The population figures may present Kuwait as
a small market but the import figures for various commodities
are quite impressive which gives lot of weight to Kuwait market
and projects a high purchasing power.
The fundamentals of doing business in Kuwait
are no different from elsewhere. The market is price conscious
and there is a greater emphasis on price. However the business
climate is different and social and cultural affinities have
Good business depends on good relations any where. Kuwait,
it is all the more important to go beyond business relation
to personal relations. The hard-sell approach does not appeal.
An attractive brochure, product videos, samples, low-key presentations,
pleasantries and patience are essential. Hospitality is an
integral part of local culture and to refuse a first cup of
gahwa or chai, when visiting an office, would be impolite.
The rules of commerce are in general similar
to West European practice.
Any Kuwaiti or GCC national over 21 years of
age may carry on commerce in Kuwait provided he or she is
not affected by a personal legal restriction. But a foreigner
(non-GCC national) may not carry on a trade unless he or she
has one or more Kuwaiti partners and the capital owned by
the Kuwaiti partner(s) in the joint business is not less than
51% of the total capital (60% in the case of banks, investment
houses and insurance companies). A foreign firm (including
a partnership) may not set up a branch and may not perform
any commercial activities in the country except through a
Kuwaiti agent. Foreign individuals and firms may not acquire
commercial licences in their own name nor may they own real
The main laws regulating business in Kuwait,
which have been amended several times since they were issued,
are (a) The Civil Code (Law 67 of 1980), (b) The Commercial
Code (Law 68 of 1980), and (c) The Commercial Companies Law
(Law 15 of 1960).
To do business, a licence is necessary. General trading, contracting,
importing and industrial licences are issued by the Ministry
of Commerce & Industry (MCI). For particular commercial
activities, specific licences are required and these are often
issued by the ministry that controls that activity, e.g. publishing
licences are granted by the Ministry of Information.
Business licences are only issued to Kuwaiti
nationals and Kuwaiti companies and, in some cases, to GCC
nationals and companies. Costs are usually KD100 per licence.
All licences require periodic renewal, normally every two
Based on the GCC Unified Economic Agreement and
the Supreme Council resolutions issued some two years back,
GCC nationals are allowed to practice all business activities
and professions in Kuwait excluding some activities such as:
Haj & Omra services, private employment bureaus, labour
provision services, finalizing document services,delivery
services at airports, real estate services, leasing and sub-leasing
of lands and buildings, car renting, advertising and publicity
services, transport services and travel agencies.
Social activities excluded are: handicapped care and re-habilitation
centers, the elderly peoples houses, community service centers
and any center or office providing social services.
Among the cultural activities excluded are: the
establishment of publishing houses, presses, newspapers, magazines,
photographic studios movie and art production , commercial
theatre bands, cinemas, theatres and art exhibition halls.
Kuwaiti Manpower Law
Kuwait Manpower Law No. 19/2000 introduced in May 2001 aims
at solving the Kuwaiti unemployment problem by creating job
opportunities for Kuwaitis in the private sector. A high-ranking
government team entrusted with implementing the law has to
endorse the set of additional charges for expatriates on residence
transfers, residence renewals and work permits. The team is
seeking a legal basis to specify Kuwaiti manpower percentages
to work in the private sector and the companies which do not
comply with these percentages will be charged KD 500 for issuing
new work permit for each expat appointed.
Kuwait has begun applying a 2.5 % tax on the
net profit of Kuwaiti companies listed on the Kuwait Stock
Exchange (KSE). The tax may be imposed on all local companies
in the future. This tax will supplement additional charges
to be collected from expatriates in the private sector.
According to a recent statistical report the
total labour force in Kuwait reached about 1.271 million individuals
in the year 2001. The labour force growth rate was 6.3 per
cent. The Kuwaiti workforce increased from 233,250 to 249,800.
While 228,600 Kuwaitis are in the civil service, 21,200 are
employed in private sector.
A committee comprising Ministers of Social Affairs
and Labour, Commerce and Industry and Interior, which has
been entrusted with framing a mechanism for implementation
of the Kuwaiti Manpower Law, has proposed increasing the charges
for issuing the work permit to KD 100 per year instead of
the current KD 10 for private firms not complying with the
percentage of Kuwaiti Manpower Law.
The government has already allocated a KD 40
million fund in fiscal 2001/2002 to implement the law. To
subsidize the salaries of Kuwaitis in the private sector several
measures are under consideration.
A memorandum by the Ministry of Social Affairs
in August 2002 recommends a KD 500 fee to be imposed on companies,
not complying with the designated percentage of Kuwaiti manpower,
for obtaining a new work permit for each hired expatriate
worker. It sets the percentages of Kuwaiti manpower required
in the private sector, according to the company's business
activity, highest 38 and 39 per cent respectively for establishments
engaged in telecommunications and banking. The percentages
for Kuwaiti manpower in private sector will apply to all businesses
under specified categories employing 100 or more workers.
