Doing Business in Kuwait

The banking system is regulated closely by the CBK. The CBK is responsible for supervising Kuwait’s commercial (conventional and Islamic) and specialized banks, as well as foreign bank branches including financing companies, as well as investment companies performing financing activities, and exchange companies. It additionally performs other tasks including but not limited to setting the monetary policy.

The below entities are required to submit their quarterly financial statements to the CBK within 10 days from the end of the quarter and annual audited financial statements within 3 months from the end of the financial year:

• Banks
• Exchange Companies
• Investment Companies (Providing Financing)
• Financing Companies

The Capital Markets Authority (“CMA”) is currently the regulatory authority primarily responsible for regulating the marketing, offer and sale of securities in Kuwait.

The below entities are required to submit their quarterly financial statements to the CMA within 45 days from the end of the quarter and annual audited financial statements within 3 months from the end of the financial year:

• Closed Shareholding Companies licensed by the CMA
• Public Shareholding Companies

The Ministry of Commerce and Industry supports commercial and industrial activities and provides for the needs of the State and citizens in relation to goods and services.

Insurance Companies are required to submit their audited annual financial statements to the MOCI on an annual basis.

The Ministry of Finance is responsible for regulating Kuwait’s financial
services Industry and Kuwait’s international trade.

Companies subject to Income Tax, National Labor Service Tax (NLST), Zakat, Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) should submit their tax declarations or other reportable information to the Ministry of Finance on an annual basis or as per deadlines prescribed by the Ministry.

3.1 Investment Channels

There are two types of investments in Kuwait, i.e. Direct Investment and Indirect Investment.

Direct Investment: Direct Investments are those owned directly in the name of the investor and which are acquired through the investor’s direct participation.

The Direct Investment channels are illustrated below:

Boursa Kuwait is one of the most prominent channels of direct investment in Kuwait. The Capital Market Authority is an independent government body regulating and monitoring the securities market of Kuwait.

Below is a brief about the CMA and Boursa Kuwait:

The Capital Markets Authority (“CMA”) is currently the regulatory authority primarily responsible for regulating the marketing, offer,ing and sale of securities in Kuwait. Law No. 7 of 2010 regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities was issued on February 21, 2010. Certain provisions of the law were further amended in Law No. 108 of 2014 which was issued on 10 August 2014 and Law No. 22 of 2015, which was issued on 10 May 2015.

Boursa Kuwait is a private entity that was established in April 2014 by the Capital Markets Authority Commissioners’ Council Resolution No. 37/2013 dated 20 November 2013, replacing the Kuwait Stock Exchange (KSE), to become the nation’s official exchange effective 25 April 2016 with the aim to take over and manage the Kuwait stock market and progressively transition its operations, while delivering on three main fronts; transparency, efficiency, and accessibility.

Officially licensed on 5th October 2016, Boursa Kuwait’s mission is “To operate an efficient, fair and transparent capital market platform that services all relevant asset classes, whilst focusing on clients’ interest through excellence in everything we do”.

The Boursa is currently segmented into 3 markets as follows:

• Premier Market
• Main Market
• Auction Market

Since being established, Boursa Kuwait has recorded a lot of achievements, the latest and the biggest being its upgrade as an “emerging market” by the FTSE Russell Emerging Markets Index, S&P Dow Jones Indices, and the MSCI Index.

In addition, Boursa Kuwait’s privatization drive has been successful with 94% of the Company’s shares being held by private investors and only 6% stake being held by the government. This makes Boursa Kuwait the only stock exchange operator in the Middle East that is not owned by the state. In addition, Boursa Kuwait’s own shares were publicly listed on the stock exchange on 14 September 2020.

Indirect Investments are those owned by the investor and which are acquired indirectly through the funds or portoflios.

