- Historical BackgroundMan invented money as the first measure of value and store of wealth; hence money contributed in facilitating trading operations and expanding the volume of trade between dealers both within the same country and among different countries. Money continued to perform as a barter tool till the time it became solely unable to do the same full role, particularly when commercial transactions have a fixed term. Where every trader has kept his/ her money in the vaults till the time to discharge debts when falling due, could hinder the money from investment. In addition to that, the booming trade and expansion have resulted in the traders’ increased feeling of the need to secure the route for their trade from acts of piracy and banditry.Consequently traders felt the necessity to search for a way to achieve their safety in the face of dangers of theft and loss and to unseal tangles in relations between creditors and debtors especially if they are traders. Also to enable them fulfill their obligations without hindering money from investment in addition to executing the forward exchange process between without any concerns.Thus business environment has resulted in the invention of both the securities and commercial paper. Displayed below are the types and uses of both and the difference between them:
- SecuritiesIt is any instrument – of any legal form – which establishes a share in a marketable finance transaction.
Securities are classified as per issuance criteria as follows:- Conventional securities
- Islamic Sharia consistent securities
- Islamic Sharia compliant securities
Securities are divided into four types as follows:- shares
- Bonds/ Sukuk and other instrument convertible into shares in the company’s capital
- Units of funds
- Financial derivatives
- All marketable public debt instruments that are issued by government and public entities and bodies.
We set out below each type:
2-1 Shares
The share is a shareholder’s equity in the company’s capital which gives the right to participate in the General Assembly meetings and in the management of the company through membership on the board. It also gives the right to gain a percentage of the company’s profits and participate in the distribution of assets upon liquidation.
Shares are defined as marketable indivisible Sukuk of equal value and represent the right of the shareholder’s equity as a partner in the issuer company.
Types of shares- Ordinary shares
These are shares that give equal rights to their owners. As long as the shares are of same class; the rights conferred by these shares are equal. These rights include the right to get an equal proportion of the profits, the right to attend and vote in the company’s general assembly meetings and the right to get an equal proportion of the company’s assets upon liquidation. - Preference shares
These are shares that give more rights than the rights granted by the ordinary shares.Such shares enjoy certain privileges in vote rights, profits, realization value or any other rights provided that the shares are of the same nature of equal rights and privileges.The preferred shares are divided into the following types:- Redeemable preferred shares: it is the type of preferred shares that can be redeemed either on a specific date or after a specific period of time during the issuer duration.
- Irredeemable preferred shares: it is the type of preferred shares that can not be redeemed by the issuer within the period specified in the company’s contract and the value of these shares shall be settled upon issuer liquidation.
- Convertible preferred shares: it is the type of preferred shares that gives its holders the right to convert such shares into ordinary shares in the issuer share capital at a subsequent date.
- Non-convertible preferred shares: it is the type of preferred shares that does not give its holders the right to convert such shares into ordinary shares in the issuer share capital at a subsequent date.
- Participating preferred shares: it is the type of preferred shares that gives its holders the right to participate in earnings surplus along with ordinary shareholders after the distribution of dividends at a specified rate to these shareholders.
2-2 Bonds/ Sukuok
Bonds is a borrowing process undertaken by shareholding companies through issuing bonds at fixed interest rate and for a defined period of time at the end of which the bonds value shall be paid back.
A bond is a financial instrument entails indebtedness of issuer for the favor of bond holder who will hereby gain periodic distributions during the bond’s period or a payment or more of depreciation settlement or gain both payments which leads upon maturity to discharge of such bond.
Types of bonds:- Government bonds: these are bonds issued by the government, ministries or public authorities and institutions, either through direct or indirect issuance or fully secured from the mentioned entities.
- Convertible bonds: these are bonds that entitle their holders the right to convert into shares at a subsequent date.
- Asset-backed securities: these are bonds have its structure based on key elements, including:
- The right of bond holders to recourse (directly or indirectly) against bond assets.
- Isolate bond assets and securitize them in a way to protect them from other creditors’ claims.
- Bondholders reliance on the assets of those bonds as a major source of periodic distributions and repayment of depreciation.
- Bondholders bear the risk of any loss in the value of bond assets.
Sukuk are considered the Sharia-compliant type of bonds. Sukuk or the so-called “Islamic securities” are the process of issuing official documents and financial certificates equal to the value of common share in an ownership, whether it is the benefit, right, a combination of both, a sum of money, or debt, where this ownership is already existed or under establishment, and is issued by virtue of a binding legitimate contract.
Sukuok are documents of equal value which represent common shares in the ownership of properties, benefits, services or assets in a particular project or investment activity.
The types of Sukuk:- Governmental Sukuoks: these are Sukuk issued by the government, ministries or public authorities and institutions, whether through direct or indirect issue or fully secured by the mentioned entities.
- Convertible Sukuk: the type of Sukuk that give holders the right to convert into shares at a subsequent date.
- Sukuk based on assets: Sukuk do not entitle their holder to recourse (directly or indirectly) against the assets of those Sukuk. Holders of asset based Sukuk may recourse against outstanding liability of obligor mainly based on the creditworthiness of the obligor and their ability to repay.
- Asset-backed Sukuk: Sukuk have its structure based on key elements, including:
- The right of Sukuk holders to recourse (directly or indirectly) against Sukuk assets.
- Isolate Sukuk assets and securitize them in a way to protect them from other creditors’ claims.
- Sukuk holders reliance on the assets of those Sukuk as a major source of periodic distributions and repayment of depreciation.
- Sukuk holders bear the risk of any loss in the value of Sukuk assets.
Sukuk principle is based on participation in “finance” of a project or long or short-term investment, as per sharia rule stating that (Al Ghunm Bil Ghurm) “Risk to Win basis” i.e. participating in the profit and loss, which is equivalent to what is globally known in the trade, finance and corporate filed as stock system. Sukuk itself can be regarded as shares or stocks in an Islamic system, where a corporate is established, the partners are participating in the establishment of this company by offering certain shares to be subscribed by each individual at his/ her desire, then these sukuk are to be offered for public offering to individuals to be bought at their price. The sukuk holder has the right to participate in management, in the capital and in trading and has the right to grant gift and inheritance and all terms related to financial transactions.
There are many various types of sukuk, which vary depending on its objective, and these types include:- Investment sukuk is securities indicates the right to own the project, which is financed from the funds of these sukuk, and sukuk holder is entitled to an agreed proportion of the project’s profits, according to the profit and loss achieved.
- Mudharaba Sukuk which are used by the Mudhareb to use funds of these sukuk in financing a project. Mudhareb is the manager and in charge of such project in his capacity as – speculator – in return for getting certain share of the project’s profits. That is to say the Mudhareb gets a value and proportion greater than the other sukuk holders because the Mudhareb works as the project manager in addition to funding the project, and no loss charged.
- Istisna’a sukuk are instruments issued by the government or some companies that wishes to finance large projects in the country, as infrastructure projects.
- Murabaha instrument bears the same value of the purpose for which it was purchased in a project and profit is entitled to sukuk holder to buy and sell equipment at Murabaha transaction.
- Musharaka instrument which is closest type to the principle of stocks, and is issued by the project sponsors and agents.
- Ijara instrument which relates to leased properties where the profit is from renting properties related to these instruments.
- Trade instrument, the same so-called “financial sukuk (instruments)” which are requested by the government from financial institutions such as banks to issue these sukuk (instruments) to be used in the purchase of materials at a determined Murabaha rate.
- There are several other types of sukuk (instruments) that we do not have room to explain, including salam instrument, benefits instrument, Muzara’a (farming) instrument, Mugharasa instrument, Musaqat (irrigation) instrument, services instrument and many other types of instruments.
2-3 Units of investment funds
Investment funds are considered investment instruments that grant individuals – who do not have the ability to directly manage their investments – the opportunity to participate in the financial global or local markets. The concept of investment funds represents simply a large number of investors are combining their resources and managing it by specialized financial institutions to achieve the benefits that cannot be achieved individually. Investment managers have the experience which ensures the achievement of higher returns compared to returns that could be achieved if the investor solely has run their own funds especially in markets they little information about. In addition, consolidating the funds in one investment fund will lead to reducing the investors’ administrative burden, as well as reducing the risks to which the individual investor may be exposed in the financial markets.
Investment Fund is an independent commercial entity managed by the fund manager and is divided into units. Each unit holder is treated as a shareholder stock in companies within permitted by the articles of association of the Fund.
Investment funds are diversified into several types as per marketability of units issued by such funds. This type is also divided into two types. There are a closed investment funds, which indicates that a limited number of individuals have established these funds and it belongs to a certain category of investors. In addition we have open-ended investment funds where it can accept any individual wishes to invest with entry and exit at any time. Also there is another type of investment funds which are formed on an ad hoc basis which consist of money market funds in addition to ordinary equity funds and bond funds, balanced funds, which are also known as diversified funds. Further specialized investment funds, which includes certain industries of the banks sector or chemical industries etc. There is another type of investment funds, which are defined by objective and the last type is Islamic investment funds.
The following is a review of classification of investment funds:
Investment funds by marketability of units
Investment funds by marketability of units issued are included into two forms:- Closed-ended investment funds:
It is a fund with a defined capital and its units may not be redeemed until the end of Fund duration. The fund’s capital may increased or reduced as determined by its articles of association. - Open-ended investment funds
It is a fund with a variable capital that may be increased by issuing new investment units or may be reduced by redeeming some of its units during the period specified within its articles of association.
Investment funds by offering
Investment funds by offering are classified into two categories:- Public offering funds
- Private placement funds
Investment funds by nature of its activity
Investment funds by its nature of activity
Following types of funds are classifies in this category:- Monetary instruments funds
- Equity Funds
- Debt instruments funds
- Private equity funds
- Real estate funds
- Holding fund
Investment funds by their objectives
Following funds are classifies in this category:- Aggressive Growth Funds
- Growth Funds
- Growth and Income Funds
- Income Funds
- Global Funds
- Tax – Managed Funds
- Dual Objective Funds
Islamic investment funds
The most important merit that distinguishes Islamic investment funds from other investment funds is directing its resources towards investments that are in line with the idea of Islamic investment. Furthermore, Islamic investment funds is not just a financial intermediary as is the case in investment funds established by the conventional banks, investment companies and insurance companies, but these funds, in addition, are adopting Islamic investment approach that blends between capital and work. Islamic investment funds represent a speculative venture (Mudharabah company contract) between the Fund’s management that will perform works only and the Fund’s subscribers who represent employers gaining (investment units) which represent a common share in the Fund’s capital. The management shall invest in a variety of different and diversified projects as well as investment in securities of firms that are in compliance with idea of Islamic investment.
2-4 Financial Derivatives
Financial derivatives are financial instruments that derive their value from the performance of a real asset or financial asset or the performance of a market index. Real assets include: international commodity (such as gold, oil, metals, wheat, rice, etc.. While financial assets include securities such as shares and bonds. Financial derivatives help transfer the financial risks among the contracting parties across regulated or parallel financial markets. The value of derivative instrument depends on the asset price or indicators subject of the contract. Unlike debt instruments, there is nothing to be paid in advance to be recovered and there is no accrued return on investment. Financial derivatives are used for a number of purposes, including risk management, hedging against risks, arbitrage between markets and also for the purposes of pure speculation.
The most common forms of derivatives are:- Options
- Futures
- Forwards
- Commercial PapersCommercial papers are used for commercial transactions as a substitute for money to facilitate transactions between traders. Commercial papers are easily created and transferred. They are unconditional instruments including specific data prescribed under law. Through commercial papers, a person called the “debtor” undertakes to pay a certain amount of money to a person called “the creditor” or to another person called the “beneficiary”.Financial papers includes four types, namely: check, bill, trust receipt, promissory note and debt declaration; all of which are commercial papers and are considered methods for guaranteeing and protecting the rights. These are most common in people’s daily transactions. In practice, it has been established to accept these papers as tools to settle debt, like money. Through these papers, the creditor can secure his rights and money with others.
Commercial papers include five main types as follows:- Bank check
- Bill
- Promissory note / bond to the order of
- Trust receipt
- Debt declaration
- Documentary credits
- Remittances
- Tools handled among banks exclusively
- Insurance policies
- Rights from pension funds to beneficiaries
3-1 Bank Check
Check is a commercial paper written as per the data stipulated under. The check is an unconditional order from the “drawer” to the drawee” or to bearer. The check is payable on sight.