Business enterprises can take several forms, viz Kuwait shareholding
company (KSC), company with limited liability (WLL), and general
partnership. The time and cost of establishing and registering
these entities ranges from one month and at least KD500 for
a general partnership to about three months and KD3,000 for
Kuwait Free Trade Zone (KFTZ)
Kuwait's privately-managed Free Trade Zone is located in Shuwaikh
and allows 100% foreign ownership of businesses within the
zone. There are no import duties and foreign corporate income
is tax-free. Commercial, industrial and service licences are
available without a local sponsor. KFTZ provides a variety
of infrastructural services. Tel: 802808, Fax: 4822067, http:
www.kuwaitfreezone.com, e-mail: email@example.com
In July 2001 KFTZ launched KFTZonline.com to
provide efficient means for clients to access KFTZ services
such as business visas, work visas, gate passes, contract
amendments and termination, building permits etc.
The 'Future Zone' or Kuwait's mini ?Silicon Valley? in the
Free Trade Zone is expected to start operating by the end
of year 2002. It is located on the water front parallel to
Al-Ghazali Street in Shuwaikh outside the customs area of
the Free Trade Zone and covers an area of 800,000 square metres.
LIBERALISED BUSINESS LAWS
Extensive legislation to reform Kuwait's economy,
liberalise its business laws and comply with WTO rules was
issued by Amiri Decree in June 1999. In May 2000 the National
Assembly approved the indirect Foreign Investment Law which
allows foreigners to own stocks on the Kuwait Stock Exchange
(KSE). Law No. 20/2000 on allowing non-Kuwaitis to posses
shares in Kuwaiti shareholding companies was approved. According
to the Article (1) of the law, non-Kuwaitis may posses shares
in the Kuwaiti shareholding companies already incorporated
during the effective date or which may be incorporated after
its implementation. Non-Kuwatis may participate in the establishment
of these companies in accordance with the provisions of the
law. In August 2000 the Kuwaiti Cabinet approved regulations
necessary to implement the bill allowing foreigners to own
stocks and trade on the bourse. The legislation allows foreign
investors and expatriates living in Kuwait to own up to 100
per cent of the stock of Kuwaiti companies listed on the KSE,
except in banks where the ownership will be limited to 49
The right to import goods into Kuwait on a commercial
basis is restricted to Kuwaiti individuals and firms who are
members of the Kuwait Chamber of Commerce & Industry (KCCI)
and who have import licences issued by the Ministry of Commerce
& Industry (MCI).
General import licences, which must be renewed annually, allow
any amount of a variety of products from any country to be
imported any number of times. But special licences are needed
to bring in regulated products such as arms, ammunition and
explosives, ethyl alcohol, drugs, pesticides, jewellery and
precious stones, weights and weighing machines, vintage cars,
etc; these too must be renewed annually. Special licences
are also needed to import industrial equipment and spare parts;
these are issued to industrial firms upon the recommendation
of the Public Authority for Industry and are valid for a single
To protect local morals, alcoholic beverages
and materials used in making them, pigs, pork, pigskin products
(such as handbags, wallets and shoes), narcotics and associated
plants and seeds, pornographic and subversive materials, are,
among other items, prohibited. To protect local trade and
industry, items such as vehicles over 5 years old and goods
manufactured locally are prohibited. Items injurious to health,
such as air-guns, asbestos and cyclamates, are banned. Imports
from Israel and Iraq are banned absolutely.
All imports, as well as locally made items, must comply with
Kuwaiti standard specifications (KSS). If there is no KSS
for a particular product then Gulf standard specifications
(GSS), a set of common standards being devised under the GCC's
Unified Economic Agreement, apply, and if there is no suitable
GSS, the product must adhere to international standards.
To clear goods imported into Kuwait, a minimum of four documents
are needed: (a) Commercial Invoice, (b) Certificate of Origin,
(c) Official Delivery Order, and (d) Packing List.
The invoice, certificate of origin, and the delivery
order (bill of lading or airway bill) must be in three original
copies and must be certified by a chamber of commerce in the
country of export, preferably a joint local-Arab chamber,
and certified by the Kuwaiti consulate in that country. If
there is no Kuwaiti embassy in the exporting country, the
consulate of Saudi Arabia (preferably) or any other Arab country
(except Iraq) is acceptable. As well as being shown on the
packing list, the country of origin must also be marked on
each packing unit.
To clear customs, many products must be accompanied
by additional certificates showing that they comply with health
and safety regulations issued by the Ministry of Public Health,
the Municipality and the MCI. Goods failing to clear customs
must be re-exported within a month. The minutiae of import
regulations tend to change frequently and these changes are
published in Al-Kuwait Al-Youm, the Official Gazette.
Kuwaiti customs duties are the lowest in the region, though
there are protective tariffs on some goods. However commercial
samples worth up to KD5,000 may be brought in temporarily.
Duty is levied as a percentage of the CIF value
of the goods up, but excluding unloading in, Kuwait. It is
calculated and must be paid in Kuwaiti Dinar (KD). Where importers
are invoiced in foreign currencies, customs use a list of
'standard' exchange rates to translate the CIF value into
KD. These rates change frequently and a list in Arabic is
available for 250fils from customs.
