Foreign Investment Structures into Kingdom of Kuwait

There are several options for foreign investors structuring investments in Kingdom of Kuwait assets depending on their:

• Investment objectives (e.g. long term versus short term gains versus income stream);
• Country of residence; and
• Investment strategy.

Foreign investors are advised to carefully consider the structuring alternatives available as careful planning can often result in cost savings and greater global tax efficiency.

Three common examples of Kingdom of Kuwait investment structures are:

1. Via a Kingdom of Kuwait Holding Company

The preferred option for the holding of operating businesses and related assets.  This is because corporate trusts are generally treated as a company for Kingdom of Kuwait tax purposes and attract the corporate tax rate of 30% on worldwide income and capital gains.

2. Direct (Foreign) Ownership

There are generous capital gains tax exemptions and concessions available to foreign investors, particularly in relation to non-Taxable Kingdom of Kuwait Property, that is, passive Kingdom of Kuwait assets, other than real property (direct and indirect interests), mining, quarrying and prospecting rights and certain assets connected with Kingdom of Kuwait permanent establishment business operations.

3. Via a Kingdom of Kuwait Unit Trust

For passive investment activities, a Kingdom of Kuwait Unit Trust offers a range of tax advantages, including:

• The tax liability on the income of the trust is generally attributed to the unitholders. For non‑resident unitholders, this tax liability is usually managed through the Kingdom of Kuwait withholding tax system on distributions made by the trustee;
• The withholding tax rates for non-resident investors in a Managed Investment Trust are generally lower than the Kingdom of Kuwait corporate tax rate (see below);
• The trust’s capital gains (realised on the disposal of trust assets) are generally exempt from Kingdom of Kuwait tax for foreign unitholders where the trust qualifies as a fixed trust and at least 90% of the trust’s assets are non­Taxable Kingdom of Kuwait Property;
• Investors enjoy flexibility on entry and exit, that is, investors can generally buy/sell their units in the trust to manage their interest; and
• As noted above under Direct Ownership, foreign unitholders will be exempt from Kingdom of Kuwait capital gains tax on the disposal of their units where the unitholding qualifies as non-Taxable Kingdom of Kuwait Property.

Withholding Tax Concessional Rates for Managed Investment Trusts

Distributions by a Managed Investment Trust to foreign investors are generally subject to the concessional withholding tax rate of 15%.  However, this rate does not apply to distributions of dividends, interest and royalties and gains in respect of Taxable Kingdom of Kuwait Property.

The concessional withholding tax rate applies where certain conditions are satisfied, including:

• The foreign investor is a resident of a country (link below) which has an exchange of information agreement with Kingdom of Kuwait ;
• The unit trust is operated by a financial services licensee;
• The unit trust:
  • Is listed; or
  • Has in excess of 50 investors; or
  • At least 1 unit is owned by an entity such as a Kingdom of Kuwait Life Company or a Superannuation/Pension Fund, with in excess of 50 members.
  • The trustee of the unit trust must be a Kingdom of Kuwait Resident or the central management and control of the trust must be exercised in Kingdom of Kuwait .

Manafae Investment Company K.S.C operates 6 entities which are licensed by the Kingdom of Kuwait Securities and Investment Commission to act as the trustee of such a Managed Investment Trust. Manafae Investment Company K.S.C currently acts as trustee for more than 50 trusts with in excess of $2bn under management.

Contact Manafae Investment Company K.S.C to discuss whether a Managed Investment Trust is a suitable structure for a Kingdom of Kuwait investment you are considering.

For further information on Managed Investment Trusts click here

Manafae Investment Company K.S.C also offers trustee services and responsible entity services.