Kuwait Tax Alert

Kuwait Issues Executive Regulations on Pillar Two

Following the issuance of Decree-Law No. 157 of 2024, which introduced a Domestic Minimum Top-up Tax (DMTT) regime in line with the OECD’s Pillar Two framework, the Kuwaiti Ministry of Finance (MOF) has now released the long-anticipated Executive Regulations through Ministerial Decree No. 55 of 2025, dated 29 June 2025.

These Regulations provide detailed guidance for the implementation of Pillar Two rules in Kuwait and comprise 116 articles covering scope, definitions, compliance obligations, tax computation, and administrative requirements. The new rules take effect for financial years beginning on or after 1 January 2025.

Highlights

Scope and Applicability

The Executive Bylaws confirm that the DMTT will apply to multinational enterprise (MNE) groups that operate in more than one jurisdiction and report consolidated annual revenues of at least EUR 750 million in at least two of the four fiscal years immediately preceding 2025.

Both Kuwaiti-headquartered groups and foreign-headquartered MNEs with operations in Kuwait, including through permanent establishments (PEs), fall within the scope of the rules.

The Bylaws emphasize that the provisions should be interpreted in accordance with the OECD Global Anti-Base Erosion (GloBE) Model Rules, their consolidated commentary, and any amendments thereto, except where explicitly deviated from.

Registration and Filing Requirements

All in-scope entities are required to register with the Kuwaiti tax authorities by no later than 30 September 2025. The Bylaws also permit a group to designate a single constituent entity in Kuwait to act as the filing entity for the group, thereby centralizing compliance and minimizing administrative burden. The tax return must be filed within 15 months of the end of the relevant financial year, and must be prepared based on audited financial statements that comply with International Financial Reporting Standards (IFRS). The return can be filed in either Arabic or English and must be signed by a tax advisor approved by the MOF. Notably, there are no provisions for estimated payments or instalments—any tax due must be paid in full at the time of filing the return.

Definition and Treatment of Permanent Establishments (PEs)

The Bylaws expand upon the definition of permanent establishment provided in the DMTT Law. In addition to traditional forms of PEs, such as fixed place, construction, service, and dependent agent PEs, the Bylaws introduce the concept of a “virtual PE.” Under this provision, a non-resident entity may be deemed to have a PE in Kuwait if it provides services in the country for more than six months within any 12-month period, even in the absence of a physical presence.

While the general structure of these provisions aligns with the OECD Model Tax Convention, some deviations have been introduced to reflect Kuwait-specific practices. Certain exclusions also apply for activities of a preparatory or auxiliary nature.

Transfer Pricing Documentation Requirements

The Executive Bylaws introduce formal transfer pricing requirements for entities subject to the DMTT. All related-party transactions must comply with the arm’s length principle, which requires that such transactions be priced as if they were carried out between independent entities.

In this context, taxpayers are required to prepare and maintain both a Master File and a Local File in line with international transfer pricing standards. This documentation must adequately support the pricing of intercompany transactions and may be subject to review by the MOF.

Other Key Provisions

The Executive Bylaws clarify several important technical matters.

Once an entity falls within the scope of the DMTT, the tax applies to its full taxable income, regardless of the ownership percentage held directly or indirectly by the ultimate parent entity.
The Bylaws also provide for specific adjustments to determine taxable income, including the treatment of qualified refundable tax credits.
The rules governing the calculation of the effective tax rate (ETR) and the resulting top-up tax liability are detailed, including guidance on applying substance-based exclusions related to payroll and eligible tangible assets.
Furthermore, the Bylaws address transitional provisions and safe harbour rules designed to ease the initial compliance burden.
They also include rules applicable to group restructurings and mergers, particularly where the ultimate parent entity changes as a result of corporate reorganization.

Recommendations for next steps

Assess and Review: Multinational groups with operations in Kuwait should assess whether the EUR 750 million revenue threshold is met and identify any in-scope entities or permanent establishments. It is critical to begin reviewing their global structures and financial reporting systems. It is also critical to review the intercompany arrangements and their compliance with the arm’s length principle.
Be prepared for reporting requirements: Entities should initiate the preparation of IFRS-compliant audited financials and ensure readiness to meet documentation and filing obligations within the required timelines.
DMTT Registration: If you are in scope of the DMTT, you must complete the registration with the Kuwait tax administration within the prescribed deadline. Penalties may be imposed for failure to register in a timely manner.

How can we help

At Elite Horizons, we are well-positioned to support multinational groups in navigating the complexities of Kuwait’s newly issued DMTT Executive Bylaws. Our experienced tax advisory team, in collaboration with our trusted business partners across the Middle East and Europe, offers a seamless, regionally coordinated approach to Pillar Two compliance.

We offer end-to-end support across the key areas impacted by the DMTT regulations, including:

Readiness Assessments to evaluate the impact of the Domestic Minimum Top-up Tax (DMTT) on your Kuwait operations and overall global structure.
Pillar Two Calculations and Implementation support, including design of effective tax computation models, data collection templates, and reporting frameworks.
Transfer Pricing and Restructuring Advisory, covering intercompany financing, policy adjustments, and corporate structuring strategies aligned with the DMTT framework.
Qualified Country-by-Country Report support.

For additional information and queries, please contact us: