Business In Kuwait

Doing Business in Kuwait?
Introduction
Business in Kuwait
Entry Visas and Work Permits
Taxation
Foreign Direct Investment (FDI)
Offset Programme
Disclosure Law
Intellectual Property
Audit and Accounting Regulations and Practices
 
Entering the Kuwaiti Market
Articles 23 and 24 of the Kuwaiti Commercial Code state the basic premise for doing business in Kuwait. Article 23 provides that non Kuwaitis cannot engage in commerce in Kuwait without having a Kuwaiti partner whose equity holding is at least 51 %. Article 24 provides that a foreign company cannot establish a branch in Kuwait and that it may not engage in commercial activities in Kuwait except through a Kuwaiti agent.

In an effort to attract foreign investment, Kuwait's Parliament passed Law NO.8 Regulating Foreign Capital Direct Investment in Kuwait. This law creates an exception to the general rules under which foreign investors conduct business in Kuwait by permitting up to 100% foreign ownership of business entities in certain approved sectors.

A foreign person or entity may enter the Kuwaiti market and conduct business in the following ways:
 
Entering into a joint venture agreement
 
Appointment of a local commercial agent
 
Appointment of a commercial representative
 
Establishing a Kuwaiti Company
Kuwaiti law permits foreign persons or entities to establish a permanent presence in Kuwait by forming and investing in the following Kuwaiti entities:
 
Companies with limited liability
 
Closed joint stock companies
 
Public joint stock companies
 
Companies with Limited Liability (WLL)
Both foreign individuals and corporate bodies may establish this type of entity. However, Article 191 of the Companies Law provides that a Kuwaiti must own at least 51 % of the WLL shareholding. A WLL is simple to form and takes approximately three months to incorporate. It provides the limited liability shield and is non-taxable since Kuwait has no individual income tax and its corporate tax applies only to non-Kuwaiti corporate bodies.
 
Closed Joint Stock Company (KSC Closed)
A KSC Closed (or a KSC(c)) is the other type of company open to non-Kuwaiti entities. Articles 68 and 94 of the Companies Law provide for this type of company as an exceptional kind of Joint stock company. The general rule is that the shareholders of joint stock companies must be Kuwaiti nationals. As an exception, foreigners may own 49% of the share capital of a KSC Closed after obtaining the approval of the relevant authorities. The company's objectives cannot be banking or insurance. The incorporation of a KSC Closed may take up to six months.

The limitation in using this form of business is that over and above the tax levied on the profits made by the foreign company as a shareholder in the KSC Closed, the KSC Closed is itself subject to the 5% contribution to the Kuwait Foundation for the Advancement of Science.
 
Public Joint Stock Company
In June 1999 Kuwait passed a law regulating foreign investment. In 2000, Kuwait passed Amiri Decree No. 20 permitting non-Kuwaitis to own shares in publicly traded shareholding companies for the first time. Pursuant to this law, the Minister of Commerce and Industry is to issue the implementing regulations setting forth the restrictions and conditions of this right, including the maximum amount of shares non-Kuwaitis may hold and the corresponding rights of the holder.
 
Joint Ventures
Joint ventures are simple contracts that require no formal establishment procedures (Article 57 of the Kuwait Companies Law).

A joint venture company does not have a legal personality and may not transact business in its own name (Article 59). The joint venture may transact business with third parties only through one venturer, who is personally liable for the transactions they enter into with third parties. The transacting venturer's liability to third parties is unlimited. The liability of a non-transacting venturer is limited to their share in the joint venture. If the transacting venturer is a non-Kuwaiti, then the Kuwaiti venturer in the company must guarantee them in that transaction. If the joint venture deals with third parties in its own name, the effect would be to expose all the joint venturers to unlimited joint and several liability, whether or not they were personally involved in the transaction.
 
Commercial Agency
Law No. 36 on the Regulation of Commercial Agencies and the Kuwaiti Commercial Code, Articles 260-296 regulate commercial agencies. Non-Kuwaitis may not act as commercial agents in Kuwait (Article 1 of Law No. 36), and those who violate the rule are subject to three months imprisonment and/or a fine (Article 10 of Law No. 36).

The relationship between the Kuwaiti agent and the foreign principal must be direct. Article 2 of Law No. 36 provides that commercial agencies are not enforceable unless registered on the Commercial Register. The Code sets out the general rules governing commercial agencies and the types of commercial agencies.

The first type is a contracts agency (Article 271 of the Kuwaiti Commercial Code). In a contracts agency, the local agent, by virtue of a contract, undertakes to promote the principal's business on a continuous basis in the territory and to enter into transactions in the name of the principal in return for a fee. The contract must be in writing and must include the territory covered, the agent's fee, the term, the product or service subject of the agency and any relevant trademarks. The term of the contract must be at least five years if the agent is required to set up showrooms, workshops or warehouse facilities.

