Doing Business in Kuwait

The State of Kuwait follows the civil law system or what is commonly known as the Latin system. The historical origins of Kuwaiti Law are from the Egyptian and French codes. Article 2 of the Constitution provides that Islamic Sharia forms a major source of law. It is not however the exclusive source. Therefore, it is not essential for a law to be totally in conformity with Islamic Sharia in order for it to be constitutional. For example, there are provisions under the law of commerce which permit payment of interest in commercial transactions. The Kuwaiti legal system is of recent origin. It has benefited from the experiences of other legal systems in the world. In addition to incorporating provisions from the Egyptian legal system, Kuwait has also incorporated various international forms and standards into its legal system. For example Kuwait adopted the rules of the International Chamber of Commerce (Vienna) as amended in 1974 for regulating letters of credit. Likewise, International Accounting Standards have also been adopted by Kuwait under a special enactment regulating the procedures to be followed by auditors and accounting firms in Kuwait.

Entering the Kuwaiti Market

Articles 23 and 24 of the Kuwaiti Commercial Code state the basic premise for Doing Business in Kuwait. Article 23 provides that non-Kuwaitis cannot engage in commerce in Kuwait without having a Kuwaiti partner whose equity holding is at least 51 percent. Article 24 provides that a foreign company cannot establish a branch in Kuwait and it may not engage in commercial activities in Kuwait except through a Kuwaiti agent.

These two provisions pertain to public policy, and as such are mandatory. Noncompliance, therefore, among other things, renders the transaction null and void.

As an exception to Articles 23 and 24, a new law (Law No.8/2001) has been enacted permitting foreign entities to establish Kuwaiti companies with up to a 100% foreign equity participation. Although a license under the new law can only be granted for certain types of business activities, the enactment of this legislation is a significant milestone in the legislative history of the country.

A foreign person or entity may enter the Kuwaiti market and do business in various ways. These are:

• Enter into a joint venture agreement
• Establish a corporate entity, that is, a limited liability company (referred to as a WLL), or a closed joint stock company (KSC Closed)
• Appoint a local commercial agent
• Appoint a commercial representative
• Apply for a license under the foreign investment law for incorporating a company in Kuwait with or without a local partner