Merchandise Trade

• Kuwait has been a World Trade Organization (WTO) member since January 1, 1995 and a member of GATT since May 3, 1963.

• The country's Gulf Cooperation Council (GCC) membership means that it is part of a single market and customs union with a common external tariff. A tariff of only 5% is imposed on the majority of items imported from non-GCC countries, and there is a single point of entry where tariffs are collected once imports enter the GCC. Only imports on certain sensitive goods from GCC countries will face tariffs and there is freedom of movement between GCC countries without customs or non-customs restrictions.

• The average applied import tariff for goods entering Kuwait is 3.9%. This is the fifth highest out of six GCC states. Bahrain does not levy customs duties on any exports. Some further import trade barriers exist for sensitive goods and prominent domestic industries, although the overall impact on these is fairly minimal.

• The most extensive non-tariff barrier for trade that mostly applies for non-GCC states is the extensive trade bureaucracy and associated costs that come with exporting and importing from and to Kuwait. On average, the times and associated costs for border and documentary procedures (both for exports and imports) are some of the longest and highest in the GCC, which reduces the country's competitiveness as a trading destination when compared to its regional peers.

• For cultural and religious reasons an import ban is applicable for alcoholic drinks imports.

• Kuwait's main exporting partners are largely reflective of the economic bloc and free trade agreements that the country is party to.

Sources: WTO - Trade Policy Review, Fitch Solutions

Trade Updates

The gradual implementation of spending and revenue forms part of efforts to diversify revenues among GCC members.

Multinational Trade Agreements

Active

1. Greater Arab Free Trade Area (GAFTA): GAFTA came into force on January 1, 1998. In March 2001, it was decided to speed up the liberalisation process, and on January 1, 2005 the elimination of most tariffs among GAFTA members was enforced. The 17 members of GAFTA are Algeria, Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, UAE and Yemen. GAFTA was declared within the Social and Economic Council of the Arab League as an executive programme to activate the Trade Facilitation and Development Agreement and the elimination of most tariffs among GAFTA members. GAFTA saw tariffs between 17 Arab states rapidly decline from an average of 15% in 2002 to 6% in 2009. Trade liberalisation has been of great benefit to all member states and has aimed to reduce the cost of imports to Saudi Arabia; however, regional instability and domestic security concerns have diminished the effect of this agreement and have created trade barriers.
   
    
2. The GCC: Kuwait's trade with GCC countries is tariff free. The geographic proximity of these countries and their general adoption of free trade economic policies are factors that foster a competitive business environment. Trade between Kuwait and the GCC amounted to more than US$8.2 billion in 2018, with the bulk consisting of imports (USD6.2 billion).
   
    
3. GCC-European Free Trade Association (EFTA - Iceland, Liechtenstein, Norway and Switzerland): The EFTA is one of Kuwait's largest trade partners. The EFTA States signed a Free Trade Agreement with the GCC in Hamar, Norway, on 22 June 2009. The Agreement entered into force on 1 July 2014. The agreement covers the progressive elimination of tariffs in trade in services and manufactured goods, as well as investment and other trade-related issues such as the protection of intellectual property, and is fully consistent with provisions of the World Trade Organization. In addition, bilateral arrangements on agricultural products between three individual EFTA states and the GCC form part of the instruments establishing the free trade area between both sides.

1. GCC-Singapore FTA: The GCC-Singapore FTA (GSFTA) took effective on September 1, 2013. The GSFTA eliminates most tariffs (99%) of Singapore's exports to the GCC. This is a comprehensive agreement covering trade in goods, rules of origin, customs procedures, trade in services and government procurement among others. Key sectors benefitting include telecommunication, electrical and electronic equipment, petrochemicals, jewellery, machinery and iron and steel-related industry. The recognition of the halal certification of Singapore's Majlis Ugama Islam Singapura will also pave the way for trade in halal-certified products to gain faster access to the GCC countries.

Under Negotiation

1. The United States-Middle East Free Trade Area Initiative (MEFTA): In 2004, the United States and Kuwait signed into force the Trade and Investment Framework Agreement, with the aim of regulating all commercial matters between Kuwait and the United States. The countries targeted to join MEFTA are Algeria, Bahrain, Egypt, Iran, Iraq and Israel (and through Israel, the Palestinian Authority), Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia and Yemen. This includes a wide range of trade and investment issues such as market access, intellectual property rights, and labour and environmental issues. MEFTA will help in growing commercial and investment opportunities by identifying and working to remove impediments to trade and investment flows between member states. This expands the scope of markets for businesses in Kuwait to export products to, and will significantly reduce trade costs.

1. Australia-GCC: Australia and the GCC share a significant economic relationship, encompassing trade and investment across a broad range of goods and services. The GCC is a key market for agricultural exports such as livestock, meat, dairy products, vegetables, sugar, wheat and other grains. The agreement provides an opportunity to address a range of tariff and non-tariff barriers related to food exports that will benefit the GCC.

1. GCC-Mainland China: The first-round of negotiations of the GCC-Mainland China FTA commenced on April 27, 2005. Greater trade liberalisation will help develop the industrial and service sectors. Trade liberalisation with the GCC will help the group integrate and grow with mutual cooperation and comprehensive tariff reduction. In 2018, Mainland China accounted for around 10% of the GCC's total global trade.

1. India-GCC: The GCC and India are negotiating an FTA. The agreement is expected to remove restrictive duties, push down tariffs on goods and pave the way for more intensive economic engagement between the nations. More than 50% of India's oil and gas comes from GCC countries.

1. Japan-GCC: Japan and the GCC are negotiating an FTA. This agreement will seek to reduce tariffs and liberalise services trade and investment. Japan mainly imports aluminium, natural gas, liquid natural gas and petroleum products from the GCC, while Japan mainly exports electronics, vehicles, machinery and other industrial products to the GCC.

