Kuwait, officially the State of Kuwait, shares its borders with Iraq and Saudi Arabia and has a population of some 3.5 million. Kuwait is a constitutional Emirate with an elected parliamentary system. Kuwait has a petroleum-based economy, with petroleum accounting for approximately half of the country’s GDP and the majority of revenues for the Government. Kuwait continues to undertake efforts to diversify its earnings away from petroleum. The Kuwait Stock Exchange is one of the larger stock exchanges in the Arab world. Arabic is the first language, with English widely spoken and used in business.
Kuwait’s legal framework governing business activities provides a range of opportunities to do business in Kuwait. Kuwait follows the ‘civil law system’ modelled after the French legal system and is largely secular. However the legal system also incorporates features of British common law, Egyptian civil law, and Islamic law. The sources of law for civil matters include the Constitution together with specific legislation. Legislative power is shared between an elected National Assembly and the Head of State, the Amir. The Head of the Government, the Prime Minister, is appointed by the Amir.
The court system is secular, following the civil law model, and unlike other Gulf States, Kuwait does not have Shari’a courts. Whilst the Kuwaiti government in general favours a free-market economy with little official intervention, there are certain ownership and other restrictions applying to foreign investors. Typically the ownership interest in a Kuwaiti company needs to be at least 51% owned by Kuwaits.
Kuwait Direct Investment Promotion Authority (KDIPA)
To help with attracting increased foreign investment a new authority, the Kuwait Direct Investment Promotion Authority (KDIPA) has been established through the Foreign Direct Investment Law of June 2013 (the Investment Law) and Executive Regulations of late 2014. The KDIPA is intended to function as a “one-stop shop” for the review of applications and approval of licenses and incentives. The Investment Law provides particular incentives where the proposed projects will help broaden and diversify the industrial and commercial base of the economy. These incentives include the potential for tax holidays and customs exemptions and 100% foreign ownership.
Companies in Kuwait are established under the Commercial Companies Law (the CCL).The following business structures are available to non-Kuwaitis to undertake business / commercial activities in Kuwaitis.
Limited Liability Companies (WLL)
Limited liability companies, usually referred to as ‘With Limited Liability (WLL), are the most commonly used corporate form of entity in Kuwait and are considered equivalent to French SARLs, German GmbHs or private companies in the United Kingdom. The key features are,
– WLL companies are not permitted to engage in banking, insurance or to act as a pure investment fund.
– Maximum percentage of shareholding by a non- Kuwaiti in a WLL should be 49%(except if such WLL has obtained an approval from the KDIPA).
– Ownership interests are represented by shares of the WLL companies.
– Minimum Capital requirement is 1,000 KWS
A joint venture is an entity formed by two or more natural or legal persons who are jointly and severally liable. The key aspects of the joint ventures are as follows:
– It does not have legal existence.
– It does not need to be recorded in the commercial register of the Ministry of Commerce and Industry. However, the partners of the joint venture must be separately registered in their own names.
– The contract defines the objects and terms of the joint Venture. This form of business structure is usually used to carry out construction projects (i.e. construction of power plants, roads, etc.).
– In the event the joint venture involves a foreign partner, then the entity conducts operations through the trade license of the Kuwaiti member of the joint venture.
(applicable to non-corporate investors)
The CCL provides two types of partnerships in Kuwait:
General Partnership: An association of two or more persons who are jointly liable for partnership debts to the extent of their personal wealth (unlimited Liability)
Limited Partnership: This type of partnership has two types of partner I.e. General partners with Unlimited Liability and Limited partners with limited liability. Such partnerships take the form of a separate legal entity and many transact business in its own name.
Foreign corporate bodies are not permitted to set up a branch in Kuwait (except in cases where the foreign corporate body has obtained an approval from KDIPA). If the foreign corporate bodies do not wish to operate in Kuwait through a participation in a shareholding company or a limited liability company, it may engage in business in Kuwait only through a Kuwaiti commercial agent or a Kuwaiti service agent (as explained below).Under the CCL a branch is not a recognized legal form for foreign investors. It should be noted however that for the purpose of tax filing and certain other practical purposes, it is convenient to refer to Kuwait operations of foreign corporate bodies as “branch” operations.
Agent / Distributor
Agencies are governed by Law No. 36 of 1964, which regulates the following:
– Commercial agents which are engaged in promoting products for their principal or negotiate and conclude deals on behalf of their principal.
– Distributors which are engaged in promotion, import and distribution of the products of their principal.
– Service agents or sponsors who are appointed by foreign companies intending to engage in government contract works.
Filling of Statutory Financial Statements
Limited Liability Companies (WLL), Kuwaiti Shareholding Companies Closed (KSCC) (Unlisted) and Kuwait Public Shareholding Companies (KPSC) (Listed) registered in Kuwait are required to prepare annual financial statements and file these with the Ministry of Commerce and Industry, Kuwait (“MOCI”) and the concerned authority, i.e., Kuwait Stock Exchange (for listed companies) and Central Bank of Kuwait (for KPSCs and KSCC banks). Further, all banks and investment companies (irrespective of whether they are listed or not), fall under additional compliance regulations of the Capital Markets Authority (CMA), Kuwait.
