Foreign Direct Investment (KDIPA)

Overview

To fully appraise the direct investment laws in Kuwait, it is necessary to briefly reflect on the status of law before the enactment of the current laws encouraging foreign investment in Kuwait. Foreign corporations were not allowed to operate independently in Kuwait. According to article 23 of Kuwait Decree-Law No. 68/1980 On the Promulgation of the Commercial Transactions Law, “[n]on-Kuwaiti may not practice trade in Kuwait unless he has a Kuwaiti partner or partners, provided that the capital of the Kuwaitis in the joint business concern is not less than 51 % of the total capital of said business concern.” This means to establish a commercial entity in Kuwait, it must have majority ownership of at least 51% over the company.

Article 24 of Kuwait Decree-Law No. 68/1980 provides that “[a] foreign company may not incorporate a subsidiary thereto in Kuwait nor carry out commercial transactions in Kuwait unless through a Kuwaiti agent”. This means if a foreign entity declines to engage with a Kuwaiti partner to establish a commercial entity, that foreign entity may only do business in Kuwait through a designated, authorised, and registered Kuwaiti agent.

Practical Guidance

Foreign direct investment legislation

In an effort to attract foreign investment, in 2001 Kuwait passed Kuwait Law No. 8/2001

On the Regulation of Direct Investment of Foreign Capital in the State of Kuwait. The law was repealed by Kuwait Law No. 116 /2013 Amending the Law on the Regulation of Direct Investment of Foreign Capital in the State of Kuwait. Kuwait Law No. 116 /2013 created an exception to Kuwait Decree-Law No. 68/1980 by allowing foreign entities to own up to 100% of a commercial entity in Kuwait where the entity operates in select sectors such as infrastructure, insurance, hospitals, housing, tourism and entertainment.

Under Kuwait Law No. 116/2013, foreign investors are incentivized in the form of a land grants and a tax holidays for up to 10 years, to invest in Kuwait. These incentives are linked to the proportion of Kuwaiti nationals that are employed by the foreign entity. Article 2 of Kuwait Law No. 116/2013 creates an administrative agency, the Kuwait Direct Investment Promotion Authority (KDIPA), which has exclusive jurisdiction over the issuing of licenses to foreign entities for the purpose of operating in Kuwait with 100% ownership of the local entity.

Steps to obtain a license

In general the application for a licence for a foreign entity to operate independently in Kuwait can be broken down into four steps, as per KDIPA:

1. Proposal - Investment Type and Initial Classification of Business

2. Business Plan - Technical and Financial Criteria of Overall Business or Project

3. Application and Decision - Application and Fees Based on Selected Business Type

4. Establishment and Licensing (if successful with steps 1-3)

All associated fees are provided for in a fees schedule provided by KDIPA in accordance with Kuwait Ministerial Decision No. 182/2022. In the normal course of business KIDIPA will normally provide a response to a submission, within 30 business days, of a completed application.

Business types

Point 3 of the KIDIPA application process above mentions “Selected Business Types.” In order to avoid any ambiguity in this article, these types which are recognized by Kuwait law, are further elaborated below. Foreign entities may choose from one of three business types if they choose to apply through KIDIPA.

Limited liability company (WLL)

Foreign individuals and corporations may establish a WLL in Kuwait. However, these types of companies provide a limited liability shield. These entities are tax free for their lifetime if owned by a Kuwaiti individual, however a foreign company will be provided only a 10 year tax moratorium, and will be taxed at the corporate rate of 15% percent following the initial tax free period.

Single person company (SPC)

Article 3 of Kuwait Law No. 1/2016 on the Issuance of the Companies Law authorises single person companies which stipulates that “[i]t is permitted, in the cases foreseen by the law, to establish a company pursuant to the unilateral will of one individual”. Articles 85- 91 of Kuwait Law No. 1/2016 outlines the basic framework that governs the regulations of the single person company. The main advantage for establishing a single person company is the limited responsibility of the owner for the company’s debts and losses not exceeding the actual capital held by the corporate entity.

Shareholding company

Kuwait Law No. 116/2013 permits the foreign entity to form a joint stock company in the two forms:

1- Public shareholding companies are companies whose capital is divided into tradable shares of equal value. The responsibility of the shareholder will be limited to the contribution of the value of the shares subscribed for by them and they will not be liable for the company’s obligations, except to the extent of the nominal value of the shares in which they have subscribed.

2- In closed shareholding companies, (KSC closed), the shares in the capital may only be subscribed for upon incorporation by the incorporators.