Middle East: New incentives for foreign corporations in Kuwait
International Tax Review is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Middle East: New incentives for foreign corporations in Kuwait

AdobeStock_1662507_Kuwait

Kuwait has implemented new initiatives to help it compete for foreign investment, and further reforms could well be on the way.

Abbas-Ihab

Ihab Abbas

In 1955, Kuwait introduced corporate income tax for foreign corporations through a decree implementing tax rates ranging from 0% to 55% depending on the taxable profits. In 2008, the decree was amended to impose a flat tax rate of 15% instead. Although this rate might be considered low when compared with many European countries, it is not when compared with the accumulative rates imposed on Kuwaiti companies.

There are three types of taxes/contributions applicable to Kuwaiti companies as per the below.

  • National labour support tax (NLST) at 2.5% of the profits of all listed Kuwaiti shareholding companies;

  • Zakat/contribution to the State's Budget (Zakat/CSB) at 1% of the profits of the Kuwaiti closed shareholding companies; and

  • The compulsory contribution to the Kuwait Foundation for the Advancement of Sciences (KFAS) at 1% of the profits of the Kuwaiti closed shareholding companies.

These taxes act as a source of revenue for government initiatives including the private sector employment incentive dedicated to Kuwaiti locals through the NLST, and financing scientific research and development projects through the KFAS.

As per the recent IMF report, there has been some debate regarding the introduction of a new corporate tax law reflecting a reduction in the applicable tax rate of 15% for foreign companies and an increase in the accumulative rate applicable for Kuwaiti companies leading to a common tax rate across both. These changes will require a shift in local business culture, recognising taxes as a means of funding the government.

In reality, this law may receive strong opposition starting from the parliamentary debate of the law, through to the shareholders in the WLLs (With Limited Liabilities), particularly with growing media coverage through press conferences hosted by the Minister of Finance and official releases from government representatives.

Therefore, depending on the provisions of the new law, several Kuwaiti companies with global operations might have already started planning to move their headquarters to more tax friendly countries in the region, such as the Kingdom of Bahrain or the United Arab Emirates. This may lead Kuwait to lose its competiveness for Kuwaiti businesses in the mid-term, but eventually attract more foreign investors.

That said, Kuwait has been trying to increase its competitiveness through the introduction of the Foreign Direct Investment (FDI) and Public Private Partnership (PPP) laws to encourage investment into Kuwait by foreigners, together with the exchange of information and the transfer of technology, which will diversify and advance the Kuwaiti economy. Through these laws certain incentives, including tax credits or holidays for a number of years, can be granted with more flexibility for establishing a business in Kuwait through the 'one-stop shop' approach, where foreign investors can liaise with only one authority under each law for all governmental procedures.

Meanwhile, Kuwaiti companies can counter the new law's influence by using the benefits of more than 70 effective tax treaties for tax planning, establishing more tax-efficient business structures, while still benefiting from subsided electricity prices and low government fees.

Ihab Abbas (iabbas@deloitte.com), Kuwait

Deloitte

Tel: +965 22438060

Website: www.deloitte.com/middleeast

more across site & bottom lb ros

More from across our site

Despite the relief, Brazil’s government has also presented a bill which seeks to re-impose a tax burden on companies’ payroll, one local tax specialist told ITR
Jeremy Brown arrives at the firm after a near 16-year career with Deloitte
PwC could elect a woman into the senior leadership position for the first time; in other news, KPMG Australia has extended its CEO’s term
The Senate report into PwC’s scandal is titled ‘The cover up worsens the crime’
Law firms that are conscious of their role in society are more likely to win work, according to a survey of over 23,000 in-house professionals
The firm’s tax business generated a quarter of HLB’s overall revenues in 2023
While successful pillar two implementation will require collaboration across all units, a combination of internal and external tax advice is at the centre of the effort
Binance has also been accused of manipulating foreign exchange rates via currency speculation and rate-fixing
Six individuals should have raised questions over information they received but did not breach professional standards, according to the firm
The partnership of KPMG UK has installed Holt for a second term as CEO and senior partner; in other news, a Baker McKenzie partner has sued the IRS
Gift this article