Kuwaiti Commercial Companies Law allows the release of check amount on sight even if the date written on the check has not come yet. A check must be withdrawn to a bank and the amount must be available on the account in bank at the time of issuing the check otherwise it is considered a crime of issuing a check against no balance.
The penalty of check against no balance has become a misdemeanor under law No. 84 issued in 2003. However, the legislators give the check a legal protection. Legislators consider that just signature on the check even without balance available at the drawee’s bank shall deem it as legal check regardless of the drawer’s intention. Thus the check was and is still a tool of payment like cash in commercial transactions
3-2 Bills
The bill is the oldest types of financial securities. It is a commercial paper that include a written unconditional order with specific date issued by the drawer (the bill issuer) by which another party (drawee) undertakes to pay a certain amount of money to a third party (beneficiary) on sight. The transaction parties of a bill may be two or three parties.
3-3 Promissory Note
The promissory note is a type of financial papers. It is an unconditional instrument issued as per the information stipulated under law by the drawer (the issuer) to pay to another party (drawee) a certain amount of money. The transaction parties of promissory note are two only.
3-4 Trust Receipt
Trust Receipt is a commercial paper in transactions. Law considers trust receipt as a deposit contract where the amount mentioned in the receipt is handed over to the debtor by way of deposit or trust. The debtor shall pay the amount to its owner on demand or at the date specified in the receipt.
Trust receipt is also subject to Kuwaiti Penal Law like checks. Accordingly, in case of default of the trust receipt value, the perpetrator is considered to have committed a dishonesty crime like the crime of issuing a check against no balance. Article 240 of the Penal Law stipulates that:
« A punishment of imprisonment for a term not exceeding three years and a fine not exceeding three thousand rupees, or both shall be imposed on anyone who acquires money owned by others, based on deposit, rent, mortgage, agency or anyone else providing account for this use, or based on a legal provision or a court order, that takes over that money for himself or disposes it off for his own interest or intentionally spoils that money»
At maturity date, if the debtor or the nominee has not paid back the amount, he shall be considered dishonest and shall be punished as honesty violator.
3-5 Debt Declaration
Debt declaration is a commercial paper for commercial transactions. Debt declaration is a formal undertaking of payment issued by a competent employee at the Ministry of Justice at the request of the debtor and his acceptance of the debt. All necessary information shall be included such as the name of creditor, the amount and date of payment. In most cases, all debt declarations are concluded with a writ of execution. As such, if the debtor does not repay at maturity, the creditor does not needs to have a judgment from the court, but can get all executive actions against the debtor such as travel ban and seizure on bank accounts, cars and movables. However, no arrest and imprisonment of the debtor can be executed as such actions are only taken after issuing a legal judgment.
Legal proceedings to be taken by the creditor for judicial collection of commercial papers
In case of debtor’s default to repay the aforesaid commercial papers, the beneficiary shall have the right to resort to court to get its rights established by check, bill of exchange, promissory note or the trust receipt by issuing payment order by the court against the debtor in accordance with Article 166 of the Procedure Law which has taken into account simplifying the procedures and quick decision on payment order to protect the rights. It stipulated:
«The debt shall be an amount of money such as a loan or a check or a bill of exchange, and to be of certain amount, matured and established by an official or customary paper signed by the debtor».
In case of meeting all the above conditions, a payment order is issued against the debtor.
Debtor grievance against the payment order
Law has given the debtor, against whom a payment order has been issued, the right to challenge the order through the grievance or appeal if grievance timings overdue. The debtor’s submits its grievance within ten days from the date of notifying the debtor with the issue of the payment order. The appeal shall be submitted within 40 days of notifying of the payment order because grievance period is ten days plus thirty more days for appeal. During that period, the debtor may file a grievance against the payment order. - The difference between the financial securities and commercial papersThe differences between financial securities and commercial paper are as follows:
S. Description Financial securities Commercial papers 1. Issuer Financial securities are issued in bulks by government bodies, institutions and are traded by organizations and people. Commercial papers are issued when necessary by institutions / persons for the benefit of institutions / persons 2. Conditional or not Financial securities may be conditional Commercial papers are unconditional otherwise, they loses their characteristics as commercial papers 3. Issue objectives They are either to invest in the company’s capital or its financing, in the form of a loan, to meet the company’s financing needs These are instruments issued for settlement of a specific commitment as a result of commercial trading; such as payment of the price of goods or services 4. Issue value Equal in value at each issue The value varies at each issue 5. Trading markets Negotiable and traded in markets Non-negotiable, with no markets to be traded in. 6. Term These represent a short, medium and long term investment tools. Short-term (from one day to 270 days) 7. Interest bearing Financial securities do not bear interest but are subject to the performance of the securities and the terms of the maturity. The debtor and creditor may agree for charging interest for the term on the commercial paper 8. Discount at banks Non-discountable at banks Discountable at banks 9. Use for debt settlement Financial securities are not acceptable as a method for debt settlement because they are vulnerable to price fluctuations. Acceptable as a method for debt settlement because of their value stability. 10. Recoverability The buyer of a financial security does not guarantee the financial solvency of the issuer for recovery of the same value. The issuer of a commercial paper guarantees settlement of the amount at maturity otherwise prevented by the issuer bankruptcy. 11. Validity Financial securities are valid unless invalidated by law. The rights under commercial paper are subject to prescription after a relatively long period, (for example five years) determined by the legislative system in each country.
Sunday, November 29, 2015
Differences between Securities and commercial papers as per Kuwait legislations
Sunday, November 1, 2015
CMA Decision 72 of 2015 regarding issuance of Executive Regulations ofLaw 7 of 2010
Issuance of Regulations
Capital Markets Authority (CMA) has issued new Executive Regulations of the law establishing the Capital Markets Authority. The new Executive Regulations were published in a special edition number (1261) of the Al Kuwait Al Yawm official gazette issued on 10/11/2015, coinciding with the enforcement of Law No. 22 of 2015 amending certain provisions of Law No. 7 of 2010 on the establishment of Capital Markets Authority and Regulation of the Securities Activity. The new Executive Regulations were issued in 16 volumes comprising 1665 articles.
Enforcement of Regulations
The Executive Regulations shall come into force commencing the date of issuance on 10/11/2015, thus all the rules and instructions issued by CMA in the past would be nullified after they have been reviewed and included in the new regulations. The new Regulations shall comprise all amendments and updates that CMA may issue in the future, thereby reference to these provisions shall be integrated into one source and become easy to handle with consistency established.
Transitional provisions for the application of Regulations
The CMA has taken into account the transitional periods required by the concerned persons targeted by the provisions of the Regulations either with respect to any new requirements or additional obligations that were not set forth in the previous instructions and resolutions. Regulations have granted appropriate grace period extending to more than a year to meet these requirements and obligations. The CMA corporate governance rules shall apply as from 30 June 2016 as scheduled.
Resolution to issue Regulations
CMA has been keen to include several details - regarding resolutions that were nullified - in the resolution No. 72 of 2015, where the resolution included the following:-
- Appendix No. (1): resolutions and instructions of CMA and the CMA Board of Commissioners which have been nullified.
- Appendix No. (2): The Kuwait Stock Exchange resolutions that were nullified.
- Appendix No. (3): Concerning transitional provisions, which are 44 articles comprise spread in overall volumes of the Regulations and those provisions setup the roadmap with regard to privatization of the stock exchange and requirements upgrade the work of clearing company. Those provisions clarify as well periods of regularization for companies licensed by CMA to meet the new requirements.
- Transitional provisions have stated to allow the activity of the market maker for a maximum period of one year from issuance of the Executive Bylaws. Transitional provisions have obligated the stock exchange and clearing agency to fulfil all the necessary requirements for this activity within one year from the issuance of Regulations.
The most important dates by which the Regulations shall become effective
The following are the earliest dates by which the requirements of Regulations shall be applied:
- Clause 35 of appendix No. 3: Rules of competence and integrity shall apply immediately and directly on the persons who apply for registration or nomination for positions with due registration after the issuance of this bylaws i.e. on 09/11/2015
- Clause 40 of the Volume 11: The provisions of articles (9-13), (9-14) and (9-15) shall apply on pledge contracts concluded after the issuance of regulations i.e. on 09/11/2015
- Clause 39 of the Volume 9: Mergers and acquisitions: Periods stipulated in Article (3-6) are calculated for the buying and selling rate allowed for the controller of the listed company effective 01/01/2016
- Clause 43 of the Volume 13: Collective Investment Systems: The monthly information form contained in Appendix 5 of the volume 12 shall come into force on 01/01/2016
Thursday, October 1, 2015
Business Tax Bill in Kuwait Moves at Faster Pace
Tax application in Kuwait is renewed issue that emerges on the surface from time to time. The reasons for its emergence always come to light when talking about diversification of the non-oil sources of income. Recently there has been serious debate about this issue when global oil prices dropped by about 60%, where price per barrel was above $100, to slip to about $42 currently
The problem lies in that such decline is not accidental. Yet, it occurred to continue for a long time, and as per the global expert reports, may only reverse back to normal within the next decade.
In line with this fact, the annual budgets of oil countries, including the State of Kuwait, will be vulnerable to deficit in revenues, which finance the state operating expenses, in addition to funding the state development plan.
To bridge the deficit in the sources of financing the state budget, governments often resort to several alternatives. These are:
A study conducted by the International Monetary Fund (IMF), upon the request of the Ministry of Finance, proposed an annual percentage on the business profit that is acceptable and tolerable by the business circles, to be imposed on all companies, with no exception, thus achieving justice to the categories subject thereto.`
Upon enforcement of the business tax law, all types of currently imposed taxes will be canceled. These are:
15% income tax on foreign companies;
2.5% Manpower support tax;
1% Zakat, and
1% contribution to Kuwait Foundation for the Advancement of Science (KFAS)
Generally speaking, the creation of an inclusive and fair tax system in the State of Kuwait is based on a developmental perspective, considers the requirements of globalization and open-door policy, accommodates new trends in this respect, and achieves the objectives of the developmental plans, provided that such tax system will be carefully studied, realizes the economic implications. It should also consider the impact on the state’s need to provide additional sources of income, enabling it to extend distinct public services.
According to the Cabinet Resolution assigning the Minister of Finance to commence implementation and preparation of studies necessary to create business tax, IMF mission concerned with the preparation of a study on the business tax bill met several entities meant with the economic affairs, during the period 10-15 September 2015. Those include: Kuwait Chamber of Commerce and Industry, and Financial and Economic Affairs Committee of the Parliament.
The business tax bill aims at raising the degree of justice in the imposition of tax on business profit. The business tax may generate additional revenue of up to KD 1b a year. Although slight, compared to the total state budget, this stream of income is significant in inducing the tax system to perform its role within the framework of the overall state financial policy.
IMF report suggests 1st April 2016 as the date when the business tax shall come into force. This means that the business tax shall apply to the profits generated in the state fiscal year commencing 1st April 2016.
The problem lies in that such decline is not accidental. Yet, it occurred to continue for a long time, and as per the global expert reports, may only reverse back to normal within the next decade.
In line with this fact, the annual budgets of oil countries, including the State of Kuwait, will be vulnerable to deficit in revenues, which finance the state operating expenses, in addition to funding the state development plan.
Financing Budget Deficit
To bridge the deficit in the sources of financing the state budget, governments often resort to several alternatives. These are:
- Reducing items of state public expenditure.
- Reconsidering the government subsidy system, especially in relation to energy subsidy.
- Regulating the development projects, and focusing on the profitable projects.
- Privatizing the government entities.
- Imposing tax on companies.
- Imposing tax on individuals.
- Government borrowing.
10% Proposed Business Tax
A study conducted by the International Monetary Fund (IMF), upon the request of the Ministry of Finance, proposed an annual percentage on the business profit that is acceptable and tolerable by the business circles, to be imposed on all companies, with no exception, thus achieving justice to the categories subject thereto.`
Cancelation of all Currently Applicable Taxes
Upon enforcement of the business tax law, all types of currently imposed taxes will be canceled. These are:
15% income tax on foreign companies;
2.5% Manpower support tax;
1% Zakat, and
1% contribution to Kuwait Foundation for the Advancement of Science (KFAS)
Economic Features of the Proposed Tax Bill
- Achieves justice in local application by subjecting all local companies to the tax.
- Achieves justice between local and foreign companies operating in Kuwait through equal treatment.
- Will attract foreign investment to Kuwait, where the tax rate is the least in the Gulf region, yet and localize such investment.
