Practical Considerations

1. Foreign entities often mistakenly assume that business is conducted in the Middle East outside the law and fail to educate themselves about the legal system under which they operate and do not seek local legal advice.

2. Often, the actual transactions which the foreign entities enter into bear no relationship to the models envisaged by the legislature and therefore do not conform with mandatory rules; as a result, the transactions are often null and void or unenforceable in Kuwait or expose foreign entities to greater liability than anticipated.

3. In most cases, parties enter into contracts under which a local agent undertakes to import all of a foreign principal's products on an exclusive basis (for the territory of Kuwait), for which the agent normally pays through letters of credit. In effect, this type of contract gives the agent a local monopoly over importation of such products and at the outset shifts the risk of success to the agent. The disadvantage to the foreign entity is that the contract creates a semipermanent local monopoly in the agent, over which the foreign party has little control and which it cannot terminate except at general expense. For this reason, it is important that foreign entities at the outset properly investigate the local agent's credentials and get local legal advice on the terms of the agreement.

4. Most foreign entities insist on concluding "sponsorship contracts," whereby a local person provides logistical assistance to the foreign company. Although this is a valid contract, it is not a commercial agency agreement and cannot be registered. In practice, what often happens is that the local sponsor gives the application form for agency registration to the foreign company to fill in. This application form requires basic information, and when filed, operates as a commercial agency contract, with terms not covered supplemented by the law. In effect, the foreign company may establish a local agency without knowing it, and on terms and conditions it did not negotiate.

5. For both legal and practical reasons, the choice of a local partner or agent is a critical one. It is therefore essential that the agent's credentials be independently verified. It is not sufficient that an agent be from a "known family" with influence.

6. All Kuwaiti government procurement above KD 5,000 is done through the Central Tenders Committee, and here, as in all markets, quality and price prevail.

7. Termination of a commercial agency agreement must be considered very carefully, and legal assistance is necessary. Although the legal provisions on termination and nonrenewal pertain to public policy and therefore may not be "negotiated out" of an agency agreement, careful drafting of the agreement can minimize their effects.

8. Although there has been considerable progress in implementing Law No. 8 of 2001, so far no Foreign Investment licenses have been granted. Further, any grant of a license can be made subject to conditions imposed by the Ministry and the entity being granted such a license will be required to provide detailed follow-up on progress made every six months.

9. In order for an application for grant of a license under Law No. 8 of 2001 to stand on its own merits, it must achieve at least one of the requirements prescribed under Resolution No. 1006/2 viz, generate local employment, promote export of goods and services from Kuwait, transfer modern technology or involve the Kuwaiti private sector in the activities to be undertaken in Kuwait.