Doing Business in Kuwait

Geography

People

Government

2.1 Introduction

Kuwait’s economy is largely dependent on oil revenues.

Below is a snapshot of the key economic indicators for Kuwait:

2.2 Legal Framework for Doing Business in Kuwait

Kuwait’s legal framework governing business activities provides a range of opportunities to do business in Kuwait. Several legislations regulate Kuwait’s business environment, prominently the Companies Law No. 1 of 2016, as amended, Law No. 116 of 2013 regarding the Promotion of Direct Investment in the State of Kuwait, and Law No. 13 of 2016 regulating Commercial Agencies.

Investments can be made in Kuwait through three main channels:

1. Establishing a Kuwaiti company in accordance with Companies Law No. 1 of 2016: The above Law sets forth the requirements and procedures for incorporating different forms of business entities, which include:

   • Sole Proprietorship;
   • Joint Venture
   • Company with Limited Liability;
   • Public Shareholding Company
   • Closed Shareholding Company
   • Partnership;
   • Limited Partnership;
   • Partnership Limited by Shares

   For more information about the above legal forms of business entities, please refer to Kuwait’s Companies Law No. 1 of 2016, as amended, and the Executive Regulations thereof.

2. Establishing an investment entity in accordance with Law No. 116 of 2013 and the Executive Regulations regarding the Promotion of Direct Investment in the State of Kuwait: Companies under the above Law include:

   • A Kuwaiti company having one of the legal entity forms of companies set forth in the Companies Law No. (1) of 2016, which will be incorporated for the purpose of Direct Investment. Foreign participation in the such company may be up to 100% of the company’s capital in accordance with the principles and rules set forth under Companies Law.
   • A branch of a foreign company licensed to operate within the State of Kuwait for the purpose of Direct Investment.
   • Representative offices are solely intended to develop market studies and production potential without engaging in a business activity or the business of commercial agents.

   For more information about the above legal forms of business entities, please refer to Kuwait’s Companies Law No. 1 of 2016, as amended, and the Executive Regulations thereof.

3. Doing business through a local agent in accordance with Kuwait Commercial Agencies Law No. 13 of 2016 and the Commercial Law No. 68 of 1980, as amended The agency business in the State of Kuwait may take any of the below-mentioned forms:

   • Contract Agency Agreement: This agency form is governed by Article (271) of the Kuwait Commercial Law No. 68 of 1980. The local agent undertakes to perform the below tasks as set forth in the agreement:

     • Promote the principal’s business on an ongoing basis in the territory.
     • Enter into transactions in the name of the principal in consideration of a fee.

   • Distributorship Agency Agreement:

     This agency form is governed by Article (286) of the Kuwait Commercial Law No. 68 of 1980. The local agent may act as the distributor of the principal’s products in a defined territory in consideration of a percentage of the profit.

   • Commission Agency Agreement:

     This agency form is governed by Articles (287) to (296) of the Kuwait Commercial Law No. 68 of 1980. Local agents may act in their own name for the principal’s account against the commission. The principal’s name may not be revealed without their consent. Commissions are charged for transactions on a case-by-case basis.

   • Representative offices are solely intended to develop market studies and production potential without engaging in a business activity or the business of commercial agents.

     Fees of a commercial representative may be paid as a fixed regular amount, a commission, or a percentage of profits.

   Fees of a commercial representative may be paid as a fixed regular amount, a commission, or a percentage of profits.

2.3 Accounting and Audit Requirements

1. Statutory Requirements

   Business entities in Kuwait should maintain adequate financial records.

2. Accounting Standards

   All companies in Kuwait are required to comply with International Financial Reporting Standards (IFRS) in the preparation of financial statements in accordance with Ministerial Resolution No. 110 of 1991.

3. Audit Requirements

   Companies in Kuwait, both Shareholding and Limited Liability, must be audited annually. The auditor should be independent and registered with the Ministry of Commerce and Industry (MOCI) and Capital Markey Authority (CMA), and must be a member of the Kuwait Association of Accountants and Auditors.

2.4 Filing Requirements

In the State of Kuwait, there is an administrative governmental body that grants licenses for business activities and regulators that supervise business activities. Filing to administrative governmental bodies and regulators is made as follows:

1. Administrative Governmental Body

   The administrative governmental body that grants business licenses is the Ministry of Commerce and Industry (MOCI).

2. The following entities are required to submit their annual audited financial statements within three months from the end of the financial year to the MOCI, which is both their licensor and regulator:
   • Sole Proprietorship
   • Partnership Company
   • Limited Partnership
   • Partnership Limited by Shares
   • Joint Venture
   • Company with Limited Liability
   • Closed Shareholding Companies
   • Public Shareholding Companies
3. The regulatory bodies that supervise business activities are as follows:
   • Central Bank of Kuwait (CBK)
   • Capital Markets Authority (CMA)
   • Insurance Regulatory Unit (IRU)
   • Ministry of Commerce and Industry (MOCI)
   • Ministry of Finance (MoF)

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 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 IRU is currently the regulatory authority responsible for regulating insurance companies. The IRU operates as an independent entity with a board comprising a chairman, a deputy head, and three part-time members, all appointed by a resolution of the MOCI for a renewable four-year term.

The IRU has the authority to oversee and inspect insurance companies to verify their compliance with financial and legal obligations. It also ensures that these companies commit to providing adequate insurance coverage to safeguard the interests of policyholders and beneficiaries.

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

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

The MoF is responsible for regulating Kuwait’s financial services industry and Kuwait’s international trade.

Companies subject to Corporate Income Tax, National Labor Service Tax (NLST), Zakat, Contribution to Kuwait Foundation for Advancement of Sciences (KFAS), Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS), Pillar Two Domestic Minimum Top-up Tax (DMTT), 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: Investments 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 CMA is currently the regulatory authority primarily responsible for regulating the marketing, offering and sale of securities in Kuwait. Law No. 7 of 2010 regarding the Establishment of the CMA 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
• Over-the-counter (OTC) 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.

Boursa Kuwait underwent a privatization process over two stages, the first in February 2019, when a 44% equity stake was awarded to an international exchange and a group of Kuwaiti investment companies in early 2019.

In December 2019, the privatization process was finalized after the initial public offering of the Capital Markets Authority’s 50% stake in the company was offered to Kuwaiti citizens, with an oversubscription rate of 850 percent making Boursa Kuwait the only stock exchange in the Middle East owned by the private sector. 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 portfolios.

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 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

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

• 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

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.

Kuwait follows a ‘source-based’ taxation system rather than the more common ‘residence-based’ model. Consequently, while tax is only imposed on income generated from Kuwaiti sources, tax liabilities may still arise from activities that are not typically taxable in many other jurisdictions.

5.1 Overall Structure

Each type of taxation in Kuwait 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

The Kuwait Council of Ministers has issued Decree No. 6 of 2024, addressing the Exchange of Information for Tax Purposes. This decree strengthens Kuwait’s commitment to the Automatic Exchange of Financial Account Information (AEOI), including the Common Reporting Standards (CRS) and the Foreign Account Tax Compliance Act (FATCA). The decree will take effect on the second day following the issuance of its executive regulations, which are yet to be released. As per the law, the Ministry of Finance is required to issue these regulations within six months of the decree’s enactment.

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