KUWAIT CITY, Jan 25: With falling oil prices, a budget deficit, and a recent rise in the Fed interest rates, it looks almost inevitable that Kuwait will introduce corporate taxation, was the general consensus during a panel discussion which was hosted by Donald Teale a BBF Director, during the British Business Forum (BBF) monthly meeting.
He was joined by Terry O’Regan from DL Piper, Zubair Patel KPMG, and Robert Drolet from KIPCO. The subject of discussion was Kuwait Taxation.
The panel discussion explored the options being discussed by the relevant authorities, the potential impact of the tax on businesses and practical steps that can be taken now to prepare for the change in the business environment.
Although it is a general belief that the Middle East is some form of tax-free paradise; the speakers stressed Kuwait already has a tax system in place for foreign companies.
They said, foreign companies doing business in Kuwait are taxed at 15 percent of their profits, and local companies have to pay Zakat and contribute to KFAS.
In addition, the Government is now openly discussing additional taxation in the form of Corporation Tax for local companies, and Value Added Tax (VAT) for goods and services, possibly using the low oil price as a catalyst to introduce the new legislation, they added.
The panel took the audience through the current thoughts and insights from the market, concluding that additional taxation is very likely, with a 10 percent rate for corporate tax, and a GCC wide VAT regulation expected in 2018, at a rate of 3 to 5 percent.
The panel also discussed the challenges to the local tax office, which will have to increase resources significantly to administer the new tax laws, and possible changes to the withholding tax system, which is likely to replace the current retention scheme, which is difficult to manage at the moment.
The panel advised the audience not to panic yet, but to start thinking about the possible impact that the new regulations could have on their businesses. It is likely that the tax will affect their margins, profitability, and consequently the pricing of their products, and for low margin businesses could this reduce competitiveness.
Zubair Patel stated that groups that adapt quickly to the changes and are able to restructure themselves in a tax efficient manner, whilst remaining compliant, may be able to gain a competitive advantage.
The next meeting of the BBF, a non-profit making association of British business people in Kuwait, will be held in mid-February and will be on the mechanism of the airline industry.
Members and guests are welcome. For more information contact Sheeba Pius at firstname.lastname@example.org.
By Paul Francis X. Fernandes
Arab Times Staff