The second type of agency is a distributorship, under which the local agent is the distributor of the principal's product in a defined territory in return for a percentage of the profit (Article 286 of the Kuwaiti Commercial Code). Distributorships are governed by the same general rules as contract agencies if the distributor is the sole distributor for the whole country. These rules provide protection to both types of agents:
 
Commercial agencies must be registered in order to be enforceable
 
Kuwaiti law is the governing law in matters pertaining to public policy
 
The principal may not terminate the agreement without proving breach of contract by the agent, otherwise the principal is liable to pay compensation to the agent
 
The principal may not refuse to renew the agency agreement when it expires without paying the agent equitable compensation for nonrenewal if the agent proves that he committed no breach and that his activities led to the successful promotion of the principal's products
 
The agency may sue both the principal and any new agent the latter may appoint in Kuwait if the termination is proven to be the result of their concerted action.
 
 
The third type of commercial agency is the commission agency, which is provided for in Articles 287-296 of the Commercial Code. In this type of agency, the agent enters into contracts in their own name. The principal's name may not be disclosed without their permission.
 
Commercial Representatives
A commercial representative is a Kuwaiti individual or entity engaged by a foreign company pursuant to a contract called a Commercial Representation Agreement to represent its business interests in Kuwait.

The scope of authority of a commercial representative is usually more limited than the authority granted to an agent. A commercial representative may be paid a set fee on a regular basis, a commission or a percentage of profits. The duties and obligations of commercial representatives are governed by Articles 297-305 of the Commercial Code.

In executing documents on behalf of the foreign company, the commercial representative must sign their name as well as the name of the foreign company, and indicate that they are a commercial representative. A foreign company is liable for all of the commercial representative's actions and liabilities, so long as they are conducted or incurred within the scope of representation.

Unlike an agency agreement, a commercial representation agreement cannot be registered with the Ministry of Commerce and Industry.
 
Contribution to The Kuwait Foundation for the Advancement of Science (KFAS)
KFAS was established to provide aid and assistance to science students and researchers for their education and training and for scientific research and development in general. Article 6 of the Memorandum of Association of KFAS provides that a source of KFAS's funding shall be from the payment by all Kuwait Share holding Companies (KSC) of 1% of such companies' net profits to KFAS.

While, as a legal matter, a KSC is not strictly speaking obliged to pay 1% of its net profits to KFAS (under Article 48 of the Kuwaiti Constitution, taxes may be levied only by a duly promulgated law), it has become the general and accepted practice in Kuwait for KSCs to make such payments.
 
Public Sector Procurement
Procurement by the Kuwaiti Government and its agencies is regulated by Law No. 37 (modified by Law Nos. 13 and 31) concerning Public Tenders (the Public Tenders Law). The Public Tenders Law provides that any procurement made by the Kuwait Government with a value in excess of KD 5,000 must be conducted through the Central Tenders Committee and in accordance with its procedures in order to ensure competitive pricing.

Article 5 of the Public Tenders Law provides that a tenderer for government contracts must be:
 
A Kuwaiti merchant, individual or company registered in the Register of Commerce at the Chamber of Commerce and Industry of Kuwait. The bidder may be a foreigner if they have a Kuwaiti merchant acting as a partner or agent pursuant to a deed duly executed by a notary, provided the Central Trading Committee shall set down a specific regulation for the participation of the foreign company in the tenders of large works
 
Registered in the Classification List of Contractors and Suppliers

Thus, a foreign entity may act as a government contractor only through a Kuwaiti entity in which it has an ownership interest, or by acting directly but with the assistance and support of a Kuwaiti agent or commercial representative.
 
There are two important exceptions to the application of the Public Tenders Law:
Ministry of Defence (MOD) procurement. The Public Tenders Law does not apply to the procurement of military items for the MOD and security forces. 'Military materials' are broadly defined by Kuwaiti law to include land, sea and air weapons, spare parts, military communications, detection equipment and related systems (strategic military procurement).

There are no comprehensive laws or regulations that govern strategic military procurement by the MOD. Instead, the MOD has developed internal policies and procedures for such procurements, and such policies and procedures are not available to the public. In general, such policies are more flexible than those of the Public Tenders Law in an effort to accommodate the MOD's specialized needs with respect to strategic military procurement
 
Other specialized procurement. Kuwait government agencies may request permission of the Central Tenders Committee to conduct particular tenders outside the Public Tenders Law. However, such tenders are relatively rare.
 

 

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