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Business in Kuwait

Kuwait

Kuwait is situated northeast of Saudi Arabia at the northern end of the Arabian Gulf, south of Iraq.

It is slightly larger than Hawaii. The low-lying desert land is mainly sandy and barren. 

Country Name

conventional long form: State of Kuwait
conventional short form: Kuwait
local long form: Dawlat al Kuwayt
local short form: Al Kuwayt

Administrative divisions

6 governorates (muhafazat, singular - muhafazah); Al Ahmadi, Al 'Asimah, Al Farwaniyah, Al Jahra', Hawalli, Mubarak Al Kabir

Capital

name: Kuwait
geographic coordinates: 29 22 N, 47 58 E
time difference: UTC+3 (8 hours ahead of Washington, DC during Standard Time)

National Day

National Day, 25 February (1950)

Chief of State

chief of state: Amir SABAH al-Ahmad al-Jabir al-Sabah (since 29 January 2006); Crown Prince NAWAF al-Ahmad al-Jabir al-Sabah

Head of Government

head of government: Prime Minister NASIR MUHAMMAD al-Ahmad al-Sabah (since 3 April 2007); First Deputy Prime Minister JABIR Mubarak al-Hamad al-Sabah (since 9 February 2006); Deputy Prime Ministers MUHAMMAD al-Sabah al-Salim al-Sabah (since 9 February 2006) and Faysal al-HAJJI (since 5 April 2007)

Political System

constitutional emirate

Constitution

approved and promulgated 11 November 1962

Area

total: 17,820 sq km
land: 17,820 sq km
water: 0 sq km

Time

GMT +3

Daylight Saving Time

None

International Dialing Code

+965

Currency

Kuwaiti dinar (KD)

Exchange Rate

Kuwaiti dinars per US dollar - 0.2844 (2007), 0.29 (2006), 0.292 (2005), 0.2947 (2004), 0.298 (2003)

Language

Arabic (official), English widely spoken

Religion

Muslim 85% (Sunni 70%, Shi'a 30%), other (includes Christian, Hindu, Parsi) 15%

Population

2,505,559
note: includes 1,291,354 non-nationals (July 2007 est.)

GDP per Capita

$55,300 (2007 est.)

Real GDP Growth rate

5.6% (2007 est.)

Non-Oil Sector Contribution to Nominal GDP

50%

Foreign Direct Investment

$818 million (2006 est.)

Industries

petroleum, petrochemicals, cement, shipbuilding and repair, water desalination, food processing, construction materials

Oil Production

2.669 million bbl/day (2005 est.)

Oil Export

2.2 million bbl/day (2004)

Oil Proven Reserves

11.8 billion cu m (2005 est.)

Natural Gas Production

11.8 billion cu m (2005 est.)

Natural Gas Proven Reserves

521 trillion cu m (1 January 2006 est.)

Fiscal Year

1 April - 31 March

Weekend

Fridays & Saturdays  

Exports

$59.57 billion f.o.b. (2007 est.)

Free-Zone Exports

N/A

Imports

$17.74 billion f.o.b. (2007 est.)

Reserves of foreign exchange and gold

$19.63 billion (31 December 2007 est.)

Imports - commodities

food, construction materials, vehicles and parts, clothing

Agriculture & Fisheries Products

practically no crops; fish

Flag

three equal horizontal bands of green (top), white, and red with a black trapezoid based on the hoist side; design, which dates to 1961, based on the Arab revolt flag of World War I

