Introduction to KUWAIT

Kuwait is the world’s 10th largest producer of oil. Total oil production, which is equivalent to half the country’s GDP,was estimated at 2.9 million barrels per day in 2016. Oil revenues account for more than 80% of fiscal revenues andmore than 90% of export revenues. Economic growth depends on oil production and on private consumption, whichbenefits from generous redistribution of oil revenues. The economy is poorly diversified and progress in this respect islikely to remain poor in the medium term given political constraints.

Macroeconomic balances are solid with large and recurrent current account and fiscal surpluses. External and publicdebt is low, and the sovereign wealth fund is estimated to be equivalent to almost x2 GDP. As a consequence, therecent period of depressed oil prices was easily manageable. The KWD, which is linked to a basket of currencies (inwhich the USD is largely overweighed), benefits from this sound financial position.

Summary

BNP Paribas presence

BNP Paribas has been present in Kuwait since 2005, the first foreign bank to open in the country. The bank offers bothdomestic and cross-border cash and liquidity management solutions, and international trade finance services, tocorporations headquartered in Kuwait that are expanding overseas, and multinational corporations with a presence inKuwait.

Currency

Currency

Kuwaiti Dinar (KWD)

Exchange Rates

2016 2017 2018 2019 2020

Exchange rate:USD per KWD

3.3115 3.3001 3.311 3.289 3.226

Source: IMF, International Financial Statistics, June 2021.

Central Bank

The Kuwaiti central bank is the Central Bank of Kuwait (CBK -www.cbk.gov.kw).

Bank accounts

Resident / non-resident status

Any shareholding, holding or limited liability registered in Kuwait is considered to be a Kuwaiti company. Anysuch company must have its head office in Kuwait.

Bank accounts for resident entities

Within Kuwait Outside Kuwait

Local Currency Permitted without restriction, fully convertible Not available

Foreign Currency Permitted without restriction, fully convertiblePermitted without restriction, fullyconvertible

Bank accounts for non-resident entities

Within Kuwait Outside Kuwait

Local Currency Permitted without restriction, fully convertible Not available

Foreign Currency Permitted without restriction, fully convertible Not applicable

Lifting fees

Lifting fees are applied on payments between resident and non-resident bank accounts.

BNP Paribas Cash Management Capabilities

Liquidity Management

Physical cash pooling

Notional pooling - Balance compensation

Notional pooling - Interest optimisation

Supported by BNP Paribas

Not required / permitted in KUWAIT or not supported by BNP Paribas

Collections

Cash collections

Cheque collections

Direct debit collections

Domestic incoming transfers

Virtual IBAN

Virtual accounts

International incoming transfers

Card acquiring

Supported by BNP Paribas

Not required / permitted in KUWAIT or not supported by BNP Paribas

Payments

Cash withdrawals

Cheque payments

Direct debit payments

Domestic outgoing transfers

Commercial cards

Virtual cards

International outgoing transfers

SWIFT gpi

Real-time international payments through BNP Paribas' network

Card issuing

Supported by BNP Paribas

Not required / permitted in KUWAIT or not supported by BNP Paribas

Channels

Local e-Banking

Global e-Banking - Connexis

SWIFT/ host to host

Supported by BNP Paribas

Not required / permitted in KUWAIT or not supported by BNP Paribas

Payments & Collections

Market overview

Covid-19 has accelerated the adoption of digital payment methods in Kuwait as residents move away from the moretraditional use of cash and POS transactions. In tandem with the growing use of, and confidence in, digital payments,the country’s banks have stepped up their digital services and the number of digital products on offer. On agovernment level, steps are being taken to boost the adoption of digital payments. For example, the Kuwait NationalPayments System Project is aimed at developing systems that will provide sophisticated electronic services toconsumers, including a mobile payments system.

Electronic banking services are available from most banks. There is no national electronic banking system in Kuwait, so

companies use banks’ proprietary services. The Government Electronic Banking System executes all governmenttransactions online.