The standard rate of duty is 4%. But most goods
may be imported duty free, including:
w food products, medicines,
essential consumer goods, live animals, bullion, printed matter,
etc, except where these (such as bread) are manufactured locally;
w industrial and farm products from other GCC states provided
they have at least 40% added value in the
GCC exporting country; and
w raw materials, semi-processed goods, equipment and spare parts
for new industrial establishments provided exemption has been
But imported hydrocarbon products that
are also manufactured locally, such as lubricating oils, are
subject to duties of 100%. The duty on cigarettes and tobacco
is 75%. But some goods of Arab origin are subject to only
50% or 75% of the duty imposed on similar goods of non-Arab
Many locally made products are protected by tariffs.
To qualify for protection, an industrial firm must show that
it meets, or will be able to meet, at least 40% of the demand
in the local market for the products concerned. The tariff
varies according to the value added by domestic production.
AGENCY & SERVICE AGREEMENTS
Only Kuwaiti individuals or firms
may act as commercial agents in Kuwait, while foreign individuals
or firms, except for GCC nationals, are not allowed to carry
on commercial activities in the country except through a commercial
agent. All arrangements between a foreign entity and its local
agent are governed by Articles 260 to 296 of the Commercial
Terms of An Agency Agreement
An agency agreement must be in writing and must be registered
with the MCI. Its terms must cover the activities to be undertaken,
the scope of the agent's authority, his remuneration, and
the duration of the agency (if limited). Generally speaking,
the parties to an agency agreement have full freedom of contract,
but a few provisions of the Code override what the parties
might wish to agree and any terms which contradict these provisions
If an agent is required to erect premises then
the contract must be for at least five years. The principal
is obliged to provide the agent with all that the agent requires
for the promotion of the principal's products and services.
The agent must preserve confidentiality even after the agreement
The agent is entitled to his remuneration (a)
on all matters concluded by him, (b) on transactions which
would have been concluded but for some act of his principal,
and (c) on transactions concluded either directly by the principal
or by others acting on behalf of the principal in the area
of the agent's operations, unless otherwise agreed in writing.
If a principal terminates an agency when his agent is not
at fault, the agent may seek compensation for loss of income.
And, if an agent abandons his agency at an unsuitable time
and without reasonable cause, his principal may seek compensation
for damages. Any clause to the contrary in an agency agreement
Even where an agency is for a fixed term, the
law expects it to be renewed on expiry. If the principal does
not renew it, the agent may seek fair compensation (even if
the contrary is stated in their agreement) provided the agent
has not been at fault nor negligent in his performance. If
a principal replaces his agent and the termination was due
to collusion between the principal and the new agent, the
new agent will be held jointly responsible with the principal
for settling any compensation due to the former agent.
There is no set legal formula for calculating
compensation on termination. However an action for compensation
must be started within 90 days of the end of the agency.
To open a branch in Kuwait, a foreign firm must enter an agency
agreement with a Kuwaiti sponsor or service agent. Under such
an arrangement the agent is merely the foreign entity's legal
representative in the country and does little more than take
care of licensing formalities, obtain visas for the principal's
executives and emplo-yees, and represent the principal officially.
The agent will expect a fee for his sponsorship and the use
of his licences.
An agency agree-ment is not enforceable under Kuwaiti Law
unless it has been registered in the Commercial Agencies Register
at the MCI. Application for registration must be made within
two months of the agency being created. Before applying to
the MCI, the agreement must be registered with the KCCI.
The application for registration can only be
made by the Kuwaiti agent. It must be made on two original
copies of the official MCI form and must be accompanied by:
w an original copy of the
w a translation of the agreement into Arabic
w a copy of the agent's commercial licence
w a copy of the agent's nationality document or registration
in the commercial registry
w a certificate of registration from the KCCI.
If the agency agreement was executed overseas, the original
must be attested at the principal's location by an official
authority and the Kuwaiti consulate. Where it was executed
in Kuwait, it must be notarised by a Kuwaiti Notary Public.
Upon registration, the MCI gives the agent a
signed and stamped copy of the application, and advertises
the registration in the official gazette.
Amendments to the agreement must also be registered
and when an agency terminates it must be removed from the
register. The register may be searched by the names of agents,
the names of principals and the trade names of goods.
INTELLECTUAL PROPERTY RIGHTS (LAW NUMBER 64)
Until 1999 there was no general copyright law under which
the rights in intellectual works could be protected effectively.
The only protected works were audio and visual recordings
of Kuwaiti, Arab, American and British origin. In addition,
public institutions were not allowed to buy pirated computer
Under the Law No. 64 of 1999 protection is to
be given to all literary works (written and oral), theatrical
shows, musical works (with or without lyrics), choreographic
works, motion pictures, audio, video and radio works, artistic
works (painting, sculpture, carving, architecture and decoration),
photographs, applied art (craft or industrial designs), illustrations,
maps, designs and models, computer works (software and databases),
and translated works.
The scope of protection under this law covers
the following works in particular:
* Written works.
* Works delivered orally, such as lectures, speech, religious
sermons and the like.
* Theatrical works and musical plays.
