In the last few years, there has been a considerable amount of uncertainty in relation to how the Kuwait Competition Protection Agency (the “CPA”) would apply Kuwait Law No.72 of 2020 (the “Competition Law“), and Resolution 14 of 2021 issuing the Executive Regulations of Law No. 72 of 2020 as amended by Decree No. 25 of 2022 (the “Executive Regulations” together with the Competition Law referred to as the “Competition Regulations”) to global transactions that may or may not have an impact on the Kuwait market. This uncertainty has increased of late due to the recent surge in global transactions and the lack of further guidance from the CPA on how broadly it will apply the Competition Regulations. This article aims to provide some clarity on the geographical applicability of the CPA Regulations in the context of global transactions.

The emergence of the Competition Regulations serve as a novel developments to Kuwait’s legal framework in achieving its objectives of monitoring, controlling, and protecting free competition. In specific, the Competition Regulations expand on the notion of Economic Concentration and which activities would trigger an Economic Concentration filing with the CPA. Under the Competition Regulations, an Economic Concentration is defined as a permanent change of control in a ’Relevant Market’ which encompasses mergers, acquisitions, and joint ventures. Persons wishing to engage in such Economic Concentration activities must submit an Economic Concentration application to the CPA if the parties to the Economic Concentration meet or exceed the financial thresholds determined by the CPA. These are as denoted below (“Financial Thresholds”):

1. If the parties to the concentration achieve annual sales in Kuwait exceeding five hundred thousand (500,000) Kuwaiti Dinars, according to the audited financial statements of the last fiscal year before the concentration;
2. If the parties to the concentration collectively achieve aggregate annual sales exceeding seven hundred and fifty thousand (750,000) Kuwaiti Dinars, according to the audited financial statements of the last fiscal year before the concentration; or
3. If the value of the registered assets of the parties to the concentration in Kuwait exceeds the value of two million two hundred fifty thousand (2,250,000) Kuwaiti Dinars, according to the audited financial statements of the last fiscal year before the concentration.

** It is our understanding that the above Financial Thresholds will be increasing in the near future.

When is an Economic Concentration filing triggered in the context of a foreign-to-foreign transaction?

The Competition Regulations extend to all acts committed inside and outside of Kuwait, which may prevent, restrict, or damage free competition in Kuwait. Therefore, the scope of the Competition Regulations extends to activities, outside of Kuwait, which fall within the definition of an Economic Concentration and meet the above Financial Thresholds.

Unlike the Saudi Arabia merger control regime which provides for an objective nexus test for foreign-to-foreign transactions, that indicates when a merger control filing is triggered, Kuwait Competition Regulations are much more ambiguous on this issue. The provisions of the Competition Regulations extend to acts committed inside the state of Kuwait and abroad which may prevent, restrict, or damage free competition in the Kuwait markets.

In accordance with the Competition Regulations, the ’Relevant Market’ aspect under an Economic Concentration encompasses the elements of a ‘’Relevant Geographical Scope’’ and ‘’Relevant Products’’. Together, these two elements denote products that are mutually interchangeable or substitutable to meet the needs of the consumer in the area where they are exchanged. Thus, the activities under the CPA’s supervision are limited to those that affect directly or indirectly the trading of products in the commercial markets of the state of Kuwait, regardless of whether these activities are committed inside Kuwait or abroad. However, there seems to be some confusion recently due to many articles and materials published on the issue, which have incorrectly concluded that an Economic Concentration filing is triggered in a foreign to foreign transaction even when the relevant concentration activities that are committed abroad have no effect on the ’Relevant Market’ or, when the financial thresholds are met but the transaction is not considered as an Economic Concentration.

Given the potential steep fines associated with not filing an Economic Concentration application with the CPA, (up to 10% of the total revenues of the concentration participants during the preceding financial year), many foreign companies involved in global transactions have wrongly followed the false guidance of these recently published articles when it was not required under the Competition Regulations. Furthermore, we have witnessed some local firms taking a much more conservative approach on this issue and have been fearful to advise foreign companies not to file an Economic Concentration application with the CPA even in the clearest scenarios under the Competition Regulations.

It is noteworthy to mention that a filing of an Economic Concentration application must be accompanied with a filing fee of one in a thousand (0.1%) of the paid-up capital or of pooled local assets of the parties to the Economic Concentration, whichever is less, and not exceeding one hundred thousand (100,000) Kuwaiti Dinars. As such, filing of an Economic Concentration application is not a minor financial undertaking in it of itself.

GLA has been in the forefront of the Kuwait merger control regime keeping in close contact with the CPA and monitoring of the Competition Regulations development. We have been involved in dozens of Economic Concentration filings, including high profile global transactions, with 100% success rate. We were also responsible for the first successful exemption filing under the Competition Regulations. Lastly, we provide all our clients with an initial merger control assessment as to whether a filing is required under the Competition Regulations.

Authors: Asad Ahmad, Senior Associate, and Liana Rashid, Trainee Lawyer.

For further information, please contact: Alex Saleh at alex.saleh@glaco.com or Asad Ahmad at asad.ahmad@glaco.com.