With a background in finance and economics, Abdullah has spent the last 18 years of his professional career working in various sectors in Kuwait. He has previously held senior positions at Sarh Real Estate Company, The Roots for Brokerage (Egypt), Danah Al Safat Foodstuff Company and at Al-Ezdehar Real Estate in Lebanon. His extensive experience has given him plenty of insights into different sectors and regions out of Kuwait. Today, in addition to his position as Al Safat Investment's Chairman, he is also the Head of Committee of the Politics and Economics Committee at the Union of Investments Company (UIC) and is a board member of local establishments like UIC and Shuhaiba Industrial Company, as well as the Executive Manager of Gulf Cable and Electrical Industries Co for the investment sector. It is indeed inspiring to see someone of his calibre and young age achieve so much in the past few years. His professional achievements are not only limited to the ones on his resume - the 35-year-old award winner also has a long list of certifications in Marketing, Finance, Investment Management and has completed a Financial Services Program from Harvard Business School. He is currently pursuing an EMBA from the London School of Economics. AlTerkait lives by the words of Benjamin Franklin: “An Investment in knowledge pays the best interest”. Education has always been at the forefront of his priorities and his hunger for learning never ceases.
There are not many leaders who, at the very young age of 29, are able to take charge and turn a company around in the middle of a financial crisis. Al Safat Investment was going through a rough couple of years prior to 2013 when AlTerkait was appointed Chairman of the company. Debts were high, employees were in a stressful situation, shareholders and clients were extremely unhappy and there was immense pressure from the banks. At the time, it seemed like salvaging the company and bringing order out of this chaos would be a tedious challenge. Al-Safat Investment Company underwent comprehensive restructuring and embedded the institutional aspect in all of its businesses while setting clear goals with the efforts of the company’s board of directors and the executives. The company’s direction and performance improved as a result. Thereafter, Al Safat saw three consecutive years of profits due to the restructuring initiatives of Abdullah, the senior management and other departments.
Al Safat Investment is an ideal example of how teamwork could yield impressive results. The Chairman strongly believes in teamwork and encourages all departments to work together. Battling all fronts, he has put in efforts to establish a gender-equal atmosphere in the company by hiring qualified women to fill roles in the human resources and other departments of investments. His initiatives are not only beneficial for the bottom line, but they are also in tandem with his ethics and strong beliefs in Corporate Social Responsibility. Last year, for example, the company carried out a very successful Ramadan event with all employees and management personally visiting the group’s subsidiaries and distributing food packages to the labourers who work for the companies.
Al Safat Investment Company was founded in 1983 and has grown rapidly since then. All investments and financial services held or offered by Al Safat are in accordance with the highest standards of Islamic Shariah compliance, which is supervised by a CMA-Certified Islamic finance consultancy company. The company invests in real estate, financial, healthcare, industrial, energy and other economic sectors through participation in the establishment of specialised companies or purchase of stocks and bonds in these companies, or by the management of projects in various sectors.
The company is about to establish a mass investment system capable of generating substantial revenues, to be allocated for venture capital. In addition, the latter will target the investment with some strategic shares in many Kuwaiti startup companies. Part of AlTerkait’s vision for Al Safat’s future is to be involved in SMEs and to support young entrepreneurs. The Chairman strongly believes that leaders should support the next generation of leaders in the business world and promote a good relationship between corporate and small businesses. Kuwait’s 2035 vision plans to attract KD 400million to various sectors including petrochemicals, information technology, services, and renewable energy. The country plans to promote an atmosphere that enables SMEs to participate in the nation’s economic development. The National Fund for Small and Medium Enterprise Development is one of the country's key initiatives tasked with enabling the private sector to drive growth. With nearly 80% of the population still employed in the government sector, there has been a rise in young entrepreneurs and startups. Through Al Safat, AlTerkait would like to support these small businesses by offering financial advice and services and possibly a co-working space for those who work from home or coffee shops. He hopes his initiatives will help pave the way for a better future for the economy of Kuwait, while being in line with the vision of His Highness, Emir of Kuwait, to transform Kuwait into a financial hub. While supporting startups, the Chairman will also be personally looking into investment opportunities for the company, in SMEs that stand out, particularly in the innovation and tech space. 2018 had some noticeable developments in the investment activities area at both local and regional levels. This targeted the startups, tech companies and VC funds resulting in a significant rise in investment deals. The Middle East and North Africa region managed to conclude 366 deals with a total investment of USD893 million, subject to the indication of some independent statistics concerned with following up the activities of venture capital. Subsequently, there was also a notable rise in Mergers and Acquisitions declared by the commercial entities and multiple sectors. AlTerkait predicts that 2019 will witness the same trending rise of such deals, in addition to the notable growth of the investment funds and the finance sector targeting startups and SMEs. These trends will continue to attract the interest of investment and financial companies who would be keen to capitalise on this vital and promising sector.
