M&A in the GCC region is primarily driven by consolidation, especially in the banking and financial services sector, which witnesses several national and cross-border mergers.
The next sector, followed by financial services is retail and consumer goods, where traditional retailers and online platforms continue to seek efficiencies to build scale. Investors based out of GCC continue to lead the M&A activity in the region with domestic deals making up the majority of the transactions within the GCC region.
During the last three years, Kuwait has been second to the UAE in terms of the numbers of M&A transactions. According to a report published by Kuwait Financial Centre, around 127 deals were closed involving Kuwaiti entities between 2014 and 2018, representing 23% of all M&A in the GCC during that period. Furthermore, Kuwait accounted for around 34% of all regional M&A transactions in the fourth quarter of the last year, with the move towards consolidation in the financial sector expected to continue this year.
Recent developments supposedly will drive other investors in the region to consider M&A as a way of remaining competitive. Furthermore, consolidation may help larger and more prominent players sustain and potentially expand market share and therefore incentivize additional M&A.
The Kuwait tax regulations provide for a 15% flat rate of tax and in practice, the KTA apply this to Kuwait sourced income earned by foreign (i.e. non-GCC) companies.
Capital gains / losses would be computed based on the sale price less purchase costs. Capital losses may be offset against other trading profits of the investor entity.
The acquirer does not derive any potential tax benefit from the target company’s pre-acquisition losses because the target’s pre- acquisition tax losses cannot be transferred.
The tax retention regulations require contract owners to retain 5 percent tax from contractors and release it only on the provision of a tax clearance certificate.