Tasdeed, Kuwait’s national online portal, enables the payment of some bills and fees. Seventy government authoritiesaccept online payments, representing 85% of all government bodies. Online and mobile banking services are providedby the country’s leading banks.

Payment systems

KASSIP Type • Real-time gross settlement.

Participants • All banks in Kuwait, including the CBK.

Transaction typesprocessed

• KWD-denominated interbank transfers.

Operating hours • 08:00 - 14:30 AST, Sunday to Thursday.

Clearing cycle details (e.g.cut off times)

• Payments are cleared and settled in real time.

System holidays

• KASSIP is closed on all Kuwaiti bank holidays and weekends.• Kuwait’s bank holidays are:• 2nd half 2021: 18-22 July*, 10 Aug*, 19 October*.• 2022: 2 January, 26, 27, 28* February, 1-3 May*, 7, 8-11*, 30* July, 8October*.

KECCS Type • Deferred net settlement.

Participants•All banks in Kuwait.

Transaction typesprocessed

•All cheques.

Operating hours•Operating hours are banking hours.

Clearing cycle details (e.g.cut-off times)

• Cheques are exchanged and cleared electronically between banks(previously cheques were physically exchanged in the CBK ClearingRoom). Bank tellers can scan and process cheques in the bank branchusing the new electronic system.• Cheques are cleared on a same-day or next-day basis.• Cut-off time for receipt of cheques and same-day clearing = 12:30 localtime. Cheques presented after this time are processed on the nextworking day.• Final settlement is via KASSIP.

System holidays

• The KECCS is closed on all Kuwaiti bank holidays and weekends.• Kuwait’s bank holidays are:• 2nd half 2019: 9, 10–13* August, 1 September*, 9 November*• 2020: 1 January, 25, 26 February, 22 March*, 23-25 May*, 29-31 July*, 1,2, 20* Aug, 29 October.** The date shown may vary by plus or minus one day. These dates arederived by converting from a non-Gregorian calendar (e.g., Muslim orHindu) to the Gregorian calendar. Some of these dates cannot bedetermined in advance with absolute accuracy, even by the governingauthorities. In the case of Muslim dates in particular, the feast days aredetermined by the sighting of a new/full moon.

Credit transfers

Credit transfers are used by companies to pay salaries and suppliers, and to make pension payments andtreasury payments.All credit transfers are settled in real time via KASSIP.Cross-border transfers can be made via SWIFT and settled through correspondent banks abroad.The value of interbank payments via KASSIP rose 33.9% during FY2019/20 to KWD 356.02 billion.A Kuwait National Payment System offering 24/7 real-time payments is currently being tested. The system willencompass other initiatives by the central bank, including the Government Electronic Banking System, WagesProtection System, digital currency, and an Automated Clearing House.

Direct debits

Direct debits are used for regular payments, such as utility bills.Direct debits are settled on a three-day cycle via KASSIP.

Cheques

The cheque is a popular cashless payment instrument, used by both consumers and companies.Cheques are processed via Cheque Clearing on a same-day or next-day basis. Final settlement takes place viaKASSIP.The total value of cheques processed during FY2019/20 increased toKWD 17.1 billion for 2.87 million transactions, against KWD 17 billion for 2.93 million transactions duringFY2018/19.

Card payments

Card payments, particularly debit cards, are increasingly popular, especially for retail transactions. Contactlesscards are issued and to encourage the use of contactless payments.There were 4,062 thousand debits cards in circulation at the end of Q1 2021, and 810 thousand credit cards.In Q1 2021, there were 74,961 thousand POS transactions (of which debit cards accounted for 67,109 thousand),with a value of KWD 2,768 million (debit cards accounted for KWD 2,561.1 million). There were 20,001 thousandATM transactions (of which debit cards accounted for 19,032 thousand), with a value of KWD 2,546 million(debit cards accounted for KWD 2,432 million) made over the same period.Visa and MasterCard-branded cards are the most widely issued.Each bank establishes its own clearing arrangements with the international card associations.

