Kuwait's business regulations and foreign investment laws

Kuwait's Business Environment

Business regulations

In the recent past doing business in Kuwait was only made possible and easy for Kuwait's nationals, as the past law then was mainly viewed as trying to encourage the locals to be business owners and take all the opportunities available. However this did change when in the year 2001 the Kuwait government enacted law No.8 that was intended to encourage foreign investors to establish their business in Kuwait. Law No.8 was an exception to the law governing doing business in Kuwait as it allowed non-citizens the right to fully own a business entity in certain specific sectors of the economy.

According to research conducted by Braithwaite & Drahos (2000 p78-93), which shows that there are three major factors that potential investors should consider thoroughly before establishing a business venture in Kuwait, first they should have a good knowledge about Kuwait's business environment and they can achieve so by drawing a well researched business plan, which consist of: the level of competition in the market, projected financial out comes and conditions of the market in Kuwait. Secondly the law in Kuwait requires that for a business to be established in some specified sectors of the economy, a Kuwait citizen should have the controlling rights of such a business but it is not a must that he/she to contribute to the business financially, thus foreign investors are required by law to seek for viable business partner before they become registered. Thirdly businesses activities include; contracting services, general trading, industrial or import services they are required by law to get their business license or permits from the Commerce and Industry ministry, while for other business activities not represented here, they are licensed by ministry under whose docket the specific business activity lies, for example a publishing company is licensed by the Ministry of Information. Another important factor to note is that after acquiring a license to operate, the Ministry of commerce will seek proof from such a business that it can guarantee against any liability that arise out of their operations.

Tax regulations

Kuwait stands among very few when referring to the studies conducted by Worthington & Britton (2009 p 201-345), he explains that Kuwait not only exempts its' citizens and expatriates from income taxes but also companies are exempted from paying taxes on profits that they generate. Perhaps those who are not party to these are foreign companies doing business in Kuwait who are required by law to pay cooperate taxes or income tax from profits they make. However foreign companies whose main headquarters or owners are located in member countries of Gulf Co-operation council are exempted from this law, but if such companies have shareholders who are not part of the council the company will have to pay full cooperate tax as if it was a foreign company and non-member to the GCC.

The two laws that govern income taxes of companies are Law NO. 23 that was enacted in 1961 and decree No.3 in Kuwait income tax rules enacted in 1995. Decree No.3 was amended in 2007 and became law in 2008; some notable changes were the reduction of income tax levied on foreign companies' annual profit and the amendments also made it clear as to what income is taxable and that which is not. Furthermore the amendments restricted the carrying forward of companies' losses to three years and the financial statements including those of income tax now have to be verified by the office of Director of taxes.

Safety and Quality regulations

The responsibility of maintaining safety and standards of goods is bestowed to various authorities and bodies which include the Public authority for industry, Public authority for agricultural affairs and fish resources, consumer protection for the Ministry of commerce and the department of standards and metrology. Again all these bodies collectively form the National Food Security Committee that is mandated with the task of formulating local food safety regulations and standards.

The Public authority for industry standards and industrial services affairs (KOWSID) is the main body that is responsible for standardization in Kuwait; it does so by formulating national standards as well as publishing and issuing those standards, it also tests and examines goods entering the market issuing them certification for meeting the set standards. KOWSID also issues quality mark to national products.

Another notable area where Kuwait has given priority in terms of safety standards is in the implementation of copyright law that seeks to protect intellectual rights of anything whose trademark or brand has been registered in the trademark section of Ministry of Commerce and Industry.

Environmental standards

In 1964 Kuwait set the record in the Gulf region by becoming the first country whose parliament passed an environmental legislation, this first legislation was for protecting the marine environment and it was followed by a law that prevented water pollution caused by oil, this fact justify that Kuwait has set high standards for conservation of the environment.

The Higher council for the environment has been charged with the responsibility of formulating general policies for the environment and proposing regulations including draft laws aimed at protecting the environment. Council of the environment is another body that oversees that environmental standards are adhered to its main responsibility is to enforce laws regarding environmental protection and requesting the court of law to place a permanent or interim order on any activity that leads to causes environmental pollution.

Health regulations

Through Kuwait's Ministry of public health employers are supposed to ensure that workers health are highly protected and that they won't be exposed to any occupational disease or physical hazard while at work. The law require them to ensure that the work place is well ventilated, clean, sanitary conditions are good, the place is well lit and first aid kit are easily accessible.

Export regulations

The Public authority for industrial (PAI) in Kuwait is charged with the responsibility of ensuring that goods that are being exported to Kuwait meet the set guidelines and technical requirements that have been documented and published in a guideline book called the Kuwait Conformity Assurance Scheme. The guideline book is used by the PAI when they are verifying that all exports goods conform to the set requirements and standards. The scheme requires that export goods entering into the Kuwait market be accompanied by a technical inspection report which ensures that export goods are quickly cleared at the entry points. Intertek is one of the bodies mandated to inspect and certify export goods.

Among the export regulations in Kuwait, is the processing requirements that only allows textured vegetables in formulated products into the country; labeling requirements-require that export product show storage temperature necessary for the product, country where it was processed or manufactured, approval statement that show product was slaughtered in accordance with Islamic principles, weight of the product and its expiration date. Exports must also be accompanied with documentation that show goods have meet certification requirements, for example the FSIS form 9060-5 certify that beef and poultry products are certified to be of good quality, certificate of Islamic slaughter certified animal were slaughtered according to Islamic principles. The export regulations also require that exported goods be accompanied with handling instructions for Kuwait's consumers.

Foreign direct investment in Kuwait

Referring to research conducted by Ayres & Braithwaite (1992, p 122-189) Kuwait has been viewed to be only encouraging foreign investment in the light and heavy industries through tax concessions but little has been done to attract foreign investment in the oil industry.

Primarily in the past Kuwait was anti-foreign investment in their country through laws such as those requiring Kuwait citizens to have the largest shares in foreign companies before they get licensed, high taxes were also imposed to foreign companies unlike companies owned by locals and foreign investments were not allowed in certain sectors of economy such as insurance and banking.

Recent findings draw a different picture which, indicate that in the year 2000 the government passed a law that allowed foreign investors to take up shareholding rights up to 100% of all the shares except for banks only and in the year 2001 the Kuwait parliament passed law that seeks to liberalize the economy and attract more foreign investment, that was coupled with a privatization plan that was to run for five years.

Foreign direct investment in Kuwait hasn't being much of a priority to the government dating back, but despite of that FDI in 1997 was reported to be twenty million dollars which went further in 1998 to $59.1 million and in 1999 it was $72.3 million. But this trend took a turn in 2000 that saw FDI fall to $16.3million then went further down to -$39 million net outflow.

Conclusion

The regulatory business environment has viewed by this research seems to offer to Kuwait's workers better working conditions and also the locals are being encouraged by the law to tap into business opportunities that are available. However it is also apparent that the Kuwait government doesn't give FDI that much of a priority but it would also be important to note that over the recent past there has being government actions that are aimed at encouraging foreign direct investments.