Piece of History: 
Kuwait is believed to have been part of an early civilization in the 3rd millennium B.C. and to have traded with Mesopotamian cities. Archeological and historical traces disappeared around the first millennium B.C. At the beginning of the 18th century A.D., the 'Anizah tribe of central Arabia founded Kuwait City, which became an autonomous sheikdom by 1756. 'Abd Rahim of the al-Sabah became the first sheik, and his descendants continue to rule Kuwait today. In the late 18th and early 19th centuries, the sheikdom belonged to the fringes of the Ottoman Empire. Kuwait obtained British protection in 1897 when the sheik feared that the Turks would expand their hold over the area. In 1961, Britain ended the protectorate, giving Kuwait independence, but agreed to give military aid on request. Iraq immediately threatened to occupy the area, and the British sent troops to defend Kuwait. Soon afterward the Arab League sent in troops, replacing the British. Iraq's claim states.was dropped when the Arab League recognized Kuwait's independence on July 20, 1961. Kuwait typically followed a neutral and mediatory policy among Arab stats.

Oil was discovered there in the 1930s, and Kuwait proved to have 20% of the world's known oil resources. Since 1946 it has been the world's second-largest oil exporter. The sheik, who receives half of the profits, devotes most of them to the education, welfare, and modernization of his kingdom. In 1966, Sheik Sabah designated a relative, Jaber al-Ahmad al-Sabah, as his successor. By 1968, the sheikdom had established a model welfare state, and it sought to establish dominance among the sheikdoms and emirates of the Persian Gulf.

In July 1990, Iraqi president Saddam Hussein blamed Kuwait for falling oil prices. After a failed Arab mediation attempt to solve the dispute peacefully, Iraq invaded Kuwait on Aug. 2, 1990, set up a pro-Iraqi provisional government, and drained Kuwait of its economic resources. A coalition of Arab and Western military forces drove Iraqi troops from Kuwait in a mere four days, from Feb. 23–27, 1991, ending the Persian Gulf War. The emir returned to his country from Saudi Arabia in mid-March. Martial law, in effect since the end of the Gulf War, ended in late June. The U.S. sent 2,400 troops to the country in Aug. 1992, ostensibly as part of a training exercise, though it was widely interpreted as a show of strength to Saddam Hussein. Iraqi “training” maneuvers near the Kuwaiti border in Oct. 1994 renewed fears of aggression in the country. A Kuwaiti appeal brought the quick deployment of U.S. and British troops and equipment.

In 1999, the emir gave women the right to vote and run for parliament, but later that year parliament defeated the ruler's decree. Kuwaiti society has grown increasingly conservative under the influence of Islamic fundamentalists. In 2003, traditionalists won a sweeping victory in parliamentary elections. The emir and crown prince (who served as prime minister) were elderly and ailing; in July 2003, the country's de facto leader, foreign minister Sheik Sabah, replaced the crown prince as prime minister.

In May 2005, Kuwait abandoned its 1999 ban on women's suffrage, and in June a woman was appointed to the cabinet. In April 2006, women voted for the first time. Saudi Arabia is now the only country with suffrage that does not allow its women to vote.

In Jan. 2006, the emir, Sheik Jabir, died. His cousin, Crown Prince Sheik Saad, briefly became the nation's ruler, but he was forced to abdicate because of extremely ill health. The prime minister, Sheik Sabah, was then nominated and unanimously confirmed by parliament as emir. Sheik Sabah named his brother, Sheik Nawaf, as crown prince, and his nephew, Sheik Nasser, as prime minister.

Franchising:

