On recent tax developments, technological advancements, and environmental, social and governance integration
How have recent regional developments in tax regulations influenced the management landscape in the GCC?
RASHEED AL-QENAE: The tax regime in the region has evolved considerably over the last few years. This evolution includes the implementation of value-added tax in early 2018 in the UAE and Saudi Arabia, followed by Bahrain and Oman. The two remaining GCC countries – Kuwait and Qatar – are set to follow in 2025. Additionally, the UAE introduced corporate tax in June 2023, with major corporate tax law changes observed in Saudi Arabia and Qatar.
Furthermore, the relevant authorities are now focusing on more complex aspects such as transfer pricing and adherence to the OECD’s base erosion and profit shifting (BEPS) standards, which are expected to be implemented in 2025. This applies to multinational and local companies within the framework’s jurisdiction. As of end-2023 Kuwait has been preparing to implement these standards, reflecting a broader trend in the region towards more sophisticated tax systems that are evolving to handle the increasing complexity and volume of business activities.
One of the primary reasons for these changes is the search for new revenue sources to support budgets. The continued move towards alignment with the OECD’s BEPS standards means that companies, particularly multinationals, face a relatively consistent tax landscape across the different jurisdictions they operate in. This consistency reduces the element of surprise in tax obligations. The region is expected to present substantial opportunities, especially over the next five to 10 years, as businesses adapt to these changes.
In terms of Kuwait specifically, businesses prefer predictability and clarity for effective budgeting. As such, when regulators announce new laws or regulations with sufficient lead time, companies can prepare adequately, whether in terms of talent, systems, processes or policies. The major challenge, particularly for taxation, is mitigating the element of surprise, which can impact companies’ budgets, financial planning and talent management. It is important to recognise that direct and indirect taxes are becoming increasingly commonplace in the region, reflecting a global trend.
What priority areas in technology and management could Kuwait-based companies focus on to enhance their operational efficiency?
AL-QENAE: Cybersecurity is the first priority area to focus on. During the Covid-19 pandemic, the shift towards remote working and online transactions, including government interactions, heightened the focus on cybersecurity. There has been a notable increase in investment and continuous support in this area. Cybersecurity demands ongoing investment, updates and upgrades, as it is a dynamic field with constantly evolving challenges.
Another critical area is disruptive technology, and artificial intelligence in particular – aligned with a broader shift towards cloud computing. This enables businesses to reduce their investment in hardware and enhance their security and development capabilities, making cloud computing a vital facilitator for business operations.
The evolving regulatory landscape in Kuwait and the wider region poses challenges and opportunities. Kuwait now has a multitude of regulatory bodies across various sectors, including the Ministry of Commerce and Industry for licensing, the Central Bank of Kuwait for financial activities, the Capital Markets Authority for securities, and specialised regulators for insurance, food industries and other sectors. This complexity necessitates that companies invest in robust compliance departments to ensure adherence to these regulations, adding another layer of operational cost.
To what extent are environmental, social and governance (ESG) practices being integrated into business operations in Kuwait and the broader region?
AL-QENAE: The integration of sustainability- and ESG-aligned policies and practices into business operations in Kuwait and the broader region is a developing trend. Efforts are being made to elevate ESG awareness, especially in boardrooms, and businesses must remain prepared for potential regulatory changes that may impact ESG-oriented practices.
Multinational companies, particularly those operating internationally, are showing a keen interest in aligning with ESG norms – often driven by the need to comply with external regulations. A significant aspect of ESG in the region is the emphasis on gender equality. Recent conferences and initiatives highlight the growing recognition of female leadership and the importance of balancing gender representation in the workforce.
From a governance perspective, while companies are adhering to regulatory requirements, there is a need to broaden governance frameworks to encompass environmental and social considerations more comprehensively. Companies are increasingly seeking guidance on integrating ESG into their operations, recognising that proactive engagement in these areas is more effective than merely complying with regulatory minimums.
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