Starting a business in Kuwait needs strict compliance with its various laws, regulations, and policies. The State of Kuwait is quite straightforward in its requirements to start a business, and locals, as well as foreign business owners and investors, need to be aware of all of the basic requirements and legal procedures.
To begin with, one of the primary regulations
in Kuwait state that no foreign investor or businessman can own more than 49 percent of the company. In other words, if you are not a citizen of Kuwait, you must find a local partner who will hold a minimum of 51 percent stake in the company. However, in order to attract more foreign investment, the Foreign Direct Investment Law No. 8/2001
contained provisions enabling foreign companies to be incorporated as Kuwaiti Companies without having a local Kuwaiti partner.
Additionally, business owners and investors must first apply for and receive a residential visa to start a business in Kuwait. The higher positioned employees of the firm, like a manager, must be either Kuwaiti citizens or must be a citizen of one of the GCC (Gulf Cooperation Council)
Countries. Anyone starting a business in Kuwait must also ensure that they do not have any criminal record.
There are a number of advantages to starting a business in Kuwait. Firstly, the Kuwaiti economy
is quite stable and fairly strong, which is very attractive to both locals and ex-pats. Despite being business-friendly and having a business-enabling environment, there is just about one-third of domestically owned businesses in the country. The low corporate tax set at 15% for foreign nationals is another advantage of setting up business in Kuwait. Additionally, Kuwaiti businessmen and GCC citizens are exempted from corporate taxes, and there are no personal income taxes for anyone, making Kuwait a top choice for new ventures.
Process of setting up a business in Kuwait
As with every country around the globe, the State of Kuwait has its own unique requirements for starting a business here. There are a number of steps to start a business in Kuwait, and as an enterprising individual, it is the duty of an investor or business owner to familiarize themselves with these steps. Those learning how to start a business in Kuwait must factor in the requirements of the region, the kind of business etiquette that must be followed, basic requirements for starting a business in Kuwait, as well as all the regulatory and compliance documentation
that they must complete before successfully incorporating their company. Here is what you need to do to start a business in Kuwait:
- Region and Market Research: The State of Kuwait is quite a different region, and all new business owners and investors must conduct in-depth research of the region in order to first learn about the market, the prevalent laws, and all the regulations they need to follow in order to legally and successfully start a business in Kuwait. You would also need to get residency status in Kuwait in order to set up a business in Kuwait.
- Business ideas: When starting a new business venture, entrepreneurs need to find a marketable and profitable business idea. The idea must be tailored to the needs and market of the region. A product useful in one part of the world may not be useful in another part of the world. As such, you need to find a commodity or service which is not present or available in accordance with the demand in the market.
- Legal Structure: The next step in starting a business in Kuwait is to determine the legal structure of the company. Kuwait recognizes the following legal structures of companies:
- Kuwait LLC: When establishing a limited liability company in Kuwait, it must be remembered that such a company cannot be created with a husband and wife as partners unless there is a third partner who is not directly related to them as well.
- Joint Stock Company
- Kuwait Joint Ventures
Determining the legal structure of the company is essential to clarify the scope of liability of every partner and shareholder. An LLC, for example, clearly determines how far the liabilities of every partner extend. Additionally, every member or partner must also provide proof that they have paid their share of the capital.
The primary requirements of registration of the company include collecting certain documents. These documents include a field out the application form which would contain the details of the company, like the name of the organization along with the shareholding ratios. This application must be submitted to the Ministry of Commerce. Thereafter, you need to visit the social security office to get a certificate proving that the local partner is not a government employee or official. This certificate, along with an ID of the business owner, would also be submitted along with the application.
After this, there would be some background checks of the members and the premises. They would also check if your company name is available and is aligned with the moral standards of the region. After the name is approved, it is reserved for a duration of three months, during which you are expected to complete the remaining processes.
The next step is to deposit the paid-up capital for your company. This amount will be frozen until incorporation is completed. Thereafter, after multiple municipal checks of the premises to check for adherence to safety standards, you need to submit a memorandum of association. Once the memorandum is approved and notarized, the department of Commercial Registry will issue a certificate of registration. Upon receiving the certificate, the department of companies would issue a commercial license. After all, this is done, your company can start functioning normally in Kuwait.
Hiring Employees in Kuwait
Employee hiring is one of the most important parts of starting a business in Kuwait. For any company to flourish and grow, there is a need for expert professionals who can deliver services in one of the various verticals that the business is dealing with. There is a need for an HR department, a legal department, sales and business departments, and so on. While some job posts like HR are common to all companies, some other aspects can be unique to a particular type of business. For example, no company needs a full-fledged software development team. This is why availing of the services of experienced HR consultants at Zimyo can make the difference for you while hiring the best talent.
To ensure that you hire the correct employees legally, the labor laws of the country must be learned. They contain various provisions
dictating the full process of employee hiring.
- Trial Period/Probation Period: The probation period in Kuwait lasts for about 100 working days. Upon completion of this term, the employee becomes a full-time employee. If the employer terminates the employee before the end of the probationary period, the employee is entitled to get the full benefits and pay for the duration for which he was employed.
