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The Council of Ministers approved the implementing
regulations for its new Direct Foreign Capital Investment
Law-Law No. 8/2001- passed by the National Assembly on March
11, 2001, through Resolution No. 1006/1/2003 on November 1,
2003. The legislation authorizes foreign-majority ownership
and 100 percent foreign ownership in certain industries
including: infrastructure projects (water, power, waste water
treatment or communications); investment and exchange
companies; insurance companies; information technology and
software development; hospitals and pharmaceuticals; air,
land and sea freight; tourism, hotels, and entertainment;
housing projects and urban development. Projects involving
oil discovery or oil and gas production are not authorized
for foreign investment and must be approved by a separate
law.
The Direct Foreign Capital Investment Law promotes foreign
investment in Kuwait; authorizes tax holidays of up to ten
years for new foreign investors; facilitates the entry of
expatriate labor; authorizes land grants and duty-free import
of equipment; provides guarantees against expropriation
without compensation; ensures the right to repatriate
profits; and protects the confidentiality of proprietary
information in investment applications, with penalties for
government officials who reveal such data to unauthorized
persons. New investors will be protected against any future
changes to the law. Full benefit of these incentives,
however, will be linked to the percentage of Kuwaiti labor
employed by the new venture. The investor will also be
obliged to preserve the safety of the environment, uphold
public order and morals, and comply with instructions
regarding security and public health.
While the Direct
Foreign Capital Investment Law is on the books, foreign
companies still report numerous delays in getting approval to
operate in Kuwait and the law does not appear to have changed
the investment climate all that much. (The Minister of
Finance did not renew the term of the Assistant
Undersecretary who is in charge of the Direct Foreign
Investment Office). Some reports claim that the Minister
will cancel or change it into an authority after a recent
report by the Economic Reform Committee describing it as
complete failure). Foreign firms still may not invest in the upstream petroleum
sector, although they are permitted to invest in
petrochemical joint ventures. Implementing legislation
brought before Parliament in January 2004 would allow for
limited, controlled investment in the petroleum sector. This
law was submitted specifically to allow for investment in and
development of Kuwait's northern oilfields, but may be used
to allow for other investment in the petroleum sector in the
future.
Kuwait's economy has been dominated by the state and the
nationalized oil industry since the early 1970s despite
efforts by the government to divest. The government acquired
major holdings in private Kuwaiti firms -- particularly banks
and insurance companies -- following stock market crashes in
1979 and 1982. After liberation from Iraq (early in 1991),
the government passed a debt settlement law and purchased
outstanding debts emanating from the stock market crashes and
the Gulf War. Between 1995 and 1998, the government
successfully divested over 50 percent of its equity holdings
in private firms by selling off its full holdings in 28 firms
and portions of holdings in 17 other firms, earning some US
$3.2 billion. The program was suspended in 1998 because of
weakness of the Kuwait Stock Exchange, but resumed in May
2001 when the Kuwait Investment Authority sold 113 million
shares (about 24 percent) of the Mobile Telecommunications
Company (MTC). There were six times as many prospective
buyers as could be accommodated.
The sale fulfilled the
government's intention to reduce its equity in MTC from 49
percent to 25 percent. The Kuwait Stock Exchange (KSE) is the second largest bourse
in the Arab world after Saudi Arabia's NCFEI. KSE lists 113
Kuwaiti companies and 2 companies from other Gulf States. It
reopened in 1992 following the Gulf War and has a market
capitalization of US $61 billion (KD21.745 billion) as of
December 2004. The index grew 389 percent between 1994-2003
as the government divested itself of private holdings. The
National Assembly ratified the "Indirect Foreign Investment
Law" in August 2000, allowing foreigners to own 100 percent
of all listed shareholding companies, except banks. Foreign
investors require Central Bank's approval to own more than
five percent of a Kuwaiti bank, and are limited to a maximum
ownership of 49%. The banking sector was opened under the
Direct Foreign Investment Law and the Central Bank has
already granted one foreign bank, BNP Paribas, a license to
operate. Other foreign banks have expressed interest and
will likely apply for licenses in 2005.
