Alex Saleh, Partner, Al Tamimi & Co: Viewpoint

Viewpoint: Alex Saleh

There have been a number of improvements within Kuwait’s legal system over the course of the last 25 years. Back then, we had only three significant pieces of legislation: our civil code, the commercial law and a companies’ law that was already outdated for its usage. It was clear that these laws were insufficient for the requirements of modern commerce and would not provide comfort for investors, whether foreign or local.

On the foreign direct investment (FDI) front, the development of the FDI law and the establishment of the Kuwait Direct Investment Promotion Authority was a recent major legal reform that contributed significantly to the attraction of FDI. As a result, many foreign investors established 100% foreign-owned Kuwaiti entities under the FDI law.

Several new opportunities for local and foreign investors to take part in the financing of large infrastructure projects have been provided through new legislation adopted in relation to the public-private partnership (PPP) model. New PPPs remain a top priority for the state, with the Kuwait Authority for Partnership Projects announcing several large-scale projects in different sectors, such as water generation, desalination and energy, to be launched over the course of 2019. Having represented major parties on various sides of PPP projects, including the government, sponsors, consortia and project finance lenders, we have had some slight challenges in the past; however, significant progress of PPP projects seems to be afoot.

Kuwait’s progressive attitude reflects on the development of the telecoms and IT sector. The recent issuance of the telecoms law and its executive regulations not only established the main regulatory and legal framework of the telecoms services, but further founded an independent telecoms regulator, the Communication and Information Technology Regulatory Authority (CITRA), to organise, supervise and control the telecoms sector. CITRA is continuously working on regulations to harmonise with international telecoms standards and cybersecurity guidelines. To this effect, CITRA is in the process of issuing new data protection guidelines within 2019, which will be in line with the European General Data Protection Regulation 2016/679.

One issue that has always been a challenge for foreign investors is the tax framework in place. Under tax laws, the taxable presence of a foreign entity is determined by whether it carries out trade or business in the country, not whether it has a permanent establishment or is registered in Kuwait. Many concerns have been raised in relation to the point at which a foreign entity is considered to be conducting business in Kuwait without having a legal presence, and as such, be subject to income tax. Although the practice of the Department of Income Tax (DIT) at the Ministry of Finance has not been very active in the recent past, this recently changed, with the DIT set to impose taxes on large multinational companies operating in Kuwait through agents or distributors.

One more notable reform that is under way and expected to change Kuwait’s corporate and commercial landscape is the new proposed bankruptcy law. The current bankruptcy regime in Kuwait, governed under the commercial law, underlines the protection of creditors and puts emphasis on liquidation rather than the reorganisation of the debtor. However, the new proposed bankruptcy law, which is currently under the review of Kuwait’s Department of Legal Advice and Legislation, will allow for the rehabilitation of distressed businesses instead of their shutdown.

Lastly, a new mortgage law that will give more protection to creditors is currently being prepared.

Kuwait has made a gradual transformation into an attractive, secure and business-friendly environment for foreign and local investors through the continuous development and modernisation of its laws and regulations. It is our position that over the next couple of years, Kuwait will continue its upwards trajectory and adopt reforms in each aspect of the legal system.