Doing Business in Kuwait “from a legal point of view” German Business Council of Kuwait GBCK Deutscher Wirtschaftskreis Kuwait Presentation by: Mohammed AL NOOR, Lawyer Chief of International Strategic Development & Marketing (CMO) Al-Twaijri and Partners Law Firm (TLF) Email: [email protected]Location: Radisson SAS Hotel– Kuwait Tuesday, October 28 th 2008 www.twaijri.com
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Doing Business in · PDF fileDoing Business in Kuwait ... COMMERCIAL AGENCY ... • Law No. 36 of 1964 and 68 of 1980 govern the Agency
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Doing Business in Kuwait “from a legal point of view”
German Business Council of Kuwait GBCK
Deutscher Wirtschaftskreis Kuwait
Presentation by: Mohammed AL NOOR, LawyerChief of International Strategic Development & Marketing (CMO)
A foreign person or entity may enter the Kuwaiti market and conduct business in the following ways:
– Establishment of a company;
– Appointment of a local commercial agent & distributor; or
– Appointment of a commercial representative, or
– Entering into a joint venture agreement;
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Articles 23 and 24 of the Kuwaiti Commercial Code state the basic premise for doing
business in Kuwait
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provides:23 Article
• That non-Kuwaitis cannot engage incommerce in Kuwait without having aKuwaiti partner whose equity holding isat least 51 percent.
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provides:24 Article
• That a foreign company cannot establish abranch in Kuwait and it may not engage incommercial activities in Kuwait exceptthrough a Kuwaiti agent.
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What are the types of companies in Kuwait?
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The Commercial Companies Law provides for the establishment of the following types of companies and ventures in Kuwait
– Limited liability company (WLL, sharika that mas’ouliyyah mahdoudah)
– Closed shareholding company (SAKC or KSCC, sharikat musahamah
moqfaleh)
– Public shareholding company (SAK or KSC, sharikat musahamah aamah)
– Joint liability company (sharikat al tadhamun)
– Limited partnership (LP, sharikat al tawsiyah)
– Joint venture (JV, sharikat al-mahassah)
* All the above, with the exception of joint ventures, possess a separate legal identity.
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Focus on
A. LIMITED LIABILITY COMPANY
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A limited liability company (WLL)
• This is the most common corporate entity in Kuwait and the main route adopted by foreign companies or investors to enter the market.
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A limited liability company (WLL) – Cont’d
– Liability of its members is limited to the extent of their share capital contribution.
– A limited liability company requires at least two founding members. In this regard, a husband and wife are considered a single party. The maximum number of members in a WLL is 30.
– The capital of a limited liability company must not be less than KD 7,500, Practice minimum capital is higher than that. capital must be paid at the date of incorporation.
– Payment may be in cash or in other assets valued at their fair market value.
– Originally, members were required to be natural persons with at least one member a Kuwaiti. Law 5/ 1960 was amended by law 28/ 1995, which allowed companies to be founding members of limited liability companies. Both foreign individuals and corporate bodies may use this type of entity.
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A limited liability company (WLL) – Cont’d
• The limited liability company is incorporatedthrough an articles of association:
– Objectives
– activities
– Capital
– Members & Management
– Other details.
• Annual transfers of at least 10% of net profit mustbe made to a legal reserve until the reserveamounts to 50% of the capital of the company.
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A limited liability company (WLL) – Cont’d
• If a limited liability company has more than seven members, a Supervisory Council,consisting of at least three members, must be set up.
– The original Supervisory Council is named in the Articles of Association for a fixed term.
– Appointments and re-appointments to the Council thereafter are made by the members in a general meeting.
– Employees have no statutory rights to take part in management, or to be represented on the Supervisory Council.
• A limited liability company is normally managed by one or more managers with orwithout remuneration.
– The managers need not be Kuwaiti nationals or members of the company. – If the managers are not named in the Articles of Association, they are
appointed by the members in a general meeting.