Audited financial statements are required to be filed within 3 months from the end of the financial year with MOCI and all concerned authorities. Additionally, for all the companies covered by the CMA Law (KPSCs and KSCC investment companies and banks), the financial statements are also required to be submitted to the CMA within 5 working days of the approval of financial statements. The regulations in Kuwait require all companies to prepare and file a complete set of financial statements including the statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and other explanatory information. Listed companies are required to file their interim unaudited financial statements with the Kuwait Stock Exchange within 45 days after each quarter end.
Financial Reporting Framework
Allthe companies in Kuwait are required to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS)
In Kuwait, the following forms of companies are required to have their financial statements audited:
– Limited Liability Companies
– Kuwaiti Shareholding Companies Closed
– Kuwait Public Shareholding Companies
– Any other business in respect of which an audit is required by any other law, for example, Ministerial Decision no. 46601/67 for Private Education System (schools), Commercial Law no. 68 of 1980 for establishments.
Audit is not mandatory in Kuwait for proprietorship entities. Normally such entities get their financial statements audited when they are required to do so by any regulatory body or financial institution or to meet any other special requirement (for instance, an audit is mandatory for those individuals who hold 5 or more establishments).
Appointment of Auditor
In Kuwait, auditor’s appointment is done in the name of the individual partner of the firm. Auditors are appointed for a fixed period of one year and can continue as the auditor of the company after the first year, subject to approval of the shareholders/partners in the general assembly meeting. This rule is applicable for all the companies registered in Kuwait. Article 6 of CMA Decision no. 24 of 2012 requires auditor rotation for KPSCs to be done once every 4 years. Joint audits are required only in respect of KPSCs.
Auditors in Kuwait are required to undertake their audit and express an opinion on the financial statements in accordance with International Standards on Auditing issued by IFAC and applicable laws of the country.
Composition of Board
Each Shareholder with a 15% shareholding is entitles to nominate a director to the Board of Directors. Each Director is required to own shares (qualifying shares) in the company of which he is a director. Companies Code provides that shareholders (owning 15% in aggregate of a company’s share capital) mayobject in the Kuwaiti courts to any resolution of the shareholders, within 30 days of such resolution beingpassed (provided that they have not previously voted in favour of such resolution).
|Tax Indicator||Resident||Non – Resident|
|Fiscal year end||Calendar Year||Calendar Year|
|Income Tax||Not applicable. However, Kuwaiti (Closed) Shareholding Companies are subject to 1% Zakat, 1% contribution to the Kuwait Foundation for the Advanced Sciences, and 2.5% National Labour Support Tax (if listed on the Kuwait stock exchange).||Taxed as ordinary income. Capital gains from shares listed on the Kuwaiti Stock Exchange are exempt from taxation.|
|Tax on Capital Gains||None||Taxed as ordinary income. Capital gains from shares listed on the Kuwaiti Stock Exchange are exempt from taxation.|
|General Sales Tax||Not applicable||Not applicable|
|Value Added Tax||Not applicable||Not applicable|
|Withholding Tax on Dividends||Not applicable||Not applicable, except for a 15% withholding tax on dividends earned by foreign investors from securities listed on the Kuwaiti Stock Exchange.|
|Withholding Tax on Interest||Not applicable||Not applicable. Interest received is taxed at 15%.|
|Withholding Tax on Royalties||Not applicable||Not applicable Royalties received are taxed at 15%.|
|Withholding Tax on Management Service Fees||Not applicable||Not applicable Management fees are taxed at 15%.|
|Retention||Payments to foreign suppliers / service providers are subject to 5% retention, which tax is released once the foreign recipient produces aa Tax Clearance Certificate from the Kuwait Tax Authorities.|
|Customs||Standard rate is 5%. Other rates (0%, 100%) apply depending on the nature of the goods.|
|Exchange Controls||Not applicable|
|Transfer Pricing||Depending on the activity, a deemed profit margin is applied, ranging from 5% (third parties) to 30% (related parties).|
All business enterprises are required to maintain adequate financial records which need not be maintained in Arabic.Companies are required to adopt an accrual basis of accounting for financial accounting purposes and following the International Financial Reporting Standards (‘IFRS’).Ministerial Order No. 206 of 1985 specifies the following books and records required to be maintained by the foreign companies and partnerships:
Companies are required to adopt an accrual basis of accounting for financial accounting purposes and following the International Financial Reporting Standards (‘IFRS’).The books of account of a foreign corporate body or a local company in which the foreign corporate body is a minority shareholder are typically subject to tax audit by the Department of Income Taxes before tax assessments are finalized.
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