Suspension of expat business licenses widely criticized
The recent circular by the Ministry of Commerce and Industry temporarily suspending the licenses of firms with expatriate partnerships unless their residency complies with Article 19, has faced widespread criticism from several economists and legal luminaries. They said that the circular reflects misplaced enthusiasm and is a hasty decision likely to disrupt the business environment and economy in Kuwait, affecting companies of all sizes.
On August 5, the Acting Undersecretary of the Ministry of Commerce and Industry, issued Circular No. 11 of 2024, on the temporary suspension of the establishment, renewal, and amendment of all companies and institutions that violated laws regarding partnerships. The circular stipulated that no resident or expatriate, whether a partner or manager, may be entered into the commercial register except after ensuring that they fall under Article 19, in accordance with what was stated in Manpower Book No. 2802 dated 3/1/2023.
Lawyers argued that Administrative Circular No. 11 of 2024 was null and void as it violated legislative principles and fell significantly below the standard of the law. In a statement issued on the new circular, Lawyers Bassam Al-Asousi and Fahd Al-Bassam pointed out that the circular addressed higher legislation, represented by the Commercial Companies Law and the Trade Law, which are responsible for setting the conditions and mechanisms necessary for establishing companies and practicing trade in Kuwait. They stated that the circular was illegal due to its violation of the law, as well as because of the illegality of the party that issued the decision.
They noted that legislation has established principles and rules that are considered part of the public order and must not be violated. Among these principles is that a lower authority in the ranks of legislation, may not cancel or amend a legal rule established by a higher authority, nor add new provisions to it, except with special authorization from this higher authority or from the law (Article 2 of the Civil Code).
Based on the above law, the ministry’s circular violated legislative principles. The circular, which is at a much lower level than the law, addressed higher legislation represented by the Commercial Companies Law and the Commercial Law, which are responsible for setting the conditions and mechanisms necessary for establishing companies and practicing trade in Kuwait.
The Commercial Companies Law sets the conditions for establishing companies of all kinds. Among these conditions there is no reference to the residence status of the foreign partner (expatriate). Similarly, the Commercial Law did not set any restrictions related to the residence of the expatriate practicing trade, and only stipulated, under Article 23 thereof, that the expatriate must have a Kuwaiti partner, and that this partner’s share must not be less than 51 percent of the capital of the company with a foreign element.
The lawyers added that these provisions are among the general principles on which the economic system in Kuwait is based. They also relate to a general and fundamental interest of the community and are therefore considered matters related to public order.
They noted that the ministry’s circular was issued based on a letter from the Public Authority of Manpower to the Ministry of Commerce, stating that it is not permissible to combine the status of employer and worker for the same person. This, the lawyers argued, is an inaccurate criterion since the company, as the employer, has its own legal personality and financial liability independent of its partners. It is not necessary for a partner to be a worker in the company.
This standard set by the circular constitutes an amendment to a legal provision, which the issuing authority does not possess without authorization from the law, rendering it legally ineffective and invalid for reliance. The lawyers added that the existing legal positions remain as they are until the legislator intervenes to amend the legislative texts related to foreigners owning shares in Kuwait commercial companies and practicing trade, in accordance with the constitution and the law.
Meanwhile, economists said that decision-makers failed to consider Kuwait’s work environment and whether companies could adjust to the new circular without causing confusion. Highlighting the potential negative impact on the Kuwaiti labor market, they urged the ministry to reconsider and thoroughly review the circular, suggesting it be canceled temporarily for further study. The economists warned that the effects of implementing this circular posed a significant danger that will harm the Kuwaiti economy. Pointing out that enforcement of the circular will lead to the suspension of about 45,000 companies, negatively impacting market activity, they added that the conditions imposed by the circular should be realistic and not prohibitive.
They noted that some non-Kuwaiti partners are investors with the financial capacity to invest in Kuwait, which aligns with the state’s goal of attracting capital and encouraging foreign investors to invest in the country, and increase non-oil revenue. However, this decision contradicts that goal and hinders the development of the state budget through foreign investments.
Other economists added that expat business partners with Article 19 residency were very few and typically involved significant capital, relevant mainly to large companies, whereas service companies, which support small and medium-sized businesses, do not require such capital. In addition, they noted that expatriates may choose to dispose of their shares if they are unable to adjust their status, resulting in the loss of their rights and providing false indicators of market activity. Accordingly, this circular is invalid in all respects, nullifies its effect, and must not be implemented.
