Legal Reform and Infrastructure Projects Spell Opportunity for Foreign Investors

New Projects Kuwait’s National Development Plan seeks to aggressively roll out over 150 new or continued projects in the infrastructure, oil and gas, healthcare, transportation, electricity, housing, and energy sectors, […]

New Projects

Kuwait’s National Development Plan seeks to aggressively roll out over 150 new or continued projects in the infrastructure, oil and gas, healthcare, transportation, electricity, housing, and energy sectors, to name but a few. In 2018, Kuwait announced its plans to launch 20 large development projects in various areas, including the oil, transport, and waste management sectors, whose total value is expected to reach over USD70 billion. Kuwait’s commitment to building its infrastructure and expanding its oil sector projects is clear and on the move. These great expectations carry with them great opportunities for foreign companies looking to invest here.
The public-private partnership (PPP) regime has also created significant opportunities for foreign investors to participate in local infrastructure projects and is set to continue its push for the implementation of new projects in 2019 and beyond. Indeed, reaching financial close on the Az Zour North IWPP project in 2014 was an important first step to moving the PPP program forward. The Kuwait Authority for Partnership Projects (KAPP) seeks to launch more of these projects in the coming years. Kuwaiti PPP projects can be particularly attractive to both foreign construction and engineering companies, financial advisors, and international financiers.

Legal Progress

Though anxiously awaited, launching a host of new projects is not enough on its own to ensure success. In order to propel economic and commercial progress forward, legal reforms are also necessary to provide a proper and efficient framework to support the economic, commercial, industrial, and social goals of the country. Several considerations have motivated the legal reforms of late in Kuwait, including global regulatory challenges, reverberations from the global economic crisis, oil production cuts and falling prices, and Kuwait’s Vision 2035 and Development Plan. These changes, challenges, and goals create the necessity for comprehensive adjustment to the country’s laws and regulations in order to build a diversified and sustainable economy and attract FDI.

Specific legal changes

that enhance FDI
There are a number of legal reforms and new laws that contribute to the improvement and growth in opportunity for foreign direct investment in Kuwait. First among these is the Kuwait Direct Investment Promotion Authority (KDIPA). From the perspective of the foreign company seeking to do business in Kuwait, clarity on the ability to enter, invest, and operate in the market freely or at least with limited restriction has always been a critical factor. Enter Law No. 116 of 2013, which established KDIPA and created the new FDI legal framework for Kuwait.

Prior to KDIPA, a foreign company could not establish or own a company in Kuwait without a Kuwaiti partner holding a 51% stake. These foreign ownership restrictions, although not uncommon in the GCC and other countries, limited the ability or motivation of many foreign companies from investing fully in Kuwait. With the introduction of the FDI law, KDIPA has been able to break away from antiquated foreign ownership restrictions without losing sight of the national interests of Kuwait and its citizenry. This unique balance being promulgated by KDIPA seeks to take advantage of the best of both worlds by breaking down foreign ownership barriers, but still requiring the foreign company to duly invest in Kuwait and contribute to its economy.
Under the FDI law, foreign companies can apply to KDIPA for a license to establish a 100% foreign-owned Kuwaiti entity. KDIPA has specified the various factors taken into account when evaluating applications for these licenses, including but not limited to: (i) job opportunities for Kuwaiti nationals; (ii) transfer of technology and localization; (iii) training courses for nationals; (iv) supporting small and medium enterprises; and (v) contribution to diversification of the economic base. In 2016, KDIPA introduced its Point Scoring Mechanism (PSM) to describe the scoring system KDIPA will use when evaluating applications for an FDI license.

In summary, the PSM Decision states a decision matrix will be utilized to determine the outcome as follows: (i) where an application scores below 59%, then the application for a FDI license will be rejected; (ii) where the score is above 60%, the applicant will receive only a FDI license but shall receive incentives; (iii) where an application scores above 70%, the applicant will be entitled to receive the license and one incentive selected by the investor; and (iv) lastly, applications scoring above 80% will receive a license and all incentives determined by the FDI law.
In addition to the license, KDIPA affords the foreign investor with the opportunity to obtain incentives and exemptions, including, but not limited to, tax credits/exemptions, customs and duties exemptions, and allotments of land and real estate. Since its introduction in 2013, KDIPA has issued dozens of FDI licenses, allowing foreign companies to establish wholly owned limited liability companies, sole person companies, representative offices, and branch offices. The KDIPA program also allows foreigners to not only operate wholly owned business in Kuwait, but also structure their operations here to participate in Kuwait’s projects.


