Introduction

Kuwait is located in western Asia, bordering Saudi Arabia and Iraq, and has rich oil and natural gas resources. In recent years, the Kuwaiti government has been committed to optimizing the investment environment, promoting the adjustment and upgrading of the industrial structure, and implementing the "2035 National Vision". The relationship between China and Kuwait has developed steadily. In September 2023, the leaders of the two countries witnessed the signing of the "Joint Statement on the Five-Year Plan for Bilateral Cooperation between the People's Republic of China and the State of Kuwait (2024-2028)" witnessed by President Xi Jinping and Crown Prince Mishal. At present, more and more Chinese companies are turning their attention to Kuwait, especially in the fields of infrastructure construction, new energy development and financial technology. However, against the backdrop of increasing uncertainty in the global economic environment, Chinese companies investing in Kuwait also face many challenges and risks. How can Chinese companies better adapt to and avoid potential risks? This article will provide relevant legal guidance and risk response strategies for Chinese companies' overseas investment in Kuwait from a legal perspective.

I. Legal system for foreign investment management

Kuwait's foreign direct investment regulatory authorities include the Direct Investment Promotion Bureau under the Ministry of Commerce and Industry. The Direct Investment Promotion Bureau has set up a "one-stop" administrative service department to be responsible for the specific affairs of introducing foreign investment. The relevant foreign investment legal framework includes the "Direct Investment Promotion Law" No. 116 promulgated in 2013. In addition, foreign investment is also subject to relevant provisions such as the "Commercial Company Law", "Private Sector Labor Law" and "Income Tax Law".

II. Key Legal Provisions on Foreign Investment

(I) Foreign Investment Incentives

According to the Kuwait Foreign Direct Investment website, the incentives available to foreign investors under certain conditions include:

(1) An approved investment entity may be exempted from income tax or any other tax for ten years from the date of actual commencement of operations.

(2) Any expansion carried out by a licensed investment entity shall enjoy a tax exemption period not less than the tax exemption period obtained by the original investment entity from the date the expanded part is put into production or actually operates, and the tax exemptions are the same as those listed in the previous paragraph.

(3) Subject to the provisions of the GCC Customs Law, the following imports for direct investment shall be exempted in whole or in part from taxes, duties or any other charges that may arise: a. Machinery, tools, equipment, vehicles and other technical devices; b. Spare parts and necessary maintenance supplies for the items mentioned in the previous subsection; c. Goods, raw materials, semi-finished products, packaging materials and packaging.

(4) The Council of Ministers shall have the power to decide on specific preferences and exemptions.

(II) Foreign Investment Prohibited Sectors

　　The sectors prohibited for foreign investment in Kuwait include: extraction of crude oil; extraction of natural gas; manufacture of coke oven products; manufacture of fertilizers and nitrogen compounds; manufacture of gas; distribution of gas fuel by pipeline; real estate (excluding privately operated construction development projects); security and investigation activities; public administration and defense; social security; activities of membership organizations; and employment.

　　(III) Offset Program

　　Kuwait currently implements an offset program. The Kuwaiti government requires foreign entities that sign supply contracts with it to fulfill their obligations to implement offset projects. For defense contracts with a value equal to or greater than Kuwaiti dinars (KD) 3 million, and civil contracts with a value equal to or greater than KD 10 million, the offset requirements must be implemented. The goals of the offset program include:

(1) Transfer and integrate advanced technologies to Kuwait and promote the integration and adaptation of these technologies into the local economy.

(2) Create highly skilled professional jobs for Kuwaiti nationals.

(3) Promote projects that help promote professional education and vocational training.

The value of the offset obligation must reach 35% of the contract value and can be offset from the monetary value of the following items:

　　(1) Subcontracts signed with Kuwaiti companies.

　　(2) The corresponding monetary value of Kuwait's share in joint ventures that have signed government contracts (necessary to perform offsets).

　　(3) Domestic goods and services purchased within the scope of the supply contract.

　　(4) The balance of the offset points obtained by the foreign entity can be used to obtain bank guarantees and purchase domestic goods and services outside the scope of the initial contract.

III. Forms of foreign investment in Kuwait

Foreign investors can set up business organizations in Kuwait by establishing companies. The following are three main types of companies, and the following types of companies can achieve 100% foreign control.

　　1. Limited Liability Company

　　Foreign individuals and companies can set up limited liability companies in Kuwait. Since Kuwaiti citizens do not pay personal income tax and only non-Kuwaiti corporate entities pay corporate tax (15%), limited liability companies do not need to pay taxes.

　　2. One-person company

　　A one-person company is similar in nature to a limited liability company. The advantage of establishing a one-person company is that the liability of the company owner for the company's debts and losses is limited to the company's capital.

