KUWAIT, 31 December 2007 — In a significant move to attract foreign investments in line with the state’s policy of transforming the Gulf state into a regional financial hub, the Kuwaiti parliament cut down income tax imposed on foreign commercial institutions operating in the country from 55 percent to 15 percent.
Omar El-Quqa, executive vice president at Global, said that the move will help in attracting significant amount of foreign direct investments (FDIs) in the country.
“Kuwait has struggled to attract foreign investment at a time when the booming markets of Middle East are transforming into a financial hub. And with the new proposed law we believe this progression will take place and the country which plans to attract investments worth close to $100 billion in the oil and other sectors over the next 10 years will no more be a dream.”
The value of foreign investments in Kuwait last year was less than $300 million compared to $18 billion in Saudi Arabia, the finance minister said. The high level of taxation has always been considered as one of the important entry barriers for foreign investors.
“We believe that these positive amendments in tax laws provides significant mileage to the country in terms of increasing in attractiveness for FDIs. The slashing of tax rates will help in attracting business interests of many foreign companies which will help in diversifying the economic base of the country, which heavily relies on oil as the sole source of income,” he pointed.
FDI not only brings money but technical and managerial expertise and local players will have the opportunity to align as well as compete with the foreign players which will be beneficial to the economy as a whole, El-Quqa added.
He said slashing of tax on foreign firms is also a welcome move for capital market, as the bill also exempts profits made by foreign companies from trading in stocks listed on the Kuwait Stock Exchange, whether made directly or through portfolios and investment funds. This will help in attracting significant amount of portfolio investments through foreign institutional investors in the country.
He said the move will provide significant mileage in increasing depth of the market “Kuwait is also in the midst of establishing Securities Market Regulatory Authority, which will further help in increasing attractiveness of the market for foreign investors,” he further said. “We believe that a well functioning market ensures that both corporate and investors get or receive fair prices for their securities. This ensures that valuable projects will be financed.”
Improving capital markets in the country would have two important effects. First, it would increase the quality of investments in the economy. Kuwait’s savings rates are sufficiently high to support faster economic growth. Better capital markets are particularly important to moving savings into more efficient investments.
Second, transparent capital market can attract increased foreign savings to Kuwait to finance additional investments, if required.
The faster development of Kuwait’s economy requires both progress on the policy environment and innovative approaches to financing long-term investments. The country has favorable macroeconomic profile and such proactive measures by the government would definitely help in increasing its scalability amongst GCC peers.
“We have always believed that Kuwait has some of the best asset management companies in the region and with the coming of international players in the market, the asset management industry in particular and the whole market in general will definitely receive a big boost which will have a complementary effect on the economic growth,” he said.