- Leave and Holidays: There are 9 Kuwaiti public holidays that are granted to all employees. Additionally, upon completing nine months of service, employees are entitled to 30 days of paid annual leave. Annual leave payments need to be paid before the leave starts, and all employers need to figure out the annual leave for each employee within the first two weeks of the year. Additionally, annual leave can be accumulated for two years. Employees are also entitled to 45 days of paid sick leaves and 30 days of unpaid sick leaves.
- Maternity Leave: All-female employees who are pregnant are entitled to 70 days of paid maternity leave and 4 months of unpaid maternity leave. During these leaves, an employer cannot terminate employment. Additionally, all employers with over 50 employees need to provide daycare facilities and 2-hour breaks to breastfeeding employees. There are no regulations for granting paternity leave.
- Termination of Services: According to the labor law in Kuwait, both employers and employees can terminate employment. In each case, salaried employees, i.e., employees who receive monthly salaries, are entitled to receive or give 3 months of notice, whereas all other types of employees are required to give or receive 1 month’s notice. Employees whose services are terminated are also entitled to receive severance pay, the amount of which is dependent upon the duration and type of employment.
- Pension: Kuwait began a pension scheme system in 1955, and the laws pertaining to it got amended several times. Pension contributions are made into the Social Security Funds. Employers and employees both contribute to this fund every month.
- Work Hour Norms: The working hour norms in Kuwait are quite unique. The ordinary working hours in the region determined through the statutory procedure are 48 hours per week, with a one-hour break every day and one rest day at least per week. The rest day is usually granted on Fridays. Female employees are to be employed for a maximum of 45 hours per week. During the month of Ramadan, all employees should only be expected to work for a maximum of 26 hours.
Overtime is allowed but for a maximum of 180 hours per year. Overtime wages must equal 125% of the regular wages. If an employee is asked to work on a day off or a rest day, they are entitled to 150% pay in addition to another day off. Those working on a public holiday would be entitled to 200% of their regular salary.
How easy is it to conduct business in Kuwait?
For any country to be considered business-friendly or its environment to be business-enabling, it needs to be assessed across various parameters. The Ease of Doing Business
index does this job for you. It compares 190 countries across various important criteria which play a key role in making it simple to start or conduct business in that country. Because of its fairly restrictive policies currently, Kuwait ranked 83 overall in a pool of 190 countries with a score of 67.4.
These criteria are measured upon constant or uniform occurrences or policies used in almost all countries. For example, a limited liability company is a legal structure of companies that is recognized in almost all countries in the world. In determining the rank for every parameter, various individual factors that pertain to or affect that parameter are taken into account. While there are a lot of criteria that are used to rank countries, some of the most important factors are as follows:
- Starting a Business: In the area of starting a business, Kuwait has certainly made it easier for new businesses to start functions. The country currently ranks 82 on this parameter as it takes a relatively long period for the small number of procedures that it requires to be completed. There are about 5.5 procedures to follow, and it can take about 19.5 days to complete these procedures.
- Managing Permits: When starting a business in Kuwait, there are a number of permits that are also required to be obtained by business owners and investors. Dealing with construction permits in Kuwait has also improved, and the country has moved up to the 68th position. There are 19 procedures to complete this process, and it takes roughly 107 days to complete them. Kuwait thus secured a score of 71.9 out of 100.
- Getting Electricity: Electricity is crucial for starting and running any business smoothly. As such, it is one of the key aspects affecting a country’s overall ranking. Kuwait ranked 66 because of its five short procedures, which led to a business successfully getting an electricity connection in merely 49 days.
- Getting Credit: While getting credit is extremely important for any business, whether while starting a business in Kuwait or for ensuring unhindered functioning, it can be very difficult to get credit in Kuwait. As such, the country ranked 119, and there has been no improvement in this sector. The low score of 45 out of 100 is the result of low credit bureau coverage and low credit registration coverage.
- Managing Payroll: Managing payroll is essential for all businesses, and as your company expands and you hire more employees, it can get even harder to keep track of all employee records. Thus, Kuwait, like most other countries, has a few systems of managing payroll that make this process easier. With the help of Zimyo, you can efficiently streamline your payroll management systems.
- Paying Taxes: The tax-paying procedures in Kuwait are quite business-friendly and streamlined, and as such, Kuwait ranked 6th in a pool of 190 countries. There are 12 types of taxes to be paid annually, and it takes roughly 98 hours to complete filing all of these, which is quite low as compared to other countries in the world.
- Enforcing Contracts: In terms of enforcing contracts, Kuwait ranked 74. This is because it can take 566 days to complete all related procedures.
- Resolving Insolvency: On the parameter of resolving insolvency, Kuwait ranked 115 due to the low recovery rate and the duration of 4.2 years that it takes to complete procedures.
Despite the numerous factors which make Kuwait slightly more restrictive in its customs relating to business and trade, there are a lot of benefits to starting a venture here. There are a lot of opportunities in this part of the world, and with a little thorough research, anyone can start and establish a successful business in this region. Having a good knowledge of the region, the commercial laws, labor laws, market landscape, and, more importantly, things to avoid, you can build a strong and respected business in this country. The fact that they are making reforms to encourage foreign trade makes the deal sweeter.
Zimyo is a leading HR and Payroll management services provider in Kuwait with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.