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Kuwait Snapshot
90%-95% of total export earnings and 40% of GDP Oil revenues |
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65% of the population under the age of 25 |
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90% of employees in the private sector currently non-Kuwaiti citizens |
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94% Kuwaiti workforce work in public sector |
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10% world's oil reserves
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865,000 of 2.2m population are Kuwaitis |
There are MP in the Parliament who argue that the real motivation of the government allowing more foreign ownership is the backhanders they will receive. The government took real steps to promote its reform program by appointing two ministers from outside the Royal family. The finance minister, Yusuf Ibrahim,
Kuwait has free direct elections for their 50-member parliament, but political parties are banned. The main executive posts are held by members of the ruling al-Sabah family which has been in power for more than two centuries.
Growth Prospects
The Kuwaiti government has launched Project Kuwait, a plan to attract foreign investment to the northern oilfields, but has now been on hold for twelve years. The government has also put in place a "Future Generations Fund", worth $50 billion.
Economic Reforms - Privatization
By 2005, Kuwait aims to begin privatizing such key sectors as utilities, ports, oil stations, and telephone service. Privatization is complicated by the need to protect the jobs of Kuwaiti citizens, who traditionally have been employed mostly (93%) by state-owned enterprises and the government.
Current and Projected Projects
Kuwait is hoping to receive many tenders related to the reconstruction effort in Iraq. A major project in progress is the Al-Zour desalination plant with a forty-eight million imperial gallon daily capacity. It will boost Kuwait's installed electric capacity to 11,680 MW when completed. Due to be completed 2004.
Build Operate Transfer
Although the Kuwaiti market is relatively small, franchising offers profitable opportunities. The population of 2.2 million have high disposable income and a strong inclination to buy American goods. Additionally, labor saving services are in demand. At present, most franchises are in fast food, with McDonald's being a recent arrival. US fast food franchises are highly sought after by local companies, and most of the major US fast food companies are already established in the market. A local sponsor is required to establish such operations. American firms dominate the fast food sector with the following franchises: Hardee's, Kentucky Fried Chicken, Burger King, Chicken Tikka, Wendy's, Pizza Hut, Subway and Baskin Robbins. Light competition in this sector comes from Pizza Italia and Wimpy. Opportunities exist for franchises in other areas such as: automotive service centers, beauty salons, testing centers, dry cleaning/laundry shops and photocopy stores. An example of a new franchise is the ACE Hardware store that opened recently in Kuwait.
The Kuwait franchise market is characterized as fiercely competitive. Japanese electronics and cars have a strong appeal to the Kuwaitis. Brands like National, Panasonic, Sanyo, Toshiba, N.E.C., Sharp, Toyota, Nissan, Datsun, Honda, and Subaru are examples of the heavy Japanese presence in the Kuwaiti market. Japan actually overcame the US in exporting to Kuwait in 1993. Similarly, British and German products and services enjoy a strong positive image in Kuwait.
Average growth in all franchise areas is expected to reach 25 percent, and, in some subsectors, it may reach 60 percent. Some franchises may, however, lose their appeal within ten years. Kuwaiti citizens have a tendency to change tastes often because they are frequent travelers and well aware of the latest fashions in Europe and the USA
Another major type of franchise in Kuwait is the car dealership, with almost all known automobile makes represented in Kuwait: Ford, Chrysler, GM, GMC, Cherokee Jeep (US); Volvo (Sweden); Mercedes, BMW, and Audi (Germany); Jaguar and Rolls Royce (UK) as well as the Japanese dealers noted above.
Among clothes franchises, Kuwait has attracted the British firms Mother Care and British Home Store (BHS). The market is ready for foreign franchises in the clothing and lingerie areas.
In education, the British Pitman Secretarial studies center has been in Kuwait for many years. An American educational center opened, and more educational and training firms could be accommodated in Kuwait.
There are a numbering of Memoranda of Understanding with neighboring states including Iran and Qatar for use of its natural gas pipeline.
Sector Overviews
Agriculture
Kuwait is almost totally reliant on food imports because water shortages restrict agricultural growth to only 0.3% of the total land area. Agriculture made up only 0.4% of Kuwait's total GDP in 2001. Despite its relatively low agricultural productivity, Kuwait does possess a prosperous aquaculture industry. The fish catch off of Kuwait's coastline averages about eight thousand metric tons annually. Moreover, since water is subsidized, the government is aiming at maximizing water use efficiency through the promotion of modern irrigation systems and the increase of productivity by introducing crop varieties that are better adapted to Kuwait's environment.
