License under the Foreign Investment Law

The Foreign Investment Law (No. 8/2001) proposes to regulate foreign investments in Kuwait. Under the new law it is intended to allow foreign investors to own up to 100% equity in Kuwaiti companies or ventures for special projects as determined by the Council of Ministers. It is expected that, this significant change proposed by the government will throw open the Kuwaiti markets to multinational corporations giving them a free hand in doing business in Kuwait. Until recently, prior to the enactment of this law, foreign investors were subject to a ceiling of 49% (maximum) stipulated under the Law of Commerce No. 68 of 1980 and the Commercial Companies Law No. 15 of 1960. The law proposes to do away with such restrictions imposed upon foreign investors.

The Explanatory Memorandum to the law provides that “globalization of trade and privatization are international trends adopted by developed countries that have resulted in widening the role of the private sector while minimizing dependence upon the public sector”. The law seeks to encourage foreign investments and create new opportunities for local employment. The purpose of such legislation is to derive benefits from foreign technology and management and marketing experiences of foreign companies worldwide.

The Minister of Commerce is empowered to issue licenses to foreign investors, permitting up to 100% foreign equity participation in any economic project in Kuwait. Such projects shall be exempt from the provisions of Articles 23 and 24 of the Law of Commerce as well as from the provisions of Article 68 of the Commercial Companies Law, which require at least 51% local participation. Thus, the new law proposes to overcome what was regarded by many foreign companies as a pitfall in doing business in Kuwait.

Significant steps have recently been taken to implement this law. These steps include the setting up of the Kuwait Foreign Investment Bureau (KFIB) which facilitates filing of applications and the Foreign Capital Investment Committee, headed by the Minister of Commerce & Industry to process applications for grant of licenses. Ministerial Resolution No. 23 of 2003 issued by the Minister of Commerce & Industry contains the Executive Regulations. The Regulations provide the mechanism for the implementation of the law.

The Council of Ministers have under resolution No.1006/1 for the year 2003 issued a list of business activities for which a Foreign Investment License may be granted. These business activities include the following:

1. Industries except for enterprises related to Oil or Gas exploration or production.
2. Construction, operation and management of Infrastructure enterprises in the fields of water, power, drainage and communications.
3. Banks, Investment Corporations and Foreign Exchange Companies which the Central Bank of Kuwait may agree to incorporate.
4. Insurance companies which the Ministry of Commerce & Industry agrees to incorporate.
5. Information Technologies and Software Development.
6. Hospital and Medicines manufacturing.
7. Land, sea and air transport.
8. Tourism, hotels and entertainment.
9. Culture, information and marketing except for issuance of newspapers and magazines and opening of publishing houses.
10. Integrated housing projects and zone development except for real estate speculation.
11. Real estate investment through foreign investor subscription to the Kuwaiti shareholding companies as per the provisions of law No. 20/2002.

Further, the Council of Ministers Resolution No. 1006/2 for 2003 provides that a license may be issued to a Kuwaiti Shareholding Company (Closed) in which the share of the foreign investor is 100% of its capital subject to compliance with the following terms and conditions:

1. The company's capital shall be sufficient to achieve its objects and shall be fully subscribed by the promoters.
2. The company shall fulfill the procedures, rules and regulations prescribed under the Kuwaiti Commercial Companies Law No. 15/1960.
3. The company shall engage in the activities indicated in the Resolution of the Council of Ministers No.1006/1 for the year 2003. The incorporation of the company should result in the achievement of one or more of the following objectives:

1. Transfer of modern technology and administration of practical, technical and marketing expertise.
2. Expansion and participation of the role of Kuwait private sector.
3. Creation of job opportunities for national labour and contribution to training thereof.
4. Support for national products exports.

The new law guarantees protection to the foreign investors against compulsory disinvestment or nationalization by ensuring that any such disinvestment would be against compensation equivalent to the market value prevailing at that time. Further, the rights and privileges acquired by the foreign investor may not be usurped except against payment of compensation. This confirms the commitment of the government to foreign investors and their genuine desire to promote foreign capital investment in Kuwait. This provision is also in accordance with the principle contained in the Kuwaiti Constitution Law prohibiting confiscation of rights without fair compensation.

Further, the provisions of the new law are also extended to existing foreign capital investment to the extent they fulfill the objectives of the new law.

The law permits the transfer of the investment to another foreign investor or to a national investor or assignment of the investment to the national partner in case of a partnership, provided that the transfer is in accordance with the laws and regulations of the State of Kuwait and as per the terms and conditions stipulated in the license granted to the foreign investor for such transfer.

Foreign investors can freely repatriate their profits as well as capital without any restrictions. Any compensation paid on account of disinvestment may also be repatriated.

The privileges that are offered to foreign investors include:

• Tax exemptions for a maximum period of ten years.
• Benefits arising under double taxation treaties and encouragement and protection of investment.
• Total or partial exemption from customs duties on import of specified terms such as equipment, machinery, spare parts, raw materials, semi- manufactured goods, packaging materials etc.
• Total or partial exemption from other export and import restrictions.
• Allocation of land and real estate in accordance with the laws and regulations of the State of Kuwait.
• Recruitment of foreign labour required for the project in accordance  with the laws and regulations of the State of Kuwait.