The basic premise for carrying out business in Kuwait is identified in the Articles (23) and (24) of the Kuwaiti Commercial Code. Article (23) of the Code states that non-Kuwaiti citizens may not pursue any commercial activities in Kuwait, unless having a Kuwaiti partner. This partner's share must not be less than (51%).
Article (24) sets forth that any foreign company may not establish a branch in Kuwait and cannot pursue its commercial activities in Kuwait unless having a Kuwaiti agent. On April 22, 2001, Kuwait's Parliament enacted Law No (8) on Regulating Foreign Capital Direct Investment in Kuwait, in an attempt to lure foreign investments. By allowing foreign ownership up to (100%) of business entities in certain sectors, this Law draws an exception to the general rules governing doing business in Kuwait by foreign investors. The implementing regulations that establish the guidelines for investment under the Law will be issued soon.
The following ways define how a foreign individual or entity may enter the market and carry out business in Kuwait:
-- Establishing a company
-- Concluding a joint venture agreement
-- Appointing a Kuwaiti commercial agent
-- Appointing a commercial representative
-- Establishing Company in Kuwait
As per the Kuwaiti Law, foreign individuals or entities may establish permanent presence in Kuwait through forming and investing in the following Kuwaiti companies:
-- Limited Liability Company (WLL)
-- Closed Joint Stock Company (KSC Closed)
-- Joint Stock Company
-- Limited Liability Company
Foreign individuals and corporates may establish a Limited Liability Company (WLL) in Kuwait. However, as per Article (191) of the Companies Law, the share of the Kuwaiti citizen in the WLL company must be at least (51%). The process of forming a WLL is simple, and it takes approximately three months. This type of companies provides a limited liability shield. Since Kuwaiti citizens do not pay individual income tax, and only non-Kuwaiti corporate bodies pay corporate tax, WLL companies do not pay taxes.
-- Closed Joint Stock Company
The other type of companies that can be established by non-Kuwaiti entities is Closed Kuwaiti Joint Stock company (KSC Closed). Pursuant to the Kuwaiti Companies Law, Articles (68) and Article (94) state that KSC Closed companies are exceptional type of Joint Stock Companies. As a rule, only Kuwaiti citizens may be shareholders of a joint stock company. However, foreigners may own up to (49%) of the share capital of a Closed Joint Stock company (KSC Closed) after attaining approval of the concerned authorities. Activities of KSC Closed company may not include banking or insurance. The process of forming a KSC Closed company takes up to six months.
In addition to the taxes levied on profits made by the foreign company as a shareholder in a KSC Closed Company, the KSC Closed Company must contribute with 5% in Kuwait Foundation for the Advancement of Science.
-- Joint Stock Company
In June 1999, Kuwait enacted a law permitting non-Kuwaitis to hold shares, for the first time, in publicly traded shareholding companies. Pursuant to this new law, the restrictions and conditions of this right are to be defined by the Minister of Commerce and Industry in the Implementing Regulations of the Law. Among these regulations is the maximum amount of shares which non-Kuwaitis may hold and their corresponding rights.
Establishing a Joint Venture:
Pursuant to Article (57) of the Kuwaiti Companies Law, joint ventures are formed under simple contracts. No formal procedure for their establishment is involved.
Article (56) of the Law refers to joint ventures as joint venture companies. As stated in Article (59), joint venture companies do not have legal personalities. These companies may not conduct business in their own name. Only through a venturers that a joint venture company may conduct business with third parties. This venturer is personally is responsible for the transactions he enters into with the third parties. The liability of the transacting venturer to the third parties is unlimited.
Meanwhile, the liability of the non-transacting venturer is confined to his share in the joint venture. The Kuwaiti venturer in the company must guarantee the transacting venturer, if the latter is a non-Kuwaiti citizen. The joint venturers are to be exposed to unlimited joint and several liability, if the joint venture company deals with third parties in its own name. It makes no difference whether the joint venturers were personally involved in the transaction or not.
Commercial Agency
Commercial agencies in Kuwait are governed by Law No (36) of (1964) on the Regulation of Commercial Agencies, and Articles (260-296) of the Kuwaiti Commercial Code. Pursuant to Article (1) of the Law No (36) of (1964), non-Kuwaiti citizens may not act as commercial agents in Kuwait. Article (10) of the Law states that anyone who violates this rule are subject to be imprisoned for three months and/or to pay a fine.
There must be a direct relationship between the Kuwaiti agent and the foreign principal. Article (2) of Law No (36) stipulates that commercial agencies are not enforceable unless recorded in the Commercial Register. Provisions of the code define the general rules governing commercial agencies and their types. First Type The first type of commercial agencies is a contracts agency as per Article (271) of the Kuwaiti Commercial Code.
In this type of agencies, the local agent undertakes to do the following by the contract: a) promoting the principal's business on a continuous basis in the territory, b) entering into transactions in the name of the principal in return for a fee. The agency contract must be written.
Items of contract must define: the territory covered, the agent's fees, the agency term, the product or service that is the subject of the agency, and any relevant trademarks. If the agent should establish showrooms, workshops, or warehouse facilities, the contract must be valid for a period not less than five years.
Second Type The second type of commercial agencies is a distributorship agency. Under this agency, the local agent may act as the distributor of the principal's product in a defined territory and in return for a percentage of the profit as per Article (286) of the Kuwaiti Commercial Code. If the distributor is the only distributor in the whole country, distributorships are governed by the same general rules as contracts agencies.
As per the following protective procedures, these rules protect both types of agents: Registration of Commercial agencies is required to be enforceable. Kuwaiti law is the governing law in all public policy matters. The principal may not terminate the agreement without proving violation of the contract by the agent. If contract violation is not proved, the principal should compensate the agent.
The principal may not decline to renew the agency agreement upon its expiration without paying the agent equitable compensation for the non-renewal, provided that the agent provides evidence that he is not at fault and that his activities successfully promoted the principal's products.
The agent may file a suit against both the principal and the new agent appointed in Kuwait, if the principal colludes with another agent, and, for this reason, the agency contract is terminated.
Third Type As stated in Articles (287) to (296) of the Kuwaiti Commercial Code, the third type of commercial agencies is the commission agency. In this type of agency, the agent concludes contracts in his/its own name. The principal's name may not be revealed without his consent.
Commercial Representatives: Pursuant to a "Commercial Representation Agreement", a commercial representative is a Kuwaiti individual or entity engaged by a foreign company to represent its business interests in Kuwait.
Usually, the authority scope of a commercial representative is more limited than that granted to an agent. Fees of a commercial representative may be paid as either a fixed regular amount, a commission, or percentage of profits. Articles (297) to (305) of the Kuwaiti Commercial Code regulate the duties and obligations of commercial representatives.