The Vacant Land Fee in the State of Kuwait

Law No. 126 of 2023 on Combating the Monopolisation of Vacant Land has recast the relationship between property ownership and economic behaviour in Kuwait by imposing an escalating annual fee on undeveloped residential land. Although the legislator did not use the word tax, the economic effect of the charge places it in the same category, both in purpose and in regulatory function.

Unlike conventional forms of taxation, where the focus falls on raising revenue for the State, fees or taxes imposed on vacant land operate on a different footing. The aim is not collection but the conduct of the owner, who is pushed either towards productive economic decisions or towards a financial burden that grows heavier with time.

Comparative international experience shows that fees and taxes on vacant land are directed at what is known as land dormancy, meaning the holding of large areas of land without development, whether in anticipation of future gain or for purposes of speculation. The Kuwait Constitutional Court endorsed that approach in Constitutional Challenge No. 15 of 2024, holding that fees of this kind are not a penalty and do not encroach on the right of ownership or on any other constitutional principle. They are instead a legitimate regulatory instrument intended to curb the monopolisation of land in the service of a public interest concerned with housing, land use and urban planning, falling within the discretion conferred on the legislator to regulate the property market.

Against that background, the law is expected to bear directly on the decisions of owners of land subject to the fee in the period ahead, not simply because a fee exists, but because of the way it is calculated and the speed at which it escalates.

In most international models the charge is levied on an ad valorem basis, that is, as a percentage of the market value of the land. Rates commonly begin at 1 per cent of land value, as in Australia and Canada, with a statutory ceiling that does not usually exceed 3 per cent. In some jurisdictions, such as Saudi Arabia following its most recent amendments, the law sets a maximum of no more than 10 per cent of the value of the land, subject to controls to be set out in the executive regulations. That regime has also introduced a fee on vacant property, calculated by reference to market rent and capped at 5 per cent of the value of the property, with scope to raise it to 10 per cent by decision of the Council of Ministers on the proposal of the competent ministerial committee, whose composition is approved by the Minister of Housing.

Saudi Arabia therefore works with two distinct bases of charge, one for white land and one for vacant property, while the basis of calculation in each case remains tied to value, whether the value of the land or the value of the property and its market rent.

Some systems go further still. In Brazil, for example, municipalities have been granted graduated powers that begin with a progressive tax on vacant land at rising rates and extend, in certain cases, to expropriation of the land in favour of the State. What emerges from that framework is a legislative logic that treats charges of this kind as one stage in an integrated process designed to break real estate inertia and press owners into putting land back to use in a way that serves the public interest.

Different as these models are, their common feature is that the financial burden remains, on the whole, relatively contained and tied to movements in the market and to property valuation mechanisms.

The Kuwaiti legislator has taken a different course. The fee does not rest on a percentage of the value of the land but starts from a fixed amount of KD 10 per square metre, reaching KD 100 per square metre in the fourth year. That difference in mechanism is decisive to any understanding of the real effect of the charge, because area, unlike value, is a fixed factor untouched by market conditions or by a freeze in trading, so the cost accumulates over time whatever the surrounding circumstances.

The practical effect on owners can be illustrated by the example of an owner holding 5,000 m² of vacant residential land. After excluding 1,500 m² that falls outside the charge, 3,500 m² remains subject to calculation:

• Year one: 3,500 × 10 = KD 35,000
• Year two: 3,500 × 40 = KD 140,000
• Year three: 3,500 × 70 = KD 245,000
• Year four onwards: 3,500 × 100 = KD 350,000 a year

In relative terms, the fee reaches roughly 400 per cent of the base year figure in the second year, close to 700 per cent in the third, and approximately 1,000 per cent in the fourth.

The sequence shows that three years without any real step being taken can move an owner from an annual burden in the tens of thousands of dinars to a settled annual burden approaching the hundreds of thousands, which places this model in a different category from many other international models in the pace of its escalation and the scale of its financial effect.

Even so, the legislative framework has so far stopped short of severe sanctions for non-compliance. The law provides for no penalties or accruing interest, no attachment of accounts or salaries, and no expropriation. It requires instead that government bodies refrain from dealing with those in default of payment and that transfer of title be withheld for plots on which the fee remains unpaid, which taken together amounts to a relatively light enforcement regime.

What does this mean for owners of vacant land subject to the law?

Some of the implementing detail of this law is still taking shape, which is only to be expected in legislation carrying significant economic effect. The absence of executive regulations at this stage does not necessarily mean that application of the law is held in suspense, since their role remains procedural in essence, directed at organising and setting out the mechanics of implementation rather than at creating the obligation itself.

In light of the existing legislative framework and the judicial position settled by the ruling of the Constitutional Court, it is reasonable to expect calculation of the fee to begin with the opening of the coming period, most probably at the start of 2026.

That leaves owners with a finely balanced position. Moving in haste, on decisions that have not been considered from every angle, may carry financial or legal consequences that were never priced in, while relying on delay or waiting for further clarity may be no safer an option given an escalation timetable that the law sets out in express terms.

A careful reading of the figures, and an understanding of the logic of the law and of where it meets financial, property and regulatory considerations, are matters of real importance to weigh before any step is taken, whether that step involves development, restructuring or any other disposal capable of affecting how the fee is calculated.