Kuwait To Implement Tax Cuts For Foreign Businesses

by Lorys Charalambous, Tax-News.com, Cyprus

16 July 2008

Kuwait's Finance Ministry has this week announced details of significant changes to the taxation laws surrounding foreign businesses working within the country.

In a statement issued earlier in the week, the Finance Ministry revealed that it is ready to implement a new tax law ensuring that foreign businesses operating within the Gulf state are only subjected to a 15% flat tax rate on profits.

It is hoped that the move will greatly enhance the country's investment opportunities by encouraging new businesses to opt for Kuwait over other countries which may have harsher rates of corporate taxation.

Currently, corporate tax rates stand at 55% (a decision made in the 1950's, when Kuwait was still a British protectorate), and the new legislation is expected to have a huge impact upon the country's economic environment.

The income tax bill, which was first passed by a 37-17 vote in parliament in December 2007, will also exempt from tax the profits made by foreign firms trading stocks listed in the Kuwait Stock Exchange.

The need for a radical shake-up of Kuwait's tax laws became increasingly clear when other oil-dependent Middle Eastern states took steps to diversify their economies and create new financial hubs, leaving Kuwait with the risk of getting left behind.

This is evidenced by recent foreign investment statistics, which show that Kuwait attracted inflows of just USD300mn in 2006, compared with the USD18.7bn 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 USD250bn, but is highly dependent on the oil industry, which provides 95% of its revenues - 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 it has been estimated that close to USD100bn will be invested in the oil and other sectors of Kuwait's economy over the next 10 years as a result of the reforms.

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