Doing Business In.. 2020 Comparisons

Last Updated July 15, 2020

Law and Practice


ASAR - Al Ruwayeh & Partners is Kuwait’s leading corporate law firm, with a strong network of contacts throughout the MENA region. Its work cuts across various sectors and includes IPOs, capital markets, M&A, banking and finance, real estate, government projects, securities, taxation, construction, corporate and commercial matters, franchising, commercial litigation and arbitration. The firm has multilingual capabilities, including being able to provide services in English, Arabic and French. Its clients include a number of significant public and private sector entities based in Kuwait, Bahrain and elsewhere in the world (including in the United States, Europe and elsewhere in the GCC). ASAR is also regularly retained by leading international law firms and has won numerous awards for legal services rendered.

Kuwait is a civil law jurisdiction and the judiciary of Kuwait is structured in three levels: the Court of First Instance, the Court of Appeals and the Court of Cassation. The structure of the judicial system is briefly as follows.

The Court of First Instance

The Court of First Instance is made up of several circuits/divisions, each with its separate jurisdiction. These divisions/circuits include the Small Claims/Summary Court, the Administrative Court, the Civil and Commercial Government Court, the Civil and Commercial Court, the Labour Court, the Court of Rent, the Criminal Court, the Court of Personal Matters and the Court of Minors’ Affairs.

The Court of First Instance also has three important support divisions: the Authentication Department (which authenticates signatures, etc), the Experts Department (which reviews any technical and complicated matters that the court may refer to it, etc) and the Execution Department.

The Court of Appeals

The jurisdiction of the Court of Appeals is generally limited to the review of issues being appealed from the Court of First Instance, but it is empowered to make a de novo review of appealed cases as well. The Court of Appeals regularly conducts trials de novo. Judgments rendered in the Court of Appeals are final, except for those appeals taken to and accepted by the Court of Cassation.

The Court of Cassation

The Court of Cassation may be viewed as the supreme court of Kuwait. It has final jurisdiction over matters relating to the proper application, interpretation and enforcement of Kuwaiti law, and rectifies procedural and substantive defects committed by the courts below it. The Court of Cassation is divided into commercial, civil and criminal divisions, and its judgments are typically respected and followed, even though they are not legally binding on the lower courts (ie, Kuwait is a civil law jurisdiction without binding court precedents).

Certain restrictions (foreign ownership limitations, etc) may apply, depending on the nature and extent of the foreign investment being made.

As a general premise, but subject to certain limited exceptions, Articles 23 and 24 of Law No 68 of 1980 (the Commercial Code) require that foreign entities conducting business in Kuwait do so either through a local agent or through a Kuwaiti "partner" (typically facilitated through the establishment of a Kuwaiti company with Kuwaiti or GCC participants owning at least 51% of the capital). 

One of the exceptions to the conduct of business rules noted above is the establishment of a company or branch under Law No 116 of 2013 (the Foreign Direct Investment Law or FDIL). The primary purpose of the FDIL is to improve the overall investment climate in Kuwait with respect to foreign investors, and to encourage foreign investment in Kuwait by offering certain benefits to foreign investors (owning up to 100% of a Kuwaiti entity, tax credits, etc). The Kuwait Direct Investment Promotion Authority (KDIPA) was also established under the FDIL, and has regulatory oversight over matters relating to the FDIL. To obtain an investment licence from KDIPA, the prospective foreign investor must satisfy the criteria set out under Article 29 of the FDIL (see 2.2 Procedure and Sanctions in the Event of Non-compliance). 

Certain activities are excluded from benefiting under the FDIL but these are narrowly defined activities relating to certain sectors, such as the extraction of petroleum and natural gas, security and investigative services and the manufacture of fertilisers.

GCC individuals and GCC companies wholly owned by GCC nationals may also establish branches of their businesses in Kuwait and/or own more than 51% of the shares of a Kuwaiti company (see Ministerial Resolutions No 141 of 2002 and No 237 of 2011 – the GCC Exemption). Except in limited instances, GCC nationals are afforded the same rights to establish and to do business in Kuwait as Kuwaiti nationals.

Any approvals that may be required will depend on the nature of the investment and how it will be made. As a general premise, the following may be of significance.

Requirements to Open a Wholly GCC-owned Company Under the GCC Exemption

GCC nationals and GCC companies wholly owned by GCC nationals may take advantage under the GCC Exemption to open a Kuwaiti company or a Kuwaiti branch of their operations. The process and timing will vary, depending on various factors such as the desired corporate form and the relevant activities to be undertaken. 

During the establishment process, the authorities will also seek to confirm that the relevant investor is a GCC national or a GCC company wholly owned by GCC nationals. This is typically evidenced by the relevant identification documents in the case of GCC nationals (ie, the passport of the GCC national, etc) and/or the constitutional documents of the GCC company (including the shareholder details). See also 3.2 Incorporation Process for details of the process generally followed to establish certain Kuwaiti companies. 

Requirements to Open a Branch Under the GCC Exemption

Foreign investors must satisfy the following conditions in order to open a branch under the GCC Exemption.