The company is in the process of rebranding with the view of transitioning from traditional to modern while offering multiple new investment products and services to its clients. When it comes to the securities market, Al Safat Investment Co. holds a license issued from Capital Markets Authority to practice managing the investment portfolios business in its various kinds for the benefit of the company’s clients, in Kuwait and globally. The company has a team that specialises in working to achieve profitable returns on the managed portfolios of the company. The total managed funds account for over USD 120 Million as of January 2019. It manages local and regional investments of USD 300 Million. The company is also working on creative strategies and solutions in partnership with international consultants in order to provide the best opportunities for the benefits of its corporate and private individual clients.
The administration of Al Safat Investment Co. is applying a secure and comprehensive strategy while managing the direct investments and the managed financial portfolios for the clients. Such portfolios target the operational companies, the leading stocks, fast-growing stocks and constant revenue stocks together with keeping up the ultimate geographical and sectoral distribution. With the company’s direct portfolio being distributed over seven sectors within five countries, the intent is to reduce the accompanying risks for these investments in addition to protecting the direct and client portfolios from the severe fluctuations of the market and the vulnerability the local and regional securities markets may be exposed to. Al Safat applies a conservative and safe strategy in the management of direct investments; managed portfolios of customer accounts are looking to further privatise government entities after the privatisation of the stock exchange and is also looking forward to being a listed company again.
Some highlights of Abdullah’s strategy for the company are:
- Set minimum investment returns that meet the company’s cost of capital.
- Grow the equity base through solid constant profits and cash dividend distributions to shareholders.
- Divest any non-performing assets.
- Ensure that the investments are aligned and maintain synergies.
- Improve management control which is a key factor.
- Set adequate policies and procedures within the group.
- Apply proper corporate governance for the best interest of the shareholders.
Under the guidance of Abdullah AlTerkait, represented by the board of directors and the executive management, the company is seeking to restructure the financial position, address the recent financial issues, leave the unprofitable and non-strategic investments, re-employ the investments in some strategic sectors and instruments, while also promoting the expansion activities of associated companies. The Chairman hopes this plan would benefit the years to come so that a concrete plan will be established for 2023. In fact, through its subsidiaries, the company is currently focusing on the various operational and industrial activities and is seeking to establish a new chemicals factory in Kuwait. Similarly, they have also developed an interest in the Oil and Gas sector and are looking for opportunities to invest. The company has a subsidiary called ‘The Carpet Factory’ which is looking to expand and invest in state-of-the-art technology to improve business and its products. Real estate is another sector AlTerkait is keen on embarking on and is in the process of developing a commercial and industrial complex in the Al-Ahmadi Industrial area of Kuwait. The group is also participating in the health sector through Kuwait Hospital, which will start operating this year and is also looking for acquisitions in various sectors, especially since there are attractive investment opportunities with outstanding profits in the local market. Abdullah AlTerkait and the management of Al Safat hope to reach their ultimate goal of being amongst the best investment companies in Kuwait in the next five years.
Website: https://alsafatinvest.com/
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.
