1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Kuwait reintroduced its national development plan in 2018 as NewKuwait. Key economic objectives in the plan include creating a business environment that will stimulate private sector growth and attract foreign investors. The Foreign Direct Investment Law of 2013 allows up to 100 percent foreign ownership in certain industries, including: infrastructure (water, power, wastewater treatment, and communications); insurance; information technology and software development; hospitals and pharmaceuticals; air, land, and sea freight; tourism, hotels, and entertainment; housing projects and urban development; and investment management. The law also established KDIPA ( ) to solicit investment proposals, evaluate their potential, and assist foreign investors in the licensing process. The government believes that providing greater access to the Kuwaiti market will encourage foreign companies to invest in the private sector elements of the Northern Gateway/Five Islands and other projects that constitute the NewKuwait development plan.
In 2015, KDIPA delivered its first investment license to IBM, allowing the company to establish a 100 percent foreign-owned company in Kuwait and to benefit from the incentives and exemptions granted under the new law. Since then, KDIPA has granted foreign ownership licenses to 28 additional foreign firms, including U.S. companies GE, Berkeley Research Group, Malka Communications, Maltbie, and McKinsey & Company.
U.S. companies operate successfully in the country. American engineering firms such as Fluor have participated in large infrastructure development projects, including the USD 16 billion Al-Zour Refinery and Clean Fuels Project. Dow Chemical Company participates in several joint ventures in the petrochemical industry. General Electric is a major vendor to power generation and desalination facilities. Citibank operates a branch in Kuwait City. Numerous franchises of U.S. restaurants and retail chains operate successfully.
Limits on Foreign Control and Right to Private Ownership and Establishment
The Companies Law No. 1 of 2016 simplified the process for registering new companies and has helped to reduce wait-times associated with starting a new business. This law maintained the requirement that a Kuwaiti or GCC national own at least 51 percent of a local company. If non-GCC investors qualify to invest through the Kuwait Direct Investment Promotion Authority , this requirement may be waived. In 2017, the law was amended to eliminate prohibitive requirements placed on limited liability companies.
Council of Ministers Decision No. 75 of 2015 directs KDIPA to exclude foreign firms from sensitive sectors. Sensitive sectors include: extraction of crude petroleum, extraction of natural gas, manufacture of coke oven products, manufacture of fertilizers and nitrogen compounds, manufacture of gas, distribution of gaseous fuels through mains, real estate, security and investigation activities, public administration, defense, compulsory social security, membership organizations, and recruitment of labor.
Other Investment Policy Reviews
In the past three years, no investment policy reviews on Kuwait were conducted by the Organization of Economically Developed Countries, the World Trade Organization (WTO), or the United Nations Conference on Trade and Development.
Kuwait’s ranking in the World Bank’s Doing Business Index improved to 133 (from 149) out of 190 for Starting a Business in 2019. The World Bank’s Doing Business project lists the steps required to start a business in Kuwait in the following link: ( ).
Its time-to-complete estimates may be optimistic, as anecdotal reports indicate that starting a new business in Kuwait can take up to a year. The government has been working with the World Bank to resolve doing business issues in Kuwait.
In 2016, the Ministry of Commerce and Industry (MOCI) inaugurated the Kuwait Business Center (KBC) (visit website: ) to facilitate the issuance of commercial licenses and to start limited liability and single owner companies within 3-5 working days. However, the business center has encountered challenges in coordinating interagency cooperation. The government outlines steps for starting a business in the following website: .
KDIPA also established a unit to streamline registration and licensing procedures for qualifying foreign investors. Its goal is to approve licenses within 30 days of the completed application.
The April 2013 Law No. 98 established the National Fund for the Support and Development of small- and medium-sized enterprises, which it defines as enterprises that employ up to 50 Kuwaitis and require less than Kuwaiti Dinars (KD) 500,000 in financing. Financing is limited to enterprises established by Kuwaiti citizens. During FY 2017/18, the National Fund approved 350 project applications, including applications for 137 industrial projects.
The government neither promotes nor restricts outward private investment. The largest, single outward investor is the country’s Future Generations sovereign wealth fund, managed by the Kuwait Investment Authority (KIA). By law, however, KIA may not disclose the total amount of its investments. In 2018, the Sovereign Wealth Fund Institute estimated that KIA managed USD 592 billion in assets, which would make it the fourth largest sovereign wealth fund in the world. Kuwaiti officials have indicated that KIA has invested more than USD 300 billion in the United States across a wide portfolio. The press has reported that KIA holds a significant interest in the New York City Hudson Yards project, one of the largest private redevelopment projects in U.S. history. Another large Kuwaiti investment involves MEGlobal, a subsidiary of Equate, which is a partnership between Kuwait’s Petrochemicals Industries Company and Dow Chemical Company. MEGlobal is building a billion-dollar monoethylene glycol production facility in Texas, which is scheduled to be completed by the end of 2019. Individual Kuwaitis have found investments in U.S. securities and real estate attractive.