ATM/POS

There were 2,672 ATMs in Kuwait at the end of Q1 2021.There were 73,089 POS terminals in Kuwait at the end of Q1 2021.All ATMs and POS terminals are linked via the Kuwait Network Electronic Technology (KNET) network.KNET links to the Gulf Cooperation Council’s (GCC) GCCNet ATM network. (The GCC comprises Bahrain, Kuwait,Oman, Qatar, Saudi Arabia and the UAE.)

Electronic wallet

The dominant electronic wallet schemes in Kuwait are pre-paid cards, which can be used at ATMs or online.Mobile wallet schemes, such as that offered by Kuwait Finance House, are available.

Channels

Market overview

Liquidity management

Domestic: notional pooling

Domestic notional cash pools are available in Kuwait but can be expensive to operate because of regulatoryrestrictions.

Domestic: cash concentration

Domestic cash concentration structures are available.Resident and non-resident bank accounts can participate in the same cash concentration structure.

Cross-border notional pooling

Cross border notional cash pools are not widely available.

Cross-border cash concentration

Cross-border cash concentration structures are permitted but not widely available.

Short term investments

Market overview

Interest payable on credit balances

Banks do not pay interest on current accounts.

Demand deposits

Demand deposits denominated in KWD or major foreign currencies are available for various terms.

Time deposits

Time deposits are available in KWD and major foreign currencies for terms up to one year.A minimum deposit, typically of KWD 5,000, is required.

Certificates of deposit

Domestic banks issue certificates of deposit for terms up to 12 months.

Treasury (government) bills

The Kuwait government issues Treasury bills with maturities of typically three and six months.Short-term government bonds are available with maturities of three and six months.

Commercial paper

Domestic commercial paper is issued by companies for terms up to twelve months.

Money market funds

Money market funds are available. Terms vary.

Repurchase agreements

Repurchase agreements are available in Kuwait.

Banker's acceptances

Banker's acceptances are not used in Kuwait.

BNP Paribas insights

BNP Paribas Trade Finance Capabilities

Trade payments

Documentary credits

Documentary collections

Supported by BNP Paribas

Not required / permitted in KUWAIT or not supported by BNP Paribas

Guarantees

Bank guarantees

Standby letters of credit

Supported by BNP Paribas

Not required / permitted in KUWAIT or not supported by BNP Paribas

Supply chain management

Receivables

Payables

Inventory

Supported by BNP Paribas

Not required / permitted in KUWAIT or not supported by BNP Paribas

Trade channels

Connexis Trade

Connexis Supply Chain

SWIFTNet Trade for Corporates

Connexis Connect

Supported by BNP Paribas

Not required / permitted in KUWAIT or not supported by BNP Paribas

International trade

General trade rules

Kuwait has signed bilateral investment agreements with nearly countries worldwide.Not all agreements haveyet been implemented. .The GCC has signed FTAs with European Free Trade Association (EFTA) member states, Singapore and Syria.GAFTA has established a bilateral free trade agreement with the USA.

Trade agreements

Kuwait has signed bilateral investment agreements with a number of states (not all have been implemented),including Austria, Belarus, Belgium, Bosnia, Bulgaria, China, Croatia, the Czech Republic, Switzerland, Syria,Tajikistan, Tunisia, Turkey, the United Arab Emirates, and Yemen.The GCC has signed an FTA with EFTA and Singapore. Trade talks are ongoing with the European Union,Mercosur, Japan, China, South Korea, Australia, Pakistan and Turkey. A free trade agreement has beenconcluded with New Zealand but has not yet been ratified.

