Breaking barriers: Kuwait’s legal evolution grants Foreign Companies direct market entry and branch establishment

Law Update – Law no. 1/2024

 

A groundbreaking amendment recently was introduced by Law no. 1/2024, which amended Article 24 of Law no.68/1980 (“Commercial Law“) and Article 31 of Law no. 49/2016 (“Public Procurement Law“), which went into force on 21 January 2024. The new law comes in response to the critical need to change the means of doing business in Kuwait to attract foreign investors and to foster a competitive environment among market players.

Amendment to Article 24 of the Commercial Law

The provisions of Article 24 of the Commercial Law has been replaced, and now provides “Without prejudice to the provisions of Article 23(1) of the Commercial Law, foreign companies may incorporate branches in Kuwait directly without using a Kuwaiti agent“. This constitutes a fundamental change to Article 24, which previously prohibited foreign entities from incorporating branches in Kuwait (unless incorporating a branch of a foreign entity under Law no. 116/2014 (“Foreign Direct Investment Law“)), or operating without a Kuwaiti agent.

Amendment to Article 31 of the Public Procurement Law

Law no. 1/2024 also replaced the provisions of Article 31 of the Public Procurement Law to remove the nationality requirement for bidders in a public or limited tender, or direct order, or competitive negotiations (“mumarasa”), whereas Article 31 previously provided that the bidder must be (1) a Kuwaiti individual or company that is registered in the commercial registry at the Ministry of Commerce and Industry, and (2) must be registered in the suppliers or contractors register or according to the nature of the tender, mumarasa or direct contracting.

Furthermore, Article 31 of the Public Procurement Law goes on to provide that if a bidder is a foreign entity, the provisions of sub-article 1 (in other words, the bidder does not need to be registered in the commercial agency registry at the bidding stage) and  the provisions of Article 23 of the Commercial Law (set out above) do not apply.

Key takeaway points

While this is a major development in the Kuwaiti legal framework, foreign investors wishing to take advantage of the amendment of Article 23 of the Commercial Law should be aware that the amendment only permits incorporating a branch of the foreign entity. In a practical sense, this means that the branch will retain the legal personality and financial standing of the parent company. While the option to incorporate a branch of a foreign entity is also available under Foreign Direct Investment Law, we are yet to see the difference in the application of both laws which may include imposing a different set of requirements.

That being said, foreign entities still have the option to incorporate a subsidiary in Kuwait with a distinct legal personality, which allows foreign investors to ringfence the risks and liabilities of the subsidiary from the parent company or other companies in its structure. This may be done either in accordance with Article 24 of the Commercial Law, which allows the foreign entity to own up to 49% of the subsidiary’s shareholding with the remaining shareholding being owned by Kuwaiti shareholder(s), or Foreign Direct Investment Law which allows foreign entities to own up to 100% of the company’s shareholding.

Furthermore, in terms of public procurement, since Article 31 of the Public Procurement Law only addresses the bidding stage, the successful bidder may still be required to establish legal presence in Kuwait once a public contract is awarded. A foreign investor wishing to participate in public procurement in Kuwait is advised to consider the appropriate structure to carry out the awarded contract on project, taking into account the type and duration of the project, whether labour will need to be mobilized to Kuwait and whether equipment needs to be imported into Kuwait, etc.

Written by: Nadyn Saleh, Head of Commercial

Breaking barriers: Kuwait’s legal evolution grants Foreign Companies direct market entry and branch establishment Law Update – Law no. 1/2024   A groundbreaking amendment recently was introduced by Law no. 1/2024, which amended Article 24 of Law no.68/1980 (“Commercial Law“) and Article 31 of Law no. 49/2016 (“Public Procurement Law“), which went into force on […]