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Kuwait > Articles

Kuwait

An Expat Guide To Starting A Business In Kuwait

Friday September 15, 2017 (10:28:32)

 

Like most nations in the Arabian Gulf, Kuwait is fairly welcoming of expats (in fact, nationals only account for a little over a third of the population) and expat-run businesses. The small nation’s strong economy and high income levels offer plenty of opportunities for enterprising expats in domains such as imports, services and consulting.

Another factor that makes Kuwait attractive is the low corporate income tax rate (15%) for foreign-owned businesses—enterprises run by Kuwaitis or nationals of any other Gulf country are exempt—as well as the absence of any sort of personal income tax (this applies to both nationals and expats).

Kuwaiti corporate law is not the easiest to digest, and the process of setting up a business can be rather convoluted. But don’t let that put you off—we’re going to break it down for you.


Types of Business

First of all, you need to know what kind of legal entity you want to establish. Kuwait has a number of options for those looking to do business in the country:

• A limited liability company (referred to as a WLL, which stands for “With Limited Liability”)
• A joint stock company (referred to as a KSC, which stands for “Kuwait Shareholding Company”)
• A limited liability partnership
• A branch office
• An agreement with a local commercial agent

One important point to note is that Kuwait in general does not allow foreigners to hold 100% of the shares of a company started in the country. So if you’re an expat looking to set up shop, you will need to find a local partner who will hold a stake of at least 51% in the business.

It is true that in recent years this requirement has been relaxed. However, a foreign entity that wants to set up a wholly owned subsidiary or a company in which the local partner holds a minority stake needs to get special approval from the government—or more specifically, the Kuwait Direct Investment Promotion Authority (KDIPA). And to get clearance for a proposal for 100% ownership in a Kuwaiti WLL or other business, one needs to make a strong case for how the business would benefit the Kuwaiti economy.

Given all this, joining forces with a local partner or signing on a commercial agent is the best bet for most expat entrepreneurs in Kuwait. Let’s take a closer look at each of the options we saw earlier.

The WLL: This is the basic form of a private company in Kuwait, and is the most common type of corporation in the country, as well as the easiest to set up. The only limitations are that WLLs are not allowed to conduct business in banking or insurance, and the cap on foreign shareholding at 49%.

The KSC: The shares of a joint stock company are freely transferable (subject to the same 49% limit on foreign holdings). Generally, the shares of a KSC are publicly traded on a local stock exchange. However, you can also set up a closed KSC, where the shares are not publicly traded.

A KSC is a good option if you intend to eventually go in for an initial public offering (IPO) or are looking for investments from third parties, since the shares are freely transferable. Do note that a KSC has to submit audited financial statements every year. Additionally, to launch an open KSC (with public shareholding), one needs an Amiri decree.

Limited liability partnership: Unlike in a WLL or a KSC, which are limited liability entities, a business established as a partnership will have two types of partners: general partners, who can be held liable for the business’ debts, and limited liability partners. Legally speaking, unlike a WLL or a KSC, a partnership’s earnings are considered to be passed on to the partners.

At least one partner has to be a Kuwaiti national, unless otherwise approved by the KDIPA.

The branch office: A branch office allows a company to circumvent the need for a local partner. However, Kuwaiti law only allows nationals of member states of the Cooperation Council for the Arab States of the Gulf (commonly known as the GCC, or Gulf Cooperation Council, which is what it used to be called) to fill this role. Foreign entities based in other countries can still set up a branch office, though, if they receive permission from the KDIPA.

The commercial agent: If you don’t want to set up a local company in Kuwait, you can always engage a registered agent who will represent you in the country. They can promote your services or products in Kuwait, as well as enter into deals or contracts on your behalf. They may also be distributors, who import and resell your products.

A commercial agent will normally either be paid a fixed fee, or a percentage of the revenues/profits from your Kuwaiti business. The agent’s commission and the responsibilities and requirements on both your part and the agent’s have to be detailed in an agency agreement, which has to be submitted to the ministry of commerce. The ministry will then issue a certificate of registration.


Important Points

Now that we’ve covered the various ways you can set up a business in Kuwait, we’re going to go over the actual process of registering a local firm. But first, there are a few things you need to keep in mind.

If you’re primarily looking to export to Kuwait, or to enter contracts with Kuwaiti firms or the government, finding a commercial agent with the requisite trade licence may be the easiest option. Whether you’re conducting business in Kuwait through an agent or through a registered entity set up with a local partner, though, it’s always best to hire a good corporate lawyer to help you settle all agreements and complete all the formalities needed to establish a firm.