Although the Kuwaiti market is relatively small, franchising offers profitable opportunities. The population of 2.2 million have high disposable income and a strong inclination to buy American goods. Additionally, labor saving services are in demand. At present, most franchises are in fast food, with McDonald's being a recent arrival. US fast food franchises are highly sought after by local companies, and most of the major US fast food companies are already established in the market.                   
A local sponsor is required to establish such operations. American firms dominate the fast food sector with the following franchises: Hardee's, Kentucky Fried Chicken, Burger King, Chicken Tikka, Wendy's, Pizza Hut, Subway and Baskin Robbins. Light competition in this sector comes from Pizza Italia and Wimpy. Opportunities exist for franchises in other areas such as: automotive service centers, beauty salons, testing centers, dry cleaning/laundry shops and photocopy stores. An example of a new franchise is the ACE Hardware store that opened recently in Kuwait.                            
The Kuwait franchise market is characterized as fiercely competitive. Japanese electronics and cars have a strong appeal to the Kuwaitis. Brands like National, Panasonic, Sanyo, Toshiba, N.E.C., Sharp, Toyota, Nissan, Datsun, Honda, and Subaru are examples of the heavy Japanese presence in the Kuwaiti market. Japan actually overcame the US in exporting to Kuwait in 1993. Similarly, British and German products and services enjoy a strong positive image in Kuwait. Average growth in all franchise areas is expected to reach 25 percent, and, in some subsectors, it may reach 60 percent. Some franchises may, however, lose their appeal within ten years. Kuwaiti citizens have a tendency to change tastes often because they are frequent travelers and well aware of the latest fashions in Europe and the USA.                                                    
Another major type of franchise in Kuwait is the car dealership, with almost all known automobile makes represented in Kuwait: Ford, Chrysler, GM, GMC, Cherokee Jeep (US); Volvo (Sweden); Mercedes, BMW, and Audi (Germany); Jaguar and Rolls Royce (UK) as well as the Japanese dealers noted above. Among clothes franchises, Kuwait has attracted the British firms Mother Care and British Home Store (BHS). The market is ready for foreign franchises in the clothing and lingerie areas.  In education, the British Pitman Secretarial studies center has been in Kuwait for many years. An American educational center opened, and more educational and training firms could be accommodated in Kuwait.

Commercial Representation

A commercial representative is a Kuwaiti individual or entity engaged by a foreign company pursuant to a “commercial representation agreement,” to represent its business interests in Kuwait. The authority granted to a commercial representative is usually more limited than the authority granted an agent. A commercial representative may be paid according to a set fee, a commission or a percentage of profits. By Articles 297 to 305 of the Commercial Code govern the commercial representative’s obligation. 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. A commercial representation agreement is not registered with the Ministry of Commerce and Industry. The advantage of a commercial representative over an agent is that the representative can be engaged, compensated, and terminated as agreed upon by the parties to the commercial representation agreement, and the representative is not protected by the legal provisions applicable to agencies as discussed above.

Currency and Banking

Foreign Currency

There are normally no foreign exchange restrictions in Kuwait. The Kuwaiti Dinar is freely convertible for all current and capital account transactions. The exchange rate is calculated daily on the basis of a basket of currencies which is weighted to reflect Kuwait's trade flow.

 Build Operate Transfer

Two consortia submitted proposals to rebuild the Shuaiba north plant, destroyed by the Iraq during the Gulf War, on a BOT basis in early 1993. The first consortium was led by Germany's Deutsche Babcock and the second by the US-based Wing Group, which included the Enron Corporation and the UK's Midland Electricity.

Kuwait’s current electric capacity is 6,680 MW, but this will rise to 9,280 MW when the Shuaiba power plant is fully commissioned in 1999. Civil works for the project are being carried out by South Korea's Hyundai Engineering & Construction Company. Japan's Mitsubishi Heavy Industries won a US$1.6 billion contract to supply the boilers and turbines.

Questions remain about the need for the Kuwaiti government to invest in a project of this size at the current time. Peak electricity demand in Kuwait only reached 4,550 MW in the summer of 1995. Even if current 7 percent growth levels are maintained, peak demand will not match installed capacity until 2009.

Why do you want to do Business in KUWAIT?
Business in Kuwait is governed by The Commercial Companies Law No. 15 of 1960, as amended, and the Commercial Law No. 68 of 1980, which contains provisions of particular significance to foreigners. Articles 23 and 24 of the Kuwaiti Commercial Code state the basic premises for practicing business in Kuwait. Article 23 provides that non Kuwaitis cannot engage in commerce in Kuwait without having a Kuwaiti partner whose equity holding is at least 51 percent. Article 24 provides that a foreign company cannot establish a branch in Kuwait and may not engage in commercial activities in Kuwait except through a Kuwaiti agent.