* Musical works with or without songs.
* Works performed by means of movements or steps and mainly
prepared for direction.
* Movie works, audio, video and radio works.
* Painting and works depicted by means of lines, colour, and
diagrams as well as works of architecture, arts, carving and
* Photographic works.
* Works of applied art, including craft or industrial designs.
* Illustrations, geographic maps, designs, plans and models
relating to geography, topography, architecture and science.
* Computer works including software, databases and the like.
* Derived and translated works.
The protection also covers the title of
the work if this is created and it is not a common expression
that indicates the subject matter of the work.
The period of copyright protection will be 50
years from the death of the author. But works published under
a pen name or after the author's death, motion pictures, photographs,
applied art, computer works, and works owned by corporate
bodies will be protected for 50 years from the end of the
year in which they are first published. Writers, composers
and directors of theatrical, choreographic, and TV and radio
works will enjoy 50 years protection from the end of the year
in which the works were first performed or recorded.
The law specifies the penalties that the court
shall order for infringement of the author's rights.
Under the new law the penalty for piracy is a
maximum of one year imprisonment and a fine of KD500. A shop
selling pirated works can be closed down for up to six months.
The protection of trademarks is governed by articles 61 to
85 of the Commercial Code, as amended by Decreed Law #3 of
1999. A Trademarks Register, open to public inspection, is
maintained in the Patent & Trademark Department at the
Ministry of Commerce & Industry (MCI). Under the new law,
the definition of a trade mark extends to audible and olfactory
marks. There is no registry of service marks.
The person who registers a trademark is considered
the sole owner with the exclusive right to use the mark on
the products for which it is registered. Registration initially
protects a mark for ten years from the date of application
to register. Registration can be renewed indefinitely for
further periods of ten years each. The registrar must notify
the owner that the period of protection has expired within
one month of expiry and if the owner does not apply for renewal
within six months of expiry, the mark is automatically deleted
from the register.
A trademark may be sold but the change in ownership
must be entered in the Register and published in the official
gazette. A person who infringes a registered trademark is
liable to a fine of KD 600 or imprisonment or both, and to
To register a trademark, an application must be submitted
in Arabic to the Trademark Control Office along with a fee
of KD 24. Once the application has been accepted, it must
be advertised in three consecutive issues of the official
gazette. Objectors have 30 days after the third advertisement
to challenge the registration in writing. The registrar must
give a copy of the objections to the applicant, who has 30
days to submit a reply. Thus the overall time needed to register
a trademark is not less than three months.
Patents & Industrial Designs
Under Law 4 of 1962, a patent may be issued for any new invention
suitable for industrial use which has not been used in Kuwait
during the previous 20 years. Kuwaiti nationals, foreign residents,
foreign businessmen with a local presence and foreigners in
countries that grant reciprocal rights to Kuwaitis, have the
right to be granted patents in Kuwait. All documents for filing
a patent application, including the specifications of the
invention, must be in Arabic.
Under Law 4 of 1962 patent holders are protected
against unauthorised use of their invention or design for
an initial period of 15 years, renewable for a further 5 years.
Under the new law the period of protection will be 20 years,
though patents registered in other countries will only be
granted protection for the remainder of the period of protection
where they are registered. The new law also extends the period
of protection for drawings, models and integrated circuits
from 5 years to 10 years, which may be renewed for a further
5 years. The law will, in addition, allow improved versions
of existing patents to be protected for 7 years.
Patent holders may license their patents to others.
PUBLIC SECTOR CONTRACTING
As a general rule, a public authority in Kuwait
may only buy equipment and commodities, and commission works,
by way of an independently administered tendering process.
Public tendering is governed by Law 37 of 1964, Law 18 of
1970 and Law 81 of 1977 as amended.
Tendering procedures for most public institutions
are administered by the Central Tenders Committee (CTC), though
the client body (i.e. the public body requiring the service)
draws up the specifications and particular conditions it requires,
reviews pre-qualifying companies, and evaluates bids technically.
However some public institutions have their own tendering
procedures. But no matter who administers a tender, the procedures
are in essence the same as CTC procedures, and all activities
relating to public tenders, such as tender announcements,
invitations to pre-qualify, pre-tender meetings, and amendments
to conditions and specifications, are only published in Al-Kuwait
Al-Youm, the official gazette.
Funding for major projects is normally provided
by the government. In recent years other forms of financing,
such as credit facilities supported by export credit agencies
(ECAs) and build-own-transfer (BOT) type schemes, have been
Eligibility & Registration
A tenderer for a public contract must be a Kuwaiti merchant
who is (a) registered with the KCCI and the MCI, and (b) registered
as an approved supplier or contractor.
The CTC and client bodies maintain lists of approved
suppliers of equipment and materials. To get on the lists,
the main requirement for suppliers is that they be Kuwaiti
merchants. Application for registration is usually made to
the client body.
The CTC also maintains lists of approved contractors
for works. Before getting on these lists a contractor must
be classified according to the size of projects he is deemed
capable of undertaking. The size limit for the first three
categories represents the cumulative size of all contracts
being undertaken at the same time by a contractor, e.g. a
category (4) contractor cannot bid for a contract worth more
than KD50,000 if, at the time of his bid, he is already undertaking
projects with an total value of KD200,000. Foreign companies
are not classified as they must prequalify each time they
bid for public sector contracts.
