Kuwait's parliament approved on Wednesday a much-delayed government plan to slash tax on foreign firms to a flat 15% from up to 55%, removing a five-decade old obstacle to foreign investment.
The taxation bill would also exempt profits made by foreign companies from trading in stocks listed on the Kuwait bourse, the second largest in the Arab world, to help to turn the Opec oil producer into a regional financial centre like Dubai or Bahrain.
The bill was the first key economic reform that the cabinet has been able to get through parliament, with which it has been locked in a standoff that has dominated political life most of this year and led to the resignation of several ministers.
In May 2006 the government approved the bill, after debating the plan for more than a decade, in an attempt to attract more foreign investment and prepare Kuwait for the time when its large oil reserves dry up.
Under a law issued when Kuwait was British protectorate and before its independence in 1961, foreign firms had to pay up to 55% tax, though this was rarely enforced in full.
"This was the biggest obstacle to the Kuwaiti economy," parliament affairs minister Abdulwahed Al-Awadhi told reporters after the vote.
Profit from stock trading, whether directly or through mutual funds, will be tax-free, according to a copy of the bill obtained by newswire Reuters.
When enacted by the country's ruler, the law would slap a flat 15% tax on profits of foreign firms carrying out activities ranging from manufacturing to leasing.
Foreign firms such as fast food chains will also have to pay a 15% levy on royalties they receive from Kuwaiti franchise partners, said Ahmad Baqer, the head of parliament's financial committee.
Baqer told reporters the measure, expected to take effect in January, would attract investment to all sectors including oil. "This will encourage investment to Kuwait," he said.
However, Naser Al-Nafisi, general manager at the Al-Joman Center for Economic Consultancy, said the state should also curb red tape to attract more investors. "It was a good start but it is not enough," he said.
Kuwait has for years been looking into allowing foreign firms to enter its hydrocarbon sector to carry out large exploration projects mainly in the north of the country, which sits on a tenth of the world's proven oil reserves.
But the cabinet has made little progress in winning approval as lawmakers oppose the multi-billion plan, dubbed Project Kuwait, to explore the northern fields.
A stock market bill has been also stuck in parliament, leaving Kuwait as the only Gulf Arab state without a market regulator. The cabinet also has yet to present a bill to set up a telecommunications watchdog. (Reuters)