Energy
As of 2003, Kuwait is estimated to hold 96.5 billion barrels of proven oil reserves, about 9.2% of the world's total. Production capacity is estimated to be 2.5 million bpd. The Neutral Zone, which Kuwait shares with Saudi Arabia, claims an additional five billion barrels of reserves, half of which belong to Kuwait; most of Kuwait's oil reserves, however, are located in the 70 billion barrel Greater Burgan area, thought to be the world's second largest oil field. Oil production has averaged two million barrels per day (bpd). Kuwait exports the majority of its oil to Asia, particularly to Japan. The United States and Europe also receive Kuwaiti oil.
Since the first Gulf War, much of the production and refining industry has been restored. Currently, Kuwait intends to raise its capacity up to 3.5 million bpd by 2010.
As for the downstream sector, Kuwait's refining capacity was also severely damaged during the 1990 Gulf War; however, by 1997, the country's domestic refineries were operating close to their pre-war capacity of around 886,000 bpd. The government is planning to raise its refining capacity to almost one million bpd by 2005 by expanding capacity at the Mina al-Ahmadi complex and setting up a fourth refinery to meet future power sector demand. In addition, the Kuwait Petroleum Company (KPC) has invested in refineries in foreign countries, and is expanding its overseas downstream interests in hopes of controlling a combined European and Asian refining capacity of 700,000 bpd. The KPC is also planning the construction of a $2 billion, 184,000 bpd refinery in the eastern Indian state of Orissa and a 300,000 bpd facility in Thailand. Although the Kuwaiti constitution strictly prohibits foreign ownership of Kuwait's minerals, the government has been negotiating ways to involve foreign oil companies in increasing oil production. In 2001, the government shook up KPC, inserting reform minded board members as the government continues to work on negotiations to open northern oil fields to foreign partnerships, although this has faced stiff resistance in the National Assembly.
Further, new contracts signed in 2001 regarding the extension or expiring of the Neutral Zone concession in 2003 between Arabian Oil Company (AOC) of Japan and KPC may serve as models for future deals with foreign oil companies. The contracts set up a sharing and financing scheme, which avoids the ownership issue. In accordance with the Kuwaiti constitution which stipulates that underground resources belong to the state, the Arabian Oil Company will operate the oil field on behalf of the Kuwaiti government instead of owning drilling concessions as under the old agreement. However, it is unlikely that any international firms will be chosen to take part in the northern fields' expansion (Project Kuwait) before 2004.
Kuwait's current electricity capacity is about 9.3 gigawatts (GW). Meanwhile, power consumption in the country is growing at the rate of seven to nine percent per year, well above the world average of three to four percent. Consequently, this trend has become a threat to the 20 percent of reserve capacity that Kuwait maintains at its power plants.
In order to accommodate this increase, the Ministry of Electricity and Water has committed to three major projects. In late 2001, Kuwait's Ministry of Electricity and Water (MEW), approved construction of three power plants: 1) a 2,500 megawatt (MW), $2.2 billion thermal plant at Al- Subiya 2) a 2,500 MW steam turbine station at Al-Zour, scheduled to come online in late 2006, and to cost $1 billion; and 3) a 600 MW gas-fired plant in Shuaiba. Over the next 10 years, Kuwait reportedly will need to invest $3.6 billion in its power sector in order to increase generating capacity by another 3,000 MW.
Banking & Finance
The Kuwaiti banking sector consists of seven commercial banks that are closely held by the government and merchant families, constituting a total of 125 branches. The preeminent bank is the National Bank of Kuwait, which at the start of 2003 had 36 branches. There are also three specialized banks that provide medium and long-term financing, and four representative offices of foreign banks. The Industrial Bank of Kuwait helps in financing industrial and agricultural projects, while the Kuwait Real Estate Bank helps finance property lending. The role of the Credit and Savings Bank is to lend Kuwaiti individuals financial support for housing and personal residential development.
The Bank of Bahrain and Kuwait was also established as a foreign joint-venture bank. The Kuwait Finance House is a commercial bank that carries out Islamic financial transactions. These institutions have come under the supervision of the Central Bank of Kuwait since it took on a serious regulatory role in 1984. The banking sector has also been opened to outside participation and in 2001 a stake in Bank of Kuwait & The Middle East was sold to the Bahrain-based Ahli United Bank.