Participation in some public tenders is restricted to firms
who have been pre-qualified, i.e. judged capable of undertaking
the particular project. To prequalify, a firm submits a standard
set of documents outlining its financial and technical capabilities
to the CTC. Foreign firms must prequalify each time they bid
for a public contract. Their applications may only be submitted
by their Kuwaiti agent and must be accompanied by an authenticated
copy of the agency agreement.
Forthcoming tenders are announced in Al-Kuwait Al-Youm as
invitations to bid . To collect the documents, a written request
in Arabic plus the fee (for which a receipt is given) is needed.
A foreign firm must show an authenticated copy of the agreement
with its local agent.
Firms who have purchased the documents may be
invited to pre-tender meetings with the client body. Sometimes
these are mandatory and bidders who do not attend find themselves
excluded from the tender. The scope of work may be amended
after the tender documents have been issued or after a pre-tender
meeting. When this happens the administering committee issues
a formal addendum which can only be collected on production
of the original receipt for the tender documents. Notice of
pre-tender meetings and tender amendments are announced in
Al-Kuwait Al-Youm and tenderers are seldom advised directly.
A bid may only be submitted on the original official tender
documents issued to the company making the bid. All parts
must be completed in full and the documents may not be altered
in any way. The bid must conform to the tender terms exactly
and alternative terms are never acceptable. All prescribed
supporting documen-tation must be appended.
The tender documents are expected to be submitted
without erasures or corrections. Where alternative offers
are allowed, a tenderer must buy a separate set of documents
for each offer he submits, with each bid clearly marked to
show that it is an alternative.
Pricing & Pricing Preferences
Contracts must usually be priced on a lumpsum fixed-price
basis, though unit pricing is normal in maintenance type contracts.
Most bids must be priced in Kuwaiti Dinar. Prices must be
stated on a cash-basis.
Public sector contracts must by law be awarded
to the bidder who offers the lowest price provided his bid
conforms with technical requirements and he has adequate resources.
But where a firm has submitted an artificially low bid and
it appears that it will be unable to perform to the required
standard, the contract may be awarded to the next lowest bidder.
Local manufacturers have a price advantage. Subject
to technical acceptance, goods made in Kuwait may be priced
up to 10% higher than comparable items made abroad and be
deemed the lowest priced. Goods made in other GCC countries
have a 5% price preference; but if the goods are not made
in Kuwait then GCC goods have a 10% advantage. Local contractors
for the performance of works do not enjoy any pricing advantage.
A bidder's offer must be irrevocable until the end of its
period of validity which initially cannot be more than 90
days. An unconditional bank guarantee for the entire initial
period of validity, issued in Arabic by a Kuwaiti bank, must
be submitted with the bid. These bonds vary from 2% to 5%
of the value of the bid. If a bidder is successful but refuses
to sign the contract, the bond is forfeit.
Bidders are often asked, towards the end of the
initial period of validity, to extend their offers. If they
wish to do so then the bid bond must also be extended.
Submission of Bids
Tender documents must be signed by the bidder and stamped
with his seal. If a foreign firm submits a bid directly, rather
than through its local agent, both its stamp and the agent's
stamp must appear on every page. Proof of the signatory's
capacity to bind the bidding firm is always required and this
usually takes the form of a notarised power of attorney.
If the tender documents include a bid envelope,
this must be used to submit the bid. The name of the bidder
may not appear on the envelope, which must be sealed with
Bids must be submitted to the tender committee
at the place, date and time stated in the conditions. Where
the CTC is administering the tender, bids must be submitted
in the CTC's office in Sharq, which is done by placing the
envelope in the box designated for that tender by a notice
in Arabic (only). The closing time is usually 1:00pm and the
box is always sealed the very second time is up.
Evaluation & Award
Where the CTC is administering the tender, bidders may get
a copy in Arabic of the list of bidders and their prices from
the CTC's Sharq office, about a week or so after bidding closes,
by showing a copy of the original receipt for the docu-ments.
But other tender committees do not normally provide such lists.
In most tenders a technical study, to ensure
that bids comply with the required specifications, is usually
carried out by the client body. During these studies, a bidder
may be invited to answer queries orally or he may be sent
a list of questions requiring a written reply.
Once technical studies are completed, a contract
is awarded on the basis of price from among the bids that
conform with the tender specifications. The administering
committee notifies a successful bidder in writing, but the
latter does not have any contractual rights until he has signed
his contract with the client body. If the winner fails to
sign the contract within a specified time of being invited
to do so, he is deemed to have withdrawn.
Before signing the contract, a successful bidder
must replace his initial guarantee with a final guarantee
or performance bond from a Kuwaiti bank. This is typically
10% of the contract value and must be valid for the duration
of the contract including a maintenance period. A contractor
who fails to present this guarantee is deemed to have withdrawn.
