Base Erosion and Profit Shifting (BEPS) refers to a set of international tax rules developed by the OECD (Organization for Economic Co-operation and Development) to combat tax evasion strategies that exploit gaps and mismatches in tax rules between different jurisdictions around the world.
When was BEPS Initiated?
The BEPS initiative was launched by the OECD (Organization for Economic Co-operation and Development) and G20 countries in 2013.
Why was BEPS Initiated?
- Combating tax avoidance as a part of the international tax reform initiative introduced by OECD according to Pillar 2 rules.
- Attaining tax fairness for all companies and global economies
- Reducing governments’ losses of tax revenues, which are critical for public services and infrastructure.
What does the BEPS initiative include?
BEPS is often discussed in terms of two main pillars that were developed as part of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.
How is Pillar 2 implemented?
From the Global Perspective:
Over 140 countries (including Kuwait) have committed to the BEPS initiative to address tax challenges by participating in the Two-Pillar Solution.
| What is it? | → | Pillar Two introduces a global minimum corporate tax rate set at 15% of net income. |
| Why does it matter? | → | Large multinational companies will now be subject to a minimum effective tax rate of 15% in the countries in which they operate. Any tax incentives claimed in offshore locations may no longer be effective. |
| Who does it affect? | → | Multinational companies with annual revenues exceeding EUR 750 million. |
| When will it take effect? | → | The corporate tax rate will be imposed in Kuwait on multinational corporations with annual revenues exceeding EUR 750 million effective 1 January 2025. |
Business Profts Tax Law in the State of Kuwait:
The Kuwait Council of Ministers release a draft bill of Business Profits Tax Law to satisfy the requirements resulting from State of Kuwait joining the Inclusive Framework on BEPS as per Pillar Two rules, as well as due to the need to restructure Kuwait tax laws by consolidating them in a single law instead of the currently applicable 4 laws.
What is the scope of applicability of Business Profts Tax Law?
The Law shall be applied to:
- Covered taxpayers from multinational companies for taxable periods starting on or after 01 January 2025, excluding Article 21 of the Law related to advance payments scheme, which will be effective for taxable periods starting on or after 01 January 2026
- All other covered taxpayers for taxable periods starting on or after 01 January 2027
What are the tax exemptions under the Law?
The Law sets forth that the current tax exemptions under other laws will continue to be applicable and adds other exemptions from business profits tax, stock dividends, capital gains and income from operating aircrafts or ships in international transport according to the conditions stated in the Law.
What are the entities exempt from Business Profits Tax?
- Kuwaiti government entities
- Kuwaiti non-profit organizations
- Covered persons whose business turnover doesn’t exceed KWD 1.5 million during the taxable period
What are the Kuwaiti or non-Kuwaiti entities exempt from Top-up Tax?
- Government entities, non-profit organizations and international organizations
- Pension funds, investment funds and real estate investment vehicle, which is ultimate parent entity
What are the Services Offered by Baker Tilly Kuwait?
- Business Profits Tax services
- Assessment Report on Kuwaiti Corporate Tax and Minimum Global Tax on Kuwaiti Multinational Companies that have annual revenues exceeding EUR 750 million.
- Corporate Tax and Minimum Global Tax process, policies and procedures manual that enables companies to comply with tax regulations.
Why Baker Tilly Kuwait?
- Hiring Baker Tilly offers you access to a team of industry experts with extensive knowledge in tax, audit, and advisory services, ensuring tailored solutions that meet your unique business needs.
- Collaborative approach that fosters strong client relationships, providing dedicated support and innovative strategies to navigate complex challenges effectively.