Kuwait also uses a number of financial institutions to attract investment. The Gulf Investment Corporation, formed by an association with the Gulf Cooperation Council (GCC), promotes direct investment by encouraging joint ventures in the industrial sector with equity and debt funding. There are also Islamic investment groups, The International Investor (TII) and the International Investment Group, which cater to US companies by providing customized financial services and products. The insurance sector is currently controlled by three companies - Al-Ahlia, Warba, and the Kuwait Insurance Company.
The Kuwait Stock Exchange (KSE) was launched in 1977. Suspended during the Gulf War, the stock exchange was reopened in September 1992, and in 2003 features 108 companies in total. The KSE is comprised of 93 Kuwaiti businesses, 10 foreign companies, and 5 mutual funds. In 2000, Kuwait's parliament passed a law allowing foreign investors from outside the GCC to invest in the KSE. It is hoped that this move will improve the bourse's performance in the long-term.
Industry & Manufacturing
The manufacturing sector has recovered rapidly since the Gulf War, significantly outpacing the construction, transportation, and finance sectors. The principal products of the manufacturing sector are oil-related. Historically, Kuwait's Petrochemical Industries Company (PIC) has mainly manufactured low-value products, such as ammonia, urea, and fertilizer for exports, but the company is now beginning to move towards the production of higher-value products, like polypropylene.
The EQUATE joint venture, involving PIC and US-based Union Carbide, is the region's largest petrochemical project. The $2 billion industrial complex at Shuaiba includes a 650,000 metric tons per year (mtpy) ethylene cracker, two polyethylene units with a capacity of 450,000 mtpy, and a 350,000 mtpy ethylene glycol plant, all of which came on line in 1997. In 2001, Kuwait Petrochemical Industries approved a second petrochemical project worth approximately $1.5 billion. Equate II, as the complex is called currently produces olefin. Kuwait also exports products mainly to Saudi Arabia, the United Arab Emirates, and East Asia.
In recent years, the build-operate-transfer (BOT) has become a favored method for financing infrastructure projects. The Sharq development on the waterfront of Kuwait City was the first project carried out on a BOT basis in Kuwait. After the successful completion of a complex including shops, restaurants, a marina, a cinema, and a fish market, the municipality is pressing ahead for further extensions. The Sulaibiya Waste Water Treatment BOT contract was signed in 2001. The winning consortium, which includes US firms, projects revenues of $390 million over 10 years. The 30-year concession will include a wastewater treatment plant with a capacity of 250,000 cubic meters per day (cmpd) and a reverse osmosis unit to produce water for industrial or commercial use.
Stock Market
Kuwait stock market is the second largest in the Middle East in terms of capitalization. Capitalization of the KSE as of the end of September 2003 stood at $54.6 billion. It is the top performer among all Arab stock markets this year. This represents a rise of 90% in the course of the year.
Business Forms and Structures
Companies Law
The Commercial Companies Law No. 15 of 1960, as amended, and the Commercial Law No. 68 of 1980, which contains provisions of particular significance to foreigners, regulate the various types of business organizations that can be established in Kuwait.
Articles 23 and 24 of the Kuwaiti Commercial Code state the basic premises for practicing business in Kuwait. Article 23 provides that non Kuwaitis cannot engage in commerce in Kuwait without having a Kuwaiti partner whose equity holding is at least 51 percent. Article 24 provides that a foreign company cannot establish a branch in Kuwait and may not engage in commercial activities in Kuwait except through a Kuwaiti agent.
Furthermore, specific sectors of the economy remain closed to foreign investment, including upstream oil development, insurance, and real estate, with some limited exceptions for citizens from GCC states.
The following types of organizations are available under Kuwait law: (1) Limited Liability Company; (2) Joint Stock Company; (3) General Partnership; (4) Limited Partnership; and (5) Joint Venture.
With the exception of the joint venture, all these forms of incorporation are endowed with independent legal personality.
As a general rule, the Kuwaiti Commercial Companies Law requires all business forms to have at least 51 percent Kuwaiti participation. In addition, the Commercial Companies Law provides that foreigners may engage in a business or trade in Kuwait only through a business structure in which at least 51 percent of the capital is Kuwaiti.
