Overview of the KDIPA License and Legal Framework

 Kuwait’s efforts to attract and stimulate both foreign and local direct investment are grounded in Law No. 116 of 2013 regarding the Promotion of Direct Investment in the State of Kuwait (the “KDIPA Law”). This law established the Kuwait Direct Investment Promotion Authority (“KDIPA”), which is responsible for enhancing the investment environment, streamlining procedures, and offering incentives to investors. A KDIPA license serves as a regulatory approval granted to investment entities that satisfy the requirements outlined in the law and its executive regulations.

Eligible Entities for a KDIPA License

Under the KDIPA Law, the following entities are eligible to obtain a KDIPA license:

• Kuwaiti Companies : Any legal form under the Commercial Companies Law No. 25 of 2012, established for direct investment purposes. Foreign ownership may reach up to 100% of the capital, subject to Companies Law and KDIPA’s evaluation.
• Branches of Foreign Companies : Foreign companies may establish branches in Kuwait for direct investment, provided they are licensed by KDIPA.
• Representative Offices: These are limited to market research and feasibility studies and are not permitted to engage in commercial activities or act as commercial agents.

Key Benefits and Incentives of a KDIPA License

The KDIPA Law provides a range of incentives to licensed investment entities, which may include:

• Tax Exemptions : Exemption from income tax or any other taxes for up to ten years from the date of actual commencement of operations. Expansions of the investment entity may also benefit from similar exemptions for a period not less than that granted to the original entity.

• Customs and Import Duty Exemptions : Full or partial exemption from customs duties and other fees on imports necessary for direct investment, including machinery, equipment, means of transport, spare parts, raw materials, semi-finished goods, and packaging materials. There are restrictions on the disposal or alternative use of these items for five years from the date of exemption notification, unless otherwise approved and subject to payment of applicable duties.

• Land and Real Estate Utilization : Access to land and real estate allocated to or managed by KDIPA, in accordance with the rules set by the Board.

• Employment of Foreign Labor : Permission to employ foreign labor as necessary for the investment, subject to Cabinet regulations on the minimum percentage of national workforce.
• Additional Benefits : The Council of Ministers may grant further incentives and exemptions to certain cases or categories as deemed appropriate. Key Considerations for New Investors

Evaluation and Granting of Benefits

The process for evaluating applications and granting benefits is governed by KDIPA Resolution No. 329 of 2019, which sets out a points-based system:

• Applications are scored based on criteria such as technology transfer, human development (including job creation and training for nationals), market development, economic diversity, and sustainable development.
• The level of benefits granted depends on the score:
• Less than 30%: Application is rejected.
• 30%–55%: License only.
• 60%–80%: License plus one benefit.
• 85%–100%: License plus all benefits stipulated by law.
• To receive all benefits, an investor must meet at least 13 out of 15 sub-criteria. A minimum of 5 sub-criteria is required to obtain a license.

For investors considering the acquisition of a company that holds a KDIPA license, special attention should be Obligations and Compliance for KDIPA-Licensed Entities

KDIPA-licensed entities must comply with the following obligations:

• Submit written notification to KDIPA of the commencement and completion of executive procedures, and the actual launch of operations, within 30 days of each event.
• Maintain regular accounts supervised by certified auditors.
• Submit tax reports and obtain a tax card as required by the Ministry of Finance.
• Provide any information, data, statistics, or documents requested by KDIPA.
• Allow KDIPA officials access to premises for inspection and verification of compliance.
• Adhere to all applicable laws and regulations, including those related to environmental protection, public health, and safety.

Penalties for Non-Compliance:

KDIPA may impose the following penalties for violations of the law or licensing requirements:

• Written warning (with escalation for repeated violations).
• Partial or complete deprivation of incentives and exemptions (with possibility of reinstatement upon rectification).
• Temporary administrative suspension.
• Revocation of the license if the entity ceases operations for more than one year without valid reason, or fails to commence operations as scheduled.
• Penalties are recorded in the investment register and do not relieve the entity from civil or criminal liability.

Transfer and Acquisition of KDIPA-Licensed Entities

KDIPA Law permits the transfer, assignment, or disposal of ownership of a licensed investment entity, in whole or in part, to another foreign or Kuwaiti investor. The new investor assumes all rights and obligations of the original investor.

 Due diligence is required regarding compliance history, outstanding obligations, and any penalties imposed by KDIPA. KDIPA approval is required for such transactions.

Dispute Resolution

Disputes involving KDIPA-licensed entities are subject to the exclusive jurisdiction of Kuwaiti courts, unless the parties agree to arbitration

Conclusion

A KDIPA license offers access to valuable investment opportunities in Kuwait, but it also comes with key obligations. If you are considering acquiring a licensed company, it’s essential to thoroughly assess its compliance history, asset utilization, and overall operational track record. Aligning your investment with KDIPA’s strategic objectives not only enhances potential returns but also contributes to Kuwait’s broader economic development goals. Engaging experienced local legal and financial advisors can help navigate regulatory requirements, mitigate risks, and ensure a smoother, more efficient investment process.

Authors: Suzanne Hashem, Legal Director and Habiba Wahdan, Associate.