Generally speaking, the creation of an inclusive and fair tax system in the State of Kuwait is based on a developmental perspective, considers the requirements of globalization and open-door policy, accommodates new trends in this respect, and achieves the objectives of the developmental plans, provided that such tax system will be carefully studied, realizes the economic implications. It should also consider the impact on the state’s need to provide additional sources of income, enabling it to extend distinct public services.
IMF Team Presents the Bill to the Competent Authorities
According to the Cabinet Resolution assigning the Minister of Finance to commence implementation and preparation of studies necessary to create business tax, IMF mission concerned with the preparation of a study on the business tax bill met several entities meant with the economic affairs, during the period 10-15 September 2015. Those include: Kuwait Chamber of Commerce and Industry, and Financial and Economic Affairs Committee of the Parliament.
Business Tax Bill to Provide a Non-Oil Income of Nearly KD 1b a Year
The business tax bill aims at raising the degree of justice in the imposition of tax on business profit. The business tax may generate additional revenue of up to KD 1b a year. Although slight, compared to the total state budget, this stream of income is significant in inducing the tax system to perform its role within the framework of the overall state financial policy.
Tax Enforcement
IMF report suggests 1st April 2016 as the date when the business tax shall come into force. This means that the business tax shall apply to the profits generated in the state fiscal year commencing 1st April 2016.
Tuesday, September 29, 2015
A Set of Core Changes to the Application of FATCA
The governments of the State of Kuwait and the USA, on 29 April 2015, signed agreement on improving international tax compliance and application of the Foreign Accounts Tax Compliance Act (FATCA). The agreement stipulates that all financial institutions operating in the State of Kuwait shall comply with the requirements of the report issued by the US Internal Revenue Service, and the reporting according to FATCA. Under the agreement, all financial institutions in Kuwait shall exert due diligence by reviewing and identifying the financial accounts that belong to US persons. Following this, they shall transmit the information relating to those accounts to the Ministry of Finance (MoF) in the State of Kuwait, who, in turn, shall transmit the same information to the US IRS.
As the government of the State of Kuwait signed this agreement, Ministerial Resolution No. 48 of 2015 was issued regarding the provisional guidelines to implement the requirements of FATCA in the State of Kuwait. The Resolution was published in the Official Gazette on Sunday, 13 September 2015.
Hisham Sorour, Managing Partner of Baker Tilly, stated that as the Resolution contained obligatory details, Baker Tilly Audit, Tax and Consulting, conducted analysis of the Ministerial Resolution to highlight the new features and timelines contained therein, so as to facilitate follow-up of the resolution by the concerned persons.
The new feature in the Resolution is that the Ministry of Finance, in collaboration with the regulators in the State of Kuwait, shall take over supervision and collection of information on the compliance with FATCA according to the relevant agreement, instead of direct reporting by the financial institution to IRS. The aim is to standardize the compliance requirements at all financial institutions, whereby variance between such institutions in fulfilling the FATCA requirements can be avoided, eventually maintaining the financial reputation of the institutions, in particular, and the financial reputation of the State of Kuwait, in general, at a global level.
Regular Reports and Certificates by Accredited Audit Firms
The Ministerial Resolution, in Article 2 thereof, stipulates that the financial institutions subject to FATCA scope of application shall issue two types of reporting, which should be approved by an audit firm accredited by the Coordinating Committee for Concluding the FATCA Inter-Governmental Agreement (IGA). These are: financial institution rating accreditation certificate according to FATCA agreement, and the approval of the report issued by IRS from the technical perspective according to FATCA requirements. Also, an annual certificate, or as requested, shall be submitted on the financial institution’s compliance with FATCA requirements and the proper monitoring by an audit firm accredited by the Coordinating Committee for Concluding the IGA.
The Ministerial Resolution covers a set of core changes, representing preparedness to implement MoF’s reporting mechanism, instead of sending the reports to IRS, and compliance with the minimum information received under the Know Your Customer “KYC” document (individuals) in each financial institution. MoF will advise all financial institutions of the reporting guidelines and transmission mechanism.
31 December 2015 Deadline for Meeting IGA Requirements
Article 3 of the Resolution stipulates a number of deadlines to be met by the financial institutions. These cover 4 actions: amending the individual and corporate account opening procedures, and registration with IRS. Such obligations commenced 1 July 2014 and the deadline was 30 June 2015. In the event of failure by the financial institution to meet such deadlines, they shall instantly fulfill all obligations preceding 31 December 2015, in all cases.
$250,000 for Corporate, $50,000 for Individuals
Article 2 of the Resolution species the amounts to be reviewed in the US entities operating in the State of Kuwait, having one or more accounts, totaling over $250,000, or equivalent in other currencies, as of 30 June 2014. For individuals subject to FATCA, having one or more accounts, totaling $50,000 – $1,000,000, or equivalent in other currencies, as of 30 June 2014. Review shall be completed no later than 30 June 2016.
Tightening Required Customer Information
Article 4 of the Resolution states the minimum information on customers that financial institutions must obtain when opening new accounts or updating their information.
In the event of corporate accounts, the Resolution requires using Attachment 5 of the Resolution, i.e. FATCA Self Certification, and independent document among the procedures applied to identify all customers when opening the account and/or updating information.
In the event of individual accounts, the Resolution refers to Attachment 3, representing the minimum information received among the “KYC” document, and Attachment 4 if there are positive indications to subjection to FATCA.
Obligation by End of September 2015
Article 4 of the Resolution obliges the financial institution to identify an employee, and a substitute to ensure implementation of all FATCA requirements in the financial institution, and notifying MoF, with an official letter, no later than 30 September 2015, as well as notifying the supervising regulator.
Banking Secrecy
While the general legal principle, stipulating localization of laws, the US imposed FATCA as the first global act that aims at combating tax evasion, and to enhance tax transparency, making financial secrecy, in general, and banking secrecy, in particular, an obligation that does not conflict with tax transparency, thus classifying tax evasion as a crime to be combated by all global parties.
It is worth mentioning that FATCA is a set of policies and procedures circulated by IRS, especially designed to mitigate tax evasion by US persons. The application of FATCA obliges financial institutions, i.e. banks, investment companies, trustees, securities custodians, mutual funds, credit companies, insurance and re-insurance companies, at local or global levels, to comply with those policies and procedures issued by IRS. Otherwise, they will sustain financial losses and local penalties that may affect their local business, even if they have not US customers or dealings with the US.
Baker Tilly Team and Services
In this context, Baker Tilly Kuwait has formed a global team, including tax consultants from Baker Tilly International Network in the US, to provide consulting, audit and training services to financial institutions operating in the State of Kuwait.
As the government of the State of Kuwait signed this agreement, Ministerial Resolution No. 48 of 2015 was issued regarding the provisional guidelines to implement the requirements of FATCA in the State of Kuwait. The Resolution was published in the Official Gazette on Sunday, 13 September 2015.
Hisham Sorour, Managing Partner of Baker Tilly, stated that as the Resolution contained obligatory details, Baker Tilly Audit, Tax and Consulting, conducted analysis of the Ministerial Resolution to highlight the new features and timelines contained therein, so as to facilitate follow-up of the resolution by the concerned persons.
The new feature in the Resolution is that the Ministry of Finance, in collaboration with the regulators in the State of Kuwait, shall take over supervision and collection of information on the compliance with FATCA according to the relevant agreement, instead of direct reporting by the financial institution to IRS. The aim is to standardize the compliance requirements at all financial institutions, whereby variance between such institutions in fulfilling the FATCA requirements can be avoided, eventually maintaining the financial reputation of the institutions, in particular, and the financial reputation of the State of Kuwait, in general, at a global level.
Regular Reports and Certificates by Accredited Audit Firms
The Ministerial Resolution, in Article 2 thereof, stipulates that the financial institutions subject to FATCA scope of application shall issue two types of reporting, which should be approved by an audit firm accredited by the Coordinating Committee for Concluding the FATCA Inter-Governmental Agreement (IGA). These are: financial institution rating accreditation certificate according to FATCA agreement, and the approval of the report issued by IRS from the technical perspective according to FATCA requirements. Also, an annual certificate, or as requested, shall be submitted on the financial institution’s compliance with FATCA requirements and the proper monitoring by an audit firm accredited by the Coordinating Committee for Concluding the IGA.
The Ministerial Resolution covers a set of core changes, representing preparedness to implement MoF’s reporting mechanism, instead of sending the reports to IRS, and compliance with the minimum information received under the Know Your Customer “KYC” document (individuals) in each financial institution. MoF will advise all financial institutions of the reporting guidelines and transmission mechanism.
31 December 2015 Deadline for Meeting IGA Requirements
Article 3 of the Resolution stipulates a number of deadlines to be met by the financial institutions. These cover 4 actions: amending the individual and corporate account opening procedures, and registration with IRS. Such obligations commenced 1 July 2014 and the deadline was 30 June 2015. In the event of failure by the financial institution to meet such deadlines, they shall instantly fulfill all obligations preceding 31 December 2015, in all cases.
$250,000 for Corporate, $50,000 for Individuals
Article 2 of the Resolution species the amounts to be reviewed in the US entities operating in the State of Kuwait, having one or more accounts, totaling over $250,000, or equivalent in other currencies, as of 30 June 2014. For individuals subject to FATCA, having one or more accounts, totaling $50,000 – $1,000,000, or equivalent in other currencies, as of 30 June 2014. Review shall be completed no later than 30 June 2016.
Tightening Required Customer Information
Article 4 of the Resolution states the minimum information on customers that financial institutions must obtain when opening new accounts or updating their information.
In the event of corporate accounts, the Resolution requires using Attachment 5 of the Resolution, i.e. FATCA Self Certification, and independent document among the procedures applied to identify all customers when opening the account and/or updating information.
In the event of individual accounts, the Resolution refers to Attachment 3, representing the minimum information received among the “KYC” document, and Attachment 4 if there are positive indications to subjection to FATCA.
Obligation by End of September 2015
Article 4 of the Resolution obliges the financial institution to identify an employee, and a substitute to ensure implementation of all FATCA requirements in the financial institution, and notifying MoF, with an official letter, no later than 30 September 2015, as well as notifying the supervising regulator.
Banking Secrecy
While the general legal principle, stipulating localization of laws, the US imposed FATCA as the first global act that aims at combating tax evasion, and to enhance tax transparency, making financial secrecy, in general, and banking secrecy, in particular, an obligation that does not conflict with tax transparency, thus classifying tax evasion as a crime to be combated by all global parties.
It is worth mentioning that FATCA is a set of policies and procedures circulated by IRS, especially designed to mitigate tax evasion by US persons. The application of FATCA obliges financial institutions, i.e. banks, investment companies, trustees, securities custodians, mutual funds, credit companies, insurance and re-insurance companies, at local or global levels, to comply with those policies and procedures issued by IRS. Otherwise, they will sustain financial losses and local penalties that may affect their local business, even if they have not US customers or dealings with the US.
Baker Tilly Team and Services
In this context, Baker Tilly Kuwait has formed a global team, including tax consultants from Baker Tilly International Network in the US, to provide consulting, audit and training services to financial institutions operating in the State of Kuwait.
Wednesday, July 1, 2015
The International Accounting Standards Board (IASB) publishedConceptual Framework Exposure Draft
On 28 May 2015 the International Accounting Standards Board (IASB) published for public comment an Exposure Draft proposing a revised Conceptual Framework for Financial Reporting. The proposals aim to improve financial reporting by providing a more complete, clearer and updated set of concepts that can be used by:
This Exposure Draft:
The IASB is seeking comments on this Exposure Draft by 26 October 2015.
- the IASB when it develops International Financial Reporting Standards (IFRS); and
- others to help them understand and apply those Standards.
This Exposure Draft:
- is more complete than the existing Conceptual Framework because it addresses the following areas that are either not covered, or not covered in enough detail, in the existing Conceptual Framework:
- measurement;
- financial performance (including the use of other comprehensive income);
- presentation and disclosure;
- derecognition; and
- the reporting entity.
- clarifies some aspects of the existing Conceptual Framework. For example, this Exposure Draft:
- clarifies that the information needed to meet the objective of financial reporting includes information that can be used to help assess management’s stewardship of the entity’s resources;
- explains the roles of prudence and substance over form in financial reporting;
- clarifies that a high level of measurement uncertainty can make financial information less relevant;
- clarifies that important decisions on, for example, recognition and measurement, are driven by considering the nature of the resulting information about both financial performance and financial position; and
- provides clearer definitions of assets and liabilities and more extensive guidance to support those definitions.