1. Other: A number of other GCC FTAs are currently under negotiation. The countries engaged in negotiations include Pakistan, New Zealand, South Korea, the Mercosur bloc and Turkey.

Signed But Not Yet In Effect

The Trade Preferential System of the Organization of the Islamic Conference (TPS-OIC): The agreement would see to the promotion of trade between member states by including most-favoured nation principles, harmonising policy on rules of origin, exchanging trade preferences among member states, promoting equal treatment of member states and special treatment for least developed member states and providing for regional economic bodies made up of OIC nations to participate as a block. The agreement will cover all commodity groups. The OIC is made up of 57 members, making a full realisation of such an agreement highly impactful, encompassing approximately 1.8 billion people. Although the Framework Agreement, the Protocol on Preferential Tariff Scheme and the Rules of Origin have all been agreed on, a minimum of 10 members are required to update and submit their concessions list for the agreements to come into effect. As of January 2019, only seven nations have done so.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 0%
• Corporate Income Tax: 15%

Sources: Ministry of Finance Kuwait, Fitch Solutions

Important Updates to Taxation Information

•  Kuwait is cooperating with the IMF to discuss the introduction of a corporate tax for locally based ventures, while the GCC has announced the introduction of a value-added tax of 5% in the GCC region (originally scheduled for implementation in Kuwait in 2018, but now postponed to 2021).
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• Kuwaiti Members of Parliament advocated further restrictions on the employment of foreign workers, thus making Kuwait a more expensive relocation destination. In January 2018, the Kuwait Public Authority for Manpower reported that the ban should be implemented by July 2018. This will have a negative impact on the availability of skilled foreign labour and creates uncertainty for businesses operating in the country. While the government rejected a proposal to introduce a tax on expatriates' remittances, providing some relief to the availability of crucial foreign labour, such measures remain a key risk for businesses.

Localisation Requirements

The Kuwaiti government is attempting to increase the employment of its citizens in the private sector. The government has applied more stringent requirements for the employment of foreign workers since 2014 as part of its 'Kuwaitisation' policy. A recent development was in April 2019, when Kuwait hiked its medical fees for expatriates in the country. They will now have to pay a USD33 (KWD10) fee to access medical treatment at polyclinics. The move comes after the country increased healthcare fees for foreigners for the first time in more than two decades in 2017. Kuwait made significant efforts to reduce the number of foreign workers in the domestic labour force over the course of 2016. In January 2017, it was reported that the Kuwaiti authorities deported more than 29,000 foreign workers throughout 2016 (an average of 80 per day) for reasons such as work permit violations, criminal activity and labour law violations. Kuwaiti Members of Parliament (MPs) are continuing their clampdown on foreign workers in Kuwait by advocating for further restrictions on their employment and making Kuwait a more expensive relocation destination. The authorities announced that all non-Kuwaitis working for the government will be replaced by locals over the next five years. This follows a range of proposals since a November 2016 election that led to a large increase in the number of seats held by the opposition in parliament. The majority of these opposition MPs are anti-austerity populists who have made a range of proposals targeting foreigners in the country, including the imposition of a 5% tax on all remittances being sent home by foreign workers and the removal of subsidised healthcare for non-Kuwaitis. Other proposals have included the introduction of nationality quotas and increasing charges for residency permits and visas for visiting family members.

Obtaining Foreign Worker Permits

To live and work in Kuwait, expatriates from outside the GCC must have iqama (a residence permit) which requires a Kuwaiti sponsor to obtain. The sponsoring employer must apply for a work permit from the Ministry of Social Affairs and Labour and acquire a no-objection certificate from the General Administration of Criminal Investigation at the Ministry of Interior. From January 1, 2018, the immigration and labour authorities no longer issue new work permits to professional foreign nationals under the age of 30.

Visa/Travel Restrictions

Visitors from non-GCC states require a visa for business or tourism purposes. British citizens can obtain a visa on arrival. It is noted that Israeli passport holders or those with an Israeli stamp in their passport may be denied entry to Kuwait on arrival. From January 2018, expatriate employees have to provide evidence of their educational qualifications in order to renew their visas.

The 'Kafala' Sponsorship System

While the 'Kafala' system has provided ease of access to inexpensive foreign labour imports for many businesses in Kuwait for years, this has also limited Kuwaiti employers from employing foreign labourers who are already in the country. This is because foreign workers currently employed under the 'Kafala system' in Kuwait require the permission of their current employer (the 'sponsor' of their work permit) if they want to change employers. After receiving significant criticism from international human rights groups over the fact that the country has not made significant reforms to its 'Kafala system' as many other GCC states have done, the Kuwaiti government announced in February 2017 that it was considering the cancellation of this system. The government is currently considering a system where it would effectively be the sponsor of all foreign private sector employees and where foreign workers (especially in low-skilled positions) would be accorded more rights.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, IMD, Transparency International, Fitch Solutions

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: February 12, 2020

Hong Kong’s Trade with Kuwait

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Telecommunications and sound recording and reproducing apparatus and equipment	116.0
Commodity 2	Photographic apparatus, equipment and supplies and optical goods; watches and clocks	14.2
Commodity 3	Miscellaneous manufactured articles	12.3
Commodity 4	Office machines and automatic data processing machines	12.3
Commodity 5	Articles of apparel and clothing accessories	9.6

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Plastics in primary forms	32.2
Commodity 2	Metalliferous ores and metal scrap	5.9
Commodity 3	Telecommunications and sound recording and reproducing apparatus and equipment	5.4
Commodity 4	Road vehicles (including air-cushion vehicles)	1.4
Commodity 5	Miscellaneous manufactured articles	0.9