Latest news with #MNE
Kuwait Times
3 days ago
- Business
- Kuwait Times
Kuwait takes bold step towards fairer global taxation
Monday June 30, 2025 marked a significant milestone for Kuwait's financial landscape with the Ministry of Finance publishing the executive regulations for Law 157/2024. This legislation is a pivotal move, ushering in the implementation of the OECD's Base Erosion and Profit Shifting (BEPS) Pillar Two initiative and the Global Anti-Base Erosion (GloBE) Model Rules. While these terms might sound complex, their essence is straightforward: to ensure that large multinational companies (MNEs) pay a fair share of tax wherever they operate, including right here in Kuwait. For years, the global tax system allowed multinational corporations to minimize their tax bills by shifting profits to countries with very low or no corporate taxes. This created an uneven playing field, making it harder for countries to fund public services and putting local businesses at a disadvantage. Pillar Two, developed by the OECD and agreed upon by over 160 countries, aims to change this. What is Pillar Two, and who does it affect? At its heart, Pillar Two introduces a global minimum corporate tax rate of 15%. This means that if an MNE operates in a country where its effective tax rate (the actual tax paid on its profits) falls below 15%, that company might have to pay, in its jurisdiction, an additional 'top-up tax' to bring its effective rate up to the minimum. Crucially, this new rule is not for every business. It specifically targets large multinational enterprises. In Kuwait, as per Law 157/2024, the rules apply to MNEs with annual consolidated revenues of EUR 750 million or more (approximately KD 250 million) in at least two of the four preceding financial years. This threshold ensures that the focus remains on the biggest global players, leaving smaller local businesses unaffected. Certain entities, such as government bodies, non-profit organizations, and international organizations, are generally excluded from these rules. The pillars of implementation: How the top-up tax is collected To achieve this 15 percent minimum tax, Pillar Two utilizes two main interlocking mechanisms: Inclusion Rule (IIR): This is the primary mechanism. It essentially allows a parent company, usually the ultimate parent entity (UPE) of an MNE group, to impose a top-up tax on its low-taxed subsidiary located in another country. Think of it as the head office ensuring its branches around the world pay their fair share. Profits Rule (UTPR): This acts as a backstop. If the IIR is not applied (for example, if the parent company's country has not implemented the IIR), the UTPR allows other countries where the MNE operates to deny deductions or impose an equivalent charge, effectively collecting the top-up tax that would otherwise have gone uncollected. In addition to these international rules, many countries, including Kuwait, are also implementing a Qualified Domestic Minimum Top-up Tax (QDMTT). This allows Kuwait to collect any top-up tax due on the profits of MNE entities located within its borders, ensuring that the revenue stays in Kuwait rather than being collected by another jurisdiction under the IIR or UTPR. Understanding the key numbers: GloBE income, covered taxes and effective tax rate To figure out if an MNE owes top-up tax, we need to understand a few key concepts: •GloBE Income or Loss: This is the starting point for calculating the MNE's profits in a particular country for Pillar Two purposes. It begins with the financial accounting net income or loss (FANIL) of the MNE's entities in that jurisdiction, and then undergoes specific adjustments outlined in the GloBE rules. These adjustments ensure a consistent and standardized measure of profit across different countries, regardless of their local accounting rules. •Adjusted Covered Taxes: This refers to the taxes actually paid by an MNE in a particular country that are relevant for Pillar Two. It starts with the current and deferred tax expense as reported in the MNE's financial statements, and then specific adjustments are made. These adjustments are crucial to ensure that only the taxes directly related to the GloBE income are considered and that any temporary differences in tax recognition are properly accounted for. •Effective Tax Rate (ETR): This is the most crucial calculation. For each country where an MNE operates, the ETR is determined by dividing the total Adjusted Covered Taxes by the total GloBE Income for that jurisdiction. If this calculated ETR falls below the 15 percent minimum rate, then a top-up tax will be due. Calculating the top-up tax: Bridging the gap Once the ETR for a jurisdiction is found to be below 15 percent, the 'top-up tax percentage' is calculated as the difference between the 15 percent minimum rate and the actual ETR. This percentage is then applied to the MNE's 'excess profits' in that