Fulfillment of the Offset Obligation

In fulfilling their offset obligation, foreign contractors will create an offset company whose business operations can be categorized in one of the Economic Activity Areas (EAA) of the International Standard Industrial Classification of All Economic Activities (ISIC) of the United Nations. Each such EAA is given a macro-multiplier which ranks in preference as per the economic policy objectives of the Government (as indicated in the Table A attached to the Offset Guidelines). The PEO will approve the macro-multiplier of the appropriate EAA in which the offset company is engaged. Offset companies engaging in several different lines of business may have more than one macro-multipliers.

The OBV earns credits for its expenditures. All types of expenditures are classified in the micro-multiplier categories as indicated in theTable B (attached to the Offset Guidelines).

Calculation of Current Credits:

The current credits earned per year are calculated using the above mentioned macro-multiplier and micro-multiplier values.

Credit Calculation:

1. The OBV incurs expenditures in say 3 micro-multiplier categories viz. E₁, E₂, E₃.
2. Therefore, the amount of actual expenditure E₁ is to be multiplied by the appropriate micro-multiplier value say A₁ and then by the approved macro-multiplier value say M. The resulting product is the amount of current credit earned in that expenditure category.
   E₁ x A₁ x M = C_E1
3. Similarly credit calculations are to be made for E₂ and E₃.
   E₂ x A₂ x M = C_E2
   (where E₂ is the actual expenditure value, A₂ is the micro-multiplier value corresponding to E₂ and M is the approved macro-multiplier value which remains constant)
   Similarly E₃ x A₃ x M = C_E3
4. The credits earned in each category are then totaled to arrive at the total number of current credits earned for that year.
   C_E1 + C_E2 + C_E3 = C_TOTAL

Upon approval, the total value of current credits is posted to the Foreign Contractor's Account (FCA) at the PEO. The Foreign Contractors Offset Obligation will then be reduced by an equal amount. Once the total of the current credits posted over a period of time to the FCA is equal to the value of the offset obligation, the foreign contractor will have fulfilled his offset obligation.

Future Credits:

When a foreign contractor fulfills his offset obligation prior to the end of the eight year offset period, then the credits earned for the remaining period, thereafter, until the end of the eight-year period will be future credits. These can be used against any future offset obligation as a result of his signing supply contracts in future. Future credits earned cannot however exceed the value of his offset obligation, i.e. 100% only. Future credits are not negotiable, transferable or assignable to third parties in any manner whatsoever.

Offshore Fulfillment:

Foreign contractors may fulfill their offset obligation through an offshore OBV whose capital and principal business activities are outside Kuwait. The rules and conditions pertaining to an offset obligation in Kuwait apply mutatis mutandis to an offshore offset obligation, subject to certain modifications.