Businesses in Kuwait prepare for global, regional and local tax developments

• EY annual tax seminar explores the latest trends shaping Kuwait’s tax landscape

EY organized a seminar covering key tax topics relevant to businesses operating in Kuwait. The event provided the latest updates on the local, regional, and global tax environment, tax policies and recent tax trends across the MENA region with a focus on the GCC, as well as Sustainability.

Ahmed Eldessouky, EY Kuwait, Qatar and Oman Tax Leader, says:

“In this fast-evolving tax environment, it is a new imperative for businesses to keep themselves updated on and aligned with local, regional, and global tax developments and manage related risks. Companies may need to revisit their operating models to consider tax as a function alongside finance and enhance their use of technology to address the new requirements. To be thoroughly prepared for changes in taxation, they must start the process well before the government makes any new official announcements.”

The tax seminar saw the participation of Tax officials from the Ministry of Finance, and with over 200 CFOs, tax directors, tax and finance managers, lawyers, and business owners. EY global and regional tax leaders shared their insights on various topics, such as Corporate Tax (CT) in the United Arab Emirates (UAE), updates on Kuwait tax and zakat, governance in family businesses, and ESG components related to tax. They also discussed common challenges, such as the impact of BEPS 2.0 and the global minimum tax of 15%, as well as differences in the interpretation of laws and regulations that result in increased tax disputes in the region.

Foreign taxpayers and the Ministry of Finance of Kuwait are addressing international tax disputes through mutual agreement procedures (MAP) under the relevant tax treaties that provide effective resolution mechanisms.

In 2018, Kuwait signed the Common Reporting Standard (CRS) framework, approved by the OECD Council. The framework calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions annually.

Ahmed Al-Esry, EY MENA Tax Leader, says:

“The tax landscape in Kuwait is constantly evolving to accommodate new regulations from both the local government and international directives. Ensuring comprehensive, accurate, and timely reporting is critical so that businesses can avoid fines or overpaying their dues. Businesses should be assessing their technology capabilities and current talent from now to prepare for future updates more easily. In addition, it is recommended that companies work with their finance teams to build a buffer into their budget for additional taxes that may become payable in the future.”

Kuwait’s tax system comprises of CT on foreign business entities, zakat (Islamic tax) or contribution to the state’s budget (CSB) on Kuwaiti shareholding companies, National Labor Support Tax (NLST) on Kuwaiti listed companies, and customs duties. There is also an annual compulsory contribution to the Kuwait Foundation for the Advancement of Sciences (KFAS), imposed on Kuwaiti shareholding companies. The government is currently considering including Kuwaiti businesses within the scope of CT.

Regional tax landscape

Tax developments in the GCC are happening at an unprecedented pace, aligning the region with the international tax landscape. Companies must prepare for an increasingly digitized tax environment, requiring accurate, often transaction-level data and advanced digital capabilities.

Double tax treaty (DTT) networks between countries of the region are expanding, resulting in enhanced tax certainty. For instance, Kuwait and the United Arab Emirates (UAE) signed an initial draft of a DTT that is yet to be ratified.

With the UAE gearing up to introduce 9% CT in June 2023, Bahrain will remain the only GCC country without a broad-based corporate tax; however, this may change soon. Meanwhile, Oman is the first country in the region to consider launching personal income tax.

Moreover, the Kingdom of Saudi Arabia (KSA) is implementing e-invoicing for VAT, which will increase efficiency in transactions for the Zakat, Tax and Customs Authority (ZATCA) as well as the businesses operating in the country. Other GCC nations are expected to follow suit.

Global developments

To resolve tax challenges arising from the digitalization of the economy, OECD launched the two-pillar base erosion and profit shifting (BEPS) project. More than 140 nations across the globe, including the G20, EU, and five GCC countries, have joined the Inclusive Framework (IF) on BEPS, which intends to ensure that multinational enterprises (MNEs) pay a fair share of tax wherever they operate.

Pillar 2 of the package will require MNEs with minimum consolidated revenues of EUR 750 million and effective tax rate below 15% to pay a top-up tax. Countries may be incentivized to implement the global minimum tax rules.

IF members will commence executing this consensus-based solution in 2023-24. Notably, Kuwait is not an IF member, and has made no official announcement concerning joining BEPS 2.0 either. However, BEPS will affect Kuwaiti businesses operating internationally.

ESG on the rise

MENA governments are showing a growing interest in ESG as part of their strategy frameworks. The Kuwait Investment Authority (KIA) has applied an independent globally recognized ESG standard. If they have not already done so, companies in the region should start looking into integrating ESG in management practices, reducing their carbon footprints, and assessing opportunities, and the potential impacts on the cost of doing business.

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