  • The relevant GCC entity must be wholly owned by GCC nationals, whether directly or indirectly. If at any time a non-GCC shareholder acquires an interest in the relevant GCC entity, the Ministry of Commerce and Industry (MOCI) may cancel the branch licence.
  • The relevant GCC entity must have been in existence for at least three years before the submission of the branch establishment application to the MOCI.
  • The activities of the relevant GCC entity must be permitted in the GCC region, and the Kuwaiti branch activities must be covered under the relevant GCC entity’s licensed activities.
  • The establishment of a GCC branch in Kuwait should be completed within one to two months from the date all documents required are submitted to the MOCI. In this regard, the documents required are generally the MOCI establishment application form, the constitutional documents of the foreign entity and the details of its partners/shareholders. The identification documents must be attested and legalised at the Kuwaiti Embassy in the country of issuance and then attested and legalised in Kuwait before being submitted to the MOCI.

Requirements to Obtain an Investment Licence from KDIPA

To qualify for an investment licence under the FDIL, the foreign entity has to satisfy certain special requirements set out in the FDIL and its executive regulations. Key in this regard, the foreign entity has to demonstrate that its activities, amongst others, will benefit Kuwait as a whole and satisfy the criteria set out in Article 29 of the FDIL (that the activities will result in the transfer of technology, modern methods of governance and practical/technical experience to Kuwait; create employment opportunities and training for national labour; enhance the use of national products, etc). The steps to obtain the investment licence are as follows:

  • Application Request – the submission of the application request is the first formal step in the application to be licensed under the FDIL. The application request should briefly summarise the proposed investment/project and its details which the foreign party wishes to undertake in Kuwait under the FDIL. Once the application request is finalised and submitted, KDIPA will review the application and will typically respond to the applicant within a week regarding the success of the preliminary application.
  • Formal Application – if KDIPA believes that the investment/project as set out in the application request complies with and addresses the points required under the FDIL, the applicant will proceed to the second stage of the application process. As part of this process, the applicant will have to submit an application form appropriate to the vehicle it will use to pursue the project. 
  • Consultation – KDIPA and the relevant applicant discuss and consult on the application and the supporting documents (which will include a business study/plan); KDIPA may require additional information on particular aspects of the project that should be addressed. 
  • Consideration – once the application and business study are finalised and formally submitted along with the attested, legalised and translated constitutional documents of the applicant, KDIPA is to respond to the applicant within 30 days regarding the success or failure of the application.
  • KDIPA Approval and Investment Licence – if the application is approved, the necessary formal steps to give effect to the investment/project are put in place, and an investment licence is issued by KDIPA following the completion of the incorporation process and the issue of the trading licence by the MOCI. If the application is rejected, a written explanation will be given. The applicant may challenge this decision within 30 days.

Certain commitments may be required by KDIPA in order for it to issue an investment licence, as set under 2.2 Procedure and Sanctions in the Event of Non-compliance. Such commitments are typically agreed on the basis of the relevant business plan. If the agreed commitments are not adhered to, this may have an impact on the investor’s licence and the benefits being enjoyed under the FDIL.

See 2.2 Procedure and Sanctions in the Event of Non-compliance.

Law No 1 of 2016 (the Companies Law) provides for several types of companies that may be established. The more common forms used by foreigners when investing into Kuwait are the Single Person Company (SPC) or the With Limited Liability Company (WLL). 

SPCs and WLLs are largely subject to similar rules/regulations, with a significant difference being that an SPC may only have a single shareholder while a WLL is required to have between two and 50 shareholders. If an SPC has more than one shareholder, it is automatically converted into a WLL. WLLs are the most common form of corporate entities established by foreign parties in Kuwait. 

The objects of a SPC/WLL have to be selected from a pre-approved list issued by the MOCI. An entity is not authorised to undertake activities that are not consistent with its objects as listed in its memorandum of association (MOA). The minimum required share capital of a SPC/WLL is currently KWD100 per licensed activity, which will be cumulative (ie, the minimum share capital of each registered object – ie, licensed activity – will be added together to reach the required minimum share capital of the relevant SPC/WLL). The capital amount is usually dependent on the objects selected and approved by the MOCI for inclusion in the MOA of the SPC/WLL. 

The liability of shareholders of a SPC/WLL is limited to the extent of their share capital contribution in the company. However, in relation to an SPC, the owner may also be liable for the debt of the SPC if the shareholder:

  • liquidates the SPC in a mala fide manner before its expiry or the realisation of its objectives; or
  • does not separate the financial rights and obligations of the SPC from its other activities to the prejudice of bona fide third parties.

