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New law on foreign company operations - a paradigm shift in Kuwait’s economic landscape

Rajesh Sagar Legal Consultant Sunday, February 4, 2024
New law on foreign company operations - a paradigm shift in Kuwait’s economic landscape

Kuwait has been attracting international business community’s attention for various reformatory changes taking place under the ‘Vision 2035’ initiative which aims to transform Kuwait into a world-class financial and commercial hub. In line with ‘Vision 2035’, Kuwait has streamlined and reformed its various regulations to attract foreign investment in various sectors and the government is continuing with its commitment towards creating a more open, transparent, and business-friendly environment for local and foreign firms to operate in Kuwait. Kuwait’s ease of doing business ranking in 2018 was 96 out of 190 countries compared to 102 in 2017 and as of now Kuwait is ranked at 83 among 190 economies in the world, according to the latest World Bank annual ratings.

However until recently a foreign company will not be permitted to establish a branch in Kuwait or engage in commercial activities except through a local Kuwaiti agent and they need to appoint a local Kuwaiti agent/ sponsor to represent them to conduct their business activities in Kuwait which led to increased risks and costs to foreign companies. As a result, it diminished Kuwait’s attractiveness as a destination for foreign businesses entities.

In this context the much-awaited legislation issued in Kuwait allowing foreign companies to open branch offices in Kuwait without a local agent, as published in the Official Gazette of Kuwait (Kuwait Al-Yowm) on 21st January 2024, attracts lot of attention from international business community.

Law (1) of 2024, amending Article 24 of Commercial Law No. 68/1980 and Article 31 of Public Tenders Law No. 49/2016, came into effect on 21 January 2024, which is the date of its publication in the Official Gazette. Law (1) of 2024 was first approved in December 2023 by the National Assembly and was issued by H.H the Amir of Kuwait on January 14, 2024. Below are the summary and salient features of the Law No (1) 2024.

It amends Article 24 of the Commercial Law and Article 31 of the Public Tenders Law.

Article (1) of Law (1) 2024 provides as follows.

Quote

‘The text of article (24) of the aforesaid Commercial Law No. 68/1980 shall be replaced by the following text: Article (24) “As an exemption from the provisions of article (23) clause (1), a foreign company may establish its branch in Kuwait and commence business therein without the need for a local agent.”

Unquote

Article 24 previously stated that a foreign company may not establish a branch or engage in business activities in Kuwait unless through a Kuwaiti agent. As amended, Article 24 now permits a foreign company to establish a branch in Kuwait and engage in business activities in Kuwait without the need for a Kuwaiti local agent and also as an exception to Article 23 of the same Commercial Law which states that a non-Kuwaiti may not practice trade in Kuwait unless he has established a company with a Kuwaiti partner- who must hold not less than 51% of the company's total capital. Thus, whilst the amendment to Article 24 does not alter or remove the requirement for non - Kuwaitis to open a company with a Kuwaiti partner subject to the provisions of Article 23 – the amendment now provides that a foreign company may now establish a direct branch of its own parent company and engage in the business activities of its parent company in Kuwait as an exception to Article 23 and without the longstanding restriction of engaging in business activities only through a Kuwaiti agent as stipulated in the original text of Article 24.

Further Article (2) of Law (1) of 2024 also amends Article 31 of the Public Tenders Law (Law No.49 of 2016), which sets out the conditions for entering /participating in bids for public tenders in Kuwait.

Quote

“The text of Article (31) of the said law No.49 of 2016 shall be replaced by the following text: “Contractor general conditions:

Subject to Law No. (1) of 2016 and Law No. (116) of 2013, and in accordance with relevant international agreements, the following conditions are required for those submitting bids in public, limited, or direct contract tenders: First: To be an individual or a company - registered in the Commercial Register. Second: To be registered in the register of suppliers or contractors or as per the nature of the tender or direct contract. In case the bidder is a foreign party, the provisions of the first clause of this article, and the provisions of Article (23) of the referred Decree-Law No. (68) of 1980 shall not apply."

Unquote

Article.31 of the Public Tenders law, as amended, removes the mandatory requirement that the party submitting a bid for a public tender must be a Kuwaiti individual or company registered in the commercial register in Kuwait. As such a bidder may be either a Kuwaiti or foreign party. Although Article.31 of the Public Tenders law previously provided an exemption permitting foreign entities to submit bids for public tenders (if the concerned government authority requested the same for specific projects requiring technical knowhow that was not available locally), the foreign bidder was still in need of a Kuwaiti agent or partner for the execution phase of the project for operational matters such as sponsoring employees and facilitating local procedural and government compliances requirements.