3. Legal Regime
Transparency of the Regulatory System
Kuwait does not have a centralized online location where key regulatory actions are published akin to the Federal Register in the United States. The regulatory system does not require that regulations be made available for public comment. The government frequently passes draft regulations to interested parties in the private sector, such as the Kuwait Chamber of Commerce and Industry or the Bankers Association, for comment.
The State Audit Bureau reviews government contracts and audits contract performance, but does not publicly share its results.
Kuwait does not participate in the Extractive Industries Transparency Initiative (EITI), nor does it incorporate domestic transparency measures requiring the disclosure of payments made to other governments related to the commercial development of oil, natural gas, or mineral deposits. However, the Kuwait economy is almost wholly dependent upon oil, the extraction of which is deemed a responsibility of the government and that is subject to close National Assembly oversight.
International Regulatory Considerations
Kuwait joined the General Agreement on Tariffs and Trade (GATT) in 1963 and became a founding member of the WTO in 1995. However, Kuwait is not a signatory to every WTO plurilateral agreement, such as the Agreement on Government Procurement. In April 2018, Kuwait deposited its Trade Facilitation Agreement instrument of ratification with the WTO after Kuwait’s National Assembly approved the Agreement the previous month.
Kuwait has been part of the GCC since its formation in 1981. The GCC launched a common market in 2008 and a customs union in 2015. The GCC continues to forge agreements on regional standards and coordinate trade and investment policies. American standards and internationally recognized standards are typically accepted. For more information regarding GCC standards and policies, please refer to the following website (link to GCC website):
Legal System and Judicial Independence
Kuwait has a developed civil legal system, based in part on Egyptian and French law and influenced by Islamic law. Having evolved in a historically active trading nation, the court system in Kuwait is familiar with international commercial law. Kuwait’s judiciary includes specialized courts, including a commercial court to adjudicate commercial law. Residents who are not Kuwaiti citizens involved in legal disputes with citizens have frequently alleged the courts tend to show bias in favor of Kuwaiti citizens. Holders of legal residence have been detained and deported without recourse to the courts.
Persons who have been charged with criminal offenses, placed under investigation, or are involved in unresolved financial disputes with local business partners have in some cases been subjected to travel bans. Travel bans are meant to prevent an individual from leaving Kuwait until a legal matter is resolved or a debt settled. Travel bans may remain in place for a substantial period while the case is investigated, resolved, and/or prosecuted. Failure to repay a debt can result in a prison term ranging from months to years, depending upon the amount owed.
U.S. firms are advised to consult with a Kuwaiti law firm or the local office of a foreign law firm before executing contracts with local parties. Fees for legal representation can be very high. Contracts between local and foreign parties serve as the basis for resolving any future commercial disputes. The process of resolving disputes in the Kuwaiti legal system can be subject to lengthy delays, sometimes years, depending on the complexity of the issue and the parties involved. During these delays, U.S. citizens can be deprived of income streams related to their business venture and be forced to surrender assets and ownership rights before being allowed to depart the country. Sentences for drug-related convictions can include lengthy prison terms, life sentences, and even the death penalty.
Laws and Regulations on Foreign Direct Investment
In an attempt to diversify the economy by attracting foreign investment and growing private sector employment, Kuwait passed a new foreign direct investment law in 2013 permitting up to 100 percent foreign ownership of a business – if approved by the Kuwait Direct Investment Promotion Authority (KDIPA). Without KDIPA approval, all businesses incorporated in Kuwait must be 51 percent-owned by Kuwaiti or GCC citizens and seek licensing through the Ministry of Commerce and Industry. In reviewing applications from foreign investors, KDIPA places emphasis on creating jobs and the provision of training and education opportunities for Kuwaiti citizens, technology transfer, diversification of national income sources, increasing exports, support for local small- and medium-sized enterprises, and the utilization of Kuwaiti products and services. KDIPA has sponsored 29 foreign firms, including six U.S. companies. In addition to KDIPA assistance in navigating the bureaucracy, available investment incentives include tax benefits, customs duties relief, and permission to recruit required foreign labor. Government control of land limits its availability for development.