Public sector contracts always contain penalty clauses, and
minor delays and faults in execution usually result in penalties
Contractors for the performance of works normally
receive an advance of 10% to cover costs of mobilisation.
Stage payments on account of work-in-progress are also made.
Most contracts allow the client body to retain 10% from work-in-progress
payments until the end of the contract and to recoup the advance
pro-rata from work-in-progress payments, so that during the
maintenance period the client body is holding a retention
Public sector contracts normally include a maintenance
period of a year, during which the contractor is liable for
any faults in the equipment or works. The period is covered
by a retention, in the case of works, and the performance
When a project of works is completed, the contractor
usually receives a provisional completion certificate which
is replaced by a final acceptance certificate at the end of
the maintenance period. This final certificate releases him
from further liability and enables him to claim his final
payment. Before he can receive his final payment, a foreign
contractor must obtain a tax clearance certificate.
COUNTERTRADE OFFSET PROGRAMME
Under Kuwait's counter-trade offset programme,
a foreign contractor who signs contracts to supply government
institutions with goods or services that are cumulatively
worth more than KD1million in any fiscal year (April to March)
incurs an offset obligation that requires him to set up a
business beneficial to Kuwait.
According to a report, the offset programme has
achieved 19 projects in different fields since its start in
The Offset Obligation
The offset obligation is expressed in the same currency as
the supply contracts and is nominally 30% of their value.
The contractor earns 'credits' for expenditures relating to
his offset business venture (OBV) and when these credits amount
to 30% of his supply contracts he has fulfilled his obligation.
Actual expenditures will be much less than 30% because most
expenditures earn credits at a rate greater than 1:1 and,
in practice, offset expenditures amount to about 3% of a contractor's
supply contracts. But before a contractor may embark on his
OBV, the business must be officially approved. The programme
is administered by the Counter-Trade Offset Program Executive
Office (PEO) in the Ministry of Finance. The stated objectives
of Kuwait's offset programme are:
w to promote long-term
mutually beneficial collaborative business ventures between
foreign enterprises and Kuwaiti companies with an emphasis
on the private sector;
w to achieve sustainable economic benefits (such as export sales
and import substitution);
w to enhance the high-tech capabilities of the private sector
by creating and expanding education and training opportunities
for Kuwaiti nationals locally and abroad;
w to facilitate the transfer of state-of-the-art technology
into the private sector; and
w to support Kuwait's foreign aid programmes.
These objectives provide the criteria by which proposed OBVs
A contractor's obligation begins when he signs
the supply contract that creates it. The total time allowed
to fulfil the obligation is 10 years, i.e. 24 months for approval
of the OBV and eight years thereafter to generate the credits
needed to extinguish the obligation, with 50% being settled
within four years. A contractor's OBV must include Kuwaiti
businesses or entrepreneurs as equity partners, and it must
exist and operate under Kuwait's Commercial Companies Law.
A contractor who refuses to participate in the
programme or ceases to participate before he accumulates credits
equal to 10% of his obligation, incurs a penalty of 6% of
the value of his supply contract(s). If he fails to continue
after completing 10% or more of his obligation, the penalty
is reduced by the percentage of the obligation which has been
The Offset Process
Once a foreign contractor has signed the supply contracts
that trigger his obligation, he must acknowledge this obligation
by signing a memorandum of agreement with the Ministry of
Finance. He must then submit business ideas to the PEO in
order to obtain approval for an OBV. For each idea he must
submit in turn a concept paper, a proposal and a business
plan, and each of these documents must be approved before
the next one is submitted.
The concept paper is essentially a brief summary
of the proposed business. A proposal is similar to a traditional
feasibility study and is the key document upon which approval
of the OBV rests. The business plan must be fully detailed
and must cover the whole eight years in which the obligation
must be fulfilled.
The proposed OBV must pass normal evaluation
criteria for commercial, technical and financial viability.
The business is also evaluated on its ability to further capital
accumulation and promote economic development in Kuwait, on
the contribution it can make to developing a highly skilled
experienced globally-competitive work force and on whether
it will transfer inwards technology appropriate to the development
of new industries in Kuwait.
Calculation of Credits
Once his business plan has been approved the foreign contractor
establishes and operates the OBV with his Kuwaiti associates.
He is awarded offset credits annually on the basis of the
expenditures relating to the OBV as shown by its audited financial
All the OBV's expenditures, except for costs
incurred in administering the programme, are eligible for
credits. But instead of being just aggregated to calculate
the credits, these expenditures are classified and weighed
according to the preferences given to them under the government's
economic policy objectives. First the expenditures are classified,
according to the internal functions of the OBV, into micro-categories
(see box). The actual expenses in each micro-category are
then multiplied by the appropriate micro-multiplier. The result
is then multiplied by the approved macro-multiplier. The final
result is the amount of credits earned in that particular
micro-category. The credits earned in each micro-category
are then summed to arrive at the total number of credits generated
by the OBV for that year.
To decide what the OBV's macro-multiplier should
be, the OBV is classified according to its activities into
one of the economic activity areas (EAA) shown in the box.
