KUWAIT CITY, Aug 9: After the Ministry of Commerce and Industry banned expatriates holding a residence permit under Article 18 from owning a business, or being registered in the commercial register without meeting the requirements of Article 19, and suspended existing licenses affected by this rule, a new issue has surfaced. This issue involves the overlapping roles between the Ministry and the Kuwait Direct Investment Promotion Authority (KDIPA) regarding the licensing of foreign investors and determining the responsible entity for granting licenses for their activities in the local market.

According to sources, the Ministry of Commerce does not allow 100% foreign-owned companies to establish a branch in Kuwait unless they first obtain approval from KDIPA, even if the activities proposed for licensing differ from those permitted under KDIPA's law.

A proposal has been introduced to streamline the process by allowing foreign companies to establish a branch directly through the Ministry of Commerce, particularly when the foreign investor seeks to engage in activities outside KDIPA's scope. This process would not include the specific privileges or exemptions typically granted under the Direct Investment Promotion Law.

The sources emphasized the need to resolve the jurisdictional conflict between KDIPA and the Ministry of Commerce regarding the implementation of Article 1 of Law No. 1 of 2024, known as the "Local Agent Cancellation Law." Without resolving this, the article risks becoming ineffective. The proposal gives foreign companies a choice: establish a branch through the Ministry of Commerce and forego certain privileges or apply through KDIPA to gain those advantages.

Ongoing discussions between the Ministry of Commerce and KDIPA aim to resolve this jurisdictional conflict, particularly concerning the requirements and controls for licensing foreign company branches. The Minister of Commerce's decision No. 394 of 2019, which outlines the foundations and requirements for licensing such branches, specifies that the activities must align with those permitted under the Direct Investment Law and exclude any activities on the negative list. This process, which includes submitting a work plan and meeting evaluation criteria, typically takes at least six months.

Law No. 1 of 2024 amended Article 24 of Commercial Law No. 68 of 1980, allowing foreign companies to establish branches in Kuwait without needing a local agent, thereby simplifying the process. Despite this change, the Ministry of Commerce still requires foreign companies to establish branches through KDIPA if they wish to engage in activities that differ from those permitted under KDIPA's law.

Under this procedure, the establishment of a branch with KDIPA requires the project to meet specific criteria, including a minimum of 30 percent of the evaluation points to obtain the license, even if no tax or customs benefits are provided. If these criteria are not met, the application to establish the branch will be denied.

The sources assured that there is no need to fear foreign companies entering the market and competing with local businesses, as the justification for such concerns has been deemed outdated by the explanatory memorandum for Law No. 1 of 2024.