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Kuwait
Company formation in brief
Pursuant to the Commercial Code of Kuwait, non-Kuwaitis may not do business in Kuwait unless they have a partner in Kuwait whose business share is at least 51 per cent.
A foreign company may not establish a branch office in Kuwait or do business in Kuwait, other than through a local agent in Kuwait.
A number of such market sectors as oilfield development, insurance and real estate transactions remain closed to foreigners. The only exception is made for citizens of the countries - members of the Gulf Cooperation Council.
A foreign investor may participate in companies of such organizational and legal forms as:
• private company limited by shares
• public company limited by shares
• partnership
• joint venture
Private company limited by shares must be registered in Kuwait trade register and is characterised as follows:
• minimum capital - KWD 7’500 (KWD 1 is approximately US$ 3.4);
• 20% of the charter capital is paid up at the time of registration, and the remaining part - within five years;
• company may have no less than two and no more than 30 shareholders (physical or legal persons), including one citizen of Kuwait. However, if shareholders include a spouse, there must be at least three shareholders;
• shareholder is limited in liability for the company’s obligations or debts only within his/her capital share in. However, if the number of shareholders at any time becomes less than the required minimum, the remaining shareholders have unlimited liability for the company's debts. If the number of shareholders is not increased up to the required minimum within a month from the date of violation of this requirement, the company is deemed dissolved in accordance with the law;
• company may issue registered shares of equal value of KWD 75;
• shareholders have pre-emptive rights to purchase shares if they are offered to third parties.
• company may not carry out insurance, financial and banking activities;
• company is managed by one or more directors whose names are specified in the Memorandum of Association or who are appointed at the general shareholders’ meeting. Directors have full powers to manage corporate affairs unless otherwise provided by the Memorandum of Association or shareholders decide to limit the powers;
• directors, as a rule, may not hold a managerial position in a competing company and enter into transactions that are contrary to the company’s interests or competing with its operations;
• directors are responsible for unprofessional corporate governance and for any violations of the law or the Memorandum of Association;
• company with more than seven shareholders forms a supervisory board composed of at least three members. The supervisory board's responsibilities include reviewing books of account, overseeing profits distribution and filing annual financial statements. The supervisory board makes its performance report at the general shareholders’ meeting to be held at least once a year;
• shareholders holding at least 25% of the company’s capital may convene general shareholders meetings. Most decisions at the general shareholders’ meeting shall be taken by voting unless otherwise provided by the Memorandum of Association. Amending the Memorandum of Association and reducing or increasing the charter capital may be made by a decision of the shareholders’ majority holding at least 75% of the company's shares;
• company must have at least one auditor.
Public limited liability company must be registered in the Kuwait Trade Register and is characterised as follows:
• minimum capital - KWD 37’500;
• 20% of the capital must be paid up at the time of registration, and the remaining part - within five years;
• company must have at least five shareholders (physical and/or legal persons);
• company may issue registered shares with the value from KWD 1 to KWD 75.
• shareholders are fully entitled to sell shares to third parties but shareholders - Kuwaiti citizens may not sell their shares to foreigners;
• founding shareholders may sell their shares either after three years from the date of incorporation or after the distribution of at least five percent of dividends. Other shareholders may transfer their shares at any time after preparation of the first financial statement or one year after the commencement of operations;
• bearer shares may not be issued;
• company may carry out insurance, financial and banking activities but foreign participation in the company may not exceed 40%;
• company is managed by at least three directors whose term of office may not normally exceed three years. Directors are required to be the company’s shareholders holding at least 1% of the capital;
• the same person may not be a member of the Board of Directors of more than three joint-stock companies in Kuwait or a managing director or the chairman of more than one joint-stock company;
• directors are responsible for unprofessional corporate governance and for any violations of the law or the Memorandum of Association;
• directors are elected by secret ballot of shareholders. Foreign founders may appoint their representatives to the Board of Directors pro rata to their shareholdings in the capital. A foreign founder is responsible for the activities of the directors appointed by him;
• directors may not have a personal interest in the corporate affairs;
• directors may not be involved in the management of a competing company without the general meeting’s approval;
• director may earn no more than 10% of net profit after allocation to necessary reserves, depreciation and distribution of dividends of no less than 5%;
• company sets up the supervisory board composed of at least three members. The supervisory board's responsibilities include reviewing books of account, overseeing profits distribution and filing annual financial statements. The supervisory board makes its performance report at the general shareholders’ meeting to be held at least once a year;
• company must have at least one auditor.
Two or more physical persons, including at least one Kuwaiti citizen, may establish both an unlimited partnership and a limited partnership in Kuwait. Kuwait's share in the partnership’s capital may be no less than 51%.
In unlimited partnership, each partner bears unlimited liability for the partnership’s debts. A partner may transfer his share to a third party in accordance with the Memorandum of Association and only upon all partners’ consent.
Unlimited partnership is managed by at least one manager whose powers are regulated by the Memorandum of Association. Non-managing partners may not participate in the partnership management but may check the books of accounts and other records.
Limited partnership may be established in Kuwait as a partnership issuing shares or not issuing shares.
A partnership not issuing shares is established by at least one general unlimited partner and at least one limited partner. The partnership operates pursuant to the same regulations that apply to unlimited partnership, but limited partners may not act as managers. Kuwait must have at least 51% share in a limited partnership’s capital and at least one of its general partners must be a Kuwaiti citizen.
The capital of a partnership issuing shares is represented in the form of shares. The partnership operates pursuant to the same regulations that apply to partnerships of other types, and its partners’ activities are regulated by the rules applicable to joint-stock company shareholders, as mentioned above.
Joint venture is not an independent legal entity in Kuwait; it is a contract between at least two entities which, in their turn, are divided into parties doing active business and parties being passive investors of the JV. Joint venture does not need to be formally established and registered in Kuwait.
Entities doing active business on their own behalf in the JV interests bear unlimited liability for their obligations to third parties. The liability of passive investors doing no business is limited with their share in the JV capital. If a JV does business on its own behalf, all its parties assume joint unlimited liability.
In general, Kuwait has no currency restrictions, and the Kuwaiti Dinar is a freely convertible currency.
Physical and legal persons with 100% Kuwaiti participation are not subject to taxation in Kuwait.
Companies with foreign capital doing business directly in Kuwait or through a local agent are taxed in Kuwait.
Net income tax is imposed in Kuwait at rates determined on a case by case basis and ranges from 5% to 55%.
Kuwait is not a tax heaven or offshore jurisdiction, and a concept of Kuwait tax exempt company (and/or Kuwait offshore company, International Business Company (IBC), trust, foundation etc. registration) does not exist in Kuwait as such. A company formation in Kuwait could be arranged with a professional registered agent providing incorporation, virtual office and other corporate services in Kuwait. To set up a company in Kuwait is possible by correspondence, but to open a bank account in Kuwait will, most probably, require a personal visit.
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