Imports / exports

ImportsCars

Broadcastingequipment

Naturalgas

Packagedmedicines

Jewellery

PrimaryImportsources

China (14.0%)

UAE(12.0%)

USA(10.0%)

Saudi Arabia(6.0%)

Japan(6.0%)

Germany(5.0%)

ExportsCrudepetroleum

Refinedpetroleum

Aircraft Natural gasIndustrialhydrocarbonproducts

Exportmarkets

China (20.0%)

South Korea(16.0%)

India(15.0%)

Japan(10.0%)

Taiwan(6.0%)

Vietnam(5.0%)

Import / export volumes

2016 2017 2018 2019 2020

Exports- goods USD m 46,616 55,175 77,080 64,797 NA

- services USD m 5,529 5,279 8,119 8,036 NA

Imports- goods USD m 26,562 29,527 31,370 29,436 NA

- services USD m 26,348 28,200 36,835 30,218 NA

Current account as % GDP 0.6 6.4 17.1 25.6 NA

Source: IMF, International Financial Statistics, June 2021.

Trade finance - imports

Documentation

The following documentation is required in order to import goods into Kuwait:customs declarationcommercial invoicebill of ladingpacking listcertificate of origin.

Import licences

Licences are required for all imports except fresh fruit and vegetables, wheat and flour.Importers must be at least 51% domestically owned.

Import taxes and tariffs

Tariffs are not set on imports from GCC member states.Tariffs are generally not set on imports from GAFTA member states.A common external tariff (CET) of 5% is set on most imports from outside the GCC.Higher duties are set on imports to industries where the domestic producers provide a minimum 40% to theKuwaiti market. The local value-added content of the goods imported determines the rate of tariff imposed.Protective duties of 15%, 20% and 25% are set on imports where the local value-added content of goods ofKuwaiti origin are at least 20%, 30% or 40% respectively.Protective duties are set 5% lower for imports of consumer goods.Imports duties are set up to 100% if the goods compete with goods of Kuwaiti origin.Import duties are not set on food items, raw materials and spare parts, or to certain types of machinery andequipment.

Financing requirements

None

Risk mitigation

None

Prohibited imports

Prohibited imports are published on a negative list.Imports of certain weapons, certain foodstuffs, alcoholic beverages and tobacco are prohibited.Specific imports are prohibited in order to protect fauna and flora and for national security or moral reasons.Imports from Israel are prohibited.

Trade finance - exports

Documentation

The following documentation is required in order to export goods from Kuwait:customs declarationcommercial invoicebill of ladingpacking listcertificate of origin.

Export licences

Special licences are required for exporting certain agricultural products and cement during times of shortagesor national emergency.Licences are required for exporting armaments and ammunition.

Export taxes and tariffs

None

Financing requirements

None

Risk mitigation

The Islamic Corporation for Insurance of Investment and Export Credit (ICIEC) provides export credit insurance.

Prohibited exports

Prohibited exports are published on a negative list.Kuwait prohibits the export of certain agricultural products when domestic demand outweighs supply.Exports to Israel are prohibited.

Regulatory requirements

Reporting regulations

All transactions between resident accounts and accounts held by non-residents must be reported to the CBK ona monthly basis.

Reporting method

Banks submit reports to the CBK on behalf of their customers, although the resident entity is ultimatelyresponsible for compliance.

Exchange controls

Kuwait does not apply exchange controls.Trade is not permitted with Israel.Non-resident ownership of Kuwaiti companies is restricted to a maximum 49%.An exemption to the 51% rule is made when foreign investors wish to have a direct investment in Kuwait. Insuch circumstances, non-resident companies will require prior approval from the Council of Ministers.

Taxation

Resident / non-resident

The taxable presence of a foreign entity is determined by whether it carries on a trade or business in Kuwaitand not on whether it has a permanent establishment or place of business in Kuwait.Foreign corporate bodies carrying on a trade or business in Kuwait are liable to corporate income tax with theexception of entities that are registered in GCC countries and fully owned by Kuwait/GCC citizens. The term‘corporate body’ refers to an association that is formed and registered under the laws of any country or stateand is recognised as having a legal existence entirely separate from that of its individual members. Partnershipsfall within this definition.Foreign companies can operate in Kuwait either through an agent (or as the minority shareholder in a locallyregistered company), the Foreign Direct Investment Law (Bylaws yet to be formally issued), or they can set upin the Kuwait Free Trade Zone (operations limited to the Kuwait Free Trade Zone). There is no difference inprinciple in the method of calculating taxation in either instance. In the latter case, tax is levied on the foreigncompany’s share of the profits, adjusted for tax (whether or not this is distributed).