Foreigners wishing to conduct business in Kuwait may find it easier to do so following recent changes to the Commercial Companies Law. This legislation, enacted in 1992 and amended, allows holding companies to be created to hold stock or shares in and to participate in establishing Kuwaiti or foreign limited liability companies. Holding companies are also entitled to grant loans or guarantees to such limited liability companies as well as to manage such companies, hold industrial and intellectual property rights, grant licenses thereto and own moveable and immovable property.
Limited Liability Companies
The limited liability company is the form of incorporation which most resembles the private limited company of Western terminology. Such a company is simple to establish and to operate and, therefore, is popular with foreign investors. A limited liability company is formed by applying for a Memorandum of Association to be entered into the Commercial Register, a process which may last three months.
The limited liability company acquires legal personality only upon being registered in the Commercial Register. The original life-span of the limited liability company may be up to twenty-five years, but the members may decide to extend its life for an unlimited period. A minimum of two and a maximum of thirty members, of which one must be Kuwaiti, is required. If the members include a husband and wife, however, then a minimum of three members is required. Until recently, all the members were required to be individuals. Law No. 28 of 1995 which amended the Commercial Companies Law allows companies to participate in establishing a limited liability company. Article 191 of the Companies Law provides that at least 51 percent of a limited liability company shareholding must be owned by a Kuwaiti citizen. The limited liability company may not be used for insurance, finance and banking activities.
The capital is divided into shares of equal value with a minimum of KD 7,500. Shareholders have a right of first refusal over shares offered for sale by other shareholders.
The limited liability company is managed by one or more directors, named in the Memorandum or appointed by the general meeting of shareholders. The directors have full authority to obligate the limited liability company, unless the Memorandum provides otherwise or the shareholders vote to restrict this authority. Holding an office in a rival company or a company with similar objectives as well as entering into transactions which compete with or are similar to the company's business is prohibited unless authorized by the shareholders.
Directors are personally liable to the company, the shareholders and third parties for any mismanagement, breach of law or violation of the company's Memorandum. The directors report to the general meeting of shareholders.
A limited liability company with more than seven shareholders must have a Supervisory Board consisting of at least three members. The duties of the Supervisory Board are to review the company's balance sheet, the distribution of profits and the annual report. The Supervisory Board reports on these matters to the general meeting of shareholders.
The general meeting of shareholders is obliged to require reports from the Supervisory Board and the Supervisory Board must convene a general meeting of shareholders at least once a year. Members holding at least 25 percent of the capital may also convene general meetings. Most resolutions of the general meeting are decided by majority vote, unless the Memorandum provides otherwise. To amend the Memorandum as well as to decrease or increase the capital a special majority of the shareholders holding 75 percent of the shares of the company is required.
A limited liability company is required to have at least one auditor to be appointed by the general meeting of shareholders. The auditor is responsible for the accuracy of the financial reports submitted to the general meeting regarding the company's accounts. The balance sheet must be sent to the Ministry of Commerce where it is open to public inspection.
The dissolution of a limited liability company is obligatory upon any of the following: expiry of the company's term; completion of its stated objectives or purpose; declaration of insolvency; or a court order for winding up.
A shareholder of a limited liability company is liable for the obligations or debts of the company only to the extent of such shareholder's share in the company's capital. If the number of shareholders drops below the statutory minimum at any time, however, the remaining shareholders are liable to the full extent of their assets for the obligations of the company. If the minimum number of shareholders is not satisfied within one month of when the requirement failed to be met, the company shall be deemed dissolved as a rule of law.
Joint Stock Companies
The joint stockcompany the Kuwaiti corporate form which most resembles the public company in Western terms. All shares are negotiable, and shareholders are liable for the joint stock company's obligations only to the extent of the nominal value of their shares. A joint stock company may offer its shares to the public or remain a closed company. If the company deals in banking, insurance or finance activities, foreign ownership may not exceed 40 percent.
A joint stock company whose shares are offered to the public is formed by preparing and submitting a Memorandum and Articles of Association along with an application for a decree authorizing incorporation to the Ministry of Commerce and Industry. At least five founders must be registered. If the decree authorizing incorporation is granted, the company acquires legal personality as of the date of the decree, which must be published in the Official Gazette.
The founders must subscribe for at least 10 percent of the capital, which must be paid for before public subscription starts; a minimum of 20 percent of the capital must be paid for upon incorporation. Subscriptions are conducted through approved banking institutions.
