The Organization for Economic Co-operation and Development (OECD) launched an international tax reform initiative under the name "Pillar Two," which specifically targets the practices of multinational entities operating in multiple countries and shifting profits to low-tax states.
The rules of Pillar Two aim at ensuring that the group of multinational entities pay a minimum tax rate on their profits earned in each country or jurisdiction in which they operate. By implementing this measure, governments can reduce revenue leakage and promote fair tax practices on a global scale.
To keep pace with such global practices, the State of Kuwait joined the Comprehensive Framework on Preventing Tax Base Erosion and Profit Shifting (BEPS) on November 15, 2023. This framework includes more than 140 countries and jurisdictions working together to combat international tax evasion and ensure a more transparent tax environment. The State of Kuwait aims to adopt the global minimum top-up tax rate in accordance with Pillar Two rules by January 2025. Any delay in implementation could lead to significant tax revenue leakage from Kuwait to other countries or jurisdictions that have already adopted the Pillar Two rules. Therefore, implementing the Pillar Two rules is a critical step for Kuwait to protect its tax revenues.
Since the Amiri decree was issued on 10 May 2024 stipulating in Article 4 whereof that laws have to be issued by decrees, the draft decree-law issuing Group of Multinational Entities (MNEs) tax law was introduced. It includes five articles.
Article 1 of the draft decree-law states that the provisions of the accompanying law shall apply to the Group of Multinational Entities (MNEs) as of tax periods starting on or after 1 January 2025.