The Indirect Investment channels are illustrated below

3.2 Investment Incentives in Kuwait

Kuwait offers the following investment incentives:

The Government of Kuwait encourages investment in the local business by providing the below-mentioned incentives:

• Certain raw materials and equipment are exempt from import duties
• Goods locally produced are protected against similar goods that are imported by levying tariffs on imports
• Availing industrial loans at economic interest rates
• Businesses that deal with government supply contracts are provided preferential treatment

Kuwait Direct Investment Promotion Authority (KDIPA) was established to promote direct investment in the State of Kuwait, as a specialized public authority with financial and administrative independence. KDIPA is one of the economic implementing arms of the country performing developmental, promotional, regulatory, and advocacy roles. Under the authority of the KDIPA, the Direct Foreign Capital Investment Law (Law No. 116) was promulgated in 2013.

The Direct Foreign Capital Investment Law provides several incentives, which include the following:

• Non-Kuwaitis are provided the opportunity to invest in excess of 50% (up to 100%) in Kuwaiti companies.
• Approved projects requiring imported materials are fully or partially exempted from customs duties and other government charges.
• Tax exemption for up to 10 years with respect to non-Kuwaiti shareholders’ shares of the profits from the business.
• Repatriation of profits and capital invested is guaranteed under the law.
• Investors can avail of benefits from avoidance of double taxation treaties,

if available, and other promotion and protection agreements signed between Kuwait and other countries.

• Industrial plots can be leased at low rental rates for long periods of time.
• Recruitment of foreign labor is required for the project.

Some of the success stories under KDIPA include the following:

• IBM
• MMI (Montreal Medical International Inc.)
• BRG
• Malka (Malka Communications Group Inc.)
• NTG Clarity Networks Inc
• TSK
• Grand Cinemas
• TR (Technical Reuindas)
• GE
• Huawei
• Selex ES
• SinGulf Global
• AZN O&M Company W.L.L
• WTE
• Leonardo
• Mckinsey and Co.
• Sacyr
• Cengiz

3.3 Exchange Control

There are no significant restrictions on foreign currency movements except for safeguards to combat money laundering as stipulated and strictly implemented by the Central Bank of Kuwait (CBK).

Hence, capital, equity, dividends, loan, interest, profits, royalties, fees, and savings are freely remittable by foreign investors through banks, investment companies, and currency exchange companies albeit strictly monitored by the CBK.

3.4 Financing Sources

Primary sources of financing in Kuwait for business purposes are its domestic and foreign banks. These institutions provide facilities that may be on a medium to long-term basis. A prominent institution in Kuwait facilitating the growth of commerce and industry is the Industrial Bank of Kuwait. It provides the following financing facilities:

• Industrial Finance
• Commercial Finance
• Small Enterprise Finance
• Finance of Agriculture

Loans are provided on a deferred repayment basis with subsidized rates.

Also, the National Fund for Small and Medium Enterprises Development provides financing for up to 80% of capital for feasible projects submitted by Kuwaiti Nationals.

4.1 Governing Law and Legal Requirements

There are several laws governing employment in Kuwait including:

• Private Sector: Private Sector Labor Law No. 6 of 2010, as amended, which is enforced by the Public Authority for Manpower;
• Government Sector: Government Sector Labor Law No. 18 of 1960, as amended; and
• Oil and Gas Sector: Oil Sector Labor Law No. 28 of 1969.

4.2 Employment Permits

Employers are responsible for obtaining employment permits for their foreign employees. An employer should obtain a permit from the Public Authority for Manpower and send it to the foreign employee before that person embarks for Kuwait. The employer should undertake to engage the foreign employee only in the job specified in the employment permit.

Employment permits are usually issued for up to three years and may be renewed for similar periods upon the request of an employer. GCC nationals do not need to have employment permits to work in Kuwait.

4.3 Employment Agreement

Under the Kuwait Labor Law, an employment agreement should be made in writing. In any case, the agreement shall provide a description of the job, the compensation payable, the date of appointment, and the duration of employment (if for a definite term). In terms of the duration of service, a period that does not exceed five years is considered a definite term. The probationary period is 100 days and the employment agreement during the said period can be terminated by either party without prior notice with the employee receiving the accumulated dues.