Tax authority

Department of Income Tax.

Tax year/filing

The tax year is the same as the Christian calendar year, but the Director of Income Taxes may authorise acompany to keep its books on a different basis (e.g. if the overseas parent follows a financial year end otherthan 31 December).The tax declaration for each taxable period must be submitted by the 15th day of the fourth month followingthe end of the taxable period. A foreign entity can request an extension of up to 60 days for filing the taxdeclaration provided a request for an extension is submitted on or before the 15th of the second monthfollowing the end of the taxable period; otherwise, the request will not be considered.Tax can be paid as a lump sum or in four instalments on the 15th day of the fourth, sixth, ninth and 12th monthfollowing the end of the tax year. If an extension is granted, no tax payment is necessary until the declaration is

filed. However, payment must then be made for the first and second instalment.Consolidated returns are not permitted and each company must file a separate return.

Financial instruments

Income resulting from money lending in Kuwait will be subject to tax in Kuwait. This article of the tax law wasrecently introduced and has yet to be tested in practice.At present, it is not clear whether this article applies to lenders located inside Kuwait, or to overseas lenderswho are lending money to companies located in Kuwait, or both.

Interest and financing costs

In general, any interest locally paid on bank facilities and loans and used in the main activity of the corporatebody is deductible against taxable profit; the existence and purpose of the loan should be supported bydocumentary evidence. Where the interest is on loans utilised in financing capital operations, this interest shallbe approved and added to the asset value.All interest charged by the head office for its current account in the corporate body's branch in Kuwait isdisallowed.Any interest paid abroad shall be disallowed unless it is proved that such interest is in respect of loans and bankfacilities used to finance the corporate body's activities in Kuwait.There are further specific rules that disallow the deduction of certain interest and other financing costs.

Foreign exchange

Realised gains and losses resulting from the fluctuation of foreign currency exchange rates are allowable asdeductions (in case of losses) or taxable (in case of gains).Unrealised exchange gains/losses are not considered as taxable income/deductible expenses.

Advance tax ruling availability

Advance tax rulings are not available in Kuwait.

Capital gains tax

Capital gains are treated as part of a company's income.

Withholding tax (subject to tax treaties)

Payments to: Interest Dividends Royalties Other income

Resident entities None None None None

Non-resident entities None None None None

There are no withholding taxes and no branch remittance.

Tax treaties / tax information exchange agreements (TIEAs)

Kuwait has concluded 68 tax treaties.Kuwait signed the OECD MLI on 7 June 2017.

Thin capitalisation

There are no specific tax rules relating to thin capitalisation.

Transfer pricing

There is no transfer pricing law in Kuwat.The tax authorities deem the following profit margins on the following:

Materials imported by entities operating in Kuwait:15% on materials imported from the head office;10% on materials imported from related companies; 5% on materials imported from unrelated companies.

Design work carried out outside Kuwait:25% on the design work conducted by the head office;20% on design work conducted by related companies; 15% on design work conducted by unrelated companies.

Consulting work carried out outside Kuwait:30% on consulting work conducted in the head office;25% on consulting work conducted by related companies; 20% on consulting work conducted by unrelated companies.

Stamp duty

Kuwait has no stamp duty.

Cash pooling

Kuwait has no specific tax rules relating to cash pooling arrangements.

Financial transactions / banking services tax

There are no financial transactions or banking services taxes in Kuwait.

All tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlight 2021.

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Market data updated as of 01-10-2020