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KUWAIT


Kuwait Ahmed Barakat and Akusa Batwala, ASAR – Al Ruwayeh & Partners


1. Overview of FDI in the jurisdiction


1.1 Which countries are the principal sources of FDI into your jurisdiction? The principal sources of FDI in Kuwait include; the US, western European countries (including the UK, France, Spain, and Portugal), Egypt, India, Japan and more recently China.


1.2 What are the key sectors in your jurisdiction which attract, or the government is seeking to attract, FDI? The current government focus for FDI is on infrastructure investment such as: wastewater treatment, power, roads and bridges, ports and communication. The government is also keen to attract foreign capital into other sectors such as land and sea freight, tourism, real estate, health, urban development, information technology and software development.


It should be noted that while Kuwait is a geographically small country, it is a wealthy country with a relatively open economy and self-reported crude oil reserves of approximately eight percent of world reserves. Petroleum accounts for nearly half of the country’s GDP, 95% of export revenues and 95% of government income. Kuwait,however, in comparison to other GCC countries, has been slow in diversifying and reforming its economy, in part because of its positive fiscal situation, but also due to the nature of the regulations governing foreign investment.


1.3 Is the government generally supportive of FDI? Which government, and regional, bodies are responsible for driving FDI in your jurisdiction? Kuwait has in the past been open to foreign investment, and with the introduction of new laws in recent years, the country would appear to be even more open to foreign capital. Kuwait recently passed into law the new Foreign Direct Investment Law 116 of 2013 (the FDI Law) aimed at promoting and stimulating direct investment in the State of Kuwait. The law was published in June 2013, and will come into force in January 2014. This law is intended to modernise FDI legislation and make it more accommodating. It establishes a public authority that will be known as the Kuwait Direct Investment Promotion Authority (KDIPA). Its mandate will be to promote direct investment, streamline the business environment for both local and foreign investors and serve to implement government developmental goals, including: bringing modern technology to Kuwait, creating jobs, supporting and developing the domestic private sector and contributing to the diversification of the economy to reduce dependence on oil.


The FDI Law incentives include: foreign investors being permitted to own up to 100% of a local entity, income tax exemptions (for a limited duration), exemption from import duties, utilisation of state land, protection from expropriation, and employment of foreign labour.


Further, foreign companies are given an option to open and operate a branch in Kuwait, and to establish a representative office to exclusively conduct marketing studies (but not commercial operations). Additionally, licensed entities will be exempted from the general restrictions on foreign entities doing business in Kuwait. The FDI Law opens up all economic sectors to foreign investors, except those exempted by a council of ministers’ decision.


The FDI Law will also be applicable to participants in other FDI government schemes, including partnership projects established under


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Kuwait’s Build-Operate-Transfer (BOT) Law (Law 7 of 2008) and the Privatisation Law (Law 37 of 2010). The FDI Law is also set to reduce the time needed to process an investment licence to a maximum of 30 days from receipt of the application. It further introduces the concept of a so-called one stop shop to accelerate the process.


The FDI Law repeals Law 8 of 2001, and therefore all entities established under the same, including the Kuwait Foreign Investment Bureau and the Foreign Capital Investment Committee, will cease to exist. All their funds, assets, obligations and rights have been transferred to the KDIPA by the FDI Law.


The executive regulations of this law are yet to be passed and it is therefore yet to be seen what change this will bring about to the influx of FDI.


2. Investment vehicle


2.1 What are the most common legal entities and (pass-through) vehicles used for FDI in your jurisdiction, and how long do they take to become operational? Kuwaiti law generally provides that foreign companies conducting business in Kuwait must do so either through an agent or through a Kuwaiti partner (through the establishment of a Kuwaiti company with Kuwaiti participants). Most foreign companies operate in Kuwait through a Kuwaiti agent, and under the agency arrangement, the foreign principal would be able to carry on business in Kuwait under the umbrella of the agent’s commercial licence. The agent’s commercial licence would have to cover the activities that the foreign principal proposes to undertake in Kuwait. If the foreign entity proposes to enter into governmental contracts, it will need to have its agency registered at the Ministry of Commerce and Industry (MOCI).


Kuwait recently issued a new Commercial Companies Law, Law 25 of 2012 (as amended). The Companies Law offers a number of options for business entities. However, the two most popular forms of company are: a joint stock company which can be private or public (KSC), and a with-limited-liability company (WLL).


Incorporation of a company may take eight to twelve weeks.


2.2 What are the key requirements for establishment and operation of these vehicles which are relevant to FDI? KSCs are essentially shareholding companies. Kuwaiti nationals must (except possibly where the KSC is publicly traded at the Kuwait Stock Exchange) hold at least 51% of the shares of the KSC. The shareholders in a KSC may either be individuals or legal entities. There is no limit on the number of shareholders, however, a minimum of five shareholders is needed. The liability of each shareholder is limited to the nominal value of the shares held by that particular shareholder. The capital requirement of the company is determined by its objects.


The management of a KSC is given to a board of directors, whose composition and term of office are described in the articles. Foreigners may be directors; however, the chairman of the board must be a national of a Gulf Cooperation Council (GCC) country, and the deputy chairman and chief executive officer must be resident in Kuwait (but can be of any


IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014 37


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