Contact details
Alok Chugh
Partner - MENA Government and Public Sector Tax Leader
Mobile: +965-97223004 / +965-97882201
Phone: +965 22955104
Floor 18-21, Baitak Tower, P. O Box: 74, 13001 Safat, Kuwait
Next up we spoke to Alok Chugh - Partner with EY’s Middle East practice, which is based in Kuwait. He leads the EY Kuwait tax practice and Government and Public Sector tax practice for EY Middle East. Alok has lived and worked in Kuwait for over 23 years and 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).
Could you tell us a bit about the hottest topics being discussed in Kuwait in relation to tax at the moment?
At the moment, there are some very important and bold regulatory changes in Kuwait. Some of the hottest topics for discussions are:
- Value Added Tax: All the 6 countries in the Gulf Cooperation Council (GCC) have signed the Master framework Agreement for implementation of Value Added Tax (VAT) in the GCC. Based on our understanding from discussions with the government officials, the 5% GCC VAT shall be applicable on goods and services by 2018.
- Tax Registration Number and update forms: Recently, the Ministry of Finance has set up a Tax Development Follow-Up Unit (TDFU) within the Department of Inspection and Tax Claims (DIT). The TDFU is setup as a set towards the e-filing module. The TDFU has issued new registration forms that needs to be submitted by all the taxpayers. The department shall use the information in the forms to create their centralized database of taxpayers. Further, all the taxpayers are issued a Tax Registration Number (TRN), which is mandatory to be mentioned on all the correspondence with the DIT.
- New Tax Card Further, the TDFU has started issuing Tax Cards to every company valid for each year and should be renewed on a yearly basis valid for another one year. Tax Cards are compulsory and is now mandate for every company to enter into a contract in Kuwait.
- Business Profit Tax: Kuwait is looking to introduce the New Business Profit Taxes. Based on our understanding, all Kuwaiti and foreign companies operating in Kuwait may be subject to 10% business profit tax under the proposed Business Profit Tax (BPT) law. The BPT is yet to be approved by the Kuwait Parliament. However, considering the recent developments in the GCC relating to the introduction of Value Added Tax (VAT), it is our current understanding that BPT is not likely to be approved before 2019.
What do you anticipate for the sector in 2017? Do you believe that there is potential for any significant legislative developments in the next twelve months? In what ways would these affect Ernst & Young?
The VAT law is expected to be implemented by January 2018. Accordingly, the businesses have only 10 months to prepare for the VAT implementation and ensure the contracts have been amended to that effect and the IT systems are updated to ensure compliance with the laws. It affects EY in the way that we, as consultants need to be ready with our teams of professionals, for pre and post implementation phase of VAT. Considering the integrated model that we operate in, as a global firm, it gives us an edge in the market. In this respect, we have already mobilized our team of experts in the indirect taxes from around the world and we are already assisting many of our clients with the first phase of VAT impact assessment, assisting them in reviewing their contracts and IT system as part of VAT readiness.
Have there been any recent regulatory changes or interesting developments?
The Kuwaiti authorities are working on implementation of the economic diversification strategy. This task has become quite pressing, taking into account the current financial position of Kuwait. A number of fiscal and regulatory reforms being implemented aim at reducing the economic burdens of doing business in Kuwait. The two new regimes: Kuwait Direct Investment Promotion Law and Institutionalized Public – Private Partnerships may contribute to this process both in terms of attracting foreign investment in to the country and for diversification of economy.
You joined Ernst & Young in 1994 - how would you evaluate your role and its impact thus far?
Within a couple of years of my joining the firm, I realized the business prospect for our practice to grow and for my career professionally. With the support of the management, I was able to grow to an Executive quickly and then eventually, I became a Partner in 2008. Over the years, our tax practice has grown to a strong team of 46 professionals, with a market size of 65%- 70% of the tax practice in the country.
When you first joined EY, what were your goals in driving change within the company? How have these evolved in the past 23 years?
As I mentioned, when I joined EY, I realized the potential in the market for our practice. I was certain that we would go through changes in the way our clients would require our support and the manner in which we would serve our clients.
I have learnt and experienced that it is important for any organization to continue to learn and adapt itself to the change in the market. As they say, “to improve is to change, to be perfect is to change often”. Given that we are part of the professional world, we need to anticipate the changes outside the organization and be prepared internally ahead of those changes.