Investors may also establish a Kuwaiti Joint Stock Company (KSC). There are two types of KSCs: Public Joint Stock Companies (ie, KSCPs) and Closed Joint Stock Companies (ie, KSCCs). KSCCs are more common than KSCPs but, given that KSCs are subject to certain additional taxes (such as Zakat and contributions to the Kuwait Foundation for Advancement of Science) and increased regulation, and have greater minimum capital requirements compared to an SPC/WLL (the minimum required capital is KWD10,000 for KSCCs and KWD25,000 for KSCPs), investors prefer to establish SPCs/WLLs unless the particular project requires a KSC. SPCs/WLLs are also easier to set up and administer, are subject to less stringent regulations and are relatively cheaper to establish and operate than a KSC. In light of this, what follows in this chapter does not address issues in relation to KSCs, and focuses instead on SPCs/WLLs.

As a high-level summary, in order to incorporate an SPC/WLL an application must be made to the MOCI on a standard Arabic application form accompanied by the required documentation/information. This is submitted online to the MOCI through its website. Certain information will have to be provided as part of the online application, including the names of the shareholders/manager, the capital amount, the manager’s authority, the company name, etc.

The MOCI should provide its approval regarding one of the proposed names. The online application should thereafter be referred to the Ministry of the Interior (the MOI) for its approval regarding the partners and manager of the SPC/WLL. After obtaining the MOI’s approval, the MOA of the company should be signed by all partners (or their representatives) before the Notary Public at the Ministry of Justice. Following the signing of the MOA, the MOCI will issue a certificate confirming the registration of the SPC/WLL on the Commercial Registry.

Once the above is complete, a second online application should be submitted to the MOCI in connection with the issuance of the SPC’s/WLL’s trading licence. At this point, the lease agreement and rent receipt of the SPC’s/WLL’s premises should be submitted to the MOCI. During this process, the approvals of the Municipality and Fire-Fighting Administration should also be obtained, whereafter the trading licence should be issued for the SPC/WLL. Additional approvals may also be required, depending on the business of the SPC/WLL.

The incorporation of the SPC/WLL should take approximately four weeks (from the date all required documentation and information is submitted), provided that no substantial changes are made to the standard MOA proposed by the MOCI.

Companies are subject to various ongoing reporting/disclosure obligations after establishment. While the particular obligations will depend on the company itself and the activities it undertakes, examples of what may be required include:

  • the registration of changes of management with the MOCI, as well as any amendments to a company’s constitutional documents; 
  • financial statements must be submitted to the MOCI annually for review/approval;
  • any change in the shareholding (and, in certain cases, that of the ultimate beneficial shareholder) must be registered with the MOCI; and 
  • if the company is licensed under the FDIL, KDIPA will require ongoing disclosures evidencing compliance with commitments made during the licensing process.

An SPC is managed by its owner but such owner may appoint one or more managers to manage the company on its behalf. A WLL is managed by one or more managers (and not by a board of directors, which are typically charged with managing KSCs). Managers can be of any nationality, but must have a Kuwait Civil ID card and be a resident of Kuwait.

The MOA of the company sets out the powers of the managers. In the absence of any provisions regarding the powers of the managers, the managers have the full power to act on the SPC’s/WLL’s behalf (it is common to provide in the MOA that the manager has full authority to act on behalf of the WLL) but this can be restricted in the company’s MOA or by the ordinary general meeting of the partners. In relation to a WLL, if the manager is named in the MOA, his/her termination/replacement should be approved by an extraordinary general meeting. The manager would be considered an employee of the company and hence his/her relationship with the company would be subject to Law No 6 of 2010 (the Labour Law).

Managers are jointly liable towards the company, the partners and third parties for breaches of the law or the MOA, or for mismanagement (Article 105 of the Companies Law).

Generally speaking, all employers/sponsors in the private sector in Kuwait are required to comply with the provisions of the Labour Law regarding matters such as working hours, overtime, rest days, sick leave, annual leave, holidays, etc, and other statutory benefits, regardless of whether or not such benefits have been waived in an employment contract. In this regard, the Labour Law provides for the minimum rights for employees in Kuwait, but employment contracts can provide for more beneficial rights.

The Ministry of Social Affairs and Labour (the MOSAL) regulates employment matters in Kuwait and issues regulations, which should be complied with by employers/sponsors in addition to those in the Labour Law (eg, in respect of the minimum wage). While the Labour Law provides for certain express protections for unions and collective bargaining arrangements, in practice these are quite rare and are typically only seen in certain sectors where Kuwaitis, rather than foreigners, form the majority of the sector’s workforce.

As with elsewhere in the world, the COVID-19 pandemic continues to have a significant impact on business in Kuwait and while certain laws have been promulgated to reduce the impact of the pandemic (mandating closures, working hours, etc), there has not been an express and formal amendment to the Kuwaiti labour laws as of the time of writing. Having said that, a number of proposals are currently being considered which may affect matters in a number of significant ways (the taking of leave, reducing hours/salaries under exceptional circumstances, etc). Such amendments are being carefully scrutinised, given the significant and long-lasting impact they will have on Kuwaiti businesses and the laws by which they are governed.

