Kuwait - Using an Agent to Sell US Products and Services Kuwait - Using an Agent
Companies Law Decree 25/2012, as amended by Law 97/2013, governs the establishment of a business or business relationship in Kuwait. Under the above provisions, a foreign commercial entity may not establish a branch or perform any commercial activities in the country except through a Kuwaiti partner or agent. However, under the Law for the Promotion of Direct Investment in the State of Kuwait (PDISK; Law No. 116 of 2013, which replaced the Direct Foreign Capital Investment Law, Law No. 8 of 2011) an investor can establish a 100% foreign owned Kuwaiti company, a licensed branch or a representative office of a foreign entity. (Please refer to “Establishing an Office” under this chapter for further details on this topic).
U.S. firms seeking a presence in the Kuwaiti market may do so through commercial agents, distributors, or service agents. Commercial agents promote products or services for a principal, as well as negotiate, conclude, and carry out deals on behalf of the principal (within the scope and authorization provided in the contractual agreement). A distributor promotes, imports, stocks, and distributes the principal’s goods and services. Service agents (sponsors) act as representatives for foreign firms seeking to contract with the government of Kuwait per Article 24 of Commercial Law 68 of 1980, but they generally offer less value added. Cooperative unions and other food merchants can directly import certain foods. In 2016, Kuwait passed Law No. 13 of 2016 (The Agency Law). The biggest change with the new law is the removal of the requirement for exclusivity. Foreign firms can now register as many agents as they wish to promote their products.
Common Practices
The U.S. Commercial Service in Kuwait recommends that agency or distributor contracts include information pertaining to the geographic sales or marketing territory to be covered by the agent, manufacturer’s representative, or distributor. The contract should stipulate the products and services that the party will support and manage within an exact validity period of agreement, the agent/distributor fee and commission structure, the choice of applicable law, any arbitration clauses, milestones, and responsibilities of both parties as well as termination clauses. In addition, the agreement must be crafted so that it complies with both Kuwaiti and U.S. laws. Though there is no statutory period for providing a notice of termination, a three-month period is customary. If a U.S. company does not officially terminate its Kuwait agent in writing, the agent may claim commission from future sales. Apart from termination, a U.S. principal must also be aware that the local agent may need to be compensated for investments made and good faith efforts undertaken to promote, sell, and service the principal’s products in Kuwait. The Kuwaiti Commercial Code contains a formula for compensation; however the contract must be very well drafted by a competent lawyer in Kuwait. Where a relationship is terminated for cause and the agent has not met a performance goal, it is possible to avoid compensation.
Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.