A Q&A guide to doing business in Kuwait.
This Q&A gives an overview of key recent developments affecting doing business in Kuwait as well as an introduction to the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.
To compare answers across multiple jurisdictions, visit the Doing business in... Country Q&A Tool.
This article is part of the PLC multi-jurisdictional guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/dbi-mjg.
Some of the key developments are as follows:
The Commercial Companies Law No.15 of 1960 was replaced by the new Companies Law No. 25 of 2012 (Company Law).
Law no. 24 of 2012 dealing with anti-corruption was passed on 25 November 2012. This includes articles on financial disclosure and money laundering, with penalties of up to seven years in prison. The crimes covered by the law include manipulation of public tenders and auctions, bribery, counterfeiting, forgery and graft.
Kuwait has a civil law system, which is based on the Egyptian and French legal codes. Additionally, Sharia law is an important source of law. Kuwait has also incorporated various international regulations and standards into its laws.
Foreign persons or entities cannot engage in commerce in Kuwait unless they have either a:
Kuwaiti partner with an equity holding of at least 51% (Article 23, Commercial Law No. 68/1980 (Commercial Law)).
Kuwaiti agent (a foreign company cannot establish a branch in Kuwait) (Article 24, Commercial Law).
These public policy provisions are mandatory. Non-compliance may, among other things, render a transaction void. However, a foreign investment licence may be granted for certain types of business activities (see below), to permit 100% foreign equity ownership of Kuwaiti companies (Foreign Investment Law No. 8/2001).
The Foreign Investment Law aims to facilitate foreign investment in Kuwait. Ministerial Resolution No. 23 of 2003 issued by the Minister of Commerce and Industry contains executive regulations to implement this law. The Kuwait Foreign Investment Bureau (KFIB) (www.kfib.com.kw/) facilitates the filing of applications for foreign investment licences. The Foreign Capital Investment Committee, headed by the Minister of Commerce and Industry, processes these applications.
The Council of Ministers has issued a list of business activities for which a foreign investment licence can be granted (Resolution No.1006/1 2003). They include:
Industrial activity except enterprises relating to oil or gas exploration or production.
Construction, operation and management of infrastructure enterprises in the water, power, drainage and communications sectors.
Banks, investment corporations and foreign exchange companies incorporated by the Central Bank of Kuwait.
Insurance companies which the Ministry of Commerce and Industry agrees to incorporate.
Information technology and software development.
Healthcare and pharmaceutical manufacturing.
Land, sea and air transport.
Tourism, hotels and entertainment.
Culture, information and marketing, except for publishing newspapers and magazines and opening publishing houses.
Integrated housing projects and zone development, except for real estate speculation.
Real estate investment, through foreign investor subscription to Kuwaiti shareholding companies under Law No. 20/2002.
All forms of trade, commercial and financial transactions with Israel, and ownership of Israeli goods and goods that include Israeli components, are forbidden (Law 21 of 1964). This includes any goods/components from Israel which might have been routed through other countries.
There are no exchange control or foreign currency regulations other than those relating to money laundering.
The following incentives can be offered to foreign investors (Foreign Investment Law):
Tax exemptions for a maximum ten-year period.
Benefits under double tax treaties, to encourage and protect investments.
Total or partial exemptions from customs duties on the import of specified goods, such as:
equipment;
machinery;
spare parts;
raw materials;
semi-manufactured goods;
packaging materials.
Allocation of land and real estate.
Recruitment of foreign employees for investment projects.
The main business vehicles used in Kuwait generally (including by Kuwaiti nationals) are an agency, a private company, a public company, a partnership, and a joint venture.
A person or entity can enter the Kuwaiti market and do business in various ways as follows, subject to certain restrictions (see Question 3):
Enter into a joint venture agreement.
Establish a corporate entity, that is, a limited liability company (referred to as a WLL), or a Kuwaiti closed shareholding company (KSC Closed).
Establish a sole proprietorship company.
Appoint a local commercial agent.
Apply for a licence under the Foreign Investment Law to incorporate a company in Kuwait, with or without a local partner (see Question 3).
The most common form of business vehicle used by foreign companies is an agency regulated by the Commercial Law (see Question 29).
The most common form of corporate vehicle used by foreign companies is a WLL regulated by the Company Law. This is because of its relatively simple corporate structure and incorporation procedures. It also takes comparatively less time to incorporate a WLL (about two months).
Joint ventures can be formed easily. These are simple contracts that require no formal establishment procedures. However, they can be confusing for foreign parties. The Company Law refers to joint ventures as joint venture companies. A joint venture company does not have legal personality and cannot do business in its own name. It can only do business with third parties through one joint venture party with personal unlimited liability for the transactions he enters into with third parties.