On July 9, 2001, the Kuwaiti government announced an
ambitious five-year privatization program, which closely
resembled past initiatives. The plan outlined a wide range
of activities, but with little detail. The first year called
for privatizing some gas station outlets and part or all of
Kuwait Airways, which has operated at a loss since 2000.
Year two initiated privatization of post office, telegraph,
and telecommunication services. Years three and four will
complete the telecommunication privatization and initiate the
privatization of the Ports Authority and Public Transport
Company. The fifth and final year targets the power and
water sectors, as well as Kuwait's Petrochemical Industries
Company (PIC).
Kuwait's National Assembly has made clear
that any privatization program will have to insulate
consumers from significant rate increases and protect the
jobs of Kuwaiti employees. Little of the 2001 five-year plan
has been implemented. Kuwait Airways is still operating at a
significant loss and is still a government entity. While
both mobile telephone companies in Kuwait are private, none
of the other communication services have yet been privatized,
though talk is increasing of privatizing landlines. The
ports and transport sector have not been privatized either.
The energy and power sector has seen the most progress in
privatization. Forty of the 120 government-owned gas
stations have been privatized, with plans to privatize the
rest in two additional rounds. The outcome will be three
competing gas station companies, with gas still subsidized by
the government and set in a price range. The
government-owned lubrication oils plant was privatized in
2004 as were the coke smelter operations. Kuwait's PIC is
now operating a joint private venture with Dow Chemicals called Equate, and the operation has proven to be a
successful, profitable model of both privatization and
foreign investment.
Build, Operate and Transfer (BOT) projects are gaining
increasing acceptance in Kuwait, with BOT projects proposed
in the power, wastewater, real estate development and
transport sectors. After nearly four years of deliberation
the Sulaibiya Waste Water Treatment BOT contract was signed
in May 2001. The winning consortium, which includes U.S.
firms, projects revenues of US $390 million over 10 years.
The project will process 50 million gallons of wastewater
daily to be used for irrigation. There have also been selected real estate BOT projects by
privately owned Kuwaiti companies. The first-class US $132
million Sharq Mall, owned by the National Real Estate
Company, contains retail outlets, restaurants, theaters, and
entertainment concessions. More recently, the Fifth
Waterfront Development Project constructed Marina Mall.
This
US $162 million BOT is owned by the United Realty Company and
features high-end retail, eating, and entertainment outlets.
A future BOT is planned for a central incinerator in the
Shuaiba Industrial Area, a project which stipulates foreign
participation with at least 25 percent equity. Foreign-owned firms and the foreign-owned portions of joint
ventures are the only businesses subject to corporate income
tax, which applies to domestic and offshore income.
Corporate tax rates can be as high as 55 percent of net
profits, but the government has put forward legislation to
reduce the maximum rate to 25 percent. New foreign investors
can be exempted from all taxes for up to 10 years under the
new Direct Foreign Capital Investment Law. As of January
2004, the new draft taxation law lowering the corporate tax
rate to 25% on all sectors was still held up in Parliament.
Kuwaiti firms are not subject to the corporate income tax,
but those registered on the Kuwait Stock Exchange
(shareholding companies) are required to contribute 2.5
percent of their national earnings to the Kuwait Foundation
for the Advancement of Science (KFAS). The National
Employment Law levies an additional 2.5 percent tax that will
fund a program granting Kuwaitis working in the private
sector the same social and family allowances provided to
Kuwait's government workers. Kuwait levies no personal
income tax.
Tax exclusions -- besides those offered under the new Direct
Foreign Capital Investment Law -- for business expenses are
limited and Kuwait's tax code is often ambiguous. For
example, deductions are only three percent for agent
commissions and head office expenses (mainly for turnkey
supply and installation-type contracts).
The licensing authority of the Ministry of Commerce and
Industry screens all proposals for direct foreign investment.