Though Law (1) of 2024 came into existence on 21st January 2024 further clarifications /detailed implementing regulations are awaited as to how the implementation of Law (1) of 2024 will take effect across different government sectors and how the provisions shall work in a practical context. Hence, it need to evaluate this new change carefully especially considering concerns over the practical feasibilities to meet the business and operational needs of foreign companies in Kuwait pursuant to this change. The said concern is raised by many due to various factors such as, (i) Except for brief references to “branches” in the Kuwait Civil Code, the Commercial Law and the Kuwait Direct Investment Promotion Authority Law – and a few other sector-specific laws/regulations, there is no specific regulation/rules defining the legal nature of corporate branches in Kuwait. The Companies Law (1/2016) provides no guidance on the establishment of the branches.

Ordinarily, Kuwait companies establish branches pursuant to the Commercial Businesses Licenses Law (111/2013) (“Commercial Licenses Law”). The Commercial Licenses Law regulates the way by which a person/entity applies for, and obtains, a commercial license to engage in commercial activities in Kuwait and Article. 3 of the Commercial Licenses Law states that if an applicant for a commercial license is a foreign company or a branch of a foreign company, then the applicant must comply with the conditions of the specific laws that govern the activities of such foreign company or branch. Therefore, such branches are mere extensions of the legal personality of the foreign parent company. (ii) Although the corporate branches could be served with process of legal proceedings in Kuwait, it is yet to be seen whether the Ministry of Commerce and Industry (MOCI) will impose any specific capital or management requirements, guarantees or other minimum contributions to facilitate the enforcement of adverse criminal or civil judgments against such corporate branches, and to generally safeguard the interests of those in Kuwait who transact with such branches. (iii) It is also unclear how labor files will be processed and regulated by the Public Authority of Manpower (“PAM”) with respect to foreign branches, especially given the stringent requirements already in existence including the condition that all such visa applications or such other documentation in connection therewith could be signed and submitted only by duly authorized Kuwait nationals only. Even for Kuwaiti companies that have foreign general managers or managing director, PAM mandates that the authorized signatory for the employment and immigration documentations must be Kuwaiti nationals only.

So as a next step, the “MOCI” will issue detailed implementing regulations – by way of ministerial resolution – that regulate the procedures for establishment of foreign company branches in Kuwait. In consideration of the unrestricted language in the Law No.1/2024, it is unclear to what extent MOCI can or will impose stricter requirements on foreign companies seeking to establish their branches in Kuwait.

Though there are a host of pertinent questions to be clarified in connection with the practical implementation of Law No.1/2024, which is expected to be clear in coming days, the new law represents a paradigm shift in the economic landscape, heralding a new era of foreign investment promotion and sustainable development. By fostering an enabling and competitive environment for investment/business, government can unlock new growth opportunities and enhance economic resilience and would make Kuwait a more competitive and attractive investment destination.

Rajesh Sagar
Legal Consultant

Disclaimer: The content herein is meant to provide general information and should not be acted on without professional advice tailored to specific needs.


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Express your comment on this article

 
Husnain
Wednesday, February 7, 2024

Summary of New Law in Kuwait Allowing Foreign Companies to Open Branch Offices without a Local Agent
Key Points:

Law (1) of 2024 amends Commercial Law and Public Tenders Law, allowing foreign companies to establish branches in Kuwait without a local agent.
This removes the previous requirement for foreign companies to partner with a Kuwaiti company or individual for business activities.
Foreign companies can now bid on public tenders directly without a Kuwaiti partner.
Implementing regulations are still awaited, raising questions about practical details like branch legal status, capital requirements, and labor regulations.
Despite uncertainties, the law represents a significant shift towards attracting foreign investment and promoting economic development in Kuwait.
Overall, this new law is a positive step for foreign companies looking to do business in Kuwait. However, it''s important to stay informed about upcoming regulations to understand the full implications.

Abdullah
Monday, February 5, 2024
Good research work.

But please condense the article and give us a summary than evidences for every facts. We will believe you.

Keep up the good work.


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