EY: FDI Top Priority for Kuwait Tax Changes
From the pending implementation of VAT to the introduction of Inter-Governmental Agreements with foreign countries, below Finance Monthly hears about Kuwait’s most recent tax affairs through the lens of one the world’s largest professional services and accountancy firms, EY, and one of its top Partners and experts in Kuwait, Alok Chugh.
Despite previous plans, Kuwait’s parliament has recently announced that it will not implement VAT before 2021. What could this decision mean, both in the short and long term?
We are closely monitoring the progress in implementation of VAT and are in regular contact with all the key officials. Based on our discussions, we believe the VAT may be implemented sooner than 2021 (probably by January 2020).
While some businesses take a sigh of relief, this only seems to be short term, as once the other countries implement the VAT, the pressure on Kuwait will only increase.
What are the key challenges that could come with this decision?
Timing difference in implementation of VAT in Kuwait and in the neighbouring countries will have concerns by businesses involved in cross border transactions that may result in higher cash outflow. For Kuwaiti businesses, this is a blessing in disguise as this gives them additional time to prepare for VAT and also leverage from experiences of other countries.
What have been any other tax trends in Kuwait in the past six months?
Kuwait has signed the Inter-Governmental Agreements with the United States (US) for implementation of US FATCA. The financial institutions are required to do an annual FATCA reporting to the Ministry of Finance (MoF) and audit report prepared by a certified auditor is required to be submitted by the FIs on an annual basis.
In addition, Kuwait is a signatory to CRS Multilateral Competent Authority Agreement (MCAA). The MoF has recently issued additional guidelines for CRS, which among other things include appointment of an auditor for CRS reporting purposes (similar to the requirements for FATCA reporting).
Besides, from corporate tax point of view, there have been recent legal cases decided in the Kuwaiti courts, where the MoF has subjected the foreign principals and suppliers of products to tax in Kuwait, based on certain types of agency/distributorship agreements/arrangement. This effectively means a significant potential increase in the tax base. Kuwait is largely an importer of products and services wherein a number of foreign principals sell products and services through Kuwaiti agents.
Are there any concerns or future considerations regarding long term attractiveness for Kuwait as a place to do business? If so please elaborate.
Kuwait government is making efforts for: ease of doing business in Kuwait and has brought about legislative changes to attract foreign direct investments in Kuwait. Kuwait continues to spend on the mega projects in strategic Oil & Gas and Infrastructure projects. In addition, there are various other mega projects in pipeline, for which the tenders will be issued soon during the course of the year.
These projects definitely have promising business opportunities for local business as well as international companies wanting to participate in the Kuwait projects as subcontractors.
In addition, Kuwait has recently announced its Vision 2035, which will require significant investments in infrastructure, education, healthcare, over the course of 5-10 years.
Is there anything else you would like to add?
I take this opportunity to share our firm credentials. Our firm represents about 70% of the tax payers in the country and we are proud to serve almost all the major market players. We are a team of about 50 tax specialists, the largest tax team amongst the tax service providers, which includes team of experts in VAT, BEPS, Transfer Pricing, cross border tax advisory and tax compliance services.
Alok is a partner with EY’s Middle East practice and is based in Kuwait. He has lived and worked in Kuwait for over 25 years and has detailed knowledge of business and taxes in Kuwait. He has considerable experience in advising entry-level strategies for foreign multinationals wishing to do business in Kuwait. Alok has been involved in a number of consulting assignments (including cross-border planning, application of double tax treaties and the efficient handling of tax and commercial affairs for project due diligence, business paper preparation or review, and structuring operational activities). Alok is a member of the Institute of the Chartered Accountants of India and is an active member and frequent lecturer at the American Business Council, French Business Council, British Business Forum and Canadian Business Council in Kuwait. He is also on the Board of the American Business Council in Kuwait. Alok has been consulted by various government organizations in Kuwait on the practical implementation of various regulations in Kuwait, including the Ministry of Finance. Alok also works closely with the Kuwait Direct Investment Promotion Authority (KDIPA) and a number of other government institutions.
Partner - MENA Government and Public Sector Tax Leader
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