In the past, this authority has encouraged high-tech
industries over sectors viewed to be saturated, such as the
hotel industry. The Foreign Capital Investment Committee
(FIC), chaired by the Minister of Commerce and Industry and
including representatives from the private and public
sectors, will authorize investment incentives put forth under
the new Foreign Investment Law on a case-by-case basis.
Foreign companies have reported numerous delays in gaining
authorization, some waiting up to 18 months for approval.
housing projects and urban development. Projects involving oil discovery or oil and gas production are not authorized for foreign investment and must be approved by a separate law.
The Direct Foreign Capital Investment Law promotes foreign investment in Kuwait; authorizes tax holidays of up to ten years for new foreign investors; facilitates the entry of expatriate labor; authorizes land grants and duty-free import of equipment; provides guarantees against expropriation without compensation; ensures the right to repatriate profits; and protects the confidentiality of proprietary information in investment applications, with penalties for government officials who reveal such data to unauthorized persons. New investors will be protected against any future changes to the law. Full benefit of these incentives, however, will be linked to the percentage of Kuwaiti labor employed by the new venture. The investor will also be obliged to preserve the safety of the environment, uphold public order and morals, and comply with instructions regarding security and public health.
While the Direct Foreign Capital Investment Law is on the books, foreign companies still report numerous delays in getting approval to operate in Kuwait and the law does not appear to have changed the investment climate all that much. (The Minister of Finance did not renew the term of the Assistant Undersecretary who is in charge of the Direct Foreign Investment Office). Some reports claim that the Minister will cancel or change it into an authority after a recent report by the Economic Reform Committee describing it as complete failure). Foreign firms still may not invest in the upstream petroleum sector, although they are permitted to invest in petrochemical joint ventures. Implementing legislation brought before Parliament in January 2004 would allow for limited, controlled investment in the petroleum sector. This law was submitted specifically to allow for investment in and development of Kuwait's northern oilfields, but may be used to allow for other investment in the petroleum sector in the future.
Kuwait's economy has been dominated by the state and the nationalized oil industry since the early 1970s despite efforts by the government to divest. The government acquired major holdings in private Kuwaiti firms -- particularly banks and insurance companies -- following stock market crashes in 1979 and 1982. After liberation from Iraq (early in 1991), the government passed a debt settlement law and purchased outstanding debts emanating from the stock market crashes and the Gulf War. Between 1995 and 1998, the government successfully divested over 50 percent of its equity holdings in private firms by selling off its full holdings in 28 firms
and portions of holdings in 17 other firms, earning some US $3.2 billion. The program was suspended in 1998 because of weakness of the Kuwait Stock Exchange, but resumed in May 2001 when the Kuwait Investment Authority sold 113 million shares (about 24 percent) of the Mobile Telecommunications Company (MTC). There were six times as many prospective buyers as could be accommodated.
The sale fulfilled the government's intention to reduce its equity in MTC from 49 percent to 25 percent. The Kuwait Stock Exchange (KSE) is the second largest bourse in the Arab world after Saudi Arabia's NCFEI. KSE lists 113 Kuwaiti companies and 2 companies from other Gulf States. It reopened in 1992 following the Gulf War and has a market capitalization of US $61 billion (KD21.745 billion) as of December 2004. The index grew 389 percent between 1994-2003 as the government divested itself of private holdings. The National Assembly ratified the "Indirect Foreign Investment Law" in August 2000, allowing foreigners to own 100 percent of all listed shareholding companies, except banks. Foreign investors require Central Bank's approval to own more than
five percent of a Kuwaiti bank, and are limited to a maximum ownership of 49%. The banking sector was opened under the Direct Foreign Investment Law and the Central Bank has already granted one foreign bank, BNP Paribas, a license to operate. Other foreign banks have expressed interest and will likely apply for licenses in 2005.