jurisdiction. The GloBE rules also include a Substance-Based Income Exclusion (SBIE), which reduces the amount of profit subject to the top-up tax based on the MNE's tangible assets and payroll costs in that jurisdiction. This is designed to reward real economic activity and discourage purely artificial profit shifting. The final top-up tax amount is then determined, with any QDMTT collected by Kuwait reducing the amount that would otherwise be due under the IIR or UTPR. What this means for Kuwait The implementation of Pillar Two through Law 157/2024 and its executive regulations signifies Kuwait's commitment to international tax cooperation and fairness. For multinational enterprises operating in Kuwait, this means: •Increased compliance: MNEs will need to gather and analyze significant amounts of financial data on a jurisdictional basis to comply with the new rules. This will require robust data management systems and close collaboration between tax, finance, and accounting departments. •Potential for Higher Tax Bills: Companies that have historically paid very low effective tax rates in Kuwait or other jurisdictions may see an increase in their overall tax burden. •Leveling the Playing Field: For local Kuwaiti businesses and smaller enterprises not subject to Pillar Two, this initiative helps to create a fairer competitive environment by ensuring large MNEs contribute their share. •Enhanced Revenue for Kuwait: More importantly, by implementing a QDMTT, Kuwait ensures that any top-up tax generated from low-taxed profits within its borders is collected locally, contributing to the national economy and supporting public services. This new tax era is a complex but necessary step towards a more equitable and stable global tax system. While the intricacies of Pillar Two can be challenging, Kuwait's proactive approach in implementing these rules demonstrates its commitment to responsible global citizenship and a more prosperous future for all. Note: Hassan M Abdulrahim is a Senior Instructor (Business) at Canadian College Kuwait and CEO & Co-founder of Visionary Consulting Company
Zawya
4 days ago
- Business
- Zawya
Kuwait: Finance ministry issues regulations on MNE tax law
KUWAIT -- Kuwait's Ministry of Finance announced on Sunday the issuance of a decree introducing the executive regulations for the law on taxing multinational enterprise (MNE) groups marking a key step in the country's economic reform and commitment to fiscal balance and revenue diversification. In line with Kuwait Vision 2035, The Ministry said in a statement, the new decree (No. 55 of 2025) issues the executive regulations for Law No. 157 of 2024, which addresses the taxation of MNE groups. It introduced the Domestic Minimum Top-up Tax (DMTT) in compliance with the Organization for Economic Cooperation and Development (OECD) Pillar Two requirements. The Ministry said the regulation clarifies the law's provisions, outlines implementation procedures, and promotes transparency in accordance with international standards. Finance Minister and Minister of State for Economic and Investment Affairs, Eng. Nora Al-Fusam, stated that this regulation is pivotal for creating a fair investment environment and enhancing tax justice. It reflects Kuwait's effort to diversify income away from oil dependency, the statement continued. She added that expected annual revenues from the tax could reach around 250 million Kuwaiti Dinars, helping build a resilient and sustainable economy. The Ministry also plans to hold awareness workshops soon to explain the law and its executive regulations to the concerned parties. All KUNA right are reserved © 2022. Provided by SyndiGate Media Inc. (
CairoScene
05-05-2025
- Business
- CairoScene
Ministry of Finance Sets Domestic Tax for Multinational Enterprises
As a transitional measure, some newly established MNE groups will not be subject to the tax in their initial phase. Feb 09, 2025 The Ministry of Finance has introduced the Domestic Minimum Top-up Tax (DMTT), a new measure aligned with the OECD's global tax framework. The tax applies to multinational enterprises (MNEs) operating in the UAE with annual global revenues of USD 775 million or more in at least two of the past four financial years. The DMTT aims to ensure compliance with international tax standards while maintaining the UAE's appeal as an investment hub. It includes a Substance-Based Income Exclusion, reducing taxable income based on payroll and tangible asset values. Certain entities, such as investment firms and businesses meeting de minimis criteria, will be exempt. As a transitional measure, newly established MNE groups will not be subject to the tax in their initial phase, provided they are not controlled by a parent entity subject to a Qualified Income Inclusion Rule in another jurisdiction. The policy follows the OECD's GloBE Model Rules, with further guidance outlined in Cabinet Decision No. 142 of 2024.
