Kuwait: The New law to slash tax rate

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Kuwait: The New law to slash tax rate 27 - Dec - 2007

A key obstacle to foreign investment has been removed on December 26th, 2007 when Kuwait parliament approved slashing of income-tax from 55% to 15%. What may be of more interest is the proviso that profits from stock trading, whether directly or through mutual funds, is totally tax-free providing the necessary fillip for foreign portfolio investment in Kuwait stocks. With this move, Kuwait has joined the ranks of other GCC and ME countries in terms of tax code. Except Saudi Arabia, which has a 5% withholding tax, it is pertinent to note that none of the GCC countries impose any tax on capital gains. In the past, foreign portfolio investment in Kuwait stocks has been held back due to uncertainty on tax code that prevailed till now. While the high tax rate of 55% was believed to have never been implemented, the issue was hanging like a Damocles sword holding back foreign investment banks and institutions from directly investing in the Kuwait stock exchange. With the promulgation of the new tax code, the authorities have introduced much needed clarity to foreign investors. This is bound to increase the foreign investment in Kuwait stocks in the coming years. However, company wise investment is still subject to certain ceilings on the extent of foreign investment permissible. Overall, except banks other companies are available for foreign investment to the extent of 100%. Ownership in banks is restricted to 5% of bank’s capital by a single investor. Exceeding this limit will require Central Bank’s approval. The overall limit of foreign ownership in banks continue to be 49%. The new tax code will also spur foreign direct investment in various sectors. Due to lack of clarity on the tax situation, inward foreign flows have always been patchy for Kuwait compared to other GCC countries. As per the latest UNCTAD report, Kuwait attracted only $110 million in inward foreign investment compared to $19 billion for Saudi Arabia and $8.3 billion for UAE. However, due to flush of liquidity the outward foreign investment from Kuwait has been very robust. Kuwaiti outward investment consists of portfolio investments held by the Kuwait Investment Authority (KIA), other direct investments by other government entities, and outward investments by private citizens. In 2006, Kuwait invested nearly $8 billion and ranks as the highest in the region. The new tax code will enable a balance between inward and outward investment.A key obstacle to foreign investment has been removed on December 26th, 2007 when Kuwait parliament approved slashing of income-tax from 55% to 15%. What may be of more interest is the proviso that profits from stock trading, whether directly or through mutual funds, is totally tax-free providing the necessary fillip for foreign portfolio investment in Kuwait stocks. With this move, Kuwait has joined the ranks of other GCC and ME countries in terms of tax code. Except Saudi Arabia, which has a 5% withholding tax, it is pertinent to note that none of the GCC countries impose any tax on capital gains. In the past, foreign portfolio investment in Kuwait stocks has been held back due to uncertainty on tax code that prevailed till now. While the high tax rate of 55% was believed to have never been implemented, the issue was hanging like a Damocles sword holding back foreign investment banks and institutions from directly investing in the Kuwait stock exchange. With the promulgation of the new tax code, the authorities have introduced much needed clarity to foreign investors. This is bound to increase the foreign investment in Kuwait stocks in the coming years. However, company wise investment is still subject to certain ceilings on the extent of foreign investment permissible. Overall, except banks other companies are available for foreign investment to the extent of 100%. Ownership in banks is restricted to 5% of bank’s capital by a single investor. Exceeding this limit will require Central Bank’s approval. The overall limit of foreign ownership in banks continue to be 49%. The new tax code will also spur foreign direct investment in various sectors. Due to lack of clarity on the tax situation, inward foreign flows have always been patchy for Kuwait compared to other GCC countries. As per the latest UNCTAD report, Kuwait attracted only $110 million in inward foreign investment compared to $19 billion for Saudi Arabia and $8.3 billion for UAE. However, due to flush of liquidity the outward foreign investment from Kuwait has been very robust. Kuwaiti outward investment consists of portfolio investments held by the Kuwait Investment Authority (KIA), other direct investments by other government entities, and outward investments by private citizens. In 2006, Kuwait invested nearly $8 billion and ranks as the highest in the region. The new tax code will enable a balance between inward and outward investment.