- updates the parts of the existing Conceptual Framework that are out of date. For example, this Exposure Draft clarifies the role of probability in the definitions of assets and liabilities.
Comment letters
The IASB is seeking comments on this Exposure Draft by 26 October 2015.
Monday, June 1, 2015
Mandatory Offer by Al-Ahleya Insurance Co. KSCP To the Shareholders ofKuwait Reinsurance Company KSCP For Acquisition for those willing tosell their shares at 200 Fils
Al-Ahleya Insurance Company obtained Capital Markets Authority (CMA) approval of “Mandatory Acquisition Offering Document” offered to shareholders of the Reinsurance Company.
According to this approval, Al-Ahleya Insurance Company, on 7 June 2015, offered the purchase of the remaining shares of the Reinsurance company, at the rate of 200 Fils per share, allowing the company to increase its state of 29.998 per cent. The period of mandatory offer commences 16 June (current) and ends on 16 July. The Kuwait Financial Center Co. shall act as Manager for Al-Ahleya Insurance Company’s acquisition of the shares of Reinsurance Co.
CMA Kuwait rules obliges anyone who wishes to acquire 30 per cent and more of the shares of a listed company, or having 30 per cent and more thereof, and is willing to acquire more, to provide a mandatory offer to acquire all shares from all shareholders willing to sell at the same rate and under the same conditions.
Kuwait Reinsurance Company has a capital of KD 15 million ($49.5 million) divided into 150 million shares. At the latest transaction, price per share was 186 Fils. This transaction took place on 7 May 2015.
According to Kuwait Stock Exchange’s data, the Reinsurance Company is 40% owned by Trans Atlantic Insurance Company – New York, 10% by Kuwait Investment Company (KIC), and 5% by Kuwait Insurance Company.
According to this approval, Al-Ahleya Insurance Company, on 7 June 2015, offered the purchase of the remaining shares of the Reinsurance company, at the rate of 200 Fils per share, allowing the company to increase its state of 29.998 per cent. The period of mandatory offer commences 16 June (current) and ends on 16 July. The Kuwait Financial Center Co. shall act as Manager for Al-Ahleya Insurance Company’s acquisition of the shares of Reinsurance Co.
CMA Kuwait rules obliges anyone who wishes to acquire 30 per cent and more of the shares of a listed company, or having 30 per cent and more thereof, and is willing to acquire more, to provide a mandatory offer to acquire all shares from all shareholders willing to sell at the same rate and under the same conditions.
Kuwait Reinsurance Company has a capital of KD 15 million ($49.5 million) divided into 150 million shares. At the latest transaction, price per share was 186 Fils. This transaction took place on 7 May 2015.
According to Kuwait Stock Exchange’s data, the Reinsurance Company is 40% owned by Trans Atlantic Insurance Company – New York, 10% by Kuwait Investment Company (KIC), and 5% by Kuwait Insurance Company.
Sunday, May 31, 2015
Differences and similarities between Internal and External Audit activities
The term “Audit”, with the advancement of knowledge, has become a word that needs definition to understand what it means.
Of the most prevalent audit types are financial audit, which is usually called External Audit, and Internal Audit.
Financial audit is an important activity used by business entities to express an opinion on the validity and fair presentation of the Financial Statements.
Meanwhile, Internal Audit is an important tool used to verify integrity of internal control systems and their implementation, thus achieving internal control.
There are broad differences between both types of audit. However, both are integral to each other. The following illustrates the differences and similarities between both types:
Differences
1. Mandatory Application
2. Conducted By
3. Appointed by, reporting to and responsible before
4. Objective
5. Scope of Audit
6. Binding Standards
7. Binding rules and regulations
8. Period of audit
9. Approach
10. The final report
11. Recipients of the report
12. Public disclosure
13. Service Nature
14. Staffing
15. Career path
Similarities
Similarities between internal and external audit are as follows:
Of the most prevalent audit types are financial audit, which is usually called External Audit, and Internal Audit.
Financial audit is an important activity used by business entities to express an opinion on the validity and fair presentation of the Financial Statements.
Meanwhile, Internal Audit is an important tool used to verify integrity of internal control systems and their implementation, thus achieving internal control.
There are broad differences between both types of audit. However, both are integral to each other. The following illustrates the differences and similarities between both types:
Differences
1. Mandatory Application
Internal Audit | External Audit | |
Statuary to listed companies and companies licensed by Capital Markets Authority (CMA).However, it is voluntary for other forms of legal entities | Statuary to all business entities. |
2. Conducted By
Internal Audit | External Audit | |
Employees of the organization, usually an internal auditing department.However, there is an increasing number of outsourced, or co-sourced internal audit functions, where internal audit service is provided by an external entity | For the companies subject to CMA and CBK supervision Independent third-party auditors licensed by regulator, including Ministry of Commerce and Industry, Capital markets Authority, and Central Bank of Kuwait (CBK).For other business entities:Independent third party auditors licensed by the Ministry of Commerce and Industry only. |
3. Appointed by, reporting to and responsible before
Internal Audit | External Audit | |
Board of directors. | Shareholders. |
4. Objective
Internal Audit | External Audit | |
Seeks to advise the board of directors on whether the entity’s major operations:
| Seeks to provide positive assurance that accounting records and financial statements are true and accurate |
5. Scope of Audit
Internal Audit | External Audit | |
Covering all organizational units | Limited to financial unit |
6. Binding Standards
Internal Audit | External Audit | |
No binding standards in Kuwait. However, best practices are applied such as:
| From the perspective of accounting
From the perspective of external audit
|
7. Binding rules and regulations
Internal Audit | External Audit | |
For companies subject to CMA and CBK supervision
For other business entities None | For companies subject to CMA and CBK supervision
For other business entities Companies Law 25/2012 |
8. Period of audit
Internal Audit | External Audit | |
Annually for all companies subject to CMA and CBK to cover the financial year of the companyQuarterly is not mandatory, but normally required by companies for internal use For other business entities No internal audit services are mandated.However, voluntary internal audit services can apply. | Annually for all companies as per the regulations of the Ministry of Commerce and Industry Quarterly to meet the requirements of CMA & CBK For other business entities Annually as per the financial year set forth in the company memorandum of association to comply with the requirements of Ministry of Commerce and Industry. |
9. Approach
Internal Audit | External Audit | |
Risk based approach, covering business risks | Risk based approach, covering risks of material financial misstatement. |
10. The final report
Internal Audit | External Audit | |
Customized report format;Forms an opinion on the adequacy and effectiveness of risk management systems and internal control, many of which fall outside the main accounting systems. | Standardized report in a format required by Auditing Standards, consisting of two main parts:One part focuses on whether the financial statements give a true and fair view of the financial position of the entityThe other part covers the entity’s compliance with legal and regulatory requirements |
11. Recipients of the report
Internal Audit | External Audit | |
|
|
12. Public disclosure
Internal Audit | External Audit | |
Not applicable | Mandatory for listed companies |
13. Service Nature
Internal Audit | External Audit | |
Consulting | Assurance |
14. Staffing
Internal Audit | External Audit | |
Any university degree trained in internal Auditing | University degree in accounting |
15. Career path
Internal Audit | External Audit | |
Professional certificate as:Certified Internal Auditor (CIA) | Professional certificate as:Certified Public Accountant (CPA) or Chartered Accountant (CA).Academically: Masters/PhD in Accounting |
Similarities
Similarities between internal and external audit are as follows:
- Testing
Both the external and internal auditors carry out testing routines and this may involve examining and analyzing many transactions. - Internal Control Systems
The internal auditor and the external auditor are concerned with authenticated procedures, organization’s systems of internal control and relevant implementation. Further, both tend to be deeply involved in information systems, since this is a major element of managerial control, as well as being fundamental to the financial reporting process. - Standards
Both adopt a professional discipline and operate to professional standards. - Cooperation
Both seek active co-operation between the two functions, as they are inter-dependable. - Reporting
Both produce formal audit reports on their activities.
- Testing
Thursday, May 28, 2015
Low Cost Housing PPP Project
An invitation from the Public Authority for Housing Welfare (PAHW) in the State of Kuwait has been published in Al Kuwait Al Youm (official gazette), Volume No. 1147 dated 1 September 2013, inviting Baker Tilly Kuwait consortium and other consortiums to participate in the contest to provide consultancy services to develop the tendering documents, and incorporate a company for the construction, operation, and maintenance of the Low Cost Housing Project in Kuwait.
This low cost housing project will be based on Public Private Partnership (PPP). This project comes under the Kuwait Development Plan (KDP) 2030.
The Kuwait government encourages achieving such mega projects with the participation of the private sector through Public Private Partnership (PPP).
PAHW has set 20 October 2013 as the deadline to submit the technical and financial proposals.
Source: Kuwait Gazette, Dated: 01 September 2013, Page No. 38
This low cost housing project will be based on Public Private Partnership (PPP). This project comes under the Kuwait Development Plan (KDP) 2030.
The Kuwait government encourages achieving such mega projects with the participation of the private sector through Public Private Partnership (PPP).
PAHW has set 20 October 2013 as the deadline to submit the technical and financial proposals.
Source: Kuwait Gazette, Dated: 01 September 2013, Page No. 38
Solid Waste Management Project
Partnership Technical Bureau (PTB) invited, on 15 September 2013, investors of competent local, regional and global companies to express their interest of participation in the municipal solid waste management project. The deadline for receiving the Expression of Interest (EOI), as specified by PTB, is 17 November 2013.
PTB announced features of this investment opportunity for investors as follows:
Project objective : Treatment of municipal (household) solid waste in the State of Kuwait in accordance with best international systems, to protect environment and natural resources, and reduce lands wasted in landfill areas at its current status.
Project Location and Area : Kabd area, 25 kilometers from Kuwait City, with estimated total area of 500,000 square meters
Scope of Solid Waste Management :
Project Business Model :
Waste Recycling Capacity : 3,000 ton per day
It is worth mentioning that PTB has signed a contract with Baker Tilly Kuwait to accomplish the consultancy study for this project. Baker Tilly Kuwait is a member of UK-based Baker Tilly International, the world’s 8th largest audit, tax and consulting network in terms of revenue.
Source: PTB’s Advertisement in Al-Qabas newspaper dated 15 September, Economics Section, Page 33
PTB announced features of this investment opportunity for investors as follows:
Project objective : Treatment of municipal (household) solid waste in the State of Kuwait in accordance with best international systems, to protect environment and natural resources, and reduce lands wasted in landfill areas at its current status.
Project Location and Area : Kabd area, 25 kilometers from Kuwait City, with estimated total area of 500,000 square meters
Scope of Solid Waste Management :
- Waste treatment by sorting of recyclable waste
- Burning of residue waste using incinerators, to be converted into electrical power
- Ensuring that the final residue from the incinerators is interred in approved landfill areas
Project Business Model :
- Design, finance, build, operate, maintain and transfer, in accordance with Public-Private Partnership (PPP) program, for 25 years in addition to a 4-year period for designing and building, as provided by Law No. 7 of 2008
- Ministry of Electricity and Water (MEW) will purchase electric power produced
Waste Recycling Capacity : 3,000 ton per day
It is worth mentioning that PTB has signed a contract with Baker Tilly Kuwait to accomplish the consultancy study for this project. Baker Tilly Kuwait is a member of UK-based Baker Tilly International, the world’s 8th largest audit, tax and consulting network in terms of revenue.
Source: PTB’s Advertisement in Al-Qabas newspaper dated 15 September, Economics Section, Page 33
Public Private Partnership Law Enacted
State of Kuwait seeks to create appropriate investment climate through suitable investment opportunities that allow the attraction of private equity, up-to-date technology and knowledge by implementing strategic projects based on Public Private Partnership (PPP) schemes. In addition to providing citizens with opportunities to participate in such project, promote savings and realize additional income sources.
In this connection, State of Kuwait enacted Law No 116 of 2014 regarding Public Private Partnership (PPP) on 23rd July 2014. The Law was published on the official gazette “Kuwait Al-Youm” on volume No. 1197 dated 17th August 2014.
Issuance of such a Law is a logical development to treat certain gaps in Law No. 7 of 2008 concerning regulation of B.O.T, and other similar schemes, and certain provisions of Law Decree No. 105 of 1980 regarding State Property.
The Law contains 48 articles, where Article (46) thereof obliges Minister of Finance to issue the Executive Regulations within 6 months from the publishing date thereof on the Official Gazette.
