KUWAIT: The amendments to the new companies' law provide a friendlier and more relaxed environment for foreign investors. As per the new law, it will be now possible to establish a public company within a month's time.
According to Rob Little, Partner with ASAR - Al-Ruwayeh & Partners law firm, it will now take a month to obtain approval to establish a public company compared to four to six months that investors had to spend previously. "Perhaps many things are going to be very quick, fast and easy," he said, stressing that under the older law, it took months to obtain an approval to establish a public company.
The amendments to the companies' law include doing away with the six months' deadline to comply with the new companies law; revising the manner in which a manager of a WLL may be appointed or terminated; permitting a chief executive officer to be a board member; enabling the issuance of shares below 100fils; and clarifying that a holding company may be a public joint stock company.
Little explained, "The recent changes made to the new companies' law reflect the country's keenness to further align its business environment with best international practices. The fact that amendments to the new company law were introduced merely four months after the new companies' law was passed is a step forward that underscores the synergy between the legislative and executive authorities. The amendments to the new law should have the effect of encouraging investment in Kuwait, facilitating expansion of existing businesses, and providing flexibility in the corporate law regime which will, in turn, assist businesses in finding concrete solutions appropriate to their circumstances."
In Little's words, the law was implemented in two stages; the new law was first passed in November 2012 and later the amendments to the new law were passed last month. "The amendments were needed to fine tune the new law but the bylaws need to be passed before the new law can be fully implemented," said Little, who is also a company consultant.
Regulation
"The regulatory system in Kuwait is becoming more dynamic and, as such, businesses need to constantly monitor developments. Commercial entities will need to review their structures taking into account the introduction of the new company's law and assess whether changes are required. Alternatively, these can be recommended to make business run effectively and profitably. We believe that this is a notable step forward for businesses in Kuwait as the new law is set to significantly improve the way companies are structured and how they operate, ultimately creating a stronger sense of confidence to invest in Kuwait as a solid growth market," added Little.
Little expressed his concern that some of the new amendments in the law are too vague. "The new law says that there must be speedier action, especially in terms of corporation process. It must be quicker. That is why they proposed a single window system, but we need to wait to see how the bylaws workout," Little said.
Little, educated at the University of Saskatchewan in Canada, said Kuwait is expecting bylaws to be issued latest by September or possibly even earlier as there are rumors that the same will be issued by month end.
The 51/49 issue:
With regards to the foreign ownership percentage law as per which any Kuwaiti ownership has to be 51 percent and the remainder a foreign investor, Little explained: "The stock exchange-listed companies can be owned to the extent of more than 49 percent by foreigners but private non-listed companies appear to be limited to 51 percent Kuwaiti holding. For instance, in the new company law, foreign ownership rules for WLL will be determined by the bylaws. As Kuwait appears to be wooing foreign investors, there may be some changes and relaxation for foreign ownership of companies but we don't know as yet. Under the old law, the joint stock company's ratio of Kuwait to foreign ownership was 51-49, but under the new law, this aspect is silent and the law doesn't say as yet what the percentage will be," he explained.
Little who moved from Canada to join ASAR in 1997, said it will be more favorable environment for foreign investors in Kuwait if the foreign ownership stake is increased to at least 51 percent, because it will be easier for investors to consolidate financial statements. "If you have 51 percent, it is clear that you have the power to consolidate and the power to elect a majority in the board of directors," said Little.
Little who specializes primarily in banking and finance, general corporate commercial, capital markets, project work and financial transactions, believes that in order to encourage more foreign investors to Kuwait, the corporate law must somehow be pro-investor. "We believe that it will be good for Kuwait to relax the laws for foreign investors and allow a higher ownership stake, which is provided in other GCC countries. We hope that Kuwait will take steps to relax the foreign ownership rules here as well," he wished.
Little noted that in the new law, there will be no more managing directors in joint stock companies. This position will be replaced by the CEO and the CEO can be a board member too. "What the new law is doing is changing the corporate governance structure. The concept of the CEO was not there in the old law, but now, it is gaining foothold in Kuwait. There will be larger separation between the board and management than before," he noted.
In taking the point further, he stressed that the board will also have six meetings a year instead of four. "The board members will be able to pass written resolutions. They don't even have to meet as they can pass a resolution as long as all the board members sign it."
Online shift
Little explained that one of the other amendments to the old law is the acceptance of teleconferencing. "If the system is implemented, it will be very helpful since it is always a problem to convene a board members' meeting because some board members are at different locations. Finally, Little also mentioned that shareholder agreements are now expressly allowed under the new law.
With a total of 22 years of legal experience behind him, Little has been involved at a very senior level with leading several commercial projects, corporate, banking, finance, and mergers and acquisitions transactions ranging from typical transactions to highly complex ones. He admits that establishing a business in Kuwait is really quite difficult compared to other countries because of red tape (bureaucracy) which, he says, hampers growth. "With the new amended version, they are promising much quicker establishment times, no matter who the owners of the companies are," he said.
He further explained that the amendments will provide for a one stop shop for all required documents to be processed. "It is one way of streamlining the process and we have to wait and see how successful the streamlining will be," he said, explaining that in Bahrain, for example, it only takes only a few days to process papers, but in Kuwait it takes months to finish paperwork and licenses. "The new amended version of the corporate law is a huge leap toward positive change," he quipped, adding that in the past, public joint stock companies required an obligatory approval through HH the Amir. Now, it can be done through ministries. He said that the business in Kuwait will be the beneficiary of the new law. "The new changes will be very beneficial to Kuwait," he told Kuwait Times.
Taxation
Another major change in Kuwait is related to taxation. Little explained that in the past, taxation was about 55 percent but about five years ago, it was brought down to 15 percent. "A 15 percent tax is not very high, internationally. However, in some countries in the GCC, no taxes are applied; Dubai is the best example where no taxes are applied. If you ask me whether Kuwait will follow with no taxes, I don't think so. I think the 15 percent bar will remain but who knows (whether changes in this area will be implemented too)," he said.
There are other laws such as the Foreign Direct Investment Law that can be used to help foreign investors. He said if foreign companies were able to satisfy the applicable requirements, they could be granted tax exemptions under this law.
Since 2000, when a foreign company applies for tax exemptions, under the Foreign Direct Investment Law, it must first convince the Foreign Investment Bureau that their business plan will drastically benefit Kuwait in general. In that case, it may attract zero tax. "The process is longer than in other countries and there is no specific investment amount stated in this law. However, banks and other lending institutions are very successful in getting tax exemptions under the Foreign Direct Investment Law," he said.
© Kuwait Times 2013
