Kuwait

Kuwait is a sovereign Arab state situated in the northeast of the Arabian Peninsula in Western Asia. It is bordered by Iraq to the north and west, Saudi Arabia to the south, and the Persian Gulf to the east. Kuwait is divided into six governorates, with Kuwait City as the capital. The official language of Kuwait is Arabic, and the currency is the Kuwaiti dinar (KWD).

Kuwait has a geographically small, but wealthy, relatively open economy with crude oil reserves of about 102 billion barrels, which is more than 6% of the world’s crude oil reserves. Kuwaiti officials plan to increase oil production to 4 million barrels per day by 2020. Petroleum accounts for over half of gross domestic product (GDP), 94% of export revenues, and 90% of government income.

In 2015, for the first time in 15 years, Kuwait reported a budget deficit after decades of high oil prices. Kuwaiti authorities have tried to reduce the deficit by decreasing spending on subsidies for the local population, but with limited success. Despite Kuwait’s dependence on oil, the government has cushioned itself against the impact of lower oil prices by annually saving at least 10% of government revenue in the Fund for Future Generations.

With the Kuwaiti dinar pegged to a basket of currencies dominated by the United States dollar (USD), the Central Bank of Kuwait raised the discount rate by 25 basis points to 3%, effective from March 2018, in order to maintain the competitiveness of the Kuwaiti dinar. Private sector credit is growing at a moderate pace, mitigating concerns about financial risks. The banking sector is well capitalised, yet has exposure to the real estate sector.

Fiscal reforms remain limited. With current spending amounting to 90% of total spending, cutting expenditures has proved challenging. Electricity and fuel subsidy cuts have been proposed, but face strong opposition in the Parliament. In mid-March 2016, the Cabinet approved a reform package focused on public sector and expenditure reforms, public private partnership (PPP) and privatisation, small and medium enterprise (SME) development, and labour market and investment climate reforms, but these still need to be approved by the Parliament. In January 2017, the Kuwaiti government unveiled the country’s new National Development Plan up to the year 2035, under the name ‘New Kuwait’. Among the targets of the plan is reforming governmental administrative and bureaucratic practices to facilitate and accelerate obtaining business licences, reducing the dependency on oil export revenues by allowing the establishment of new small businesses, and improving infrastructure, where around ten infrastructure development projects are already underway as of March 2018, among others.

Also, fiscal and current account positions should gradually strengthen in line with a modest recovery in oil prices and output. Public finances should also be supported by the gradual implementation of spending and revenue reforms, including the implementation of a value-added tax (VAT) in the near future.

On 15 November 2023, the Organisation for Economic Co-operation and Development (OECD) announced that Kuwait joined the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), an international collaboration with 145 member countries. As indicated in the announcement, Kuwait has agreed to participate in the Two-Pillar Solution to reform international taxation laws and ensure that multinational enterprises pay their fair share of taxes wherever they operate. Kuwait will participate in the implementation of the BEPS package of 15 measures to tackle tax avoidance, enhance the coherence of international tax laws, and provide a more transparent tax environment. Relevant legislation and implementation dates are yet to be released.

PwC has been established in the Middle East for 40 years. PwC has firms in Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia, and the United Arab Emirates, with around 10,000 people. PwC Kuwait's tax professionals have worked with all types of businesses, including governments, banks, investment houses, multinationals, family businesses, and individuals. We have extensive experience in international and regional tax structuring and also in advising on international mergers and acquisitions (M&A) transaction issues and private equity fund structures.

PwC Kuwait is renowned for the depth and quality of its expertise. Our focus is on providing clients with value-adding assistance through understanding their individual needs and assisting them in implementing the most efficient tax strategies.