June 1st, 2023 Legal Updates

Kuwait Adopts New Decision to Incentivise Small Business Development

The Kuwait Ministry of Commerce and Industry (“MOCI”) has issued Decision No. 82 of 2023 (the “Decision”), which is intended to offer assistance and incentives to existing and newly established companies engaged in (i) activities of a private nature[1]; (ii) which are without employees or a physical commercial premises; and (iii) which do not require any other regulatory approval from any authority other than the MOCI.

This Decision is commendable, as it exemplifies an understanding by the regulator of the small business needs in the Kuwait market and provides relief, support, facilitation, and incentivises those involved in activities of a private nature. Such commercial activities are characterized by minimal workforce requirements or the absence of a dedicated physical location.

This Decision will have a significant positive impact on smaller companies, as it eliminates the previous entity establishment requirement of presenting proof of occupancy through lease contracts or rental receipts (“Proof of Occupancy”). Consequently, small businesses will be legally and financially relieved from the burden of leasing a premises and paying rent. Instead of providing Proof of Occupancy, individuals will be required to submit documents evidencing their legal residential address in Kuwait. This requirement has been further eased and can be satisfied by either submitting a residential address, or the address of a law firm or auditing office. The MOCI may ask for additional documentation at their discretion during the licensing process. Noteworthy is that the Decision applies to both existing companies established prior to its issuance and those established after its issuance. As such, in theory, current companies which qualify under the Decision requirements, could utilize the removal of the Proof of Occupancy requirement and eliminate a significant overhead to their business operation.

Decision No. 330 published in 2017, attempted to have a similar impact on the Kuwait small business sector. Decision 330 of 2017 related to the licensing of small freelance businesses under the same “activities of private nature” category. However, this decision was limited to 19 activities. Businesses which were engaged in these 19 activities were also permitted to utilize a residential address, a post office box, or an email address as their company address. The Decision aims to have the same impact on the small business sector in a more comprehensive fashion.

Although the Decision has been enacted in an effort to simplify and streamline business operations, there are a few challenges to note.  It does contradict Municipal Decision No. 433 of 2022, which regulates public premises. Decision 433 explicitly prohibits the opening of businesses in residential areas. Nevertheless, the new Decision allows for precisely that.

The relaxed requirements introduced by this Decision may also present challenges for small business owners seeking municipality approval to conduct their activities or open bank accounts. These challenges arise when small businesses are able to circumvent the Proof of Occupancy. To address these obstacles, further exceptions may need to be considered in conjunction with this Decision.

On a positive note, the Decision will likely have a pragmatic impact on service of process court procedures in litigation procedures. Presently, court proceedings can experience substantial delays due to inaccurate or improper company registered physical locations. However, with this Decision, legal notices can be promptly served to the business owner’s residential address, or what is akin to the companies’ statutory agent (law firm or accounting firm), potentially improving the efficiency of our legal system.

In summary, these decisions warrant the Kuwait market’s sincere appreciation and acknowledgement, as they will likely enhance the business ecosystem and foster economic progress. Nevertheless, it is evident that the practical implementation of these ministerial decisions, with the exception of circumstances warranting specific exemptions, presents certain inherent complexities that will need to be addressed.

[1] consists of commercial activities conducted by a company on a small scale, characterized by the absence of employees and physical commercial premises.

Author: Asad Ahmad, Senior Associate and Jehan Saleh, Associate

For further information, please contact Alex Saleh (alex.saleh@glaco.com) and Asad Ahmad (asad.ahmad@glaco.com).

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