Additionally, while a quick internet search will turn up seemingly helpful tips on doing business in Kuwait or any other country (‘Arabs value politeness’ and so on), they are no real substitute for actual experience. Local norms and cultural differences are undoubtedly key factors that will affect how successful your enterprise will be, but to tackle that you should either have spent some time in the country beforehand or—perhaps the more feasible option for many—have a reliable partner who has experience working in Kuwait.

Speaking of culture, while English is commonly used in business dealings, official communications with the government are in Arabic, as are registrations and government contracts. In some cases there may be multiple versions of documents in different languages, but the Arabic version will be legally binding.

When it comes to labour laws, a business registered in Kuwait has to ensure that at least a certain percentage of its employees are Kuwaiti nationals; the exact figure varies from industry to industry, from as low as 3-5% to over 60%, so be sure to check. There is no minimum wage, but employers have to make social security contributions; the employer has to contribute a sum equal to 11.5% of the monthly salary, up to a cap of 2,750 Kuwaiti dinars, to the Financial Remuneration Fund, and each employee has to contribute 10.5% (which comes out of their monthly salary).

Expat-run businesses, whether set up as local firms or operated through commercial agents, have to pay corporate tax at a rate of 15% on their earnings in Kuwait. Companies owned by Kuwaitis and citizens of other GCC countries don’t have to pay income tax. And if you’re looking to import goods into the country, note that the customs duty is 5%, with exemptions for a few basic food staples, as well as higher rates on some items such as tobacco.

Lastly, keep in mind that your country’s embassy in Kuwait, chambers of commerce (both in your home country and in Kuwait) and export promotion offices (such as the United States Export Assistance Centres in the US) are all useful sources of advice and assistance.


Incorporating a Business in Kuwait

First you need to submit an application detailing your company’s capital, shareholding and other information to the ministry of commerce’s department of companies. To back the application, the business owner has to submit their ID, a certificate from the Social Security Authority as evidence that their local partner is not a civil servant, and a copy of the lease for the business’ premises.

After submitting the application online, you need to wait ten days for an appointment to submit the official documents in person. Once your application is approved, the ministry of commerce will ask the ministry of interior to run a background check, as well as requesting the municipality to inspect your company’s premises.

Next you must register your company’s name. Once you submit an application to the Commercial Registry, it will check that nobody else is using it or has reserved it already. The rules also stipulate that the name must not offend public morals. Once the Registry clears it, your name will be reserved for the next three months. During this time, you need to complete the process of setting up your company.

Now you need to deposit your company’s paid-up capital at a bank. There are two parts to this: first, you have to get a letter sent from the department of companies to the bank of your choosing. The department may also send letters to other ministries if their approval is needed, depending on the type of business you’re starting. Second, you have to actually deposit the capital at the bank in an account held under the company’s name and get a deposit certificate. The funds will be frozen until your firm is incorporated. ‘Paid-up capital’ refers to the capital that the company starts out with, which is paid by the partners / shareholders for their shares of the firm.

Next, the Municipality will contact you and arrange an inspection of your company’s premises to check that it meets all healthy and safety standards. This usually takes up to two weeks, and once you clear the inspection the Municipality will issue a no objection certificate.

Then you need to visit the department of companies again to submit your company’s memorandum of association. A standard form is available, but you can amend it as you see fit and get the amendments cleared by the ministry of commerce. After the draft is finalized, the department of companies will clear it and give you a letter addressed to the ministry of justice, which has to authenticate the incorporation of the company.

You will have to get the draft memorandum notarized at the ministry of justice. Submit the draft, the letter from the department of companies and the deposit certificate for your paid-up capital from the bank at the ministry’s notary public department to get an appointment with a notary public.

You then have to take the notarized memorandum back to the department of companies, which will in turn contact the Commercial Registry, after which you will receive a certificate of registration with your company’s name and registration number. Once you have received the registration certificate, you can get your commercial licence from the department of companies.

After this, you need to apply for membership at the Kuwait Chambers of Commerce and Industry. Membership is mandatory. Then you have to register with the Public Authority for Civil Information. The authority will give you a civil number, which you will need to give during any interactions with the government in the future.

Finally, the ministry of labour may conduct an inspection of your company’s premises, if deemed necessary.

Once you have followed all these steps and received the relevant certificates, you will be an official business owner in the State of Kuwait.


Have you run a business in Kuwait? Share your experiences in the comments below, or answer the questions here to be featured in an interview!

Further reading
Starting a business in Kuwait
Setting up an LLC in Kuwait
Doing business guide (PDF)
Changes to employment quotas and payroll procedures


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