The income tax bill, which was passed by a 37-17 vote in parliament last week, would implement a 15% tax on the profits of foreign companies operating across a number of sectors from manufacturing to leasing, and it is expected to receive imminent assent from Sheikh Sabah al-Ahmad al-Sabah, the emir of Kuwait.

The bill would also exempt from tax the profits made by foreign firms trading stocks listed in the Kuwait Stock Exchange.

The new law would represent a significant improvement in the tax regime for foreign companies, which hitherto have paid tax under an outdated system in place since the 1950s when Kuwait was still a British protectorate and foreign companies had to pay tax at rates of up to 55%.

While it was widely recognised within Kuwait that the 1955 law has been holding back foreign participation in the Kuwaiti economy, proposals for its replacement have met with stern opposition from some in parliament and the government has faced a decade long battle to get the new tax law approved.

However, with other oil-dependent Middle Eastern states making steps to diversify their economies and create new financial hubs, Kuwait risked getting left behind. This is evidenced by recent foreign investment statistics, which show that Kuwait attracted inflows of just US$300 million in 2006, compared with the US$18.7 billion pumped into the United Arab Emirates, which has the emerging financial centre of Dubai as its centre-piece, in the same year.

Sheikh Sabah al-Ahmad al-Sabah explained the reasoning behind the new law: "We actually do not need the money. We need the expertise and technology that come with foreign investors."

Kuwait currently has financial reserves in the region of US$250 billion, but is highly dependent on the oil industry, which provides 95% of its revenues, but which is a cash cow with a limited life span.

Supporters of the bill say that the new tax regime will remove one of the biggest obstacles to foreign investors and encourage investment in all sectors of the economy.

"Kuwait has struggled to attract foreign investment at a time when the booming markets of Middle East are transforming into a financial hub," Omar El Quqa, executive vice-president at Global Investment House, wrote in a statement.

"And with the new proposed law we believe this progression will take place and the country which plans to attract investments worth close to $100 billion in the oil and other sectors over the next 10 years will no more be a dream," El Quqa added.