The Traditional Nominee Model

For decades, Kuwait’s foreign ownership restrictions required foreign entities establishing companies to have Kuwaiti partner(s) holding at least 51% of capital under Article 23 of the Commercial Law (Decree-Law No. 68 of 1980), a framework reinforced by the Companies Law (Law No. 1 of 2016) for WLLs, KSCs, and other vehicles. Although Kuwait’s Direct Investment Law (Law No. 116 of 2013) created a lawful route for up to 100% foreign ownership through a KDIPA foreign direct investment licence, the market continued to rely on local sponsor and nominee structures because they were often perceived as faster and more familiar. That approach now carries materially greater risk.

The result was a well-known market practice: the nominee arrangement. A Kuwaiti national held 51% or more of a WLL on paper, while the foreign party retained beneficial ownership, management control, profit entitlement, and capital contribution through side agreements covering ownership, distributions, security over shares, management authority, and powers of attorney. The Kuwaiti nominee partner usually contributed only their name and licence, receiving a periodic fee for acting as the local sponsor.

Even before the new law, these arrangements were legally precarious. Nominee agreements were not enforceable by specific performance under Kuwait law; a nominee’s refusal to transfer shares, diversion of profits, or assertion of legal ownership left the foreign investor with monetary damages only. Investors thus relied on trust and uncertain contractual protections, not legally protected ownership.

What the New Law Does: Decree-Law No. 78 of 2026

On 2 August 2026, Kuwait published Decree-Law No. 78 of 2026 Concerning Combating Commercial Concealment (the “Commercial Concealment Law”). The Commercial Concealment Law takes effect six months after publication, approximately February 2027, and is Kuwait’s first standalone law criminalising commercial concealment, rather than relying indirectly on licensing regulation and civil enforcement.

Commercial concealment is commonly referred to as ‘fronting’.

The Commercial Concealment Law forms part of a wider legislative shift in Kuwait towards transparency, direct accountability, and properly licensed market participation. For nominee structures, the key risk is therefore substance over form: whether the party appearing on paper is also the party genuinely owning, controlling, and benefiting from the business.

Article 1 defines two key terms: “Commercial Concealment” and “Economic Activity.” “Commercial Concealment” includes enabling a person to carry on an Economic Activity prohibited to that person under applicable laws, whether for their own account or in partnership with third parties, or circumventing prescribed foreign ownership percentages, so as to enable that person to carry on the Economic Activity in violation of the Commercial Concealment Law. “Economic Activity” covers any commercial, investment, industrial, agricultural, service, or professional activity, or other activity of an economic nature, aimed at generating profit and requiring the necessary licences or approvals from the competent authorities.

Article 2 establishes two distinct prohibitions. First, no person may carry on an Economic Activity within Kuwait, whether for their own account or jointly with third parties, without the necessary licence from the competent authority, or beyond the scope of the licence granted to them, where the activity is carried on through a person who has enabled them to do so. Second, no natural or legal person may enable another person to violate that prohibition through Commercial Concealment, including by allowing that person to use a trade name, licence, approval, commercial registration, or any other means enabling them to carry on the Economic Activity in violation of the Commercial Concealment Law. A nominee partner who appears as the licensed or registered owner while another person actually owns, controls, and benefits from the business may fall within the prohibition on enabling commercial concealment. Given the breadth of “any other means,” arrangements that allocate effective management authority, profit entitlement, bank account access, or operational control to an unlicensed or ineligible person may be relevant indicators of Commercial Concealment, particularly where the licensed Kuwaiti partner appears on paper but does not bear genuine economic risk or exercise real participation in the business. In practical terms, liability risk is not confined to the nominee partner: the person carrying on the concealed activity and the person enabling it may both be exposed.

Article 5 provides that liability extends to the person responsible for actual management of the violating legal person where that person knew of the acts, the violation resulted from failure to discharge management duties, or that person contributed to the violation. The legal person is jointly and severally liable for financial penalties or compensation where the violation is committed by an employee in its name or for its benefit.

Penalties and Enforcement

Article 3 provides for imprisonment of one to three years and a fine of KD 10,000 to KD 100,000—or an amount equivalent to the proceeds, whichever is greater—or either penalty. A separate fine is imposed for each offender or offending activity. Article 6 provides for confiscation of funds or proceeds derived from the offence, and all tools, equipment, and means used in the offending activity, permanent closure of the establishment, cancellation of the licence, deportation of foreign offenders after serving the sentence, and publication of the final judgment. Article 7 doubles the penalty for recidivism within five years. Article 9 allows a reward for an “informant who is not an offender” of up to 10% of collected fines where reliable evidence leads to a final conviction. Article 10 grants designated Ministry employees the capacity of judicial officers to conduct inspection and supervisory activities, detect violations, and require facilities, data, information, and documents.

Article 8 allows settlement before criminal action, during the hearing, or before final judgment. Settlement requires payment of at least half the maximum prescribed fine and is conditional on remedying the violation and regularising the legal status. It terminates criminal proceedings but does not preclude administrative deportation where required by national interest and is unavailable in recidivism. For nominee structures, this means real restructuring or unwinding rather than merely paying a fine.

What Remains Lawful

The law does not prohibit genuine Kuwaiti participation, properly licensed foreign investment structures, or lawful agency and distribution arrangements. It targets the substance gap: a licensed party lending its name or licence while another person actually owns, controls, and benefits from the business.

The Need for Immediate Legal Review

With the Commercial Concealment Law entering into force in approximately February 2027, the compliance window is open. Businesses operating under nominee arrangements should review their structures considering the potential for criminal penalties, confiscation, licence cancellation and deportation.

Businesses operating under nominee arrangements should obtain legal advice and consider the following steps:

• Review the existing arrangement: assess whether the nominee structure complies with the Commercial Concealment Law, including whether beneficial ownership, management authority, profit entitlement, and operational control are genuinely held by the licensed party.
• Assess restructuring options: evaluate available pathways, including establishing a properly licensed KDIPA structure to replace the nominee arrangement, restructuring the existing relationship into a genuine partnership with real Kuwaiti participation, or orderly unwinding, dissolution, or exit.
• Consider the settlement mechanism: Article 8 allows settlement only if the violation is remedied and the legal status is regularised; for nominee structures, this means real restructuring or unwinding rather than merely paying a fine.

GLA & Company’s Kuwait office can assist foreign investors and Kuwaiti partners with confidential compliance reviews and guide restructuring of nominee arrangements before the Commercial Concealment Law comes into force.

Authors: Khaled Al Makhezeem, Associate, and Fahad Alzouman, Trainee Lawyer.