Each EAA has a macro-multiplier which ranks it by the preferences
accorded to that economic activity in the government's policy
Once an OBV is established, the PEO must be provided
with six monthly progress reports, i.e. performance updates.
The OBV is required to maintain accounting records according
to International Accounting Standards and to file annual audited
financial statements with the PEO. All supporting records
must be kept for four years and PEO has the right to audit
these records annually.
After a contractor's current obligation has been fulfilled,
additional credits generated by his OBV may be carried forward
and set against offset obligations arising from any future
supply contracts he signs. These future credits may not be
transferred to other contractors.
Third Party Fulfilment
Subject to PEO approval, a foreign contractor may designate
a third party to fulfil his offset obligation, though the
contractor remains responsible for the outcome. Contractors
unable to find suitable OBVs may be allowed to fulfil their
obligations by investing in approved investment funds which
provide finance for ventures acceptable under the offset programme.
Several local funds have been approved for this purpose by
the Ministry of Finance.
CORPORATE INCOME TAX
In Kuwait there are no personal income taxes,
property, gift or inheritance taxes. Nor are there any sales
or value added taxes. The only tax paid by Kuwaiti shareholding
companies is a 2.5% levy for the Kuwait Foundation for the
Advancement of Sciences (KFAS).
Kuwaiti Manpower Law which was introduced in
May 2001 applies a 2.5% tax on the net profits of Kuwaiti
companies listed on the Kuwait Stock Exchange (KSE). This
tax may be imposed on all local companies in the near future.
But corporate income tax is levied on the net
income of foreign firms.
The Liability to Corporate Income Tax
Corporate income tax is governed by Law #3 of 1955, as supplemented
by directives issued by the Director of Income Taxes, i.e.
the Minister of Finance, from time to time. The filing of
tax declarations and accounts, the assessment of liabilities
and the payment of taxes are administered by the Tax Department
in the Ministry of Finance. All tax declarations, supporting
schedules, financial statements, and correspondence must be
All foreign corporate bodies carrying on a trade
or business in Kuwait are liable to income tax, with the exception
of companies incorporated in the GCC that are wholly owned
by GCC citizens. A foreign corporate body means any business
entity, formed under the laws of any state, which has a legal
existence separate from that of its owners. The term includes
foreign partnerships. Where a foreign firm operates through
a local service agent, it is taxed on its income arising in
Kuwait. Where it is a shareholder in a local company, it is
taxed on its share of the company's profit.
Taxable income includes net profits, whether
distributed or not, and amounts receivable on account of interest,
royalties, technical services and management fees, etc, whether
actually paid or not. Where the foreign firm is a shareholder
in a local company, the foreign entity bears the tax and the
Kuwaiti company has no liability. There is no withholding
tax on dividends, interest payments and royalties.
Net taxable income is computed on the basis of the net profits
disclosed in audited financial statements as adjusted for
tax purposes. Where the taxpayer is a shareholder in a local
company, the foreign element in total adjusted profits is
Tax Reduction Plan
According a draft law approved by the Cabinet the taxes on
foreign companies may be reduced to 25 per cent from the current
55 per cent. The tax margin on foreign companies will be in
the range from 5 to 25 per cent, depending on their income.
The minimum taxable income will be KD 30,000 on a sliding
scale of 5 per cent for every incremental KD 30,000, up to
a maximum of 25 per cent. Thus a company posting an annual
income of less than KD 30,000 will not be liable to taxation
but one earning KD 30,000 will have to pay 5 per cent (KD
1,500) as tax. A company earning KD 60,000 will have to pay
10 per cent (KD 6,000) and a company earning KD 90,000 will
have to pay 15 per cent (KD 13,500) and so on. The maximum
tax however will be 25 per cent. The objective is to attract
more foreign investors.
Gross income is all income from business and trade, including
amounts receivable as rents, royalties, premiums, dividends
and interest, as well as capital gains on the sale of assets
and on the sale of shares by a foreign shareholder, where
the source is in Kuwait. The source of income is Kuwait if
the place where the services are performed is in Kuwait. Work
done outside Kuwait is deemed to be performed in Kuwait where
it is part of a contract that includes activities within Kuwait;
e.g., in a supply and installation contract, the full value
of the contract including the foreign-supply element is assessable.
Gross billings, excluding advance payments, less
the costs of work incurred in an accounting period are used
to assess income from contract work and percentage accounting
or completed contract accounting methods are usually not acceptable.
Where a foreign firm has more than one activity
in Kuwait, its income from all activities must be aggregated
for tax purposes, even if its different activities are organised
through separate local companies.
All normal business expenses are allowable on an accruals
basis provided they are incurred in the generation of income
in Kuwait. But the following may be noted:
w Accounting provisions,
whether specific or general, are not allowable. Bad debts
are only allowed once they have proved irrecoverable. Other
provisions, such as labour indemnities, are only allowed when
they are actually paid.
w Depreciation of fixed assets is allowable but only at particular
rates for different classes of assets on a straight-line basis.