　　3. Joint-stock company

　　Kuwait allows non-Kuwaitis to hold shares in publicly traded joint-stock companies. According to Law No. 116 of 2013, foreign entities can establish joint-stock companies in two forms:

　　(1) Public joint-stock company refers to a company whose capital is divided into equal tradable shares. The liability of shareholders is limited to the value of their subscribed shares, and they are not liable for the company's debts except for the nominal value of their subscribed shares.

　　(2) In a closed joint stock company, capital shares can only be subscribed by the founders at the time of establishment.

In addition, foreign companies can obtain operating licenses in the State of Kuwait to establish branches of foreign companies for direct investment. Alternatively, foreign investors can establish representative offices, but their sole purpose is to conduct market research and production possibility analysis, and they may not engage in any commercial activities or sign any commercial agreements.

IV. Key points of the Labor Law

(I) Basic provisions of the Labor Law

1. Labor contract

According to the provisions of the Private Sector Labor Law, work contracts are divided into open-ended contracts and fixed-term contracts. A person who has reached the age of 15 has the right to enter into a work contract. If it is a limited-term contract, the term shall not exceed one year before the worker reaches the age of 18. The work contract shall be drawn up in writing and shall include, in particular, the date of signing, the date of entry into force, the amount of salary, the term of the contract (if any), the nature of the work, etc. The contract shall be made in triplicate, one copy shall be held by each party, and the third copy shall be sent to the competent authority. The worker's salary shall not be reduced during the validity period of the contract. All contracts shall be signed in Arabic, and a foreign language translation may be added. The term of a limited-term contract shall not exceed five years and shall not be less than one year. The contract may be renewed upon the agreement of both parties after its expiration.

2. Working hours

Workers shall not work more than 8 hours a day or 48 hours a week. During the month of Ramadan, the working hours shall be 36 hours a week. The working hours for hard work, unhealthy work and dangerous work are reduced. Workers shall have a rest period of not less than one hour after working for more than five hours continuously. Exceptions are made in the banking, financial and investment sectors, where the working hours are eight consecutive hours.

3. Work remuneration

“Wage” means the basic remuneration received or to be received by a worker for his work. Allowances, remuneration, commissions, grants, donations or cash benefits received regularly by workers should be included in the calculation of wages. If a worker’s wages are determined as part of net profit, and the company does not realize a profit or realizes only a meager profit, resulting in a worker’s wages not being consistent with the work he performs, then his wages should be estimated based on similar wages, general practices in the industry or fair principles.

(II) Requirements for employing foreign employees

Foreigners must obtain a work permit to work in Kuwait. General business visit visas or tourist visas do not allow work in Kuwait, which is managed by the Immigration Department of the Kuwait Ministry of Interior. When applying for a work permit, a series of documents including a valid passport, resume, academic certificate, and health certificate are required. At the same time, foreign workers need to apply for a Kuwait work visa and enter and reside within the validity period of the visa. Before applying for a visa, it is usually necessary to obtain a certificate of no criminal record, a medical examination certificate, etc. in the home country, and have it notarized, certified by the Ministry of Foreign Affairs of the home country, and certified by the Kuwaiti Embassy in the country. Foreign workers must have an agent to assist in completing a series of work procedures such as application, guarantee, and cancellation.

Kuwait Towers, Kuwait

V. Risk identification and response for Kuwait investment

(I) Legal and regulatory risks

Kuwait’s legal system is relatively strict and complex, and regulations vary significantly between industries, especially in strictly regulated industries such as oil and gas, which may lead to challenges for foreign investors in equity control, business operations and dispute resolution. Chinese companies should look for reliable local partners, conduct background checks in advance, and hire professional consultants familiar with Kuwaiti law to provide professional support in contract drafting and dispute resolution, and ensure that business activities comply with local regulations.

(II) Labor employment risks

The period of hiring foreign workers in Kuwait is long, the cost is high, and the procedures are complicated. In addition, if foreign companies carry out engineering contracting projects, Kuwait will require foreign companies to employ a certain proportion of Kuwaiti personnel. Chinese companies should fully understand and strictly abide by Kuwait's labor laws and regulations and specific policies for specific projects, ensure the legality and compliance of labor employment and project development, establish a sound work permit and visa management system, and ensure the legal residence and work of foreign employees.

(III) Investment cost risk

Although Kuwait is rich in oil and gas resources, it is short of other natural resources, has insufficient infrastructure, lacks skilled labor, and has a small domestic market. Foreign investment in Kuwait may encounter some obstacles in actual operation. Chinese companies should conduct scientific cost accounting and make reasonable decisions after rationally assessing market risks.