On July 9, 2001, the Kuwaiti government announced an ambitious five-year privatization program, which closely resembled past initiatives. The plan outlined a wide range of activities, but with little detail. The first year called for privatizing some gas station outlets and part or all of Kuwait Airways, which has operated at a loss since 2000. Year two initiated privatization of post office, telegraph, and telecommunication services. Years three and four will complete the telecommunication privatization and initiate the privatization of the Ports Authority and Public Transport Company. The fifth and final year targets the power and water sectors, as well as Kuwait's Petrochemical Industries Company (PIC).
Kuwait's National Assembly has made clear that any privatization program will have to insulate consumers from significant rate increases and protect the jobs of Kuwaiti employees. Little of the 2001 five-year plan has been implemented. Kuwait Airways is still operating at a significant loss and is still a government entity. While both mobile telephone companies in Kuwait are private, none of the other communication services have yet been privatized, though talk is increasing of privatizing landlines. The ports and transport sector have not been privatized either. The energy and power sector has seen the most progress in privatization. Forty of the 120 government-owned gas stations have been privatized, with plans to privatize the rest in two additional rounds. The outcome will be three competing gas station companies, with gas still subsidized by the government and set in a price range. The government-owned lubrication oils plant was privatized in 2004 as were the coke smelter operations. Kuwait's PIC is now operating a joint private venture with Dow Chemicals called Equate, and the operation has proven to be a successful, profitable model of both privatization and foreign investment.
Build, Operate and Transfer (BOT) projects are gaining increasing acceptance in Kuwait, with BOT projects proposed in the power, wastewater, real estate development and transport sectors. After nearly four years of deliberation the Sulaibiya Waste Water Treatment BOT contract was signed in May 2001. The winning consortium, which includes U.S. firms, projects revenues of US $390 million over 10 years. The project will process 50 million gallons of wastewater daily to be used for irrigation. There have also been selected real estate BOT projects by privately owned Kuwaiti companies. The first-class US $132 million Sharq Mall, owned by the National Real Estate Company, contains retail outlets, restaurants, theaters, and entertainment concessions. More recently, the Fifth
Waterfront Development Project constructed Marina Mall.
This US $162 million BOT is owned by the United Realty Company and features high-end retail, eating, and entertainment outlets. A future BOT is planned for a central incinerator in the Shuaiba Industrial Area, a project which stipulates foreign participation with at least 25 percent equity. Foreign-owned firms and the foreign-owned portions of joint ventures are the only businesses subject to corporate income tax, which applies to domestic and offshore income. Corporate tax rates can be as high as 55 percent of net profits, but the government has put forward legislation to reduce the maximum rate to 25 percent. New foreign investors can be exempted from all taxes for up to 10 years under the new Direct Foreign Capital Investment Law. As of January 2004, the new draft taxation law lowering the corporate tax rate to 25% on all sectors was still held up in Parliament.
Kuwaiti firms are not subject to the corporate income tax, but those registered on the Kuwait Stock Exchange (shareholding companies) are required to contribute 2.5 percent of their national earnings to the Kuwait Foundation for the Advancement of Science (KFAS). The National Employment Law levies an additional 2.5 percent tax that will fund a program granting Kuwaitis working in the private sector the same social and family allowances provided to Kuwait's government workers. Kuwait levies no personal income tax.
Tax exclusions -- besides those offered under the new Direct Foreign Capital Investment Law -- for business expenses are limited and Kuwait's tax code is often ambiguous. For example, deductions are only three percent for agent commissions and head office expenses (mainly for turnkey supply and installation-type contracts).
The licensing authority of the Ministry of Commerce and Industry screens all proposals for direct foreign investment. In the past, this authority has encouraged high-tech industries over sectors viewed to be saturated, such as the hotel industry. The Foreign Capital Investment Committee (FIC), chaired by the Minister of Commerce and Industry and including representatives from the private and public sectors, will authorize investment incentives put forth under the new Foreign Investment Law on a case-by-case basis. Foreign companies have reported numerous delays in gaining authorization, some waiting up to 18 months for approval.