As businesses struggle to survive, they are reconsidering their options under existing laws. In seeking relief, businesses are increasingly relying on the general principles of law to assist in mitigating the harmful consequences of the pandemic. Significantly, there has been increasing reliance on the principles under the Civil Code in relation to force majeure and that of undue hardship caused by unforeseen circumstances; this is not only in the context of seeking relief from employment obligations but also from contractual obligations generally. In the absence of any precedent (the absence of which is understandable given the novelty of the circumstances and the closure of the courts for a significant portion of 2020), it is not possible to definitively opine on whether such arguments by employers (ie, regarding force majeure and undue hardship caused by unforeseen circumstances) will be successful in overcoming the minimum protections provided by the Labour Law.

The employment contract is used to obtain the necessary work permits, residence visas and any other government approvals required for an employee, and the Labour Law sets out the basic information required to be included in employment contracts. According to Article 28, the employment contract should be in writing (although an employment relationship can be evidenced through all means of proof), and must include the contract date (both the date of conclusion and the date of validity), the wage payable and the duration of the contract (ie, if a fixed-term contract). The employment contract must also be filed with the MOSAL.

The duration of an employment contract can either be fixed (ie, for a specific period) or indefinite (ie, for an indefinite period). Depending on the applicable duration, this affects notice periods to be afforded prior to termination, end-of-service benefits payable upon conclusion of the contract, etc.

As a general premise, Article 64 of the Labour Law provides that employees are not to work more than eight hours per day or 48 hours per week, except as specified in the Labour Law. Article 66 stipulates that workers may work overtime if the necessity arises, provided that the overtime work should not exceed two hours a day, three days a week, 180 hours a year or 90 days a year. Workers are entitled to a 25% increase on their original remuneration for the period of overtime worked, and employers must maintain overtime records detailing the dates, overtime hours and wages.

Employees are also afforded certain rest periods under the Labour Law. In this regard, during the month of Ramadan, the working hours should not exceed 36 hours per week (Article 64). In addition to public holidays, employees are entitled to a one-hour break after working for five consecutive hours (Article 65) and to at least one 24-hour rest day every six days (Article 67). If employees are required to work on a rest day or holiday, then employers must pay such employee an additional 50% for rest days or an additional 100% for holidays, and must afford the employee an alternative rest day/holiday as applicable.

Kuwait is not an employment at will jurisdiction. Under Article 41(a) of the Labour Law, an employer may terminate the services of an employee without notice, compensation or benefit if the employee has committed a mistake that resulted in a significant loss for the employer, if the employee obtained employment through cheating or fraud, or if the worker divulged secrets related to the establishment which caused or would have caused real losses.

Article 41(b) provides that employers may dismiss an employee (subject to the payment of the employee's end-of-service benefits) if said employee:

  • has been found guilty of a crime that relates to honour, trust or morals;
  • has committed an act against public morals at the work site;
  • has assaulted one of his/her colleagues, his/her employer or deputy during work or for a work-related reason;
  • breached or failed to abide by any of the obligations imposed on him/her by contract or under the Labour Law; or
  • is found to have repeatedly violated the instructions of the employer. 

Employees also have the right to terminate their employment contracts without notification and shall be entitled to their end-of-service benefits if:

  • the employer does not abide by the terms of the contract or the provisions of the law;
  • the employee was assaulted by either the employer or his/her deputy;
  • continuing work will endanger his/her safety and health pursuant to the decision of the medical arbitration committee at the Ministry of Health;
  • the employer or his/her deputy committed an act of cheating or fraud with regard to work conditions upon signing the contract;
  • the employer has accused the worker of committing a punishable act and the final verdict acquitted him; or
  • the employer or his/her deputy commits an act against the employee that violates public morals (Article 48).

If the term of the work contract is not specified (ie, an indefinite term contract), both parties have the right to terminate by providing three months’ prior notice of termination (assuming the employee is paid on a monthly basis – this notice period is one month for contractors paid on another basis (Article 44)). In relation to fixed term contracts, Article 47 of the Labour Law provides that where the contract is unlawfully terminated prior to the expiry date, the terminating party shall compensate the other party for damages suffered, provided that the amount of the compensation should not exceed the remuneration of the worker for the remaining period of the contract. The damage suffered is typically determined in light of trade custom, the nature of the work and the unexpired portion of the contract. All amounts due to the other party may be deducted from the value of the compensation.

Except in limited instances (eg, termination under Article 41(a) of the Labour Law), employees are generally entitled to certain end-of-service benefits following the conclusion of the relevant employment relationship. In this regard, according to Article 51 of the Labour Law, employees paid on a monthly basis are entitled to 15 days' salary for each of their first five years of service and 30 days' salary for each subsequent year. Other employees (eg, employees paid on a commission basis or an hourly, daily or weekly basis, etc) are entitled to ten days' salary for their first five years of service with the employer and 15 days' salary for each subsequent year. The total end-of-service indemnity is based on the latest monthly salary (including all regular, customary and ordinary payments made to the employee, such as regular benefits, allowances and grants) and should not exceed one and a half years’ salary. Other factors that affect the calculation of the end-of-service benefits include whether the employee was on a fixed-term contract, the term of employment and whether the employee may have resigned.