Within thirty days of the completion of the public subscription, a general meeting of shareholders must be held to elect the initial members of the board and approve the founders' report on the corporation. Following this meeting the joint stock company must be entered in the Commercial Register.
A closed joint stock company, the shares of which are not offered to the public, does not require a decree authorizing incorporation. The incorporation documents must contain a declaration that the founders have subscribed for all the shares. The founders are required to pay at least 20 percent of the nominal value of their shares upon incorporation and the remainder within the next five years.
The general rule is that all the capital of a joint stock company must be Kuwaiti owned. If the need for foreign investment or experience arises, however, up to 49 percent of the capital of a joint stock company may be foreign owned provided that authorization is obtained from the Ministry of Commerce and Industry.
A minimum investment of KD 37,500 is required to establish a public joint stock company, and a minimum of KD 7,500 is required to establish a closed joint stock company. The capital must be divided into equal value shares having a minimum nominal value of KD 1 and maximum nominal value of KD 75. Shares may be issued at a premium but not at a discount. Shares may be sold, pledged or otherwise disposed of, but such transactions are effective only when they have been entered in the company's register of shareholders. Kuwaiti shareholders may not sell to foreigners. Founders may transfer their shares after the lapse of three years from the date of incorporation or after a dividend of at least five percent has been distributed. Other shareholders may transfer their shares at any time after the company has issued its first balance sheet or one year following the commencement of operations. Bearer shares may not be issued.
By resolution of the general meeting, a joint stock company may issue bonds by public subscription, thus entitling the holders to receive fixed interest amounts payable on fixed dates. The subscribed capital of the joint stock company must be paid in full prior to opening subscription of the bonds. The total value of the outstanding bonds may not exceed the subscribed share capital. A general meeting of bondholders must be held for each bond issue in order to safeguard the rights of the bondholders. Representatives of the bondholders' may attend but not vote in general meetings of the shareholders.
The board of directors of a joint stock company must consist of at least three members whose terms of office may not exceed three years but whose appointment may be renewed for successive terms. Directors are required to hold at least 1 percent of the capital. A person may not serve on more than three boards of Kuwaiti joint stock companies or be a managing director or chairman in more than one joint stock company.
Directors are elected by the shareholders by secret vote. Foreign organizations may designate representatives to the board in proportion to their holdings, and such representatives have the same rights as elected directors; the organization which appointed them is held responsible for their acts.
The authority, restrictions and liabilities of the board members of a joint stock company are similar to those of board members in a limited liability company.
Directors are prohibited from having any personal interest in the company's transactions, and they may not take part in the management of a rival company without the approval of the general meeting.
Remuneration paid to directors may not exceed 10 percent of net profits after deducting required reserves, depreciation and a dividend of at least 5 percent.
A general meeting must be convened at least once every year. In addition, the board must convene a general meeting of shareholders upon the request of shareholders holding at least 10 percent of the capital. Quorum at a general meeting is satisfied when shareholders holding at least 50 percent of the capital are present. Resolutions are decided based on simple majority vote.
Certain matters require extraordinary resolutions of shareholders holding at least 75 percent of the shares, such as amending the incorporation documents, selling the entire operation, winding up or merger, and reducing capital.
Other matters such as increasing financial liability of shareholders, increasing the nominal value of the shares, reducing the dividends specified in the Articles, setting new conditions on shareholder participation and voting at the general meeting or restricting the shareholder's right to sue directors require a unanimous vote.
The rules regarding the appointment of an auditor and dissolution are similar to those of a limited liability company.
Partnerships
Two or more persons, at least one of whom must be a Kuwaiti national, may form a partnership. Each partner is fully liable for the partnership's debts. The general partnership is established by preparing and registering with the Commercial Registrar a Memorandum and Articles of Association. Amendments to the Memorandum and Articles require unanimous approval of all the partners. The general partnership acquires legal personality only upon registration, but third parties may consent that the partnership existed prior to its registration.
Each partner must contribute to the capital, and at least 51 percent of the capital must be owned by a Kuwaiti national. Transfer of a partner's share is subject to the provisions of the general partnership's Memorandum and Articles or to the consent of all the partners.
The general partnership must have at least one manager whose authority is specified in the Memorandum and Articles. Partners who are not managers may not take part in the management of the partnership, but have the right to inspect the general partnership's books and records.
