KUWAIT CITY, 27 December 2007 — Kuwait’s parliament passed a law yesterday slashing tax on net profits of foreign companies to 15 percent from 55 percent in a bid to attract more investment from abroad.
The legislation, which has been under discussion for several years, will come into force once it is approved by the emir of the state, Sheikh Sabah Al-Ahmad Al-Sabah.
Thirty-seven MPs voted in favor of the government-sponsored law while 17 voted against.
The head of parliament’s financial and economic affairs panel MP Ahmad Baqer said the new legislation will replace a 1955 law, which has been hindering the flow of foreign investment into the emirate. Under a 1953 law, foreign firms pay up to 55 percent tax.
“The law will encourage foreign investors in all sectors of the economy,” including the massive oil sector which generates 95 percent of public revenue, Baqer told reporters.
Kuwait struggles to attract foreign investment, with inflows of about $300 million in 2006, compared with $18.7 billion for the United Arab Emirates, Finance Minister Mustafa Al-Shamali told parliament.
He said the law was an important tool in the effort to transform the Gulf state, which heavily relies on oil as the sole source of income, into a regional financial and trade hub.
“We actually do not need the money. We need the expertise and technology that come with foreign investors,” Al-Shamali said.
The law, which will also apply to Kuwaiti firms which represent foreign firms exclusively, is one of a series of measures to boost foreign investment and invigorate the economy.
Kuwait has opened up the Kuwait Stock Exchange to foreigners and has begun implementing the foreign direct investment law that offers incentives, including tax holidays of up to 10 years.
It has also allowed foreign banks to operate in the emirate.
Parliament is also due to debate a number of other economic bills including privatization, transforming Kuwait Airways into a private company and an upgraded bill on Build-Operate-Transfer projects, Baqer said.
Kuwait, which has financial assets worth around $250 billion, is planning investments worth close to $100 billion in the oil and other sectors over the next 10 years.
Kuwaiti businessmen, citizens and foreign residents pay no income tax but the cabinet is studying a comprehensive income tax bill that stipulates collecting taxes on profits of Kuwaiti companies but spares low salaries.
Moreover, profits of foreign companies made on trading stocks on the Kuwait bourse will not be taxed, according to a government-proposed bill which was approved by the Gulf state’s parliament yesterday.
The bill includes both direct share transactions and those carried out through mutual funds.
Meanwhile, Kuwait money supply, an indicator of future inflation, grew more than 20 percent in October and November, just off a 13-year high, paced by investments in time and savings deposits, the central bank said yesterday.
M3, the broadest measure of money circulating, rose 20.3 percent to 19.02 billion dinars ($69.29 billion) at the end of November, from 15.82 billion a year earlier, the central bank said on its website.
In October, M3 grew 21.12 percent to 18.68 billion dinars, up from 18.89 percent a month earlier, it added.
Money supply in July grew at its fastest pace since at least 1994, when it rose 22.46 percent.
The growth in November was spurred by a 21 percent rise in quasi-money to 14.78 billion dinars. Quasi money includes savings deposits and time deposits in dinars, as well as foreign currency deposits.
Annual inflation in the Middle East’s fourth-largest oil exporter hit a record 6.2 percent in September. Kuwait is the only Gulf Arab state that does not peg its currency to the weak US dollar.