The share capital of a sole proprietorship company must be fully owned by one Kuwaiti natural or legal person.
To incorporate a WLL, the members must file the following documents with the Ministry of Commerce and Industry:
An incorporation deed.
A certificate from a Kuwaiti bank evidencing payment of the capital amount.
A copy of the rental agreement for lease of the business premises.
Evidence that the municipality, fire department and the Ministry of Interior do not object.
A WLL can be registered in about two months.
The following official government website provides information about incorporation with the Ministry of Commerce and Industry: www.e.gov.kw/sites/kgoenglish/portal/Pages/Visitors/DoingBusinessInKuwait/GoverningBody_OverView.aspx
A WLL must file the following documents with the Ministry of Commerce and Industry:
Amendments to the memorandum of association.
The annual balance sheet of the company, as approved in the general meeting of members.
The capital required depends on the objects of the company. The minimum capital is KWD7,500. For WLLs with general trading and contracting as their object, the minimum capital is KWD250,000. There is no maximum capital. A share of a WLL company in Kuwait is referred to as units or portions, and not as shares.
Non-cash consideration for a share in the capital is permitted. A formal valuation process is required.
Restrictions on rights. The proportion held by Kuwaiti members must be at least 51%, on or after any transfer of units, unless a foreign investment licence is obtained (see Question 3).
Automatic rights. If a transfer is proposed to be made to a person who is not an existing member, the existing members have the right of first refusal to the units to be transferred.
Voting rights and rights to assets on liquidation are automatically transferred to a new member.
Foreign entities cannot generally hold more than 49% of the WLL (see Question 3).
Management of a WLL is vested in one or more managers. If there are more than seven members, the company must set up a supervisory committee of at least three members. The supervisory committee has the authority to verify, among other things, the:
Management of the company.
Balance sheet and distribution of profits.
Annual report, and submit it to the members at the general meeting.
Foreign persons can act as managers or as members on the supervisory committee.
The manager(s) are jointly liable to the company, the members and third parties for:
Acts of dishonesty and misuse of powers.
Violating the law or the incorporation deed.
Mismanagement.
There are no parent company liabilities, unless the parent acts as a guarantor for the debts of its subsidiaries.
The main employment law is Labour Law No. 6 of 2010 (Labour Law). The Labour Law provides minimum mandatory protection with respect to:
Hours of work.
Mandatory holidays.
Sick leave.
Annual leave entitlement.
Employment of women.
Compensation for accidents.
Working conditions.
Termination of service indemnity.
The Labour Law applies to all employees (including foreign employees) working in the private sector in Kuwait, and to private sector employees working outside Kuwait (if they are employed by a Kuwaiti employer). Labour Law provisions apply regardless of any choice of law clause in the employment contract.
Written employment contracts are not required. Work permits issued by the Ministry of Social Affairs and Labour constitute the contract of employment in the absence of a written agreement. It is usual for written employment terms to be given to each employee on commencement of employment. The minimum statutory protections under the Labour Law apply to all employment contracts (see Question 10).
Foreign employees require work and residency permits, which must be sponsored by their Kuwaiti employer. Applications are made to the Ministry of Social Affairs and Labour. A work or residency permit can be obtained within two to four weeks and costs about KWD70 each year. This includes a mandatory contribution to a government health insurance scheme.
The following documents are generally required to obtain a work permit:
Passport.
Police clearance certificate.
Qualification degree from the relevant university/educational institution, duly legalised and notarised by a notary public, the foreign ministry, and the Kuwaiti Embassy in the relevant jurisdiction.
Employment contract with the Kuwaiti employing entity.
Health certificate.
Employees are not entitled to management representation and do not have to be consulted in relation to corporate transactions that result in redundancies or disposals.
On the disposal of an enterprise, employment contracts are terminated. An indemnity for termination of service is then payable to terminated employees by the new owner of the enterprise. If the employment is renewed by the new owner of the enterprise, past remuneration entitlements of employees are assumed by the new owner.
The termination of individual employment contracts is governed by the Labour Law, which prescribes certain conditions for terminating an employment contract by both the employer and the employee, with cause and without cause.
The employer can dismiss the employee without notice and remuneration in cases of:
Fault committed by the employee which results in a major loss to the employer.
Repeated default by the employee in following the employer's instructions.
Absence for more than seven successive days or 20 separate days within a year without a lawful reason.
The employee's commission of a criminal offence involving moral turpitude.
