Kuwait growing as an attractive market for private sector investment

08 June 2018 Consultancy-me.com

Kuwait’s tax framework makes it an attractive target for foreign investment, says Big Four advisory Deloitte. With benefits like income tax holidays and customs-free equipment importation, the country is hoping to attract more foreign investment.

With its Vision 2035 programme, Kuwait has signaled that it is becoming more open to foreign investment. The plan includes various mega projects – including the building of a multipurpose industrial city to the tune of $6.6 billion. The development plans hope to attract private investment, with the Kuwaiti government aiming to reduce its official contribution to projects to 30-40%.

To this end, the small Gulf Coast country is revamping its legislation and tax system to entice private investment into its infrastructure. In a new report from accounting and consulting firm Deloitte, the Big Four advisory finds that Kuwait is, indeed, becoming an increasingly attractive destination for foreign investment.

From a political standpoint, the country is stable, with few public protests and little chance for disruption due to regime changes or political crisis. It is one of the richest countries in the world (per capita), due to its small population and oil reserves. Kuwait also has relatively low inflation (3.5%) and a very low rate of unemployment (3.5%).

Deloitte also outlines that the country offers a favourable legal and tax framework to foreign investors – clearly a concerted effort from the private investment-hungry nation. One strong benefit is the presence of an income tax holiday of up to ten years for foreign investors. Another benefit is an exemption from customs duties when importing business-related equipment and materials into the country – including machinery, spare parts, raw materials, and partial manufactured goods.Kuwait becoming attractive for private sector investment“Kuwait is opening its doors to foreign investment and encouraging companies to invest in the country to be part of its future development plans,” said Ihab Abbas, Partner and Tax Leader at Deloitte Kuwait. “The development programme (Vision 2035) is aimed at attracting investment, developing competitiveness, and improving legislation to support the economic and social systems – whilst creating more than 200,000 jobs. Kuwait has indeed become an attractive landscape for investment opportunities.”

A new ‘scoring system’ has also been introduced by The Kuwait Direct Investment Promotion Authority (KDIPA) to decide which firms are approved for investment licenses. The system aims to encourage businesses which successfully contribute to the Kuwaiti economy with tax credit incentives. Firms scoring below 59 will have their investment licenses revoked, while those scoring above 70 will be granted a license as well as an incentive of their choosing. Firms scoring above 80 will receive all incentives.

Kuwait has, however, committed to introducing a valued-added tax (VAT) in cooperation with the member states of the Gulf Cooperation Council (GCC). The draft law is awaiting approval in the Kuwaiti Parliament. Deloitte recommends that firms prepare in advance for the increased administrative load and potential margin squeeze the VAT’s introduction entails.

“The introduction of VAT in Kuwait would entail increased administrative, reporting and record keeping requirements to comply with,” commented Robert Tsang, Indirect Tax Partner, Deloitte Middle East. “VAT - being a consumption tax - would mainly impact end customers through price hike, although business may experience narrowing margins and increased price competition after the introduction of VAT. Experience from the UAE and KSA shows that those business which prepared on time could gain competitive advantage and avoid business disruptions after VAT was introduced.”

In other recent Deloitte news, the Big Four advisory has been tapped by the Saudi Arabia Monetary Authority (SAMA) to help build a fintech hub in Riyadh. As part of Saudi Arabia’s Vision 2030 program – which plans to modernise the country and diversify its economy – the nation is hoping to develop a currently nascent tech industry, starting with the increasingly popular financial technology services.

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Bahrain sees pre-VAT splurge while UAE and KSA companies can expect audits

04 January 2019 Consultancy-me.com

Consumers in Bahrain have splurged on big-ticket items in the lead-up to the Kingdom’s VAT roll-out, with car sales reportedly up by as much as 20 percent. Meanwhile, professional services firm EY says businesses in the UAE and Saudi Arabia can expect full-scale tax audits in the year ahead, as local authorities move more confidently beyond the implementation period.

Retailers in Bahrain have experienced an unprecedented sales surge in the final days of the year according to local reports, with luxury items such as jewelry together with everything from vehicles, furniture and home entertainment systems flying out the door ahead of the new 5 percent VAT tax which has been applied from the start of this year – the third GCC nation to implement the tax following the UAE and Saudi Arabia in 2018.

With car and jewelry sales said to be up by as much as 20 and 40 percent, EY MENA’s VAT implementation lead and international expert David Stevens told the Gulf Daily News such a rush was expected – as had been witnessed in the UAE and Saudi Arabia to some extent before the VAT roll-out in those jurisdictions at the start of last year. Unfortunately for retailers, spending is likely to dip in the coming months as price inflation begins to kick in.

“From what we have observed in Saudi Arabia and the UAE, there is likely to be a pull forward of some discretionary spending ahead of the VAT commencement date that will then see a decline in such spending after the tax is introduced,” Stevens forecast previously, despite the modest 5 percent VAT being applied for the time being. The standard average VAT rate across most of Europe for example currently stands at above 20 percent.Bahrain sees pre-VAT splurge while UAE and KSA companies can expect audits Meanwhile, Stevens, who was a senior government advisor during the implementation of the tax in Australia, has warned taxpayers in the UAE and Saudi Arabia that they can expect official audits in the year ahead, as local authorities settle into the new system. “These businesses need to prepare themselves to be able to completely justify all of their numbers, all of their data, all of their statements, all of their payments, all of their invoices, all of their record-keeping, and all various other aspects of their VAT compliance that will come under increased scrutiny by the authorities as we go into the second year of operation.”

Still, concerns remain that many businesses have yet to achieve compliance, while regulatory issues persist. “The authorities will be launching audit activity while there are some areas with unclarified rules, so they won’t know how to enforce them,” added Stevens. “The pressure falls on the authorities to resolve any unsettled, non-clarified or disputed areas of interpretation. They need those clarified so that auditors can do their job and taxpayers need that to make sure they are fully compliant.”

Recently, EY MENA’s Tax Services leader Sherif El-Kilany urged the states of the GCC to move toward automisation of the tax system, a move tipped by Stevens to occur in the near future, with local states not bogged down by legacy systems. “It wouldn’t surprise me if over the next 12 months we start to see announcements about the future of the VAT regime in this part of the world going towards a world-class, more digitised, electronic-based approach to compliance as well… In many ways they can go to these cutting-edge developments quite quickly,” Stephens stated.

On the flip-side, El-Kilany noted part way through last year that the implementation of VAT in the region was driving wider moves toward digital transformation, with almost all of the tax professionals surveyed by the firm stating that they were in the process of or had already digitalised operations – in anticipation of government movement. “So in addition to being a significant revenue stream, the roll out of VAT is now clearly seen as a means of modernising the economy and putting the digital journey on the speed track,” El-Kilany said.

Related: Deloitte introduces Arabic-language version of VAT app for the GCC.