4.4 Remuneration

Remuneration typically includes the following:

• Basic salary
• Allowances
• Grants
• Endowments
• Cash Benefits

Overtime is payable as follows:

• 125% of normal pay on working days including Saturdays (Rest Day)
• 150% of normal pay on Fridays (Off Day)
• 200% of normal pay on public holidays

End of Service Benefits (EOSB):

The terminal benefit payment is calculated as 15-day pay per year for the first five years of service and one month of pay per year thereafter unless a higher rate is provided in the employment agreement. The calculation is based on the latest salary. The total amount paid may not exceed one and one-half years’ remuneration based on the last basic salary.

The worker shall be entitled to half of the EOSB in the event that he/she terminates the agreement, which has an indefinite term and the period of service is a minimum of 3 years and not more than 5 years. However, if the period of service is 5 years and is less than 10 years, the worker will be entitled to two-thirds of the EOSB. If the period of service exceeds 10 years, the worker will be entitled to the entire EOSB.

• The annual paid leave is 30 days.
• Maternity leave is 70 days, (30 days before delivery and 40 days after delivery)
• Sick leave is 15 days with full pay, 10 days with 75% pay, 10 days with 50% pay, 10 days with 25% pay, and 30 days without pay.

4.5 Health, Safety & Welfare at Workplace

Employees should be protected from physical hazards and occupational diseases at the workplace. Thus, employers are required to take necessary precautions to protect their employees’ welfare in line with the regulations specified in the Labor Law.

4.6 Notice Requirements

As per the Labor Law, a minimum of 3 month notice period should be provided to an employee on termination of their employment agreement furnishing adequate explanation for such termination. The Law also declares that an employee must provide a 3-month notice period to their employer in case of resignation.

4.7 Transfer of Obligations

In the event that the business entity is sold, merged with another entity, or transferred by inheritance, donation, or other legal action, the employment agreement shall remain valid under the same conditions, and the obligations and rights of the original employer towards the workers shall be transferred to the employer who replaces them.

4.8 Termination

The employee who is terminated for any reason shall have the right to object to a such decision before the competent labor department. If it is established, by virtue of the final verdict, that the employer has arbitrarily terminated the worker, the latter shall be entitled to an end-of-service benefit and compensation for material and moral damages.

4.9 Trade Unions

Trade Unions’ formation and activities are strictly controlled. Only one unit is allowed to be established for workers in any profession. An employee is not allowed to join more than one union.

To be a union member, an employee must be at least 18 years of age and have a certificate of good conduct from a competent authority. For expatriates, a valid employment permit and a Kuwait work experience for five consecutive years are required to become a union member.

Kuwaitis are the only persons who have the right to vote in the union’s general assembly. Being elected to the executive board of a union is also restricted to Kuwaitis. Expatriates only have the right to delegate one among them as a representative in order to share their views before the executive board.

4.10 Social Security

Social security in Kuwait is applicable only to Kuwaiti nationals and GCC nationals according to the GCC Uniform Social Security System. As per Social Security Law No. 61 of 1976, employers and Kuwaiti employees shall make a monthly social security contribution. The employers should contribute 11% while the employee should contribute 7.5% of the basic salary plus the government contribution. Employees’ contribution is deducted from their salary.

5.1 Overall Structure

Each tax is regulated by separate legislation which is governed by the Amiri Decree. The tax system is comprised of the following main taxes:

• Foreign Entity Taxation
• Kuwait Foundation for the Advancement of Sciences (KFAS)
• Zakat (Islamic Tax)
• National Labor Support Tax (NLST)

5.2 Kuwait’s Compliance with International Tax Treaties

Based on the Customs Union formed on 01 January 2003 by the GCC States, it is agreed that a uniform customs duty will be levied among all member States; customs will not be levied for trade among GCC States; and regulations, which restrict trade among GCC States, would be eliminated.

As a result, Kuwait levies a standard customs tariff of 5% on CIF invoice prices subject to certain exceptions.

As per the Customs Union, a unified list of goods comprising 400 items including basic foodstuffs, personal effects, and used household items are exempted from customs duties.

Hisham Sorour

Baker Tilly Kuwait