|Doing Business in Kuwait
I. ENTERING THE KUWAITI MARKET
Articles 23 and 24 of the Kuwaiti
Commercial Code state the basic premise for doing
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 percent. Article 24 provides that a
foreign company cannot establish a branch in Kuwait and it may not
engage in commercial activities in Kuwait except through a Kuwaiti
In an effort to attract foreign
investment, Kuwait’s Parliament recently passed Law No. 8 Regulating
Foreign Capital Direct Investment in Kuwait (April 22, 2001). 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.
Implementing regulations, which establish the guidelines for
investment under the law, will be forthcoming.
A foreign person or entity may
enter the Kuwaiti market and conduct business in the following ways:
- Establishment of a company;
- Entering into a joint venture
- Appointment of a local
commercial agent; or
- Appointment of a commercial
II. 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 companies:
1) Limited Liability Company;
2) Closed Joint Stock Company;
3) Public Joint Stock Company.
A. Limited Liability Company (“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. The WLL provides
the limited liability shield and is nontaxable
since Kuwait has no individual income tax and its corporate tax
applies only to non-Kuwaiti corporate bodies.
B. Closed Joint Stock Company (“KSC
A closed Kuwaiti joint stock
company (KSC Closed) 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 concerned authorities. The company’s
objects 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 KSC Closed Company,
the KSC Closed Company is itself subject to the 5% contribution to
the Kuwait Foundation for the Advancement of Science.
C. Public Joint Stock Company
In June of 1999, Kuwait passed a
law permitting non-Kuwaitis, for the first time, to own shares in
publicly traded shareholding companies. Pursuant to this law, the
Minister of Commerce & 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.
III. ENTERING INTO A JOINT
Joint ventures are simple contracts
that require no formal establishment procedures (Article 57 of the
Kuwait Companies Law).
The Kuwaiti Companies Law refers to
joint ventures as joint venture companies (Article 56). 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 he enters into with
third parties. The transacting venturer’s liability to third
parties is unlimited. The liability of a non-transacting venturer
is limited to his share in the joint venture. If the transacting
venturer is a non-Kuwaiti, then the Kuwaiti venturer in the company
must guarantee him in that transaction. If the joint venture were
to deal with third parties in its own name, the effect would be to
expose all of the joint venturers to unlimited joint and several
liability, whether or not they were personally involved in the
IV. COMMERCIAL AGENCY
Law No. 36 of 1964 on the
Regulation of Commercial Agencies, and the Kuwaiti Commercial Code,
Articles 260-296 regulates commercial agencies. Non-Kuwaitis may
not act as commercial agents in Kuwait (Article 1 of Law No. 36 of
1964), and those who violate the rule are subject to three months
imprisonment and/or a fine (Article 10 of Law No. 36 of 1964).
The relationship between the
Kuwaiti agent and the foreign principal must be direct. Article 2
of Law 36 provides that commercial agencies are not enforceable
unless registered in the Commercial Register.
The Code’s provisions set out the
general rules governing commercial agencies and the types of
The first type is a contracts
agency (Article 271 of the Kuwaiti Commercial Code). In a contracts
agency, the local agent, by 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 that is
the 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 Kuwait Commercial
Code). Distributorships are governed by the same general rules as
contracts agencies if the distributor is the sole distributor for
the whole country. These rules provide protection to both types of
agents. The following protective measures are provided:
- 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 for paying
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
The third type of commercial agency
is the commission agency, which is provided for in Articles 287
through 296 of the Commercial Code. In this type of agency, the
agent enters into contracts in his/its own name.
The principal’s name may not be disclosed without his permission.
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 an agent. A commercial representative may be paid
a set fee on a regular basis or a commission or 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 his
name as well as the name of the foreign company and indicate that he
is 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
Unlike an agency agreement, a
commercial representation agreement cannot be registered with the
Ministry of Commerce and Industry.
Generally, individuals (Kuwaiti and foreign nationals) and Kuwaiti companies are not subject to taxes on income. However, a foreign corporate body engaged in commercial activities in Kuwait is subject to income tax. The tax rate has been recently amended to be 15% of net income.
VII. CONTRIBUTION TO
THE KUWAIT FOUNDATION FOR 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 Shareholding Companies (a “KSC”) of five percent of
such companies’ net profits to KFAS.
While, as a legal matter, a KSC is
not strictly speaking obligated to pay five percent of its net
profits to KFAS (under Article 48 of the Kuwait Constitution, taxes
may be levied only by a duly promulgated law), it has become the
general and accepted practice in Kuwait for KSC’s to make such
VIII. PUBLIC SECTOR
Procurement by the Kuwaiti
Government and its agencies is regulated by Law No. 37 of 1964
(modified by Laws No. 13 and 31 of 1970 and 1977, respectively)
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 (approximately
$16,500) must be conducted through the Central Tenders Committee and
in accordance with its procedures in order to ensure competitive
Article 5 of the Tenders Law
provides that a tenderer for government contracts must:
- “Be a Kuwaiti merchant,
individual or company, registered in the Register of Commerce in
the Chamber of Commerce and Industry of Kuwait; The tenderer
may be a foreigner if he has 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.
