KUWAIT-Kuwait's new direct investment law-what does it mean for foreign investment? [financeME]
(financeME Via Acquire Media NewsEdge) Recent legislative developments in Kuwait are helping to make the country a forerunner in the region in terms of creating an environment that is supportive of the economic development of the country. Recently introduced laws that are shaping the way companies are structured and how they operate in Kuwait are working together to make it one of the most competitive places in the GCC in which to invest and do business.
One such development was the introduction of the Law on the Promotion of Direct Investment (Direct Investment Law) in June of this year, published in the Official Gazette (Kuwait Al-Youm, issue No. 1136). The law is set to become effective with the issuance of its executive regulations which are set to be published by December 2013.
The Direct Investment Law follows the enactment of the long-awaited Companies Law promulgated by Decree Law No. 25 of 2012 and amended by Law No. 97 of 2013 ("Companies Law") and Law No. 98 of 2013 regarding the National Fund for the Enhancement and the Development of Small and Medium Enterprises.
The Direct Investment Law aims to create a more accommodating environment for both domestic and foreign investment in Kuwait as well as an overall strengthening of the private sector.
The Direct Investment Law has established a new public authority which will be named Kuwait Direct Investment Promotion Authority (KDIPA) tasked with the licensing of direct investment in Kuwait. The Kuwait Foreign Investment Bureau (KFIB) and the Foreign Capital Investment Committee will cease to exist. This is not just a change in name, but the establishment of a new entity with wider powers to facilitate investment. Obviously, as with other laws, there is a transition period during which the KFIB will transform into the new authority. The transition phase will extend over a period of six months until the executive regulations to the Direct Investment are published.
KDIPA is mandated to promote direct investment, streamline the business environment for both local and foreign investors and serve as one of the economic implementing arms of the country by fulfilling the stated goals of the Direct Investment Law. These goals include the transfer of modern technology, creation of quality jobs for local manpower, support for the domestic private sector, and contribution to the diversification of the economic base of Kuwait to reduce dependence on oil.
Any investment license application will now be entirely processed through an administrative unit within the newly-established public authority following the "one-stop shop" approach established by the Direct Investment. The new law provides for a maximum of 30 days from receipt of a completed application for decisions to be rendered in respect of investment license. The aim of this unit is to liaise with all of the relevant government authorities, with a view to completing all procedural steps within the timeframe prescribed by the law.
The Direct Investment Law opens the door for wider options in terms of foreign equity ownership. Investment entities can now take the form of (i) a Kuwaiti company with foreign equity participation of up to 100 per cent of the share capital of the company, (ii) a branch of a foreign company that can operate without a Kuwaiti agent or (iii) a representative office to exclusively conduct marketing studies, without engaging in any commercial activities or activities of a commercial agent. This will surely contribute into boosting the foreign investment in the country in line with the long term approach of the Government to transform Kuwait into a regional financial hub.
INCENTIVES AND CRITERIA FOR INVESTORS
Investors will benefit from income and other tax exemptions for a maximum period of 10 years, as well as tax and customs exemptions for the importation of machinery and equipment and their spare parts, and raw materials, among others, in addition to the employment of foreign labour.
Furthermore, the Direct Investment Law expands the application of the privileges and exemptions to partnerships between the private and public sectors, namely those partnerships established under the BOT Law (Law No. 7 of 2008 on the Regulation of the Operations of Build, Operate and Transfer and Similar Systems) and the Privatisation Law (Law No. 37 of 2010 regarding the Regulation of Privatisation Programs and Operations), allowing such partnerships to be eligible to benefit from the incentives granted under the Direct Investment Law.
As nothing would come for free and in line with the Government's vision to enhance the Kuwaiti economic fundamentals and develop skilled human resources, the investment license application should meet a number of criteria to be able to qualify for such incentives. Such criteria will include such considerations as the transfer and localisation of technology, management methods and expertise, the amount and quality of products and services on offer, the need for direct investment and its contributions to economic diversification, increase in national exports, creation of job opportunities and the training of Kuwaiti nationals.
Kuwait's Government and parliament have fulfilled their respective responsibilities in enacting the new laws that will contribute to a legislative scheme recently put in place with the purpose of confronting the new economic challenges facing Kuwait and ultimately transforming Kuwait into a financial and commercial center. The responsibility has now shifted to the executive authorities to lead a full and accurate implementation of the new laws.
Abdul Aziz Al-Yaqout
Abdul Aziz Al-Yaqout, Regional Managing Partner of DLA Piper for the Middle East, was appointed to the drafting panel of the Executive Regulations of the Promotion of Direct Investment Law.
The Direct Investment Law aims to create a more accommodating environment for both domestic and foreign investment in Kuwait as well as an overall strengthening of the private sector?
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