Losses on the disposal of fixed assets below their tax written-down
value are allowable.
w Interest charges are allowable provided they are payable to
a Kuwaiti bank and are reasonable in relation to the business
activities carried out in Kuwait.
w Commissions paid to the taxpayer's local agent are limited
to 3% of revenue.
w Losses brought forward are allowable. Losses may be carried
forward indefinitely and deducted from income in later periods,
provided there has been no intervening cessation of activities.
But losses in a later period cannot be carried back to an
w Management fees receivable by a foreign corporate shareholder
in a local company and expensed in the latter's books are
not allowable. But direct expenses incurred by the foreign
taxpayer are allowable provided they are supported by adequate
w As a contribution to a foreign corporate body's head office
expenses, deductions may be claimed as follows:
q by foreign consultants or contractors operating through a
local agent: 3.5% of revenues (net of amounts payable to subcontractors
and reimbursable costs)
q by foreign shareholders in a WLL or KSC: 2% of revenues (net
of amounts payable to subcontractors and reimbursable costs)
q by foreign insurance companies: 3.5% of net premiums.
Inventory is usually valued at weighted average
cost, though FIFO (first-in, first-out) is becoming more popular,
but any valuation method in general use is acceptable.
Calculation of Tax Due
The tax due on net taxable income is reckoned according to
the rates shown below. These are not progressive, i.e. tax
is charged on all profits at the rate of the level into which
total profits reach. For example, if taxable profits are KD50,000,
tax of 15% is levied on the whole KD50,000 and the tax payable
Some relief is available where taxable profits
reach marginally into a higher level. This is obtained by
calculating the total tax payable at the top of the band just
below the highest band into which taxable income falls and
to the tax thus calculated the whole of the income in excess
of this band is added. Where the resulting amount is less
than the tax payable as calculated normally, the lower amount
becomes the tax payable.
Tax Department, Ministry
The Gregorian solar calendar is used for tax accounting.
Tax periods are normally 12 months long, though a period
of up to 18 months may be allowed on commencement. The usual
year-end for tax accounting is 31st December, but a taxpayer
may request another year-end. Taxpayers are legally obliged
to submit their tax declarations to the Tax Department without
being requested. The deadline for filing tax declarations
is the 15th day of the 4th month following the end of the
tax accounting period; e.g., where the usual end-of-December
period end is used, tax declarations must be submitted by
15th April. An extension of 75 days may be allowed if audited
accounts are filed.
Tax declarations and supporting documentation
must be in Arabic and must be certified by a practising
accountant who is registered with the MCI. The law is unclear
on a number of issues and final assessments are usually
agreed by negotiation. There is no special appeals process.
Tax must be paid in Kuwaiti Dinar by certified cheque, in
four equal instalments on the 15th day of the 4th, 6th,
9th and 12th months following the end of the tax period.
No payment is required until accounts have been filed. The
tax is payable in a single lump sum where payments are delayed
and also where an extension of 75 days has been allowed
for the filing of audited accounts. The penalty for tardiness
in filing declarations or paying by the due date is a fine
of 1% of the tax payable for every 30 days (or fraction
thereof) of delay.
Tax Clearance Certificates
The final payment due to a foreign contractor, which must
not be less than 5% of the total contract value, must be
retained by all ministries, public authorities and private
companies (including foreign firms) operating locally until
the contractor has produced a tax clearance certificate
from the Ministry of Finance confirming that all tax liabilities
have been settled.
All ministries, public authorities and private
companies operating in Kuwait must submit the names and
addresses of all companies with which they are doing business
as contractors, subcontractors or in any other form, together
with a copy of the contracts, to the Tax Department. When
assessing liability to tax, the Director of Taxes may disallow
payments to subcontractors which have not been reported.
The Director of Taxes tends to look at the substance rather
than the form of transactions and does not usually give
binding rulings in advance on how tax will be determined
in unclear cases and so the scope for tax planning is rather
limited. As final assessments are a matter of negotiation,
advice from a local practitioner who has a good working
relationship with the Tax Department can be helpful.
Kuwait is a signatory to the GCC Joint Agreement
and to the Arab Tax Treaty. Kuwait also has double taxation
treaties with Belgium, China, Cyprus, France, Germany, Hungary,
Italy, Romania, South Africa and Thailand, and is negotiating
treaties with Australia, Austria, Canada, Finland, India,
Japan, Malaysia, Singapore, Switzerland, Turkey and the
SOURCES OF INFORMATION
Researching business opportunities from outside
Kuwait is easy. Data on exports to Kuwait by OECD countries
can be used to analyse the market. Foreign government trade
promotion agencies have information on market prospects
and updates on new projects. These agencies also organise
trade missions to Kuwait, a cost-effective way of making
There are several sources of market-related
information within Kuwait. Al-Kuwait Al-Youm, the official
gazette, is the official source of government announcements
but is published in Arabic only. English translation of
all tender-related and regulatory matters is offered by
a few translation offices on yearly subscription base.
The Ministry of Planning is the main source
of government statistics. The Central Bank issues an Annual
Economic Report. Research units in the IBK, commercial banks
and Institute of Banking Studies are worth contacting. Foreign
embassies have data on opportunities. Local foreign business
associations provide good networking facilities.