- Be registered in the
Classification List of Contractors and Suppliers in conformity
with the following Articles.”
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 Defense
Procurement. The Public Tenders Law does not apply to the
procurement of military items for the Ministry of Defense and
Security Forces. “Military materials” is broadly defined by
Kuwait 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
Ministry of Defense (“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 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
IX. KUWAIT OFFSET PROGRAM
The Counter-Trade Offset Program
(Offset Program), established by Decision No. 694/1994, requires all
foreign contractors who meet certain criteria to participate in the
The guidelines issued by the
Ministry of Finance for the Counter-Trade Offset Program define in
Article 4 the terms “Offset obligation” and “foreign contractor”.
Offset obligations are triggered when the single cumulative value of
supply contract(s) awarded to a foreign contractor is equal to or
greater than KD 1 million. The offset obligation is effective as of
the signature date of the supply contract and is equal to 30% of the
monetary value of the said supply contract. 50% of the offset
obligation must be completed in the first four years and 100% in
“Foreign contractors” are defined
as business entities having all of the following characteristics,
- The entity does not exist or
operate under Kuwait laws as per the Ministry of Commerce and
Industry, Department of Corporations.
- The entity has been awarded,
as either prime contractor or sub-contractor, a supply contract
by the government or any of its public sector institutions.
- The goods and/or services to be
provided under the supply contract are defined as foreign produced
under Kuwaiti law.
Kuwaiti business entities acting on
behalf of foreign businesses that are formed to circumvent the
Offset Program will be deemed foreign contractors.
X. DISCLOSURE LAW
In August 1996, the Kuwaiti
Government passed Law 25 of 1996 regarding the disclosure of
commissions in connection with government contracts. This law
effectively requires full transparency and accountability in all
government contracts in excess of one hundred thousand dinars
(approximately $300,000) in value. The law, which applies to all
transactions entered into by the Kuwaiti Government or its agencies
or instrumentalities, requires a stipulation by the contracting
party as to whether it has paid or will pay a commission of any kind
to a disclosed or concealed intermediary. Additionally, the law
imposes an obligation on both the payor and the payee to disclose in
a separate declaration, the amount of the commission, the type of
currency, and the place and manner of the commission. The sanctions
for non-disclosure or misinformation range from civil and criminal
penalties equal to the value of the payment to imprisonment.
However, it is important to remember that full compliance does not
necessarily exonerate the parties in the event that the payment in
question constitutes a violation of any other Kuwaiti law.
Law No. 4 of 1962 governs patents
in Kuwait. In order to obtain patent protection in Kuwait, the
inventor must first register the patent with the Patents Office at
the Trademark Control Department of the Ministry of Commerce &
Industry (Article 4). The law permits foreigners who are nationals
of or live in countries that give Kuwait reciprocity, as well as
companies and other juristic personalities, to register patents in
Kuwait (Article 5). Once registered, the owner of the patent is
vested with the right to use that patent by any means for 15 years
from the date of the application (Articles 10 and 12). The patent
may be renewed for an additional five-year term (Article 12).
Similarly, industrial designs must
be registered in the Industrial Designs & Models Register and an
application for registration is to be submitted to the Trademark
Control Department (Articles 36 and 37). The registration is valid
for five years and renewable for two additional consecutive terms
The Commercial Code (Law No. 68 of
1980) governs trademark registration and the penalties for
infringement. Any person may apply to have his trademark registered
at the Register of Trademarks (Article 64). Once the application
is approved, the trademark will be protected for 10 years, and may
be renewed for another ten years (Article 77).
Law No. 64 of 1999 governs
copyrights and provides copyright protection and penalties for
copyright infringement. With respect to non-Kuwaitis, the law
applies to 1) works of foreign nationals that are published for the
first time in Kuwait; 2) works of Arab authors who are nationals of
member countries of the Arab Agreement for the Protection of
Author’s Rights and published in any of those countries; and 3)
works of authors who are nationals of member states of the World
Intellectual Property Organization that are published for the first
time in one of those states (Article 43 of Law No. 64 of 1999).
The period of copyright protection
is as follows:
- 50 years from the death of the
author (or last surviving author if joint work)
- 50 years from the end of the
calendar year of publication for (i) works published under a
pseudonym or anonymously, (ii) works in which the owner of the
copyright is a legal personality, (iii) cinematic and photographic
works; and (iv) works published for the first time after the
- 50 years from the end of the
calendar year in which the performance or recording took place,
- 20 years form the end of the
calendar year in which the broadcast of a program occurred, where
(Article 17 of Law No. 64 of 1999)
Kuwait is a member of the World
Trade Organization and a signatory to the Agreement on Trade Related
Aspects of Intellectual Property Rights. As such, it is under
an obligation to pass intellectual property laws meeting the minimum
standards for the protection and enforcement of intellectual
property rights set forth in this agreement. Kuwait is also a
member of the World Intellectual Property Organization.
 Excluding the five-percent tax for the
Kuwait Foundation for the Advancement of Science (“KFAS”).
 KCC, Art. 292. This rule is of
historical importance only and may be enforced only in the
case of fungible goods for practical reasons.
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