Law No 116 of 2014 regarding Public Private Partnership established a set of new criteria that can be summarized as follows:
1. Correction of generic title of the law:
The Law was titled Public Private Partnership. It pointed out that B.O.T. and all other similar schemes are types of schemes that fall under the title “Public Private Partnership” scheme.
2. Formation of Supreme Committee on PPP projects and defining its functions:
Article (2) of the Law sets out the formation of Supreme Committee on PPP Projects and defines its functions. Such Committee shall replace Supreme Committee on Projects constructed on the State’s real estate properties, which was formed pursuant to Decree No 145 of 2008. It shall undertake functions and powers of the Authority Board of Directors.
3. Creation of a Public Authority named PPP projects authority and defining its functions:
Article (4) of the Law sets out the creation of such authority, which shall replace “Partnerships Technical Bureau”, in order to legalize the status of the entity that will offer partnership projects given its multiple technical, preparatory, or executive responsibilities.
4. Regularization of the status of projects existing prior to effective date of the law:
Article (7) of the Law addresses the contracts concluded in accordance with the partnership scheme prior to the effective date of the Law emphasizing its implementation. Thereof as per the terms contained internally and in order to maintain stability of existing legal positions and apply the basic principle of “pacta sunt servanda” or “the consent makes the law”; provided that such contracts shall be terminated upon expiry of the term thereof as set forth in the respective contract and may not be extended or renewed in violation of the provisions of this Law.
5. Offering PPP projects with total cost not exceeding KD 60 million through competition. An investor may hold the entire share capital of the project company:
Article (12) of the Law handles the PPP projects with total cost not exceeding KD 60 million where it assigns the Authority to cooperate with the public entity in offering such projects through a competition among the investors interested in investing in the project. The successful investor may incorporate the project company or consortium company.
It is self-evident that the successful investor or consortium in this case will hold the entire share capital of the project company.
Needless to mention that the provision permitting the successful investor to solely incorporate the project company and possess its entire capital is an exception to the basic rule set forth under Companies Law No 25 of 2012, as amended, concerning the minimum number of incorporators and shareholders in a shareholding closed company. The same provision shall apply to the consortium company if the parties to the consortium are less than the minimum limit required for incorporating and holding the entire share capital of via closed shareholding company in accordance with Companies Law.
6. Empowering PPP projects authority to subscribe for the share allocated to the citizens:
Article (14) of the Law sets forth that the Authority shall subscribe for the share allocated to the citizens pending the project operation, particularly that the project is not expected to generate any revenues before this. The Authority is also authorized to subscribe for the share allocated to public bodies in order to maintain integrity of the company’s capital and eliminate obstacles hindering the incorporation of public shareholding companies, and hence determine the method whereby such shares shall be distributed after subscription by the Authority and when the project is in operation.
7. Council of Ministry is authorized to make decisions on offering certain projects with cost not exceeding KD 250 million through competition:
Article (16) of the Law allows Council of Ministers to make decisions on offering certain projects with cost not exceeding KD 250 million through competition instead of incorporating a public shareholding company. This is an exception to the provisions of Article (13) of this Law in order to provide more flexibility in involving the private sector to contribute to investment projects of private nature.
8. Increasing the contract term to 50 years:
Article (18) of the Law fixes the maximum term of the contract to fifty years. Such term shall be calculated effective from the completion date of construction and fit-out works.
9. Premium initiatives and projects:
Article (20) of the Law sets a specific mechanism for the benefits that the concept originator would obtain. Such benefits are dependent on the concept nature if it is determined to be a distinct initiative or project.
10. Intellectual property rights are reserved for the concept originator:
Article (22) of the Law reserves intellectual property rights for the concept originator. It also reserves the State’s right to benefit from such concepts.
11. Project financing:
Article (23) of the Law has primary significance as it permits the investor to adopt the financing methods set out therein including pledge of proceeds and shares held by them through creating the necessary guarantees to finance and execute the project.
This Article includes a provision stating that the borrowing amount may not exceed the percentage specified in the project documents as well as not exceeding the period set for the project or the remaining period thereof. It is also prohibited to pledge or sell the land on which the project is constructed.
In this connection, State of Kuwait enacted Law No 116 of 2014 regarding Public Private Partnership (PPP) on 23rd July 2014. The Law was published on the official gazette “Kuwait Al-Youm” on volume No. 1197 dated 17th August 2014.
Issuance of such a Law is a logical development to treat certain gaps in Law No. 7 of 2008 concerning regulation of B.O.T, and other similar schemes, and certain provisions of Law Decree No. 105 of 1980 regarding State Property.
The Law contains 48 articles, where Article (46) thereof obliges Minister of Finance to issue the Executive Regulations within 6 months from the publishing date thereof on the Official Gazette.
Law No 116 of 2014 regarding Public Private Partnership established a set of new criteria that can be summarized as follows:
1. Correction of generic title of the law:
The Law was titled Public Private Partnership. It pointed out that B.O.T. and all other similar schemes are types of schemes that fall under the title “Public Private Partnership” scheme.
2. Formation of Supreme Committee on PPP projects and defining its functions:
Article (2) of the Law sets out the formation of Supreme Committee on PPP Projects and defines its functions. Such Committee shall replace Supreme Committee on Projects constructed on the State’s real estate properties, which was formed pursuant to Decree No 145 of 2008. It shall undertake functions and powers of the Authority Board of Directors.
3. Creation of a Public Authority named PPP projects authority and defining its functions:
Article (4) of the Law sets out the creation of such authority, which shall replace “Partnerships Technical Bureau”, in order to legalize the status of the entity that will offer partnership projects given its multiple technical, preparatory, or executive responsibilities.
4. Regularization of the status of projects existing prior to effective date of the law:
Article (7) of the Law addresses the contracts concluded in accordance with the partnership scheme prior to the effective date of the Law emphasizing its implementation. Thereof as per the terms contained internally and in order to maintain stability of existing legal positions and apply the basic principle of “pacta sunt servanda” or “the consent makes the law”; provided that such contracts shall be terminated upon expiry of the term thereof as set forth in the respective contract and may not be extended or renewed in violation of the provisions of this Law.
5. Offering PPP projects with total cost not exceeding KD 60 million through competition. An investor may hold the entire share capital of the project company:
Article (12) of the Law handles the PPP projects with total cost not exceeding KD 60 million where it assigns the Authority to cooperate with the public entity in offering such projects through a competition among the investors interested in investing in the project. The successful investor may incorporate the project company or consortium company.
It is self-evident that the successful investor or consortium in this case will hold the entire share capital of the project company.
Needless to mention that the provision permitting the successful investor to solely incorporate the project company and possess its entire capital is an exception to the basic rule set forth under Companies Law No 25 of 2012, as amended, concerning the minimum number of incorporators and shareholders in a shareholding closed company. The same provision shall apply to the consortium company if the parties to the consortium are less than the minimum limit required for incorporating and holding the entire share capital of via closed shareholding company in accordance with Companies Law.
6. Empowering PPP projects authority to subscribe for the share allocated to the citizens:
Article (14) of the Law sets forth that the Authority shall subscribe for the share allocated to the citizens pending the project operation, particularly that the project is not expected to generate any revenues before this. The Authority is also authorized to subscribe for the share allocated to public bodies in order to maintain integrity of the company’s capital and eliminate obstacles hindering the incorporation of public shareholding companies, and hence determine the method whereby such shares shall be distributed after subscription by the Authority and when the project is in operation.
7. Council of Ministry is authorized to make decisions on offering certain projects with cost not exceeding KD 250 million through competition:
Article (16) of the Law allows Council of Ministers to make decisions on offering certain projects with cost not exceeding KD 250 million through competition instead of incorporating a public shareholding company. This is an exception to the provisions of Article (13) of this Law in order to provide more flexibility in involving the private sector to contribute to investment projects of private nature.
8. Increasing the contract term to 50 years:
Article (18) of the Law fixes the maximum term of the contract to fifty years. Such term shall be calculated effective from the completion date of construction and fit-out works.
9. Premium initiatives and projects:
Article (20) of the Law sets a specific mechanism for the benefits that the concept originator would obtain. Such benefits are dependent on the concept nature if it is determined to be a distinct initiative or project.
10. Intellectual property rights are reserved for the concept originator:
Article (22) of the Law reserves intellectual property rights for the concept originator. It also reserves the State’s right to benefit from such concepts.
11. Project financing:
Article (23) of the Law has primary significance as it permits the investor to adopt the financing methods set out therein including pledge of proceeds and shares held by them through creating the necessary guarantees to finance and execute the project.
This Article includes a provision stating that the borrowing amount may not exceed the percentage specified in the project documents as well as not exceeding the period set for the project or the remaining period thereof. It is also prohibited to pledge or sell the land on which the project is constructed.
Avoidance of Litigation to Alternative Solutions
Some people may not tend to resort to courts and litigation in order to settle their disputes due to prolonged procedures and long time span preceding enforcement of the judgment. Therefore, there are alternative dispute settlement methods.
These methods include any means for out-of-court dispute settlement, which would achieve fair unbiased evaluation prior to litigation. Negotiation, mediation, conciliation and arbitration are classified as alternative dispute settlement methods. However, negotiation is not used frequently in Kuwait as the case with conciliation, while arbitration is currently the most commonly used method.
Negotiation is an attempt to influence another person through exchange of ideas and valuable items. the process by which the participants, together with the assistance of a neutral person or persons, systematically isolate disputed issues in order to develop options, consider alternatives, and reach a consensual settlement that will accommodate their needs. Mediation has been increasingly known over the last twenty years where its outset was related to settlement of divorce disputes and procedures thereof.
Conciliation is a process whereby the parties seek to reach an amicable dispute settlement with the assistance of the conciliator, who acts as a neutral third party where he/she assists the parties to dispute with defining the disputed issues, develop available options available for them and consider alternatives in an attempt to reach an agreement among them.
Arbitration system is a special process of litigation through involvement of a third party or neutral parties to make the arbitral award binding based on certain objective standards and criteria. The arbitration is conducted through an arbitration tribunal, where both parties agree on one arbitrator who is not biased to any party or otherwise each party selects one arbitrator and the so selected arbitrators shall elect an empire who acts as the president of the arbitral tribunal. If both arbitrators fail to agree on the empire, the president shall be appointed by the arbitration center authorized to settle this type of disputes.
At present, litigation is not sought after by some people due to countless problems resulting from huge number of lawsuits heard before courts. This led the process to be very slow, where someone may wait for months and in some cases several years to have their lawsuit heard by the judge. In cases of challenge, the litigation process and its duration are unknown and unforeseeable.
By comparison, the alternative dispute resolution methods and their respective advantages can be summarized as follows:
First Negotiation: It is the most direct and least intervening method where there is direct contact between the parties to a dispute and their representatives in order to reach a settlement. Further, the representative of each party may have minor intervention, which would result in many cases in guaranteeing compliance by the parties to dispute and hence reaching a solution.
Second Mediation: it is based on an independent neutral third party who helps the dispute parties reach agreement or solution. This method is very useful if the parties to dispute have disagreement. Mediation is more used certain personal status lawsuits and some business lawsuits. It starts with debate with both parties followed by meetings and eventually, there would be a voluntary contractual agreement between both parties.
Third: Conciliation: This method is quite similar to mediation but the main difference lies in the fact that it adopts a more intervening technique, as the conciliator in this kind of settlement seeks, by all means, to enhance solutions, propose possible options and clarify potential privileges in this settlement.
Fourth Arbitration: This method is more judicial than other techniques and is the most similar to litigation but there is a great deal of freedom for the dispute parties where they can determine how to form their arbitral tribunal. This provides them with more flexibility than litigation and court settlement. This is the most popular technique in settling business disputes worldwide due to requirements of expertise in specific fields of law and arbitrators should be experienced in certain fields.
The importance of alternative dispute resolution methods lies in eliminating accumulated lawsuits at courts. This means that there will be more time and room for determining criminal issues involving public interest as compared to business related issues, which, given their nature, involve private interests. Therefore, courts can consider significant legal issues and continue to develop the judiciary.
Published in: Al-Qabas Newspaper
Date of Publish: 31 August 2014
Article By: Lawyer Haifaa Al-Huwaidi
These methods include any means for out-of-court dispute settlement, which would achieve fair unbiased evaluation prior to litigation. Negotiation, mediation, conciliation and arbitration are classified as alternative dispute settlement methods. However, negotiation is not used frequently in Kuwait as the case with conciliation, while arbitration is currently the most commonly used method.