Furthermore, specific sectors of the economy remain closed to foreign investment, including upstream oil development, insurance, and real estate, with some limited exceptions for citizens from GCC states.

The following types of organizations are available under Kuwait law: (1) Limited Liability Company; (2) Joint Stock Company; (3) General Partnership; (4) Limited Partnership; and (5) Joint Venture.

With the exception of the joint venture, all these forms of incorporation are endowed with independent legal personality.

As a general rule, the Kuwaiti Commercial Companies Law requires all business forms to have at least 51 percent Kuwaiti participation. In addition, the Commercial Companies Law provides that foreigners may engage in a business or trade in Kuwait only through a business structure in which at least 51 percent of the capital is Kuwaiti.

Foreigners wishing to conduct business in Kuwait may find it easier to do so following recent changes to the Commercial Companies Law1992. This legislation  allows holding companies to be created to hold stock or shares in and to participate in establishing Kuwaiti or foreign limited liability companies. Holding companies are also entitled to grant loans or guarantees to such limited liability companies as well as to manage such companies, hold industrial and intellectual property rights, grant licenses thereto and own moveable and immovable property.                                                             


Limited Liability Companies                                 
It is simple to establish and to operate and, therefore, is popular with foreign investors. A limited liability company is formed by applying for a Memorandum of Association to be entered into the Commercial Register, a process which may last three months.

The limited liability company acquires legal personality only upon being registered in the Commercial Register. The original life-span of the limited liability company may be up to twenty-five years, but the members may decide to extend its life for an unlimited period. A minimum of two and a maximum of thirty members, of which one must be Kuwaiti, is required. If the members include a husband and wife, however, then a minimum of three members is required. Until recently, all the members were required to be individuals. Law No. 28 of 1995 which amended the Commercial Companies Law allows companies to participate in establishing a limited liability company. Article 191 of the Companies Law provides that at least 51 percent of a limited liability company shareholding must be owned by a Kuwaiti citizen. The limited liability company may not be used for insurance, finance and banking activities.

The capital is divided into shares of equal value with a minimum of KD 7,500. Shareholders have a right of first refusal over shares offered for sale by other shareholders.

The limited liability company is managed by one or more directors, named in the Memorandum or appointed by the general meeting of shareholders. The directors have full authority to obligate the limited liability company, unless the Memorandum provides otherwise or the shareholders vote to restrict this authority. Holding an office in a rival company or a company with similar objectives as well as entering into transactions which compete with or are similar to the company's business is prohibited unless authorized by the shareholders.

Directors are personally liable to the company, the shareholders and third parties for any mismanagement, breach of law or violation of the company's Memorandum. The directors report to the general meeting of shareholders.

A limited liability company with more than seven shareholders must have a Supervisory Board consisting of at least three members. The duties of the Supervisory Board are to review the company's balance sheet, the distribution of profits and the annual report. The Supervisory Board reports on these matters to the general meeting of shareholders.

The general meeting of shareholders is obliged to require reports from the Supervisory Board and the Supervisory Board must convene a general meeting of shareholders at least once a year. Members holding at least 25 percent of the capital may also convene general meetings. Most resolutions of the general meeting are decided by majority vote, unless the Memorandum provides otherwise. To amend the Memorandum as well as to decrease or increase the capital a special majority of the shareholders holding 75 percent of the shares of the company is required.

A limited liability company is required to have at least one auditor to be appointed by the general meeting of shareholders. The auditor is responsible for the accuracy of the financial reports submitted to the general meeting regarding the company's accounts. The balance sheet must be sent to the Ministry of Commerce where it is open to public inspection.

A shareholder of a limited liability company is liable for the obligations or debts of the company only to the extent of such shareholder's share in the company's capital. If the number of shareholders drops below the statutory minimum at any time, however, the remaining shareholders are liable to the full extent of their assets for the obligations of the company. If the minimum number of shareholders is not satisfied within one month of when the requirement failed to be met, the company shall be deemed dissolved as a rule of law.