The partnership is terminated upon the following: its term of existence expires and has not been extended; the objective for which it was established has been achieved; it loses all or most of its assets; court order; unanimous decision of the partners; or the bankruptcy of the partnership or one of its members. If a partner is declared bankrupt, however, the remaining partners may elect to continue the general partnership without the bankrupt partner with the stipulation that one of the remaining parties be a Kuwaiti national.
Limited Partnerships
There are two types of limited partnerships, a regular limited partnership and a limited partnership limited by shares.
A regular limited partnership has at least one general partner, whose liability for the obligations of the limited partnership is unlimited and at least one limited partner whose liability for the obligations of the limited partnership is limited to the extent of his investment in the limited partnership. The regular limited partnership is generally governed by the same that applyto a general partnership, subject to the following conditions: limited partners are limited to serving as supervising managers; they can exercise authority within sanctioned limits; and they may advise the management. Any other format participation in the management by a limited partner may result in his liability to third parties.
The Kuwaiti share in a limited partnership must be at least 51 percent and at least one general partner must be Kuwaiti.
The limited partnership limited by shares is governed by similar rules. Additionally, the capital of a limited partnership limited by shares must be divided into shares. Any specific provision in the partnership’s incorporation documents may also restrict its activities. The position of the limited partners is governed by the rules relating to shareholders in a joint stock company as described above.
Joint Ventures
Under Article 59 of the Kuwaiti Company Law joint ventures are a contractual type of partnership relationship between at least two persons, which has no independent legal personality and requires no formal establishment procedures. As a joint venture has no independent legal personality; actions for the joint venture are undertaken by the venturers. Thus, a venturer transacting for the joint venture bears unlimited liability toward third parties for such transaction. The liability of a nontransacting venturer is limited to his share in the joint venture. If the transacting venturer is a non-Kuwaiti, then the Kuwaiti venturer must serve as the non-Kuwaiti’s guarantor in that transaction. In the event a joint venture were to deal with third parties in its own name, the effect would be to expose all of the joint venturers to unlimited, joint and several liability, regardless of whether a particular venturer was personally involved in the specific transaction.
Branch Offices
Foreign businesses are not allowed to establish branch offices in Kuwait. Therefore, in order to transact business in Kuwait, a foreign company must appoint an agent or representative or cooperate with a Kuwaiti partner in establishing a corporate entity in which the Kuwaiti holds at least 51 percent.
Commercial Agency and Representation
Since foreign businesses may not open branch offices in Kuwait, they must resort to appointing commercial agents or representatives to transact their business in Kuwait unless they choose to cooperate with a Kuwaiti national to establish another kind of corporate entity. Foreign businesses carrying out government work must appoint a service agent or sponsor. There are no express provisions governing service agents or sponsors, however, the rules governing commercial agents are applied by analogy.
Commercial Agency
Commercial agencies are regulated by Law No. 36 of 1964 or the Regulation of Commercial Agencies, and the Kuwaiti Commercial Code, Chapter 5, Articles 260-296. Law 36 provides that only Kuwaiti nationals may act as commercial agents in Kuwait. The relationship between the Kuwaiti agent and the foreign principal must be direct, and commercial agencies are not enforceable unless registered in the Commercial Register.
The Kuwaiti law defines three types of agencies:
The Contractual Agency: In a contractual agency, the local agent agrees to promote the principal’s business on a continuous basis in a specified territory and to enter into transactions in the principal’s name in return for a fee. The contract must be in writing and must indicate the territory covered, the agent’s fee, the term, the product or service that is the subject of the agency, and any relevant trademarks. If the agent is required to set up showrooms, workshops or warehouse facilities, the term of the contract must be no less than five years.
The Distributorship: Under this type of agency, the local agent is the distributor of the principal’s product in return for a percentage of the profits.
Only Kuwaiti nationals or Kuwaiti corporate entities may act as distributors. In order for a corporate entity established in Kuwait to be deemed a Kuwaiti corporate entity for purposes of acting as a distributor, it must have Kuwaiti participation of at least 51 percent. The principal must directly enter into a contract with the distributor in a contract which provides for the appointment of the distributor and which limits the distributor's activity to promoting and to distributing the principal's products. Distributors bear their own business expenses. If the distributor is to incur the expense of building special facilities, such as a showroom or a repair and maintenance facility, then the distributorship term must be established for a minimum of five years. Distributorships need not be exclusive as a practical matter.