Other recent legal measures to facilitate foreign direct investment and economic growth include Law No. 116 of 2014 regarding public-private partnerships (PPP) and a new Companies Law No. 1 of 2016. The PPP law created the Kuwait Authority for Partnership Projects [see: ].
Competition and Anti-Trust Laws
Kuwait’s open economy has generally promoted a competitive market. In 2007, the government enacted the Protection of Competition Law No. 10 and by-laws in 2012 that facilitated the establishment of a Competition Protection Bureau to safeguard free commerce, ban monopolies, investigate complaints, and supervise mergers and acquisitions. However, as of April 2019, the Competition Protection Bureau was still not fully operational. U.S. investors have alleged instances of discrimination.
The Commercial Agency Law No. 13 of 2016 removed exclusivity, enabling foreign firms to have multiple agents to market their products.
In 2016, the National Assembly passed a new Public Tenders Law No. 49. All bids on government-funded infrastructure projects (excluding military and security tenders) in excess of KD 75,000 (USD 250,000) must be submitted to the Central Agency for Public Tenders. The law requires that foreign contractors bidding on government contracts purchase at least 30 percent of their inputs locally and award at least 30 percent of the work to local contractors, where available. The law favors local sourcing by mandating a 15 percent price preference for locally- and GCC-produced items, however this provision may be waived on a case-by-case basis.
Expropriation and Compensation
Kuwait has had no recent cases of expropriation or nationalization involving foreign investments. The 2013 Foreign Direct Investment Law guarantees investors against expropriation or nationalization, except for public benefit as prescribed by law. In such cases, investors should be compensated for the real value of their holdings at the time of expropriation. The last nationalization occurred in 1974.
ICSID Convention and New York Convention
Kuwait is a signatory to the International Center for the Settlement of Investment Disputes (ICSID Convention) and to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
The FDI law stipulates that Kuwaiti courts alone are responsible for adjudicating disputes involving a foreign investor, although arbitration is permitted. Few contracts contain clauses specifying recourse to traditional commercial arbitration. The Kuwaiti judicial system recognizes and enforces foreign judgments only when reciprocal arrangements are in place.
International Commercial Arbitration and Foreign Courts
The recognition and enforcement of foreign arbitral awards occurs more expeditiously than the enforcement of foreign judgments. Enforcement of the former, however, must meet with the same reciprocity and procedural criteria of enforcing foreign judgments under Articles 199 and 200 of the Civil and Commercial Procedure Code No. 38 of 1980. Accordingly, an award passed by a foreign arbitral panel or tribunal may be enforced in Kuwait provided that: a) the country where the award has been rendered is a member of the New York Convention; b) the foreign award is rendered by a competent arbitrator in accordance with the laws of the country in which it was awarded; c) the parties have been promptly summoned to appear and duly represented before the arbitral tribunal; d) the award must become a res judicata according to the laws of the country in which it was awarded; and e) the award must not be in conflict with an ordered judgment that has been rendered by a local court in Kuwait and additionally does not contradict mandatory provisions or constitute criminal conduct, or violations to morality or public policy, under Kuwaiti laws.
Alternative Dispute Resolution (ADR) mechanisms include conciliation, negotiation, and mediation. These mechanisms depend on the parties’ goodwill to settle their disputes with or without the help of a third party.
Law No. 11 of 1995 on Judicial Arbitration for Civil and Commercial Articles, the relevant organizing and explanatory Ministerial Resolutions thereof, and Civil and Commercial Procedure Code No. 38 of 1980 outline the formation, operation, jurisdiction, and procedures of the arbitral panel, and the issuance of arbitral awards through the Kuwait Arbitration Center, located at the Kuwait Chamber of Commerce and Industry. They also define regulations for international conventions, free trade agreements, and the just application of the reciprocal clause between parties.
Bankruptcy is still governed under Law No. 68 of 1980, which does not meet international standards in covering the full range of companies, or in restructuring debt. While the 1980 law does not criminalize bankrupt individuals, indebtedness may result in incarceration, and a bankruptcy declaration limits political rights. A bankrupt individual may not serve as a candidate or elector in any political position, be appointed to a public post or assignment, or serve as director or chairman in any company until the individual’s rights are reinstated in accordance with law. Kuwait is working with the World Bank to draft bankruptcy legislation designed to assist businesses to recover from financial difficulties as an alternative to liquidation. The Council of Ministers approved new legislation to support competition and create bankruptcy protections and sent it to the National Assembly, where as of April 2019 it was in committee.