KUWAIT Law and Practice Contributed by: Yousef Al Shereedah, Abdulrahman Al-Roumi and Bashayer Al-Tuwais, International Counsel Bureau – Lawyers and Legal Consultants
tion, limited organic growth opportunities, and rising competitive pressures, according to Fitch Ratings. High-profile consolidations, such as the potential merger between Boubyan Bank and Gulf Bank, and Kuwait Finance House’s merger with Ahli United Bank, are aimed at strengthen - ing financial positions and diversifying business models. Recent Political Reforms Recent political reforms have had a notable impact on Kuwait’s banking sector: • Suspension of Parliament: The temporary suspension of Parliament is expected to allow the government to pass long-overdue legisla - tive and economic reforms, bypassing the persistent gridlock between the government and the National Assembly. This move, while reducing legislative oversight, may expedite reforms that influence the regulatory frame - work for banks and financial institutions. • Consolidation of governmental authorities: As part of a broader trend to reduce costs and enhance efficiency, key governmental func - tions are being consolidated under the MOF. This streamlining effort, detailed in MOF letter REG_2024_23151, is aimed at improving decision-making and operational efficiency across government sectors, including finan - cial regulation. • Fiscal Reforms: Fiscal adjustments, driven by the need for budget cuts, may include the restructuring of state-owned enterprises such as Kuwait Petroleum Corporation (KPC). These reforms are likely to impact funding, investment strategies, and potentially the financial stability of the banking sector. • Proposed debt law: The government is unable to raise public debt without the passage of a new debt law. The proposed law would allow the government to borrow funds to address
budget deficits and finance development pro - jects. If passed, the law is expected to have significant implications for liquidity, invest - ment strategies, and the broader financial markets, potentially reshaping the banking sector’s role in public debt management. Tax Developments Aligned with International Standards • Kuwait’s commitment to international tax standards is evolving: • Pillar Two Implementation: Kuwait has joined the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), commit - ting to introduce a business profits tax (BPT) at a rate of 15%. • GCC VAT framework: Adjustments may be considered that could impact financial ser - vices under the GCC VAT framework. • Corporate income tax reforms: Kuwait’s current tax structure for corporate entities, including banks, includes a combination of contributions such as 1% Zakat, 1% to the Kuwait Foundation for the Advancement of Sciences (KFAS), and a 2.5% National Labor Support Tax (NLSAT). While these levies have long formed the basis of corporate contribu - tions, various reforms are being considered as part of Kuwait’s alignment with internation - al tax standards. There has been speculation about the introduction of a unified corporate income tax at a flat rate, potentially as high as 9%. Although no official announcement has been made, these discussions suggest a shift toward streamlining the tax system to replace the current layered approach with a single corporate income tax. At this stage, these changes remain unconfirmed, but any eventu - al reform would have significant implications for Kuwait’s business environment, particu - larly in sectors like banking and finance.
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