The Commission Agency: This agency is provided for in Articles 287 through 296 of the Commercial Code. In this type of agency, the agent enters into contracts in the agent’s own name. The principal’s name may not be disclosed without the principal’s permission, however, this rule is difficult to adhere to in practice since most manufactured products bear the principal’s name.
The following protective legislative measures are designed to protect the local agent:
Commercial agencies must be registered in order to be enforceable.
Kuwaiti law is the governing law in matters pertaining to public policy.
The principal may not terminate the agreement without proving breach of contract by the agent; unless the principal pays compensation to the agent.
The principal may not refuse to renew the agency agreement when it expires without paying the agent equitable compensation for nonrenewal if the agent proves that he has committed no breach and that his activities led to the successful promotion of the principal’s products.
The agent may sue both the principal and any new agent the latter may appoint in Kuwait if the termination is proved to be the result of their concerted action.
Commercial Representation
A commercial representative is a Kuwaiti individual or entity engaged by a foreign company pursuant to a “commercial representation agreement,” to represent its business interests in Kuwait. The authority granted to a commercial representative is usually more limited than the authority granted an agent. A commercial representative may be paid according to a set fee, a commission or a percentage of profits. by Articles 297 to 305 of the Commercial Code govern the commercial representative’s obligation. In executing documents on behalf of the foreign company, the commercial representative must sign his name as well as the name of the foreign company and indicate that he is a commercial representative. A foreign company is liable for all of the commercial representative’s actions and liabilities, so long as they are conducted or incurred within the scope of representation.
A commercial representation agreement is not registered with the Ministry of Commerce and Industry. The advantage of a commercial representative over an agent is that the representative can be engaged, compensated, and terminated as agreed upon by the parties to the commercial representation agreement, and the representative is not protected by the legal provisions applicable to agencies as discussed above.
Currency and Banking
There are normally no foreign exchange restrictions in Kuwait. The Kuwaiti Dinar is
freely convertible for all current and capital account transactions. The exchange rate is calculated daily on the basis of a basket of currencies which is weighted to reflect Kuwait's trade flow.
Intellectual Property
Although Kuwait’s protection of intellectual property rights is not especially strict by international standards, the Kuwait government is currently considering new legislative measures in this field.
Patents
Law No. 4 of 1962 provides for the registration of patents and industrial models in Kuwait. Although the Patent Law was enacted in 1962, the Patent Office in Kuwait was opened only in 1995, after a resolution adopted by the Gulf Cooperation Council (GCC) states calling for a unifying of the patent registration systems of the member countries.
The Kuwait Patent Office is located in the Ministry of Trade and Industry. Once an application is filed with the Registrar of Patents, no further action is taken by the Patent Office since the Patent Office has not yet started the process of conducting examinations of patent applications. Opposition actions are not available in Kuwait.
The validity of a patent is fifteen years from the date of filing the application, and the validity of an industrial model is five years from the date of filing the application.
The Kuwaiti government is presently preparing a draft law for the protection of patents to replace the current law discussed above. The draft, if adopted, would, inter alia, narrow the definition of a patent and lengthen the validity period to twenty years.
Trademarks and Service Marks
Kuwait follows the international classification of trademarks with a few exceptions. In accordance with Islamic mores, the Trademark Law does not protect trademarks or service marks in classes 32 and 33 relating to alcoholic beverages and pork. Following the filing of an application to register a trademark, the application is examined as to registrability. The law allows an opposition to be filed by any interested party. An opposition requires the applicant for the registration to submit a counterstatement in order to maintain the application. In the absence of any opposition or the rejection of any filed oppositions, the trademark is registered.
A trademark registration is valid for ten years from the date of filing the application. The trademark registration is renewable for additional periods of ten years each. A trademark which lapses because of non-renewal may be registered in the name of a third party three years following the lapsed registration.
Use of the trademark in Kuwait is not a prerequisite for registration or for maintaining its validity. A trademark is vulnerable to cancellation, however, if a party convinces the court that the trademark was not actually used in Kuwait for five consecutive years or that no bona fide use of the trademark was made.
Assignment of a trademark is effective with regard to third parties only after the assignment has been entered in the register and published in the Official Gazette.
Unauthorized use or imitation of a registered trademark are offenses punishable by law.
Copyright
Kuwait has no copyright law. As a result, there is extensive and overt marketing of pirated software, cassettes, videotapes and unauthorized Arabic translation of foreign-language books.
The Kuwaiti government is currently preparing a draft law for the protection of copyrights to be submitted to the national assembly. | 