An immoral act in the workplace.
An assault.
Default in any obligation imposed on the employee.
Deceit used in obtaining the job.
Disclosure of confidential information.
If the employer terminates the employment without cause, it must indemnify the employee for any loss incurred, provided the indemnity amount does not exceed the remaining remuneration for the rest of the contract period. If the contract is indefinite, the employer must give:
At least three months' notice (or three months' remuneration instead of the notice period), for employees earning monthly remuneration.
One month's notice for other employees.
Redundancies and mass layoffs are not regulated.
There is no concept of tax residency as individuals are not subject to income tax in Kuwait.
Individuals are not subject to income tax in Kuwait. However, Kuwaiti employees are required to make social security contributions amounting to 5% of their salaries.
There is no concept of tax residency (see Question 16) and foreign national employees do not pay tax in Kuwait.
Employers are required to make social security contributions for Kuwaiti employees, amounting to 10% of the employees' salaries. These contributions do not apply to foreign national employees.
Kuwaiti companies are not subject to income tax.
A foreign company is subject to income tax at a flat rate of 15% on its Kuwait-source income if it both (Income Tax Law (No. 3 of 1955)):
Qualifies as a corporate body, wherever incorporated.
Carries on trade or business in Kuwait, either directly (through participation in a company incorporated in Kuwait) or through an agent (which is also a body corporate).
Foreign entities which are wholly owned by nationals or entities of Gulf Co-operation Council (GCC) countries are exempt from this tax.
A tax-paying business vehicle must:
Register itself with the tax authority in Kuwait.
Obtain a tax card.
Submit a tax declaration in Arabic to the Director of Income Taxes at the Income Tax Department which must be:
in a specified format;
accompanied by audited financial statements and other specified documents; and
certified by an accountant in practice in Kuwait who is also registered with the MOCI.
Kuwaiti companies are not subject to income tax. Certain foreign entities are subject to income tax at a flat rate of 15% on their Kuwait source income (see Question 18).
Dividends paid to foreign corporate shareholders?
Dividends received from foreign companies?
Interest paid to foreign corporate shareholders?
Intellectual property (IP) royalties paid to foreign corporate shareholders?
A Kuwaiti company is not required to make any deductions for tax when paying dividends to a foreign corporate shareholder. A foreign corporate shareholder must submit a statement of its income (including dividends, interest payments and IP royalties) earned in Kuwait to the Income Tax Department, and pay the tax due itself (see Question 18). Dividends received by foreign corporate shareholders as a result of trading on the Kuwait Stock Exchange are subject to tax at 15%.
There is no tax on dividends received.
See above, Dividends paid.
See above, Dividends paid.
A foreign entity is prohibited from providing loans to Kuwaiti entities in Kuwait, unless they have approval from the Central Bank of Kuwait. Capitalisation restrictions would depend on the licence terms, as provided by the Central Bank of Kuwait.
Kuwait does not have controlled foreign company rules. Kuwaiti companies are not subject to tax.
Kuwait does not have transfer pricing rules.
Customs duties are levied on the import of goods (at a rate of up to 5% of the value of the goods). Imports from GCC countries are exempt from customs duties, since Kuwait has adopted the Uniform Customs Law for GCC Countries.
Customs duty drawbacks are available on goods that have been imported that will be re-exported. Exports are not taxed.
Kuwait has entered into double tax treaties with about 27 countries, including the UK, Germany, France and Canada.
The Authority for Protection of Competition (Competition Authority) is affiliated to the Ministry of Commerce and Industry, and its powers include:
Endorsement of policies and necessary procedures to protect and support competition.
Receipt of competition notifications, applications, and complaints.
Investigations into agreements, contracts and practices.
Compiling market data, with the co-operation of relevant authorities.
Requiring disclosure by concerned persons.
Ruling on notified agreements, contracts, practices, mergers, combinations of management, unions, and acquisitions of assets.
Restrictive agreements and practices are regulated by the Commercial Law. This regulates illegal competition and monopolies in commercial transactions and trade agreements.
Law No. 10 of 2007 (Competition Law) further regulates competition. It focuses on:
Restrictions on free trade and competition.
Abuse of a dominant position.
Supervision of mergers and acquisitions.
The Competition Authority investigates complaints about unfair trade practices and abuse of a dominant position. Any person has the right to inform the Competition Authority of any prohibited agreements or practices.
The Competition Law applies to violations committed in Kuwait and also to violations committed abroad which restrict competition and free trade, or are detrimental to it in Kuwait (Article 3, Competition Law).
Criminal penalties for competition violations include (Articles 19 to 22, Competition Law):
Fines.
