Kuwait – Key Updates on 5% Tax Retention and DMTT Framework

The Kuwait Ministry of Finance has recently released the Executive Rules for the State Budget of FY 2026/2027, unveiling crucial details regarding the 5% tax retention process and its relationship with the Domestic Minimum Top-Up Tax (DMTT) framework, established under Law No. 157 of 2024 (DMTT Law).

These newly issued rules aim to support the implementation of Kuwait’s 2026–2027 state budget, offering guidance for governmental bodies, and include updates impacting tax policies. 

A significant update includes the exemption from the traditional 5% tax retention on payments made by government entities to Multinational Entities (MNEs) that are registered under the DMTT Law. Additional guidance is anticipated by Kuwait Tax Authority (KTA) to provide further clarity on the broader application of these new rules.

Key Highlights:

5% Tax Retention requirements under the CIT framework reaffirmed:

The rules reiterate that ministries, authorities, and public institutions must continue retaining 5% from contract payments under existing income tax rules. 

Retained amounts can only be released once a valid tax clearance certificate from the MOF is provided. If rules are not applied, the government entity may be held responsible for the counterparty’s tax obligations in accordance with CIT Law. 

Exemption for DMTT in-scope Entities 

The 5% tax retention rules no longer apply to Kuwait Constituent Entities (K-CEs) that are part of MNE groups registered under the DMTT regime and holding a valid DMTT tax card. 

This change marks a significant shift, easing administrative burdens and enhancing cash flow for MNEs engaging with the public sector. 

However, the above rules apply exclusively to public entities and government bodies, with clarification pending on whether it will extend to other businesses operating within Kuwait. Additional guidance from the KTA is anticipated in this regard. 

Treatment of unclaimed retained amount

Retention balances exceeding five years shall be transferred to the Ministry of Finance. This marks a change from the previous Corporate Income Tax regulations, which did not specify a deadline for when government entities were required to transfer withheld amounts to the Ministry.  

Tax Clearance Certificate

Government entities are prohibited from providing services to Kuwaiti shareholding companies (public or closed) unless those companies present a tax clearance certificate. 

Prohibition of Tax Gross-up clauses: 

The rules prohibit contractual provisions that require government entities to bear or assume the income tax liabilities of contractors, or to grant tax exemptions on their behalf.

Implications 

These updates support tax compliance and introduce practical relief for DMTT-registered MNE entities, while ensuring administrative requirements are met across government transactions. 

However, there remain uncertainties that require further clarification and directives from the KTA, such as the effective date for the application of the Budget Executive Regulations, the commencement period for unclaimed retention, and whether the objection/contestation period for tax assessments is inclusive. 

It is expected that the KTA will issue further guidance shortly to address these matters.

Next Steps

It is essential for affected companies to stay informed of these developments and to consult with tax professionals to develop their planning concerning Kuwait’s tax matters. 

For more detailed information or personalized guidance, please do not hesitate to contact our team.