Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Marketing of most international products in Kuwait takes place through local agents or distributors. Depending on the location, type of product, and after-market support required, the majority of U.S. companies work through an agent or representative with access to a distribution network and customer support operations in place. On the other hand, commission-based representatives and agentsperiodically visit their customers with their foreign principals to maintain vital personal contact.
For assistance in identifying possible agents or representatives for your company in Kuwait, please contact the U.S. Commercial Service at U.S. Embassy Kuwait.
Using an Agent to Sell US Products and Services
Laws and Regulations
Companies Law Decree 25/2012, as amended by Law 97/2013, governs the establishment of a business or business relationship in Kuwait. Under the above provisions, a foreign commercial entity may not establish a branch or perform any commercial activities in the country except through a Kuwaiti partner or agent. However, under the Law for the Promotion of Direct Investment in the State of Kuwait (PDISK; Law No. 116 of 2013, which replaced the Direct Foreign Capital Investment Law, Law No. 8 of 2011) an investor can establish a 100% foreign-owned Kuwaiti company, a licensed branch, or a representative office of a foreign entity. (Please refer to “Establishing an Office” under this chapter for further details on this topic).
U.S. firms seeking a presence in the Kuwaiti market may do so through commercial agents, distributors, or service agents. Commercial agents promote products or services for a principal, as well as negotiate, conclude, and carry out deals on behalf of the principal (within the scope and authorization provided in the contractual agreement). A distributor promotes, imports, stocks, and distributes the principal’s goods and services. Service agents, or “sponsors,” act as representatives for foreign firms seeking to contract with the government of Kuwait per Article 24 of Commercial Law 68 of 1980, but they generally offer less value added. Cooperative unions and other food merchants can directly import certain foods. In 2016, Kuwait passed Law No. 13 of 2016 (The Agency Law). The biggest change with the law is the removal of the requirement for exclusivity. Foreign firms can now register as many agents as they wish to promote their products.
The U.S. Commercial Service in Kuwait recommends that agency or distributor contracts include information pertaining to the geographic sales or marketing territory to be covered by the agent, manufacturer’s representative, or distributor. The contract should stipulate the products and services that the party will support and manage within an exact validity period of agreement, the agent/distributor fee and commission structure, the choice of applicable law, any arbitration clauses, milestones, and responsibilities of both parties as well as termination clauses. In addition, the agreement must be crafted so that it complies with both Kuwaiti and U.S. laws. Although there is no statutory period for providing a notice of termination, a three-month period is customary. If a U.S. company does not officially terminate its Kuwait agent in writing, the agent may claim commission from future sales. Apart from termination, a U.S. principal must also be aware that the local agent may need to be compensated for investments made and good faith efforts undertaken to promote, sell, and service the principal’s products in Kuwait. The Kuwaiti Commercial Code contains a formula for compensation; however, the contract must be very well drafted by a competent lawyer in Kuwait. Where a relationship is terminated for cause and the agent has not met a performance goal, it is possible to avoid compensation.
Establishing an Office
Any Kuwaiti citizen over the age of 21 may engage in commercial activity in Kuwait. Foreign companies may not engage in commercial activity in Kuwait, unless the Kuwaiti share of the business or joint venture equals or exceeds 51% of the total capital of the enterprise (60% for banks, investment brokerages, and insurance companies), unless they are established under PDISK; Law No. 116 of 2013 (see below). The U.S. Commercial Service does not recommend hiring a non-Kuwaiti national as a local representative, since sales in Kuwait are highly relationship-driven.
In order to establish a business, the Kuwaiti firm or joint venture needs to apply for a business license with the Ministry of Commerce and Industry. Application documents must be completed in Arabic. For commercial activity in sectors including telecommunications, health services, and pharmaceuticals, the relevant ministry, department, or regulatory agency may require additional permits or licenses.
Business enterprises may be established in several forms, including as a Kuwait Shareholding Company (KSC), a company with limited liability (WLL), or a general partnership. The cost and time required to register and open a business will vary depending on the company structure. Reputable Kuwaiti companies have a business license and are registered with the Kuwait Chamber of Commerce and Industry (KCCI).
Under the Law for the Promotion of Direct Investment in the State of Kuwait (PDISK; Law No. 116 of 2013) an investor can establish a 100% foreign-owned Kuwaiti company, a licensed branch, or a representative office of a foreign entity. The law is applicable for all sectors except those listed below, which are included in the “negative list” and therefore not eligible:
- Extraction of crude petroleum
- Extraction of natural gas
- Manufacture of coke oven products
- Manufacture of fertilizers and nitrogen compounds
- Manufacture of gas: distribution of gaseous fuels through mains
- Activities of membership organizations
- Security and investigation activities
- Public administration and defense; compulsory social security
- Real estate activities
- Activities of hiring labor including domestic labor
The incentives for investors under this law include, but are not limited to, the following:
- Tax exemptions for a maximum period of 10 years from the date of commencement of the licensed entity
- Customs duty exemptions for the importation of materials and equipment if the material and equipment is held for a period of five years from the date of obtaining the incentive
- Allocation of land and real estate to investors
Kuwait is highly receptive to the franchise business model. High per capita income, significant spending power, tax-free earnings, and an upwardly mobile population strengthen business opportunities here.
Apart from food and service franchises, there is also high demand for quality education and training services. The government aims to equip younger generations with the necessary skills to work for the private sector. The opportunity for training and skills development firms cannot be over-emphasized.
Direct marketing is limited. Most direct marketing campaigns involving print and catalog media are conducted by furniture companies. Larger companies rely on newspaper inserts, mass mailings, or internet/mobile mass mailing campaigns in order to promote the latest product or sales promotion. Most fast food franchises engage in flyer distribution directly to homes. Advertising is also available on several FM radio stations (in both Arabic and English), and three state television channels. As a new trend, many companies, especially in the consumer goods sector, have selected to market their products online by placing ads on social networking websites like Facebook, Instagram, and Twitter, taking advantage of the 4 million social media users in Kuwait. Several local advertising agencies are familiar with and serve U.S. and international businesses.
Foreign businesses are offered several incentives to establish joint ventures with Kuwaiti firms, including partial relief from Kuwaiti corporate taxes. In 2008, the foreign corporate tax rate was reduced to 15%. Given that all government procurement must be conducted with Kuwaiti citizens or firms, the joint venture model can be an effective business model and maintain a long-term presence, especially for companies offering after-sale services and/or companies with regular client interaction.
A JV company set up in Kuwait is formed by a venture of two or more natural or legal persons. This kind of venture has no legal existence and does not need to be entered on the record of the register of the Ministry of Commerce and Industry. The purpose of the JV is explicitly defined in the contract. It is common for several foreign contractors and engineering firms involved in a major public contracts to form a joint venture or consortium.
The business under the JV can be conducted under the trade license of the Kuwaiti national in case it involves a foreign partner. If the partners decide to establish a local company, it shall be established under the Kuwait Commercial Law where the Kuwaiti partner will own 51% of the company’s shares.
There are several express delivery companies that service Kuwait, including FedEx, DHL, UPS, TNT, and Aramex. It is common for express shipments to be delayed in the customs clearance process.
Companies can minimize their risk of exporting to new customers or entering into business relationships with new partners by utilizing the U.S. Department of Commerce International Company Profile (ICP) service. An ICP provides up-to-date information that includes bank and trade references, names of corporate principals, key officers and managers, product lines, the number of employees, financial data, sales volume, reputation, and market outlook. For more information, visit Kuwait’s International Company Profile on Export.gov.
Companies are also encouraged to seek local legal counsel for matters related to establishing a contractual agreement that is most beneficial to all parties.