Joint Stock Companies                                   
The joint stock company the Kuwaiti corporate form which most resembles the public company in Western terms. All shares are negotiable, and shareholders are liable for the joint stock company's obligations only to the extent of the nominal value of their shares. A joint stock company may offer its shares to the public or remain a closed company. If the company deals in banking, insurance or finance activities, foreign ownership may not exceed 40 percent.

A joint stock company whose shares are offered to the public is formed by preparing and submitting a Memorandum and Articles of Association along with an application for a decree authorizing incorporation to the Ministry of Commerce and Industry. At least five founders must be registered. If the decree authorizing incorporation is granted, the company acquires legal personality as of the date of the decree, which must be published in the Official Gazette.

The founders must subscribe for at least 10 percent of the capital, which must be paid for before public subscription starts; a minimum of 20 percent of the capital must be paid for upon incorporation. Subscriptions are conducted through approved banking institutions.

Within thirty days of the completion of the public subscription, a general meeting of shareholders must be held to elect the initial members of the board and approve the founders' report on the corporation. Following this meeting the joint stock company must be entered in the Commercial Register.

A closed joint stock company, the shares of which are not offered to the public, does not require a decree authorizing incorporation. The incorporation documents must contain a declaration that the founders have subscribed for all the shares. The founders are required to pay at least 20 percent of the nominal value of their shares upon incorporation and the remainder within the next five years.

The general rule is that all the capital of a joint stock company must be Kuwaiti owned. If the need for foreign investment or experience arises, however, up to 49 percent of the capital of a joint stock company may be foreign owned provided that authorization is obtained from the Ministry of Commerce and Industry.

A minimum investment of KD 37,500 is required to establish a public joint stock company, and a minimum of KD 7,500 is required to establish a closed joint stock company. The capital must be divided into equal value shares having a minimum nominal value of KD 1 and maximum nominal value of KD 75. Shares may be issued at a premium but not at a discount. Shares may be sold, pledged or otherwise disposed of, but such transactions are effective only when they have been entered in the company's register of shareholders. Kuwaiti shareholders may not sell to foreigners. Founders may transfer their shares after the lapse of three years from the date of incorporation or after a dividend of at least five percent has been distributed. Other shareholders may transfer their shares at any time after the company has issued its first balance sheet or one year following the commencement of operations. Bearer shares may not be issued.

By resolution of the general meeting, a joint stock company may issue bonds by public subscription, thus entitling the holders to receive fixed interest amounts payable on fixed dates. The subscribed capital of the joint stock company must be paid in full prior to opening subscription of the bonds. The total value of the outstanding bonds may not exceed the subscribed share capital. A general meeting of bondholders must be held for each bond issue in order to safeguard the rights of the bondholders. Representatives of the bondholders' may attend but not vote in general meetings of the shareholders.

The board of directors of a joint stock company must consist of at least three members whose terms of office may not exceed three years but whose appointment may be renewed for successive terms. Directors are required to hold at least 1 percent of the capital. A person may not serve on more than three boards of Kuwaiti joint stock companies or be a managing director or chairman in more than one joint stock company.

Directors are elected by the shareholders by secret vote. Foreign organizations may designate representatives to the board in proportion to their holdings, and such representatives have the same rights as elected directors; the organization which appointed them is held responsible for their acts.

The authority, restrictions and liabilities of the board members of a joint stock company are similar to those of board members in a limited liability company.

Directors are prohibited from having any personal interest in the company's transactions, and they may not take part in the management of a rival company without the approval of the general meeting.

Remuneration paid to directors may not exceed 10 percent of net profits after deducting required reserves, depreciation and a dividend of at least 5 percent.