• The limited liability company can start to do business upon obtaining a trade licenseissued by the Ministry of Commerce and Industry. The WLL cannot engage in banking,insurance or the provision of investment services.
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B. COMMERCIAL AGENCY
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COMMERCIAL AGENCY
• The Commercial agency provides a means for a foreign company to conduct organized marketing efforts without establishing a registered local presence of its own.
• Law No. 36 of 1964 and 68 of 1980 govern the Agency agreements and regulations:
– Non-Kuwaitis may not act as commercial agents in Kuwait.
– Those who violate the rule are subject to three months imprisonment and/or a fine.
– The relationship between the Kuwaiti agent and the foreign principal must be direct.
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What are the types of Commercial Agency?
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1. Contract Agency:
• The local agent undertakes to promote the principal’s business on a continuous basis; and
• To enter into transactions in the name of the principal in return for a fee.
• The contract must be: – in writing – include the territory covered, – the agent’s fee, – the term, – the product or service that is the subject of the agency, – and any relevant trademarks protection.
• The term of the contract must be at least five years if the agent is required to set up showrooms, workshops, or warehouse facilities.
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2. Distributorship Agency:
• The local agent is the distributor of the principal’sproduct in a defined territory in return for a percentageof the profit.
• Distributorships are governed by the same general rulesas contracts agencies if the distributor is the soledistributor for the whole territory.
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The following protective measures are provided:
• Commercial agencies must be registered in order to beenforceable.
• Kuwaiti law is the governing law in matters pertaining topublic policy.
• The principal may not terminate the agreement withoutproving breach of contract by the agent; otherwise, theprincipal is liable for paying compensation to the agent.
• The principal may not refuse to renew the agencyagreement when it expires without paying the agentequitable compensation for nonrenewal if the agent provesthat he committed no breach and that his activities led tothe successful promotion of the principal’s products.
• The agent may sue both the principal and any new agentthe latter may appoint in Kuwait if the termination isproven to be the result of their concerted action.
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. Commission agency3
• In this type of agency, the agent enters intocontracts in his/its own name.
• The principal’s name may not be disclosedwithout his permission.
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Commercial Representative
• A Kuwaiti individual or entity signing “commercial representation agreement” .
• The scope of authority is usually more limited than the authority granted an agent.
• May be paid a set fee on a regular basis or a commission or percentage of profits.
• In executing documents on behalf of the foreign company, the commercial representative must sign his name as well as the name of the foreign company and indicate that he is a commercial representative.
• A foreign company is liable for all of the commercial representative’s actions and liabilities, so long as they are conducted or incurred within the scope of representation.
• Unlike an agency agreement, a commercial representation agreement cannot be registered with the Ministry of Commerce and Industry.
In 2003 New Foreign Direct Investment (FDI) Law (number 8 of 2001 ) came into force:
• Allowing for 100% foreign ownership in a number of sectors, though only as approved by the Council of Ministers.
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The Council of Ministers under resolution No. 1006/1 year 2003 issued a list of business activities for which a Foreign Investment License may be granted.
These business activities include the following:
– Industries except for enterprises related to Oil or Gas exploration or production.– Construction, operation and management of Infrastructure enterprises in the fields
of water, power, drainage and communications.– Banks, Investment Corporations and Foreign Exchange Companies which the
Central Bank of Kuwait may agree to incorporate. – Insurance companies which the Ministry of Commerce & Industry agrees to
incorporate.– Information Technologies and Software Development.– Hospital and Medicines manufacturing.– Land, sea and air transport.– Tourism, hotels and entertainment.– Culture, information and marketing except for issuance of newspapers and
magazines and opening of publishing houses.– Integrated housing projects and zone development except for real estate
speculation.– Real estate investment through foreign investor subscription to the Kuwaiti
shareholding companies as per the provisions of law No. 20/2002.
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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.
– Recruitment of foreign labor required for the project.