Articles 98 to 132 of the Labour Law address employees’ rights to organise/form unions, collective employment contracts and collective labour conflicts. Such issues are rarely encountered in practice unless an employment field is populated primarily by Kuwaiti employees, and such arrangements are by no means mandatory. 

Article 109 of the Labour Law requires employers to provide their employees with copies of all laws and regulations relating to their rights and duties. Additionally, Article 35 of the Labour Law requires employers to inform employees in advance of the penalties to which they may be subject.

Natural persons are not generally subject to tax in Kuwait. As such, no taxes are typically payable in the context of an employment relationship. However, with respect to the employment of Kuwaiti nationals, such persons and their employers are subject to the Social Security Law of Kuwait and are obliged to make certain social security contributions (ie, 9.5% of the employee’s salary from the employee and 10.5% from the employer).

Under Decree Number 3 of 1955 (the Tax Law), each body corporate carrying on business in Kuwait should pay tax on its Kuwait operations. In practice, tax is imposed on non-Kuwaiti corporate bodies only. However, GCC nationals and corporate bodies incorporated within GCC countries are granted the same treatment as Kuwaiti companies, and are thus not presently subject to income tax. Kuwaiti and non-Kuwaiti individuals are not subject to income tax.

The Department of Income Tax (DIT) also seeks to tax foreign corporate bodies in their capacity as shareholders in a Kuwaiti company by taxing their percentage interest. The DIT would likely seek to apply the same practice to foreign corporate shareholders of GCC companies operating in Kuwait and/or where a foreign corporate shareholder appoints an individual nominee to hold its shares in a Kuwaiti company on its behalf.

While, strictly speaking, there is currently no "withholding" tax in Kuwait, there is a requirement under the Tax Law for government agencies and private entities in Kuwait to notify the DIT of all contracts entered into by them, and to retain 5% of the contract value (in practice, this is achieved by retaining 5% of all payments made to the counterparty) until the counterparty provides a tax clearance certificate. This procedure is sometimes loosely referred to as a tax withholding, but it is in essence a retention to secure the satisfaction by the counterparty of its Kuwait income tax obligations and not a tax as such. 

While it has not yet done so, Kuwait is expected to introduce a 5% value added tax (VAT) in line with a GCC Framework Agreement on VAT that was signed in 2016. As briefly mentioned above, KSCs may be subject to additional taxes (Zakat, etc) as compared to other corporate forms such as WLLs.

Given the restricted scope of taxes in Kuwait (relatively low flat tax rates, etc), there is limited scope for additional tax credits and incentives. 

Of particular significance, however, several tax credits are provided to parties operating under the FDIL. These tax credits are related to the commitments made to KDIPA and are set out below (with the figures given being the set percentage/multiplier value for calculating annual benefits):

  • Technology Transfer: specialised equipment cost – 20% of the value of the specialised equipment cost.
  • Creating Job and Training Opportunities for Kuwaiti Nationals:
    1. total expenditure on salaries paid to Kuwaiti employees – five times the annual salaries paid to the Kuwaiti employees in excess of the percentage covered under the applicable laws; and
    2. total number of Kuwaiti employees – KWD36,000 for each Kuwaiti employee.
  • Expenditure on training of Kuwaiti employees – ten times the annual expenditure on training of Kuwaiti employees.
  • Utilisation of Local Resources:
    1. rental of the local head office of the investment entity – equivalent to the value of the annual contracts with local suppliers;
    2. contracts with local suppliers (especially including SMEs) for provision of local products and services – equivalent to the value of the annual contracts with local suppliers; and
    3. raw material and other material from local sources – double the annual value of inputs used from local sources.

Also of significance is Article 8 of the executive regulations to the Tax Law, which provides that corporate bodies that trade on the Kuwait Stock Exchange have their profits resulting from such trades exempted from taxes.

While there is no express rule restricting tax consolidation, the Tax Law provides that every taxpayer must file an income tax declaration (Articles 1 and 8 of the Tax Law) and this rule is applied in practice by the DIT.

The Tax Law does not expressly address thin capitalisation (where a company is primarily financed by debt rather than equity) or the tax consequences thereof; however, it is of possible significance that Executive Rule No 38 provides that the DIT may scrutinise financial costs/expenses to detect whether a taxable transaction has occurred (considering, amongst other things, the necessity of loans/interest, in relation to loans from banks and related parties, and the surrounding documents, inter-group interest charges and interest paid in relation to foreign financing). Executive Rule No 38 provides as follows (informal translation).

First: Bank Interest

  • The interest locally paid on bank facilities and loans used in the main activity of the incorporated body shall be accepted after ensuring the necessity of the loan and also the supporting documents. The interest on the loans utilised in financing the capital operations shall be capitalised and added to the asset value.
  • All interest charged by the head office for its current account in the incorporated body’s branch in the State of Kuwait shall be discarded. The same applies to the interest charged by the agent.
  • The interest paid abroad shall be discarded unless it is proved that such interest has been paid for loans and bank facilities to finance the incorporated body’s activities in the State of Kuwait.