A general meeting must be convened at least once every year. In addition, the board must convene a general meeting of shareholders upon the request of shareholders holding at least 10 percent of the capital. Quorum at a general meeting is satisfied when shareholders holding at least 50 percent of the capital are present. Resolutions are decided based on simple majority vote.

Certain matters require extraordinary resolutions of shareholders holding at least 75 percent of the shares, such as amending the incorporation documents, selling the entire operation, winding up or merger, and reducing capital.

Other matters such as increasing financial liability of shareholders, increasing the nominal value of the shares, reducing the dividends specified in the Articles, setting new conditions on shareholder participation and voting at the general meeting or restricting the shareholder's right to sue directors require a unanimous vote.

The rules regarding the appointment of an auditor and dissolution are similar to those of a limited liability company.


Partnerships:                               
General Partnerships                                          
Two or more persons, at least one of whom must be a Kuwaiti national, may form a partnership. Each partner is fully liable for the partnership's debts. The general partnership is established by preparing and registering with the Commercial Registrar a Memorandum and Articles of Association. Amendments to the Memorandum and Articles require unanimous approval of all the partners. The general partnership acquires legal personality only upon registration, but third parties may consent that the partnership existed prior to its registration.

Each partner must contribute to the capital, and at least 51 percent of the capital must be owned by a Kuwaiti national. Transfer of a partner's share is subject to the provisions of the general partnership's Memorandum and Articles or to the consent of all the partners.

The general partnership must have at least one manager whose authority is specified in the Memorandum and Articles. Partners who are not managers may not take part in the management of the partnership, but have the right to inspect the general partnership's books and records.

The partnership is terminated upon the following: its term of existence expires and has not been extended; the objective for which it was established has been achieved; it loses all or most of its assets; court order; unanimous decision of the partners; or the bankruptcy of the partnership or one of its members. If a partner is declared bankrupt, however, the remaining partners may elect to continue the general partnership without the bankrupt partner with the stipulation that one of the remaining parties be a Kuwaiti national.


Limited Partnerships

There are two types of limited partnerships, a regular limited partnership and a limited partnership limited by shares.

A regular limited partnership has at least one general partner, whose liability for the obligations of the limited partnership is unlimited and at least one limited partner whose liability for the obligations of the limited partnership is limited to the extent of his investment in the limited partnership. The regular limited partnership is generally governed by the same that apply to a general partnership, subject to the following conditions: limited partners are limited to serving as supervising managers; they can exercise authority within sanctioned limits; and they may advise the management. Any other format participation in the management by a limited partner may result in his liability to third parties.

The Kuwaiti share in a limited partnership must be at least 51 percent and at least one general partner must be Kuwaiti.

The limited partnership limited by shares is governed by similar rules. Additionally, the capital of a limited partnership limited by shares must be divided into shares. Any specific provision in the partnership’s incorporation documents may also restrict its activities. The position of the limited partners is governed by the rules relating to shareholders in a joint stock company as described above.


Joint Ventures

Under Article 59 of the Kuwaiti Company Law joint ventures are a contractual type of partnership relationship between at least two persons, which have no independent legal personality and requires no formal establishment procedures. As a joint venture has no independent legal personality; actions for the joint venture are undertaken by the ventures. Thus, a venture transacting for the joint venture bears unlimited liability toward third parties for such transaction. The liability of a no transacting venture is limited to his share in the joint venture. If the transacting venture is a non-Kuwaiti, then the Kuwaiti venture must serve as the non-Kuwaiti’s guarantor in that transaction. In the event a joint venture were to deal with third parties in its own name, the effect would be to expose all of the joint ventures to unlimited, joint and several liability, regardless of whether a particular venture was personally involved in the specific transaction.


Branch Offices

Foreign businesses are not allowed to establish branch offices in Kuwait. Therefore, in order to transact business in Kuwait, a foreign company must appoint an agent or representative or cooperate with a Kuwaiti partner in establishing a corporate entity in which the Kuwaiti holds at least 51 percent.