BrazilKuwait growing as an attractive market for private sector investment
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 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.