Second: Letter of Guarantee’s Commission Paid Abroad

This commission shall be allowed if it is only paid to a foreign bank to issue a letter of guarantee from a local bank and the letter of guarantee is related to a taxable project in Kuwait. Commissions related to a letter of guarantee where the revenue is not taxable shall not be allowed.

Save for certain limited guidance in the executive regulations (see Article 5) and the Executive Rules, little guidance is expressly provided in the tax laws/regulations on how taxes should be treated between a branch and its head office. 

That being said, Executive Rule No 38 does provide that no interest charged by a head office in relation to its account with the Kuwaiti branch shall be deductible. In practice, however, such interest charges may be allowed if the Kuwaiti tax authorities are satisfied that the interest is a legitimate charge that relates to a Kuwaiti project. Also of significance, Executive Rule No 49 provides that the tax authorities may inspect intergroup transactions to ensure that such transactions are not concluded for illegal tax purposes. Executive Rule No 49 goes on to provide that each entity is responsible for its own taxes but that, in special cases, related entities can be treated differently after consulting with the tax authorities. 

It is also understood that, in practice, the DIT applies limits on the deductibility of expenses incurred outside Kuwait in relation to a head office, related entities and third parties to varying degrees. The following are provided as examples.

  • Costs of imported materials to be resold in Kuwait – deductions cannot exceed 85-95% of the related value.
  • Design costs incurred outside of Kuwait – deduction cannot exceed 75-85% of related value.
  • Foreign consulting expenses – deduction cannot exceed 70-80% of related value.

Depending on an entity’s status (ie, whether it is a head office, a related party or a third party), the applicable deduction allowed may be greater or lower within the range provided.

See 5.6 Transfer Pricing regarding the scrutinisation of related party transactions. Where there are reasonable grounds to believe that a taxpayer will not comply with its tax obligations, Article 35 of the executive regulations to the Tax Law empowers the DIT to make preliminary attachments (and may seek to dispose of the assets) and to ban the relevant management of the taxpayer from travelling. The following may also be of possible relevance:

  • See 5.2 Taxes Applicable to Businesses in relation to the 5% tax retention required to be made from payments being made to counterparties.
  • Under Executive Rule No 57, the authorities can institute precautionary attachments when:
    1. the Tax Department becomes aware that the taxpayer intends to leave the country forever;
    2. the Tax Department becomes aware that the taxpayer intends to cease its activity; or
    3. the Tax Department learns that the taxpayer intends to dispose of its assets with the aim of evading the tax due.
  • Under Article 36 of the executive regulations to the Tax Law, if the final and payable taxes and penalties are not paid on the required date, the Tax Administration may approach the courts to attach the property of the taxpayer (including such assets of the taxpayer as may be in the possession of a third party). With respect to penalties, Article 34 of the executive regulations to the Tax Law provides that a penalty of 1% per month (calculated on the taxes due) shall be imposed for failing to submit a tax return as from when the tax return was meant to be filed and a further 1% per month (calculated on the taxes due) for failing to actually pay taxes as from when the tax was due to be paid.

Under Article 44 of the executive regulations to the Tax Law, the Tax Administration may cancel any agreement or procedure intended for tax avoidance.

According to Article 8 of Law No 10 of 2007 (Competition Law), when a person wishes to acquire assets, merge or combine management, etc, in a manner that will lead to a person(s) being in a position of control or to increasing their existing control, all the relevant parties must report the transaction to the competition authorities. 

A party will be in a position of control for purposes of the Competition Law where it directly or indirectly, and whether alone or in concert with other parties, controls 35% of the relevant market; the market is in turn essentially defined to be the relevant market for the particular area and includes all services/products (as applicable) that are interchangeable or substitutable by the consumer by reason of the characteristics of the relevant services/products, and meeting the needs of the consumer. 

While the Competition Protection Authority (the CPA) has not rigorously implemented these requirements in practice in the past, it has recently advised that it will be taking a more active role and a strict approach in applying the requirements under the Competition Law going forward.

Under Article 3 of Ministerial Resolution No 106 of 2009, the parties who are intending to merge are required to notify the CPA of the intended transaction at least 60 days prior to the closing of the transaction (being the effective date for the merge and the increase of control over the market) and request its approval. Any such application to the CPA should include the constitutional documents of the relevant entity(ies) on which the applicant’s position of control is based, the relevant merger/sale agreement, details as to the business of the parties, an economic study on the transaction and its effects, shareholder details and at least two years of financial statements for the parties. The required application fee of the CPA is also to be paid. Additional information may be requested by the CPA as it deems appropriate.

The CPA shall then publish a synopsis of the notification in the official gazette and in four or more daily newspapers issued in Arabic, at the applicants’ expense. Any concerned party may object to the notification during a period not exceeding 15 days from the date of publication; any objection shall be considered on its merits by the CPA. The party submitting the notification should be notified of the CPA's decision approving or rejecting its request within 15 days of the date of the issuance of the decision, and the party submitting the notification should fulfil the formalities and procedures if the CPA issues its approval.