Confiscation of goods.
A double fine for repeated offences.
Suspension of products from the market for up to three years.
All agreements, contracts and practices which are detrimental to free trade or competition are prohibited. Any natural or artificial person who is capable of influencing the market price of a product or service, through control of more than 35% of the market share of business, is also prohibited from engaging in practices that limit competition (Article 4, Competition Law).
Prohibitive practices that can be regarded as single-firm conduct listed under Article 4 are:
Limiting the free flow of goods or services by increasing, decreasing, or fixing prices, or by other means harmful to competition
Creating a sudden abundance of the product resulting in an artificial market price which affects other competitors.
Preventing or impeding a person from practising any commercial activity in the market or ceasing to do so.
Concealing goods and services available in the market.
Selling products at a price lower than their actual cost with the intention of causing harm to competing producers.
Suspending (totally or partly) the manufacturing, distribution or marketing process.
Merger control applies to mergers or acquisitions under which the merged entity acquires control over a market. Control is defined under the Competition Law as when a person (natural or artificial) or persons working together, directly or indirectly, become capable of controlling a market, by acquiring a combined market share or volume of business exceeding 35%.
If this threshold is met:
Notification must be sent by the potential buyer to the Competition Authority, at least 60 days before the intended date of the merger.
Once notification is made, the notice must be published in the Official Gazette and four local, daily newspapers (in Arabic).
There is then a 15 day period for objections to the transaction to be lodged.
If any objections are made, the transaction must be suspended until a decision is taken.
Approval must be received from the Competition Authority before the transaction is completed.
Definition and legal requirements. To be patented, an invention must be:
New, that is, relate to new industrial products, new industrial processes or methods, or be a new application of existing industrial processes or methods.
Capable of industrial use.
Registration. Applications for registration must be made to the Ministry of Commerce and Industry. Guidance is available on the application procedure (www.kfib.com.kw/userfiles/file/Intellectual%20Property.pdf).
Foreign nationals, companies and other legal entities can register patents in Kuwait, provided they are nationals or permanent residents of countries that have a reciprocal agreement with Kuwait (Article 5, Law No. 4 of 1962, as amended by Law No.3 of 2001) (Patents and Industrial Designs Law).
The Patents and Industrial Designs Law sets out the rules on protection. The registered owner has the exclusive right to exploit the invention by all means (Article 10, Patents and Industrial Designs Law).
Enforcement and remedies. The owner of the patent or his successors in title can initiate civil and criminal actions and obtain injunctive remedies against an infringer.
Length of protection. Product patents are protected for a maximum of 20 years, subject to renewal under the Patents and Industrial Designs Law.
Definition and legal requirements. Trade marks must possess a distinctive form and be used to distinguish goods, products or services to indicate that they belong to the owner of the mark, as a result of:
A manufacturing process.
Selection by the owner.
Trading or an offering for sale.
It is not necessary to use a trade mark to be able to register it. The law does not specifically provide for protection of unregistered marks.
Protection. Applications for registration must be made to the Trade Mark Department at the Ministry of Commerce and Industry, in accordance with the Commercial Law. The ownership of a trade mark cannot be contested if it is used continuously by the person who registered it for at least five years from the date of registration, provided no case is filed relating to its validity (Article 65, Law of Commerce No. 68 of 1980, as amended by Law No. 1 of 2001).
Enforcement and remedies. This is the same as for patents (see above, Patents).
Length of protection and renewability. Registration provides protection for ten years. There is no limit to the number of times registration and protection can be renewed.
Definition. An industrial design means any linear arrangement (whether coloured or not), which can be used for industrial manufacturing by mechanical, manual or chemical methods. These are also the legal conditions for design right protection to arise.
Registration. An application for registration must be made to the Trade Mark Department at the Ministry of Commerce and Industry, in accordance with the Patents and Industrial Designs Law. To be protected, the industrial design must then be registered in the Industrial Designs and Models Register at the Trade Mark Control Department.
Enforcement and remedies. This is the same as for patents (see above, Patents).
Length of protection and renewability. Registration provides protection for ten years. This can be extended for a further term of five years.
Unregistered designs are not regulated. It is not possible to bring a claim to enforce an unregistered design right.
Definition and legal requirements. Copyright protects innovative literary, artistic and scientific works.
Such works are protected irrespective of their value, kind, purpose or method used to express them. The work has to be recorded in permanent form.
Protection. It is not mandatory to register copyright to obtain protection. Protection automatically arises on creation of the work. The rules on protection are set out in the Law Relating to Intellectual Ownership (No. 64/1999). However, the owner of the copyright can register it by depositing the work (and the prescribed form) at the Kuwait National Library.
