Kuwait Enforces Ban on Gulf Firms with Expat Shareholders. Kuwait has recently stirred up the regional business landscape by enforcing a ban on Gulf companies with expatriate shareholders from operating within its borders.

This decision, rooted in an earlier directive by the Ministry of Commerce and Industry, has reignited debates about legal interpretations and economic policies in the Gulf Cooperation Council (GCC) region. The ban, specifically targeting companies with ownership structures that include non-Gulf shareholders, has significant implications for the broader economic integration envisioned by the GCC.

The Ban on Expat Shareholders

The controversy began when Kuwait’s Ministry of Commerce and Industry prohibited expatriates holding Article (18) residency from owning or managing companies in the country. This rule quickly came under scrutiny as it was seen as a barrier to foreign investment and a potential violation of regional agreements.

The issue gained further traction when a Gulf company, seeking to establish a branch in Kuwait, had its application rejected solely because its ownership structure included non-Gulf shareholders.

Ministerial Resolution No. 237 of 2011

Kuwait’s decision is based on Ministerial Resolution No. 237 of 2011, which mandates that Gulf companies must be entirely owned by Gulf citizens to operate in Kuwait. This regulation aligns with Kuwait’s broader efforts to maintain economic control and prioritize national interests.

However, the Gulf company at the center of this dispute has challenged the Ministry’s decision, arguing that it contradicts the spirit of the Unified Economic Agreement among GCC states.

The Unified Economic Agreement and Its Implications

The company in question contends that Kuwait’s stance violates the Unified Economic Agreement, ratified by Law No. (2003/5), which mandates equal treatment for Gulf citizens in any member state. The company asserts that, as a holder of a Gulf license with a majority of Gulf national shareholders, it should be afforded the same rights as any other Gulf legal entity.

The company also points out that foreign companies are generally allowed to establish branches in Kuwait, further complicating the rationale behind the Ministry’s decision.

Key Arguments Against the Ban

1. Legal Conflict: The company argues that the Ministry’s requirement for 100% Gulf ownership is not supported by law. Article (3) of the Unified Economic Agreement emphasizes the equal treatment of Gulf citizens, suggesting that the company’s Gulf license should suffice for its operations in Kuwait.
2. Reciprocity Principle: The company highlights that the Ministry’s decision breaches the principle of reciprocity. The company’s home country does not impose similar restrictions on Kuwaiti businesses, raising concerns about fairness and mutual respect among GCC states.
3. Outdated Regulation: The company challenges the relevance of Ministerial Resolution No. 237 of 2011, citing the more recent Law No. (1) of 2024. This law amended Article (24) of the Commercial Law, allowing foreign companies to establish branches in Kuwait without a local agent, signaling a shift towards a more open economic policy.
4. Kuwait’s Economic Policy: The company emphasizes that recent Kuwaiti legislation favors opening markets to all investors, irrespective of nationality. The explanatory memorandum for the new law underscores the state’s goal of attracting foreign investment, which seems at odds with the current ban on Gulf firms with expat shareholders.

Current Status and Future Implications

The ongoing dispute has escalated to higher legal authorities within Kuwait. The case has been referred to the Assistant Undersecretary for Legal Affairs in the Ministry’s Coordination and Follow-up Department. Additionally, the matter is being reviewed by the Head of the Fatwa and Opinion Department, the Companies and Commercial Licenses Sector, and the Cases and Contracts Department.

These bodies are tasked with delivering a final legal opinion that will determine the future of the company’s operations in Kuwait and potentially set a precedent for similar cases.

Conclusion

Kuwait’s ban on Gulf companies with expatriate shareholders has sparked significant legal and economic debates. At the heart of the issue is the balance between national economic interests and the principles of regional integration under the GCC framework. The outcome of this case could have far-reaching implications, not just for Kuwait but for the entire Gulf region, as it navigates the complex interplay of local regulations and regional agreements.