The Competition Law guarantees the freedom of exercising economic activity in a manner that does not affect free competition for all in Kuwait. The Competition Law also contains a general prohibition on acting in an anti-competitive manner (by stating that all agreements, practices, etc, that are harmful to free competition are prohibited), and elaborates on particular agreements/practices that are restricted. The Competition Law provides that it shall apply to all acts perpetrated abroad that affect competition in Kuwait.

By way of example of specific transactions/practices that are expressly restricted under the Competition Law, persons who enjoy control over a market are specifically prohibited from the following, amongst other things:

  • raising, reducing or fixing prices through any method that is contrary to ordinary market forces with the purpose of doing harm to competitors;
  • prohibiting or hindering the exercise of the economic activities of any other person in the market;
  • partially/wholly withholding available products from a particular person in the market; and/or
  • concluding a contract or agreement conditional on accepting obligations which are, by their nature or commercial use, not connected to the object of the original dealing or agreement.

See 6.1 Merger Control Notification and 6.3 Cartels.

Law No 4 of 1962, as amended (the Patent Law), addresses patent protection issues in Kuwait. Although the Patent Law does not expressly define the word "patents" as such, Article 1 does provide that patents "shall be granted in accordance with the provisions of this Law for any new invention which is utilisable in industry whether it concerns a new industrial product, original industrial process and techniques or a new application of a known industrial process or techniques" (informal translation). According to Article 12, patents are valid for a period of four years, but can be renewed for cumulative periods of up to 20 years.

At present, the Patent and Trademark Office (PTO) processes applications for industrial designs, while other patent applications are directed to the GCC Patent Office in Riyadh, Saudi Arabia. A registration in the GCC Patent Office in Riyadh, when approved, may be enforced in Kuwait.

An owner or rights holder of a patent, a drawing, a design or a utility model may file a complaint under the Patent Law to protect their rights. During a civil or criminal lawsuit, a rights or title holder may ask the court to issue an order to take precautionary measures (which may include the seizure of the contravening goods and the equipment and machines used for committing the offence). Where necessary, the order issued for taking such measures may require the appointment of an expert and other court officers to assist in its execution. 

Unlike under the TM Law and the Copyright Law (see 7.2 Trade Marks and 7.4 Copyright), which specifically allow a rights or title holder to seek an order from a Kuwait court for the enforcement of precautionary measures prior to the filing of a substantive infringement action (and on an ex-parte basis when necessary) to prevent patent infringements and violations, the Patent Law grants such a right only after the substantive claim for patent infringement or violation of the Patent Law has been filed.

Also of significance, the 1970 Patent Cooperation Treaty (as amended) (PCT), an international patent law treaty, was ratified by the State of Kuwait on 9 September 2016. The PCT makes it possible to seek patent protection for an invention simultaneously in a number of countries by filing an "international" patent application; such an application may be filed by anyone who is a national or resident of a contracting state with the national patent office of the contracting state or, at the applicant's option, with the International Bureau of WIPO in Geneva. However, it should be noted that the PCT application does not itself result in the automatic granting of a patent, and the granting of a patent is at the discretion of each national or regional authority. In other words, a PCT application establishes a filing date in all contracting states but must be followed up on by entering into national (or regional) efforts to obtain one or more patent registrations.

Trade mark protection is regulated under Law No 13 of 2015 (the TM Law), which is largely based on a treaty between the various GCC states. The TM Law defines "trade marks" as "Anything which takes a distinct form or style in the form of names, words, signatures, letters, symbols, numbers, titles, stamps, drawings, graphs, inscription or combination of same, or any signs or group of signs if used or intended to be used to distinguish such products or services of an organisation or entity relevant to such products or services from products or services of other entities or to indicate the performance of a service or to control or check such products or services" (informal translation).

Except for in relation to certain prohibited items (ie, alcohol and pork products) and certain restricted activities (such as gambling), trade marks, service marks, logos and trade names may be registered in Kuwait under the TM Law in accordance with international classification standards. These registrations are valid for up to ten years from submission of the application for registration, and may be renewed for similar periods. When foreign marks are to be used in Kuwait, the owner thereof is typically recommended to consider registering them locally in accordance with the TM Law as this affords the mark owners more protection than when the marks have not been registered.

In case of an infringement of a registered trade mark, the trade mark owner has, amongst others, the following remedies available under the TM Law:

  • filing a criminal action (see Articles 2, 3 and 4 of the TM Law);
  • seeking injunctive relief, which may take the form of confiscating infringing items, impounding the tools used in infringing the mark and/or the destruction of unlawful marks and property (see Article 40 of the TM Law);
  • if the infringing party manages to register the infringing mark, filing a case to de-register the trade mark of the infringing party (see Articles 22 to 24 of the TM Law);
  • seeking damages (see Article 41(1) and (2) of the TM Law); and
  • filing an application with the Customs Department to prevent the entry of counterfeit goods (see Article 38 of the TM Law).