The rights of a person who translates a literary work into another language, or summarises, amends or explains a literary work so as to recreate it in a new form, are also protected.
Enforcement and remedies. This is the same as for patents (see above, Patents).
Length of protection and renewability. Copyright subsists for:
The life of the author, plus 50 years from the death of the author.
50 years from the date of publication of the work, in the following cases:
the author's real name or identity is not disclosed, and publication is under an artificial name;
the publisher is an artificial person (including companies and associations);
cinematic compilations, works of photography, applied arts, software and databases;
publications that are published for the first time after the death of the author;
50 years from the date of a first performance or cinematic recording.
20 years from the date of first broadcasting a transmission on television.
Commercial agencies are regulated by:
The Regulation of Commercial Agencies Law (No. 36/1964).
Chapter 5, Articles 260 to 296 of the Commercial Law.
Agencies must be registered for them to be enforceable. There are also several mandatory provisions to protect agency contracts, including:
A minimum duration of five years, if the agent is required to set up substantial facilities such as stores, warehouses and showrooms.
Compensation on termination or non-renewal without cause.
Non-Kuwaitis are prohibited from acting as commercial agents.
Sole distributorships are governed by the same legislation as agencies (see above, Agency).
There are no specific laws relating to the establishment and operation of franchises in Kuwait. Franchise agreements are governed by the Civil Code (No. 67/1980). Provisions regarding agencies may apply to franchise agreements (see above, Agency).
There are no laws relating specifically to e-commerce. E-commerce transactions are governed by the Civil Code.
The Decree dated 15 February 1977 regulates adverts in public places:
The public display of adverts requires a licence in advance from the local municipality and other relevant authorities, and must comply with the conditions in the licence.
All public adverts must be in Arabic. If a foreign language is used, Arabic must also be used in the top right hand side of the advert and must be expressed clearly.
Defacing of public adverts is prohibited.
Data protection is dealt with under the Constitution of Kuwait and under the Civil and Commercial Procedure Law (Law No. 38/1980). Banks and their customers are specifically protected under the Central Bank of Kuwait Law (Law No. 32/1968).
The censorship or disclosure of communications sent by post, telegraph or telephone is prohibited, except by law. Correspondence sent by mail (post or telegram) must not be opened by any person or authority unless they have the necessary legal permission (Regulation of Mail Services Law No. 1/1970).
Persons who deliberately misrepresent the quality, quantity or origin of goods may be subject to criminal liability (Law No. 20/1976 Deterring Cheating in Commercial Transactions). A civil claim for damages caused by the supply of defective goods may also be made (Civil Code (No. 67/1980)). Users of a product can make a claim for damages for personal injury caused by using a defective product.
Main activities. The KFIB facilitates foreign investment in Kuwait, including the filing of applications for foreign investment licences.
W www.cbk.gov.kw/WWW/index.html
Main activities. The Central Bank of Kuwait was established to lay the foundations for and maintain a flexible and stable monetary financial system in Kuwait. It also acts as a banker and financial adviser to the government.
Main activities. Its overall objective is to support commercial and industrial activities, and provide for the needs of the state and citizens in relation to goods and services.
W www.kuwaitchamber.org.kw/echamber/website/index.jsp
Main activities. This is a non-profit, self-financed private institution, established by Amiri decree issued in 1959. The Chamber acts on behalf of, represents and lobbies for the interests of business people and industrialists in Kuwait.
Main activities. The Capital Markets Authority:
Regulates and controls transactions related to securities.
Ensures transparency, fairness and efficiency.
Obliges listed companies to implement corporate governance principles.
Protects investors from unfair practices and legal violations.
Abdullah Kh Al-Ayoub & Associates
T +965 224 64321 /2 /3
F +965 224 34711 /22466591
E alayoub@al-ayoub.org
W www.al-ayoub.org
Professional qualifications Kuwait, Lawyer, 1975
Areas of practice. General civil and commercial law; corporate law; banking and finance; securities; investments; oil and gas; litigation; IP; international arbitration.
Recent transactions
Abdullah Kh Al-Ayoub & Associates
T +965 224 64321 /2 /3
F +965 224 34711 /22466591
E p.shete@al-ayoub.org
W www.al-ayoub.org
Professional qualifications India, Advocate, 2005; England and Wales, Solicitor, 2008
Areas of practice. General corporate and commercial; capital markets; M&A; banking and finance; oil and gas; agencies; arbitration.
Recent transactions