Negotiation is an attempt to influence another person through exchange of ideas and valuable items. the process by which the participants, together with the assistance of a neutral person or persons, systematically isolate disputed issues in order to develop options, consider alternatives, and reach a consensual settlement that will accommodate their needs. Mediation has been increasingly known over the last twenty years where its outset was related to settlement of divorce disputes and procedures thereof.
Conciliation is a process whereby the parties seek to reach an amicable dispute settlement with the assistance of the conciliator, who acts as a neutral third party where he/she assists the parties to dispute with defining the disputed issues, develop available options available for them and consider alternatives in an attempt to reach an agreement among them.
Arbitration system is a special process of litigation through involvement of a third party or neutral parties to make the arbitral award binding based on certain objective standards and criteria. The arbitration is conducted through an arbitration tribunal, where both parties agree on one arbitrator who is not biased to any party or otherwise each party selects one arbitrator and the so selected arbitrators shall elect an empire who acts as the president of the arbitral tribunal. If both arbitrators fail to agree on the empire, the president shall be appointed by the arbitration center authorized to settle this type of disputes.
At present, litigation is not sought after by some people due to countless problems resulting from huge number of lawsuits heard before courts. This led the process to be very slow, where someone may wait for months and in some cases several years to have their lawsuit heard by the judge. In cases of challenge, the litigation process and its duration are unknown and unforeseeable.
By comparison, the alternative dispute resolution methods and their respective advantages can be summarized as follows:
First Negotiation: It is the most direct and least intervening method where there is direct contact between the parties to a dispute and their representatives in order to reach a settlement. Further, the representative of each party may have minor intervention, which would result in many cases in guaranteeing compliance by the parties to dispute and hence reaching a solution.
Second Mediation: it is based on an independent neutral third party who helps the dispute parties reach agreement or solution. This method is very useful if the parties to dispute have disagreement. Mediation is more used certain personal status lawsuits and some business lawsuits. It starts with debate with both parties followed by meetings and eventually, there would be a voluntary contractual agreement between both parties.
Third: Conciliation: This method is quite similar to mediation but the main difference lies in the fact that it adopts a more intervening technique, as the conciliator in this kind of settlement seeks, by all means, to enhance solutions, propose possible options and clarify potential privileges in this settlement.
Fourth Arbitration: This method is more judicial than other techniques and is the most similar to litigation but there is a great deal of freedom for the dispute parties where they can determine how to form their arbitral tribunal. This provides them with more flexibility than litigation and court settlement. This is the most popular technique in settling business disputes worldwide due to requirements of expertise in specific fields of law and arbitrators should be experienced in certain fields.
The importance of alternative dispute resolution methods lies in eliminating accumulated lawsuits at courts. This means that there will be more time and room for determining criminal issues involving public interest as compared to business related issues, which, given their nature, involve private interests. Therefore, courts can consider significant legal issues and continue to develop the judiciary.
Published in: Al-Qabas Newspaper
Date of Publish: 31 August 2014
Article By: Lawyer Haifaa Al-Huwaidi
Family Businesses
This publication highlights the family businesses in Kuwait as such businesses represent significant weight and impact on the local economics.
The family businesses in Kuwait in particular and the GCC in general began to pay attention to succession plans as part of their strategies for managing their business for the long run.
Recently, a significant shift has been monitored in the tendencies in family businesses to identify the best methods and the appropriate options to develop plans for transferring powers and inheritance.
The traditional pattern of the life cycle of a family business is to continue for over three generations at maximum, starting with the founding dean, moving to the developer generation who accompanies the founding dean and has been inspired by his experiences, then to the third generation, to whom the shares of business ownership go as an inheritance. The continuation of such businesses is subject to the harmony between the heirs regarding the future goals. If there was a positive harmony, they will be able to legally restructure the business and adopt organizational management systems. If there was no enough harmony, difficulties will soon emerge and the family business will deteriorate and eventually vanish.
Time for Succession Planning in Family Businesses
The most important element to focus on is to think of the right time. The question here is when the time is best suited for retirement or the introduction of the next generation to management, especially as such generation will not have the same experience. This will require the transfer to be in a gradual process to ensure successful transfer of powers. This time is often the most critical for any business. Therefore it is important to allocate enough time, effort, and expertise to pass such critical phase.
Islamic Shri’a
The Islamic Shri’a specifies the details of inheritance. However, inheritable business needs prior planning that comply with the Islamic Shri’a while at the same time determine the mechanism by which the business can continue operating in the future.
Corporate Governance in Family Businesses
Companies Decree-Law No. 25 of 2012 as amended by Law No. 97 of 2013 has been issued in Kuwait to require, in Article 216, business entities to apply the corporate governance rules issued by the relevant local regulators.
Although family businesses are not subject to the control of these regulatory bodies, such businesses can be guided by the rules and principles of corporate governance and adopt the voluntary and optional application of such rules as these rules constitute a good and solid foundation for sound management in the relations of partners from the same family away from emotions and disparity in experience and capabilities.
Baker Tilly International Network Questionnaire
In this context, Baker Tilly International network, based in the United Kingdom, in collaboration with Swinburne University, have conducted in January 2013 a study on the economic and psychological impacts which control the issues of succession in family businesses. The study has been reflected in the form of a questionnaire addressed to the owners of family businesses around the world. The preliminary results of the questionnaire indicates that 1,000 participants from 52 countries around the world have fully completed the data of questionnaire which was prepared in seven different languages. Their participation has resulted in the following outcomes:
Baker Tilly Kuwait renders Family Businesses Succession Planning consultancy
Baker Tilly Kuwait has specialized experts to provide Family Businesses Succession Planning consultations guided by the accumulated local and international expertise in this regard.
Article by: Hisham Sorour – Managing Partner – Baker Tilly Kuwait
01 August 2013
The family businesses in Kuwait in particular and the GCC in general began to pay attention to succession plans as part of their strategies for managing their business for the long run.
Recently, a significant shift has been monitored in the tendencies in family businesses to identify the best methods and the appropriate options to develop plans for transferring powers and inheritance.
The traditional pattern of the life cycle of a family business is to continue for over three generations at maximum, starting with the founding dean, moving to the developer generation who accompanies the founding dean and has been inspired by his experiences, then to the third generation, to whom the shares of business ownership go as an inheritance. The continuation of such businesses is subject to the harmony between the heirs regarding the future goals. If there was a positive harmony, they will be able to legally restructure the business and adopt organizational management systems. If there was no enough harmony, difficulties will soon emerge and the family business will deteriorate and eventually vanish.
Time for Succession Planning in Family Businesses
The most important element to focus on is to think of the right time. The question here is when the time is best suited for retirement or the introduction of the next generation to management, especially as such generation will not have the same experience. This will require the transfer to be in a gradual process to ensure successful transfer of powers. This time is often the most critical for any business. Therefore it is important to allocate enough time, effort, and expertise to pass such critical phase.
Islamic Shri’a
The Islamic Shri’a specifies the details of inheritance. However, inheritable business needs prior planning that comply with the Islamic Shri’a while at the same time determine the mechanism by which the business can continue operating in the future.
Corporate Governance in Family Businesses
Companies Decree-Law No. 25 of 2012 as amended by Law No. 97 of 2013 has been issued in Kuwait to require, in Article 216, business entities to apply the corporate governance rules issued by the relevant local regulators.
- Central Bank of Kuwait (CBK) for banks
- Capital Markets Authority (CMA) for shareholding companies
Although family businesses are not subject to the control of these regulatory bodies, such businesses can be guided by the rules and principles of corporate governance and adopt the voluntary and optional application of such rules as these rules constitute a good and solid foundation for sound management in the relations of partners from the same family away from emotions and disparity in experience and capabilities.
Baker Tilly International Network Questionnaire
In this context, Baker Tilly International network, based in the United Kingdom, in collaboration with Swinburne University, have conducted in January 2013 a study on the economic and psychological impacts which control the issues of succession in family businesses. The study has been reflected in the form of a questionnaire addressed to the owners of family businesses around the world. The preliminary results of the questionnaire indicates that 1,000 participants from 52 countries around the world have fully completed the data of questionnaire which was prepared in seven different languages. Their participation has resulted in the following outcomes:
- 17.9% had already adopted future continuity plans.
- 31.8% started developing future continuity plans
- 50.3% have not yet begin developing future continuity plans.
Baker Tilly Kuwait renders Family Businesses Succession Planning consultancy
Baker Tilly Kuwait has specialized experts to provide Family Businesses Succession Planning consultations guided by the accumulated local and international expertise in this regard.
Article by: Hisham Sorour – Managing Partner – Baker Tilly Kuwait
01 August 2013
10 Traits of Successful Persons Anywhere, Anytime
Facts:
In the world of business and finance, successful persons, wherever they are and whatever activity they lead, are distinguished for common traits.
However, the experience, and ability to activate the following traits published by “Forbes”, remains to serve as the main factor of distinction between those who are fond of success and the people who live in day dreams.
The 10 traits of successful persons are:
1. They always ask the right questions
• Not only that! They ask the persons who have the correct answers.
• This means that they can solve their problems by resorting to experienced persons.
• Not only that! They can help other solve their problems.
2. They never stop learning
• Those who continue learning acquire a great deal of life experience that helps them attain success.
• Learning does not stop at the end of university study.
• For many, this means having the guts to venture into new experience.
3. Capable of making the change
• Of the main traits of successful persons is that they do not wait for the change and its implications.
• Therefore, they are proactive in making the difference before it is imposed on them.
4. Innovators, rather than consumers
• Successful persons focus on innovation, rather than imitating others in their relaxation.
• They do not keep themselves busy with a pure consumer pattern that undermines innovation and the desire of renewal.
5. They do more than they are asked
• This is a substantially significant trait, which means they never stop giving.
• It also means they are not limited to the tasks they are asked to accomplish. Yet, they continue to seek other approaches to continue innovation.
• This, in turn, reflects on the ability to confront difficulties, and embrace teamwork spirit.
6. They learn well from failure
• Successful persons are convinced that mistakes are the faster road to success by learning for the future.
• Experience can be rapidly acquired by learning from set-backs and failing attempts.
7. They adapt to variables
• Life is changing. It is imperative to adapt to market changes and the world of business, so as to continue success.
• Successful people always know that rigidity and stiffness would not serve their goals.
• This also means that they are never isolated from reality, but face their problems with patience and persistence.
8. They set achievable objectives
• They understand the reality of planning ahead for everyday activities, and set plans for the month, year, and long term plans.
• This is complemented by realistic objectives that suit the given abilities.
• Then, they invest all potential to achieve goals with patience and persistence.
9. They shoulder responsibility for their acts
• This means that it is no disgrace to admit the mistake, and avoid it in the future.
• They do not rely on others, but exert efforts to find solutions.
• Responsibility is always shouldered by hard workers, who tend to confront, rather than retreating.
10. They know when to go further, and when to depart
• This trait indicates the accurate choice of timing to change the current job.
• For them, it is time to start a new life or different activity.
• The ability of critical decision-making at a time that some may see as inappropriate.
• This is confirmed by their intuition, persistence, and strong belief.
Article by: Hisham Sorour – Managing Partner – Baker Tilly Kuwait
01 February 2014
In the world of business and finance, successful persons, wherever they are and whatever activity they lead, are distinguished for common traits.
However, the experience, and ability to activate the following traits published by “Forbes”, remains to serve as the main factor of distinction between those who are fond of success and the people who live in day dreams.
The 10 traits of successful persons are:
1. They always ask the right questions
• Not only that! They ask the persons who have the correct answers.
• This means that they can solve their problems by resorting to experienced persons.
• Not only that! They can help other solve their problems.
2. They never stop learning
• Those who continue learning acquire a great deal of life experience that helps them attain success.
• Learning does not stop at the end of university study.
• For many, this means having the guts to venture into new experience.
3. Capable of making the change
• Of the main traits of successful persons is that they do not wait for the change and its implications.
• Therefore, they are proactive in making the difference before it is imposed on them.
4. Innovators, rather than consumers
• Successful persons focus on innovation, rather than imitating others in their relaxation.
• They do not keep themselves busy with a pure consumer pattern that undermines innovation and the desire of renewal.
5. They do more than they are asked
• This is a substantially significant trait, which means they never stop giving.
• It also means they are not limited to the tasks they are asked to accomplish. Yet, they continue to seek other approaches to continue innovation.
