Kuwait – Details on the new Foreign Direct Investment Law

Kuwait – Details on the new Foreign Direct Investment..

This article covers the The Kuwait government issuing a new“FDI Law” regarding the promotion of direct investment in Kuwait on 16 June 2013.

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The Kuwait government issued a new Foreign Direct Investment Law (“FDI Law”)1 regarding the promotion of direct investment in Kuwait on 16 June 2013. Details about these incentives and how to apply for them were issued in Executive Regulations (ER) on 14 December 2014 by the Kuwait Direct Investment Promotion Authority (KDIPA).

According to the new FDI Law, investments can take one of three forms:

  • A Kuwaiti company2 with up to 100 percent foreign equity (normally restricted to 49 percent)
  • A branch of a foreign company licensed to operate in Kuwait for the purpose of direct investment
  • A representative office having the sole purpose of preparing market studies and production possibilities, without engaging in a commercial activity or activity of commercial agents.

Highlights of the Executive Regulations

In February 2015, Kuwait’s Council of Ministers approved the following list of ten sectors of the economy that are excluded from laws allowing 100 per cent foreign ownership:

  • Extraction of crude oil
  • Extraction of natural gas
  • Manufacturing of coke oven products
  • Production of fertilizer and nitrogen compounds
  • Production of domestic gas and its distribution via main pipelines
  • Real estate activities, except construction development projects for private operations
  • Private security and investigation activities
  • Private organizations in public administration, defense and compulsory social security
  • Activities with a professional body (e.g., lawyers)
  • Labor services, including domestic labor

Law No. 116 of 2013. In the past, Kuwait’s foreign direct investment incentives were covered under Law No. 8 of 2001, which allowed potential benefits for foreign investors in Kuwait, including 100 percent ownership of a company incorporated in Kuwait (normally restricted to 49 percent) and a potential tax holiday for up to 10 years.

Established in accordance with Law No. 25 of 2012 regarding the Companies Law as amended by Law No. 97 of 2013.

In all other sectors, KDIPA is encouraging foreign investors to submit concept papers for the KDIPA’s review to make a decision on the application’s feasibility for a formal application.

The new FDI Law also provides for the establishment of a ‘one-stop shop’ within KDIPA in coordination with the relevant government authorities, to complete procedural steps within the timeframe mandated by the new FDI Law.

KPMG in Kuwait understands from discussions with the KDIPA officials and the ministerial documents that applications to obtain the license involve the following procedures.

Submission of ‘concept paper’

The first hurdle in the process for the investing entity is the submission of a concept paper setting out a high-level summary of the proposed, such as the nature, size and capital structure of the investment and the project’s expected output of the project.

Given KPMG in Kuwait’s experience of assisting clients with their applications, it is critical that the concept paper should emphasize the added value that the project potentially brings to Kuwait, which may include:

  • national labor job creation
  • national labor training and education
  • technology transfer
  • possible increase in national exports
  • diversification of national income sources
  • support for small and medium-sized enterprises
  • increased utilization of national products and services.

KDIPA intends to respond to concept papers by providing initial approval or reject within 3 working days of submission.

Initial study and application Forms

Once the concept paper is approved, the investing entity is required to submit an ‘initial study’, with relevant application forms, including detailed documents and any further information requested by KDIPA.

KDIPA is required to formally respond to the application within 30 days of submission.

If rejected, the decision should be appropriately justified by the KDIPA. If approved, the investor may proceed to set up the entity and obtain the relevant commercial licenses.

Incentives and exemptions

The ERs reiterate the incentives and exemptions issued under the previous law3, such as the ability for investing entities to apply for exemptions from corporate income tax for a maximum period of 10 years and conditional exemptions from custom duties for the importation of machinery, equipment and their spare parts, raw materials, etc.

Where the foreign investor is applying for approval of a 100-percent foreign-owned Kuwaiti entity or a 100-percent foreign branch, the application of incentives goes hand-in-hand with the main license application.

Where an investor is only applying for incentives (because the investor is not changing its operating structure in Kuwait), the investing entity is required to submit an application form in order to be granted incentives and exemptions such as a tax holiday. According to the ERs, one or more certified auditors approved by KDIPA must certify applications for the incentives and exemption.

The Director General is obliged to provide a decision within 15 days of receipt of the application.

The investor is required to comply with the instruction issued by the Ministry of Finance, such as submission of tax return, to ensure the exemption remains effective.

KPMG in Kuwait is working closely with the KDIPA in support of their initiatives to attract international investors to Kuwait. As part of the government’s FDI promotion initiative, KPMG in Kuwait has been appointed by the Ministry of Commerce and Industry to assist the Kuwait Foreign Investment Bureau (KFIB, as the KDIPA was earlier known) in studying the available investment opportunities in Kuwait.

Footnotes:

1 Law No. 116 of 2013. In the past, Kuwait’s foreign direct investment incentives were covered under Law No. 8 of 2001, which allowed potential benefits for foreign investors in Kuwait, including 100 percent ownership of a company incorporated in Kuwait (normally restricted to 49 percent) and a potential tax holiday for up to 10 years.

2Established in accordance with Law No. 25 of 2012 regarding the Companies Law as amended by Law No. 97 of 2013.

3Law No. 116 of 2013.

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