Kuwait overhauled its PPP regime in 2014 by issuing a new law and regulations (Law No. 116 of 2014), which established KAPP as the governing authority for all PPP projects. KAPP’s aim is to improve the implementation of a robust and ambitious PPP program in Kuwait, and its is responsible for initiating and overseeing these projects. The changes to the PPP law and regulations have not only enhanced and improved upon the previous laws and regulations, but have helped to overcome obstacles faced under the old regime. The Kuwait PPP program has garnered the interest and involvement of a variety of local and foreign technical companies and financial institutions.
The new law has made PPP projects more attractive and bankable to foreign investors, contractors, and financiers. Stakeholders now have greater certainty that their investments will yield returns through rules, regulations, and procedures that permit investors to take security over certain assets of the projects, and substitute investors in the event the stakeholder fails to live up to its obligations under the project agreements. The new law specifically provides for the broader application of security over the assets of the project owned by the contracting investor or the project company for the purpose of financing the implementation of the project.

The addition of project finance provisions to the new law has been well received by foreign investors and financiers, which has significantly approved upon the more vague position under the former law. Additionally, the revamped PPP law and regulations contain express provisions for exempting the contracting investor from foreign ownership restrictions, as well as offering various exemptions and incentives to the contracting investor and project company, including but not limited to, those incentives and exemptions offered under the FDI-KDIPA program.

Public Tenders Law

Another major change to key legislation affecting both Kuwait projects and international investors has been the promulgation of the new public tenders law in 2016, which replaced the former law dating back to 1964. The most notable positive change affecting foreign investors under the new law is the transformation of bidding requirements for public tenders. Prior to the issuance of the new law, foreign contractors were unable to bid on public tenders without first securing a local agent.
This restriction has now been removed in most cases in order to help usher in a new era of easing regulations for foreign investment. It is worth noting that despite not needing a local agent to bid on most public tenders—there are exceptions depending on the ministry/authority is tendering the project—the foreign contractor may still need a local agent in order to execute the project, should it be awarded the tender. On the Kuwaiti side, the new law helps protect local businesses, while foreign contractors are obliged to purchase no less than 30% of their contractual requirements from local suppliers registered with the authority. As such, the new law strikes a reasonable balance between easing foreign investment restrictions while promoting the local economy.

In addition to the above, Kuwait has also witnessed steady progress other areas of legal reform including, but not limited to: the new Commercial Agencies Law (2016), which regulates commercial agencies, distributorships, and franchises; the new Companies Law (2016), which regulates the establishment, governance, and operations of companies established in Kuwait; the new law establishing the Anti-Corruption Authority (2016), which establishes the Public Authority for Combating Fraud for the purpose of preventing corruption; the new Capital Markets Authority and law (2015), which replaced the existing capital markets legislation with the issuance of new detailed and forward-facing laws and regulations to govern Kuwait’s capital markets sector; and the founding of the Communication and Information Technology Regulatory Authority (CITRA) to organize and regulate the telecommunications sector. CITRA is in the process of issuing new data protections regulations, which will be in line with the European General Data Protection Regulation 2016/679.

Tax Regime

In the recent past, Kuwait has committed to implementing and adhering to international tax compliance and reporting standards. With the US Foreign Account Tax Compliance Act bursting onto the international scene in 2015, Kuwait has signed an intergovernmental agreement with the US, which requires Kuwaiti financial institutions to report certain information about their US account holders to the US Internal Revenue Service. In 2016, Kuwait entered into the Multilateral Competent Authority Agreement for Common Reporting Standards, which requires an annual exchange of financial account information between Kuwait and other jurisdictions.

In terms of foreign investment, the Kuwait tax framework is commonly viewed as a challenge given the recent decisions of the Kuwait Department of Income Tax (DIT) at the Ministry of Finance and uncertainty as to the application of Kuwait’s tax laws. Pursuant to the Kuwait tax laws, generally, whether a foreign entity is considered to be taxable is determined by whether the entity is carrying out trade or business in the country. The concept of permanent establishment or registration in Kuwait is not utilized as the sole litmus test for determining whether a foreign entity may have income tax exposure. As such, the uncertainty surrounding whether a foreign entity is considered to be conducting business in Kuwait, despite the entity not having a physical presence in Kuwait, has been a cause for concern. While in the past DIT was not seen to be very active in pursuing foreign companies for tax dues, in the more recent past DIT has changed its approach and now actively seeks to impose taxes on foreign companies operating in Kuwait through agent, establishments, or distributorships. Despite these challenges, foreign investors have found comfort in conducting business in or with Kuwait through various legal and commercial structures.
Kuwait’s commitment to growing its economy, building its infrastructure, and providing for a foreign investor-friendly environment is clear and evident through its determination to launch a multitude of new projects and the reform of its legal framework. These positives steps help foster a more sustainable development and economic growth by reducing bureaucracy, speeding up administrative processes and procedures, and providing international investors with greater flexibility to conduct business in Kuwait.

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