTT Law and its ERs provide for the following penalties:

• Penalties for late filing of tax return: 5% to 25% of the final tax, depending on duration of the delay
• Penalties for late payment of tax due: Computed at 1% of the value of the unpaid amounts for every 30 days or part thereof the taxpayer does not pay the tax due
• Incorrect tax returns: 25% penalty on the difference between tax shown on return and final tax due if that difference exceeds 10%; penalty can be reduced to 10% if the taxpayer notifies the tax administration
• Administrative fine: 3,000 Kuwaiti Dinar (KWD3k) administrative fine for late registration, non-disclosure of changes in data, failure to submit information requested, failure to maintain books and records for the required period and preventing the tax administration from performing their duties

Implications

MNEs operating in Kuwait should assess the implications of the DMTT Law on their legal structure, operating model, intercompany transactions and compliance obligations in Kuwait.

In-scope MNEs should register before 30 September 2025 or before the lapse of the 120-day registration deadline, whichever comes later. They should also monitor compliance obligations and respond to the MoF's information requests as applicable.