Of significance, a complainant should file a substantive action with the relevant court within 20 days of the granting of a precautionary order/injunctive relief.

Industrial designs are also protected (but not separately defined, strictly speaking) under the Patent Law in Kuwait. In this regard, Article 35 of the Patent Law provides that "any arrangement of lines or any type of figure, whether coloured or uncoloured, designed for use in industrial production by a mechanical, manual or chemical process shall be considered a design or industrial model" (informal translation). Although industrial designs are regulated similarly to patents, they are subject to certain different rules. For example:

  • the initial protection period for industrial designs is ten years from the application date; 
  • industrial designs may be renewed for one further period of five years; and
  • industrial models are registered with the PTO on the Register of Designs and Industrial Models.

Law No 75 of 2019 (the Copyright Law) governs copyright issues. Under the Copyright Law, a "work" is defined as "any creative literary, artistic or scientific work of whatever kind, expression, importance or purpose" (informal translation) and is protected under the Copyright Law. Article 23 of the Copyright Law provides that copyright protections will typically endure for the lifetime of the author and for 50 years after the author’s death; additional considerations may apply, depending on the nature of the work and the author involved (joint works, juristic entities, etc). Certain limited exceptions from the copyright protection are provided for (copying short portions for educational purposes, etc).

A party seeking to protect its copyright does not need to register the copyright locally in order for it to be granted protection under the Copyright Law; however, it may wish to apply and file a request with the Kuwait National Library (KNL) to deposit works sought to be protected in order to enhance their ability to evidence the author’s entitlement to copyright protection. The KNL is authorised to accept applications for the deposit of works from authors or creators, their descendants or their official representatives. Only one classification of work will be allowed for each application. If the material is accepted for deposit, the KNL will classify the material and issue a certificate indicating the serial number, the date of deposit and an international classification.

Under Article 35 of the Copyright Law, a complainant may petition a court to grant interim relief (an order restricting the publication, presentation, performance or copying of the work for a certain period of time, seizure of the revenue generated from the exploitation of the work, etc) when there is a violation of any rights stipulated under the Copyright Law. Significantly, a complainant should file a substantive action with the relevant court within 15 days of the granting of the interim relief.

While certain laws protect trade secrets (eg, the Companies Law restricts directors from sharing company secrets, etc) there is no formal registry for such information. While a database can enjoy protection under the Copyright Law depending on its nature, the authorities have not issued a directive as to the basis on which software is protected. Depending on the type/format of the software, possible arguments can be made that it should be protected under copyright or as a patent. In this regard, the Copyright Law expressly provides for protection of "computer programs" but, as provided above, the Patent Law states that patents "shall be granted in accordance with the provisions of this Law for any new invention which is utilisable in industry, whether it concerns a new industrial product, original industrial process and techniques or a new application of know industrial process or techniques" (informal translation), and it is conceivable that certain software could also satisfy this language in the Patent Law.

While data protection is dealt with in various laws, Kuwait does not have a single and comprehensive data protection law as such. In the modern context, data protection issues are primarily addressed in Articles 32-36 of Law No 20 of 2014 (the Electronic Transactions Law). 

Under the Electronic Transactions Law, data may only be collected/utilised with the consent of the data subject. The parties that collect the data are legally required to state the purpose of the data collection and to limit collection/use of the data to the scope of such stated and approved purpose. Data subjects (or authorised representatives thereof) may request to view their data that has been collected, and data collectors are obliged to respond to data subjects’ requests. Parties that collect/use data are obliged to secure such data against loss, damage, disclosure, etc, and should regularly verify the accuracy of the data and amend such data as necessary. Data subjects may request that their data be deleted or amended if such data is untrue or inaccurate.

Companies that are doing business "in" Kuwait are typically required to abide by Kuwaiti laws, regardless of whether or not they have a physical presence in Kuwait; such laws include the Electronic Transactions Law. While this is decided on a case-by-case basis, the stronger the link between the activities of the foreign entity and Kuwait, the higher the likelihood that the foreign entity may be subject to Kuwait’s laws.

There is no particular agency in Kuwait that is specifically charged with and dedicated to enforcing Kuwaiti data protection rules. The agency that may have jurisdiction will depend on the specific data protection rules that are being contravened. However, all issues under the Electronic Transactions Law (including its data protection provisions) are regulated by the Kuwaiti Communication and Information Technology Regulatory Authority (CITRA).

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Law and Practice in Kuwait


ASAR - Al Ruwayeh & Partners is Kuwait’s leading corporate law firm, with a strong network of contacts throughout the MENA region. Its work cuts across various sectors and includes IPOs, capital markets, M&A, banking and finance, real estate, government projects, securities, taxation, construction, corporate and commercial matters, franchising, commercial litigation and arbitration. The firm has multilingual capabilities, including being able to provide services in English, Arabic and French. Its clients include a number of significant public and private sector entities based in Kuwait, Bahrain and elsewhere in the world (including in the United States, Europe and elsewhere in the GCC). ASAR is also regularly retained by leading international law firms and has won numerous awards for legal services rendered.