• This, in turn, reflects on the ability to confront difficulties, and embrace teamwork spirit.
6. They learn well from failure
• Successful persons are convinced that mistakes are the faster road to success by learning for the future.
• Experience can be rapidly acquired by learning from set-backs and failing attempts.
7. They adapt to variables
• Life is changing. It is imperative to adapt to market changes and the world of business, so as to continue success.
• Successful people always know that rigidity and stiffness would not serve their goals.
• This also means that they are never isolated from reality, but face their problems with patience and persistence.
8. They set achievable objectives
• They understand the reality of planning ahead for everyday activities, and set plans for the month, year, and long term plans.
• This is complemented by realistic objectives that suit the given abilities.
• Then, they invest all potential to achieve goals with patience and persistence.
9. They shoulder responsibility for their acts
• This means that it is no disgrace to admit the mistake, and avoid it in the future.
• They do not rely on others, but exert efforts to find solutions.
• Responsibility is always shouldered by hard workers, who tend to confront, rather than retreating.
10. They know when to go further, and when to depart
• This trait indicates the accurate choice of timing to change the current job.
• For them, it is time to start a new life or different activity.
• The ability of critical decision-making at a time that some may see as inappropriate.
• This is confirmed by their intuition, persistence, and strong belief.
Article by: Hisham Sorour – Managing Partner – Baker Tilly Kuwait
01 February 2014
It’s time for millennium generation and women to step into corporate boards
Lord Davies stated in his report «Women in Boardrooms», and he was right, that the best boards are those with «a variety of voices that must include women». They should also include the millennium generation.
Today markets are changing at a rapid pace that is more complex than ever. Companies seek to remain in a competitive position, and are therefore in need of a generation (Y) to help them identify the major and significant shifts and trends, starting from the emergence of the role of a client, whose influence has increased through digital technology, and ending with the post-global financial crisis business environment.
The argument to benefit from younger managers is strongly supported. Generation Y, also known as the millennium generation that belongs to the age group 18 to 35, with a population of two billion, represents the world’s largest demographic group. By 2018 it will constitute the largest purchasing power, compared to any other age group. Three out of four from the Millennial Generation are said to affect the purchasing decisions of other generations. Therefore, each business entity needs to understand the behavior and aspirations of the millennium generation, and that the existence of younger managers with appropriate qualifications can turn into the voice that expresses them in the boardrooms.
Benefiting from talents
Nevertheless, the best decisions made are those that maximize benefit from a broader base of talent, irrespective of the age. Moreover, managers bring with them a wide range of expertise, developments, and different living styles. In this context pluralism must include plurality of generations, rather than a mere gender plurality. The added perspective of the millennium generation may constitute a panacea to the problem of thinking about the collective unity, which is linked to the unity of age group.
The financial crisis has caused a an irreversible cultural and structural shift. The various institutions, from banks to supermarkets, began to reshape their values and business models in order to become more accountable, and to achieve continuity.
As David Jones says in his book «Who Cares Achieves Success», the “new price for success is good work.”
The millennium generation understands this new, and is best positioned to interpret and explain the prevailing culture of the Board of Directors.
Such cultural change, which is moving at an accelerated pace, is also driven by rapid technological and demographic changes. Today, social networks have provided consumers with more information than ever on how business entities manage their activities. While the Industrial Revolution has caused increasing influence of institutions and companies, the digital revolution has led to the strengthening of consumer influence. As noted by Jones, «history has not recorded any time where younger people were most understanding of what is happening around them». Companies that fail to understand the «tribute and sentiment of the current time» may find that brands, as well as their market share, has begun to fade.
Millennium generation can add value to the company to which they belong by helping it identify the Twitter-driven uncertain environment. That’s why Starbucks Corporation proceeded to appoint Clara Sheih as social media expert in its board of directors. She was then 29 years old.
Multiple Environments
Meanwhile, the phenomenon of globalization has led to the emergence of complex environments for decision-making that require skills and new perspectives to deal, for example, with emerging markets, as well as with new technologies that were not present around us, or for which we had a need in the past, as is the case today. Each company now should achieve balance between the experience of the Millennial Generation and the older “X” Generation. Millennium generation has a global outlook and inherent portability and readiness to embrace the digital age and to commit to learning throughout life. Bringing young leaders to the board would help upgrade it in this direction, while sending a generic message that the institution rewards talent and ambition.
Pessimists may argue that young officials lack the knowledge of the nature of the industry, and that they possess no operational experience that qualifies them to join the Board of Directors. However, these properties can be learned and developed, and the opponents should listen to Peter Kiev Gibbs, Chief Recruitment Office at Heidrick Westergails, who said: “Chairmen seek prominent leaders who can add to the success of their business in today’s global markets. The millennium generation enjoys a high degree of education; they speak several languages, and can easily adapt to technological changes. He began to change the way business is done. Age has not been just a number in the world of business any longer these days.”
Article by: Al-Qabas Newspaper and Financial Times
16 July 2014
Today markets are changing at a rapid pace that is more complex than ever. Companies seek to remain in a competitive position, and are therefore in need of a generation (Y) to help them identify the major and significant shifts and trends, starting from the emergence of the role of a client, whose influence has increased through digital technology, and ending with the post-global financial crisis business environment.
The argument to benefit from younger managers is strongly supported. Generation Y, also known as the millennium generation that belongs to the age group 18 to 35, with a population of two billion, represents the world’s largest demographic group. By 2018 it will constitute the largest purchasing power, compared to any other age group. Three out of four from the Millennial Generation are said to affect the purchasing decisions of other generations. Therefore, each business entity needs to understand the behavior and aspirations of the millennium generation, and that the existence of younger managers with appropriate qualifications can turn into the voice that expresses them in the boardrooms.
Benefiting from talents
Nevertheless, the best decisions made are those that maximize benefit from a broader base of talent, irrespective of the age. Moreover, managers bring with them a wide range of expertise, developments, and different living styles. In this context pluralism must include plurality of generations, rather than a mere gender plurality. The added perspective of the millennium generation may constitute a panacea to the problem of thinking about the collective unity, which is linked to the unity of age group.
The financial crisis has caused a an irreversible cultural and structural shift. The various institutions, from banks to supermarkets, began to reshape their values and business models in order to become more accountable, and to achieve continuity.
As David Jones says in his book «Who Cares Achieves Success», the “new price for success is good work.”
The millennium generation understands this new, and is best positioned to interpret and explain the prevailing culture of the Board of Directors.
Such cultural change, which is moving at an accelerated pace, is also driven by rapid technological and demographic changes. Today, social networks have provided consumers with more information than ever on how business entities manage their activities. While the Industrial Revolution has caused increasing influence of institutions and companies, the digital revolution has led to the strengthening of consumer influence. As noted by Jones, «history has not recorded any time where younger people were most understanding of what is happening around them». Companies that fail to understand the «tribute and sentiment of the current time» may find that brands, as well as their market share, has begun to fade.
Millennium generation can add value to the company to which they belong by helping it identify the Twitter-driven uncertain environment. That’s why Starbucks Corporation proceeded to appoint Clara Sheih as social media expert in its board of directors. She was then 29 years old.
Multiple Environments
Meanwhile, the phenomenon of globalization has led to the emergence of complex environments for decision-making that require skills and new perspectives to deal, for example, with emerging markets, as well as with new technologies that were not present around us, or for which we had a need in the past, as is the case today. Each company now should achieve balance between the experience of the Millennial Generation and the older “X” Generation. Millennium generation has a global outlook and inherent portability and readiness to embrace the digital age and to commit to learning throughout life. Bringing young leaders to the board would help upgrade it in this direction, while sending a generic message that the institution rewards talent and ambition.
Pessimists may argue that young officials lack the knowledge of the nature of the industry, and that they possess no operational experience that qualifies them to join the Board of Directors. However, these properties can be learned and developed, and the opponents should listen to Peter Kiev Gibbs, Chief Recruitment Office at Heidrick Westergails, who said: “Chairmen seek prominent leaders who can add to the success of their business in today’s global markets. The millennium generation enjoys a high degree of education; they speak several languages, and can easily adapt to technological changes. He began to change the way business is done. Age has not been just a number in the world of business any longer these days.”
Article by: Al-Qabas Newspaper and Financial Times
16 July 2014
International Professional Certificate in Regulatory Compliance
Baker Tilly Kuwait Audit, Tax and Consulting Services is always keen to provide professional certificates that enhance the capabilities and knowledge of individuals with the aim of enabling them to match the changes that take place in the business environment; such changes led and guided by the regulatory authorities, mainly represented in the Central Bank of Kuwait (CBK), Capital Markets Authority (CMA) and the Ministry of Commerce and Industry (MOCI) through the laws, resolutions and instructions issued by such regulatory bodies to the banks and companies subject to their supervision, with the aim of executing such laws, resolutions and instructions, while conducting their services for securing a sound business environment marked by transparency and equity.
In this regard, it became crucial for banks and companies licensed to conduct securities activity to create the title “Compliance Officer” within their organizational structure. It is stipulated that this job should be registered with the Central Bank of Kuwait and the Capital Markets Authority; which means that the approval of the said regulatory bodies of the qualifications, criminal record and the experience of the person occupying this job is required before recruiting him. The occupant of this job will be the official point of contact between the regulatory bodies and the banks and companies licensed to conduct the securities activity to ensure the validity of communication methods in terms of the relevant laws, resolutions and instructions and to ensure taking the necessary action for executing the same within the business entities referred to herein.
As the said job is newly created, Baker Tilly Kuwait has, several times, conducted the “Professional Compliance Officer (PCO)” training course which was attended by the occupants of this job who praised the value added in the study material, in addition to the academic expertise of the instructors who led this program. A lot of those who attended the training program have stated that they, for a long time, wished that an international professional certificate in regulatory compliance could be conducted in Kuwait to be able to join it with the aim of improving their skills and knowledge, thus contributing to developing their career path, along with professional application of the regulatory compliance in the business entities they work for.
Baker Tilly Kuwait Auditing, Tax and Consulting Services has undertaken the task to turn such desire into a reality for their clients as Baker Tilly Kuwait is in the process of signing a memorandum of understanding to deliver the review course of “The Regulatory Compliance Certificate- Advanced Level” offered by “The International Compliance Association (ICA)” in association with the University of Manchester Business School, UK.
The certificate will be conducted three times per year; twice in Arabic Language and one time in English Language, with the aim of overcoming the language barrier. Upon conducting the same in the Arabic language, the course material will be in Arabic and the exam which will be in the same language. In the case of English version, the course material will be in English and the exam which will be in the same language. The course material of this certificate will be distinguished, as it will contain the regulatory rules issued by the regulatory bodies in the State of Kuwait; which is a simulation of the international and local rules in terms of application.
The review course will be conducted in one of the training venues in a 5 star hotel over three days starting from 9:30 am to 4:30 PM and at the end of the third day an exam will be conducted, adopting the handwriting technique. It is expected that the first session of the program will be conducted from 10 – 12 November, 2014.
In this regard, it became crucial for banks and companies licensed to conduct securities activity to create the title “Compliance Officer” within their organizational structure. It is stipulated that this job should be registered with the Central Bank of Kuwait and the Capital Markets Authority; which means that the approval of the said regulatory bodies of the qualifications, criminal record and the experience of the person occupying this job is required before recruiting him. The occupant of this job will be the official point of contact between the regulatory bodies and the banks and companies licensed to conduct the securities activity to ensure the validity of communication methods in terms of the relevant laws, resolutions and instructions and to ensure taking the necessary action for executing the same within the business entities referred to herein.
As the said job is newly created, Baker Tilly Kuwait has, several times, conducted the “Professional Compliance Officer (PCO)” training course which was attended by the occupants of this job who praised the value added in the study material, in addition to the academic expertise of the instructors who led this program. A lot of those who attended the training program have stated that they, for a long time, wished that an international professional certificate in regulatory compliance could be conducted in Kuwait to be able to join it with the aim of improving their skills and knowledge, thus contributing to developing their career path, along with professional application of the regulatory compliance in the business entities they work for.
Baker Tilly Kuwait Auditing, Tax and Consulting Services has undertaken the task to turn such desire into a reality for their clients as Baker Tilly Kuwait is in the process of signing a memorandum of understanding to deliver the review course of “The Regulatory Compliance Certificate- Advanced Level” offered by “The International Compliance Association (ICA)” in association with the University of Manchester Business School, UK.
The certificate will be conducted three times per year; twice in Arabic Language and one time in English Language, with the aim of overcoming the language barrier. Upon conducting the same in the Arabic language, the course material will be in Arabic and the exam which will be in the same language. In the case of English version, the course material will be in English and the exam which will be in the same language. The course material of this certificate will be distinguished, as it will contain the regulatory rules issued by the regulatory bodies in the State of Kuwait; which is a simulation of the international and local rules in terms of application.
The review course will be conducted in one of the training venues in a 5 star hotel over three days starting from 9:30 am to 4:30 PM and at the end of the third day an exam will be conducted, adopting the handwriting technique. It is expected that the first session of the program will be conducted from 10 – 12 November, 2014.
Tuesday, May 12, 2015
Implementation of Corporate and Bank Governance Rules and Regulations
This issue addresses governance pillars or rules issued in the State of Kuwait by the Central Bank of Kuwait as the regulator of banks and also by the Capital Markets Authority as the regulator of the shareholding companies that operate in the securities activity. Inquiries began to be raised about what is the governance and its rules or principles, what is the size of change it would make in companies’ management systems or the behavior of its employees or corporate behavior towards stakeholders and community. This issue addresses all of the foregoing answers.
“The years 2012 and 2013 mark the introduction of corporate governance in the State of Kuwait”, said Hisham Sorour, Managing Partner of Baker Tilly Kuwait which is considered one of the world’s top eight accounting and audit firms.
The Central Bank of Kuwait (“CBK”) issued new instructions regarding governance rules on 26th August 2012 instated of the instructions issued in this regard in May 2004. These rules are applicable to banks. The instructions provide for implementation grace period until July 2013. The new instructions have shed light on 9 pillars as follows:
1. Board of directors
2. Corporate values, conflict of interests and group structure
3. Senior Management
4. Risk management & internal controls
5. Remuneration policies and procedures
6. Disclosures and transparency
7. Complex structure banks
8. Protection of shareholders’ rights
The Ministry of Commerce & Industry also issued companies decree law no. 25/2012 as amended. Article 217 thereof provides that “the competent regulatory authorities shall set forth corporate governance rules for the regulated companies to provide optimal protection and set balance between the interests of the company management and shareholders as well as other stakeholders. It also provides for the perquisite conditions of independent members of board of directors”. Several other articles have addressed the matter related to the composition of board of directors of shareholding companies for sound governance of the company in compliance with the governance rules and the contemporary developments. These rules include but are not limited to the following:
1. Article 214 : Separation between executive management and board of directors
2. Articles 228 & 265 : Determination of the maximum membership positions of boards of directors of shareholding companies headquartered in Kuwait
3. Article 224 : Perquisite qualifications of board members
4. Article 221: Meeting mechanism and approval of minutes
5. Article 145, 219, 240 & 335: Regulation of board of directors removal and re-election
The Capital Markets Authority (“CMA”) issued decision no.25/2013 dated 27 June 2013 regarding the corporate governance rules applicable to the companies regulated by Capital Markets Authority. The decision sets implementation deadline on 31st December 2014. The corporate governance rules are as follows:

It is noted that the term “corporate governance” means sound governance of companies. Corporate governance means the set of standards (principles, rules or pillars) that achieve optimal protection and set balance between the interests of corporate management and shareholders and other stakeholders.
Global origin of corporate governance concept
Attention paid to the corporate governance concept increased over the last period, particularly in the 1990s after the financial and economic crises and collapses in East Asia and Latin America countries as well as the collapse of some major US companies earlier at this century in 2002 such as Enron and WorldCom due to the defective control role of the boards of directors of both companies which have not implemented the approved standards of disclosure and transparency as well as the accounting standards, resulting in non-detection of cases of corruption, fraud and mismanagement.
For protection from such collapses, many countries and international organizations and institutions such as International Monetary Fund and World Bank and Organization of Economic Cooperation and Development and Basel Committee on Banking Supervision set to work and submitted many a lot of and studies and identified the legal rules and frameworks to implement the corporate governance concept.
The corporate governance rules depend on five key principles as follows:
1. Shareholders’ rights
2. Equal treatment of shareholders
3. The role of stakeholders in corporate governance
4. Disclosures and transparency
5. Responsibility of board of directors
What are the real changes of companies bound with implementation of corporate governance rules?
Implementation of corporate governance rules may cause quality progress in terms of company’s management on internal level as well as external level, i.e. towards the stakeholders and the society. The rules take four directions as follows:
Improvement of corporate management organization and efficiency
This includes re-engineering of the organizational structure and the relevant formation of committees or organizational units of the board of directors which would help them perform their supervisory role of the senior management as well as re-engineering of the organizational structure to separate the positions of chairman and chief executive officer. The board of directors shall include two independent members from outside the company together with requirement of specialized human resources according to the competency and integrity standards issued by Capital Markets Authority.
Good professional behavior of supervisory staff and senior management towards the company
To emphasize the importance of professional behavior and ethical values of all staffs in terms of observation of all internal regulations as well as legal and supervisory requirements and equally promote the improvement and appreciation of performance in proportion with the achievement level as well as the governance rules which shall promote internal control or accountability concept.
Corporate values towards stakeholders and legal and supervisory bodies
To promote justice, transparency and fair treatment of all parties including shareholders, investors and stakeholders as well as avoid all improper practices that may result in conflict of interest and subject the company to financial problems.
Corporate social role towards the society
Companies have responsibility towards their society, promoting the feelings of donations and values in companies towards the society, whether activities oriented to the society members or activities beneficial for the everyday life of the society members.
Implementation of corporate governance rules has several positive effects which would directly reflect upon the companies and indirectly on the financial market in the state of Kuwait.
Regarding the direct corporate benefits, companies would have internal immunology as a result of implementation of proper management processes, professional and ethical behavior of staff as well as transparency and application of accountability of positions in view of fulfillment of the company’s objective. This would be reflected on the promotion of the company financial performance and enhancement of the investor trust in the company through its high reputation in Kuwait Stock Exchange Market and other capital markets and this would make the investors interested in acquisition of the company’s shares and even insist on keeping the company’s shares on the short, medium and long terms due to their confidence in the positive returns of the company’s business.
Regarding the indirect impact on the financial market, the company strength would equally be reflected on the strength of Kuwait Stock Exchange Market which would become one of the attractive markets on the local and world levels.
Forecasted cost of implementation of corporate governance rules
In view of understanding the required size of change as a result of compliance with the corporate governance rules, this undoubtedly would require investment in high cost new jobs. Some existing entities would find themselves left with two choices: the first choice is to continue and observe the requirements and the second choice is to transform their legal entities into other entities beyond the supervision of Capital Markets Authority.
In summary, the companies subject or not subject to the implementation of corporate governance rules should positively look at such rules for fundamental implementation rather than formal implementation for show compliance, which would not achieve the contemplated goal of issuance and implementation of such rules.
“The years 2012 and 2013 mark the introduction of corporate governance in the State of Kuwait”, said Hisham Sorour, Managing Partner of Baker Tilly Kuwait which is considered one of the world’s top eight accounting and audit firms.
The Central Bank of Kuwait (“CBK”) issued new instructions regarding governance rules on 26th August 2012 instated of the instructions issued in this regard in May 2004. These rules are applicable to banks. The instructions provide for implementation grace period until July 2013. The new instructions have shed light on 9 pillars as follows:
1. Board of directors
2. Corporate values, conflict of interests and group structure
3. Senior Management
4. Risk management & internal controls
5. Remuneration policies and procedures
6. Disclosures and transparency
7. Complex structure banks
8. Protection of shareholders’ rights
The Ministry of Commerce & Industry also issued companies decree law no. 25/2012 as amended. Article 217 thereof provides that “the competent regulatory authorities shall set forth corporate governance rules for the regulated companies to provide optimal protection and set balance between the interests of the company management and shareholders as well as other stakeholders. It also provides for the perquisite conditions of independent members of board of directors”. Several other articles have addressed the matter related to the composition of board of directors of shareholding companies for sound governance of the company in compliance with the governance rules and the contemporary developments. These rules include but are not limited to the following:
1. Article 214 : Separation between executive management and board of directors
2. Articles 228 & 265 : Determination of the maximum membership positions of boards of directors of shareholding companies headquartered in Kuwait
3. Article 224 : Perquisite qualifications of board members
4. Article 221: Meeting mechanism and approval of minutes
5. Article 145, 219, 240 & 335: Regulation of board of directors removal and re-election
The Capital Markets Authority (“CMA”) issued decision no.25/2013 dated 27 June 2013 regarding the corporate governance rules applicable to the companies regulated by Capital Markets Authority. The decision sets implementation deadline on 31st December 2014. The corporate governance rules are as follows:

It is noted that the term “corporate governance” means sound governance of companies. Corporate governance means the set of standards (principles, rules or pillars) that achieve optimal protection and set balance between the interests of corporate management and shareholders and other stakeholders.
Global origin of corporate governance concept
Attention paid to the corporate governance concept increased over the last period, particularly in the 1990s after the financial and economic crises and collapses in East Asia and Latin America countries as well as the collapse of some major US companies earlier at this century in 2002 such as Enron and WorldCom due to the defective control role of the boards of directors of both companies which have not implemented the approved standards of disclosure and transparency as well as the accounting standards, resulting in non-detection of cases of corruption, fraud and mismanagement.
For protection from such collapses, many countries and international organizations and institutions such as International Monetary Fund and World Bank and Organization of Economic Cooperation and Development and Basel Committee on Banking Supervision set to work and submitted many a lot of and studies and identified the legal rules and frameworks to implement the corporate governance concept.
The corporate governance rules depend on five key principles as follows:
1. Shareholders’ rights
2. Equal treatment of shareholders
3. The role of stakeholders in corporate governance
4. Disclosures and transparency
5. Responsibility of board of directors
What are the real changes of companies bound with implementation of corporate governance rules?
Implementation of corporate governance rules may cause quality progress in terms of company’s management on internal level as well as external level, i.e. towards the stakeholders and the society. The rules take four directions as follows:
Improvement of corporate management organization and efficiency
This includes re-engineering of the organizational structure and the relevant formation of committees or organizational units of the board of directors which would help them perform their supervisory role of the senior management as well as re-engineering of the organizational structure to separate the positions of chairman and chief executive officer. The board of directors shall include two independent members from outside the company together with requirement of specialized human resources according to the competency and integrity standards issued by Capital Markets Authority.
Good professional behavior of supervisory staff and senior management towards the company
To emphasize the importance of professional behavior and ethical values of all staffs in terms of observation of all internal regulations as well as legal and supervisory requirements and equally promote the improvement and appreciation of performance in proportion with the achievement level as well as the governance rules which shall promote internal control or accountability concept.
Corporate values towards stakeholders and legal and supervisory bodies
To promote justice, transparency and fair treatment of all parties including shareholders, investors and stakeholders as well as avoid all improper practices that may result in conflict of interest and subject the company to financial problems.
Corporate social role towards the society
Companies have responsibility towards their society, promoting the feelings of donations and values in companies towards the society, whether activities oriented to the society members or activities beneficial for the everyday life of the society members.
Implementation of corporate governance rules has several positive effects which would directly reflect upon the companies and indirectly on the financial market in the state of Kuwait.
Regarding the direct corporate benefits, companies would have internal immunology as a result of implementation of proper management processes, professional and ethical behavior of staff as well as transparency and application of accountability of positions in view of fulfillment of the company’s objective. This would be reflected on the promotion of the company financial performance and enhancement of the investor trust in the company through its high reputation in Kuwait Stock Exchange Market and other capital markets and this would make the investors interested in acquisition of the company’s shares and even insist on keeping the company’s shares on the short, medium and long terms due to their confidence in the positive returns of the company’s business.
Regarding the indirect impact on the financial market, the company strength would equally be reflected on the strength of Kuwait Stock Exchange Market which would become one of the attractive markets on the local and world levels.
Forecasted cost of implementation of corporate governance rules
In view of understanding the required size of change as a result of compliance with the corporate governance rules, this undoubtedly would require investment in high cost new jobs. Some existing entities would find themselves left with two choices: the first choice is to continue and observe the requirements and the second choice is to transform their legal entities into other entities beyond the supervision of Capital Markets Authority.
In summary, the companies subject or not subject to the implementation of corporate governance rules should positively look at such rules for fundamental implementation rather than formal implementation for show compliance, which would not achieve the contemplated goal of issuance and implementation of such rules.