Driving business sustainability

September 2023

Rula Dajani and Tarek Abu Mariam of HFW discuss the new decree that introduces significant changes to business registration procedures to enhance transparency and regulatory compliance in Kuwait.

In a significant move aimed at enhancing transparency and regulatory compliance, Kuwait introduced a significant legal change; the Ministry of Commerce & Industry in Kuwait issued Ministerial Decree No. 4 of 2023 (amended by Decree no. 41 of 2023), introducing an obligation for the disclosure and identification of the Ultimate Beneficial Ownership (“UBO“) for all legal entities registered in the State of Kuwait.

A Ministerial Decree is a form of administrative decision issued by a government minister. It is of legal effect and is used to implement laws, regulations or policies within their respective Ministries. A Ministerial Decree requires publication in the Official Gazette to come into force but does not require any further ratification.

The Decree was published on January 8, 2023, in the Official Gazette (Al Kuwait Al Yawm) and introduces UBO requirements that impact both existing and prospective entities operating in Kuwait. The Decree came into effect on April 1, 2023.

The central focus of the Decree revolves around the identification and reporting of the actual beneficiaries (UBOs) behind legal entities. By doing so, Kuwait aims to strengthen its business environment, bolster its international standing, and fortify its efforts against money laundering and terrorism financing. The Decree’s provisions align closely with Kuwait’s ongoing commitment to adhere to international best practices and standards.

The Decree does not apply to wholly owned Kuwait Government Entities.

KEY OBJECTIVES AND IMPLICATIONS

At its core, Ministerial Decree No. 4 of 2023 sets out two key objectives:

Development of the Business Environment: The Decree seeks to contribute to the overall development of Kuwait’s business landscape, harnessing its potential economic prowess in line with global benchmarks. It achieves this by establishing a robust framework that outlines the minimum obligations of registrars and legal entities. This encompasses a streamlined approach to licensing, registration procedures, and a comprehensive regulation of actual beneficiaries, along with a register of partners or shareholders.
Effective Regulatory Mechanisms: With an eye on long-term sustainability, the Decree aims to establish effective and sustainable mechanisms and procedures for divulging crucial details about the actual beneficiaries.

HARMONISING WITH EXISTING LEGISLATION

Ministerial Decree No. 4 of 2023 complements Kuwait’s existing legal framework, particularly Law No. 106 of 2013, which addresses the key issues of money laundering and the financing of terrorism (AML Law). The Decree’s objectives and provisions are designed to be integrated with the broader goals outlined in the AML Law and its associated regulations.

SANCTIONS AND MEASURES

For entities that fail to comply with the Decree’s provisions, a range of sanctions and measures have been laid out, including written warnings, procedural commitments, financial penalties, and even temporary suspensions from relevant sectors. These measures underscore Kuwait’s commitment to enforcing stringent adherence to the newly introduced regulations.

ENSURING DATA ACCESSIBILITY

Article 11 of the Decree underscores the importance of data availability and accessibility to the registrar. The article sets out obligations on the companies to keep certain essential registers.

DISCLOSURE REQUIREMENTS/REGISTER OF UBOS

One of the most notable aspects of the Decree pertains to the disclosure of the actual beneficiaries behind legal entities. Every entity registered in Kuwait must maintain a register of UBO’s. Article 8 of the Decree outlines the specific information that must be maintained in the Actual Beneficiary Register:

Full name of the beneficial owner, nationality, date, and place of birth.
Residence or address for official notifications.
Passport or civil identity cards, including numbers and expiration dates.
Basis for becoming a beneficial owner and the date of assumption of this role.
Date ceased to be a beneficial owner.

The Register of UBOs shall be updated with any changes within 15 days from the date of knowledge or deemed knowledge.

A UBO is defined under the Decree as a natural person who ultimately owns (directly or indirectly), controls or has voting rights of 25 per cent or more shareholding in the company.

If the UBO cannot be identified, then the UBO becomes the natural person who holds the position of senior management in the company.

REGISTER OF SHAREHOLDERS AND PARTNERS

Every entity registered in Kuwait must maintain a register of its partners/shareholders with the following specific information:

Details of the shareholder/partner
Number of shares and voting rights
Date of becoming a shareholder/partner

The Register of shareholders/partners shall be updated with any changes within 15 days from the date of knowledge or deemed knowledge.

Timely Submission and Protection:

Under Article 11, legal entities are required to promptly submit both the actual beneficiary register and partners or shareholders register details to the registrar. This submission must take place within 60 days of the Decree’s implementation or the date of licensing and registration. Furthermore, legal entities are expected to implement reasonable measures to safeguard these registers against potential damage, loss, or destruction, ensuring the longevity and accessibility of critical information.

Effective Interaction with the Registrar:

The Decree emphasises the importance of ongoing communication between legal entities and the regulatory authority. In response to any additional details requested by the registrar, legal entities must ensure timely and comprehensive responses. This proactive interaction ensures a continuous exchange of information, contributing to the overall transparency and efficiency of the registration process. Article 11 reinforces the significance of compliance by mandating legal entities to furnish the registrar with all details outlined in the Decree. This requirement is particularly relevant at key milestones in the life of a company such as incorporation, licensing, registration, renewal, amendments, or any circumstances deemed necessary by the registrar.

Commitment to Long-Term Data Retention: The Decree places strong emphasis on the retention of records. Legal entities, along with those responsible for management, liquidation, or other dissolution-related procedures, are obligated to maintain all registers and details specified under the decree for a minimum of 5 years following dissolution, liquidation, deregistration, or any other procedures leading to the conclusion of the entity’s legal existence. Article 11/7 of the Decree.

IMPLEMENTATION OF THE DECREE

The Decree came into effect on April 1, 2023. The implementation currently consists of online confirmation of the identity of the UBO via the online portal of the Ministry of Commerce and Industry. However, legal entities operating in Kuwait must proactively prepare to comply with the Decree’s requirements and maintain registers of the shareholders and the UBOs.

To facilitate efficient and authorised communication with the authorities Kuwait registered legal entities are required to designate a natural person from amongst their employees who is a resident in Kuwait. This designated individual holds the authority to disclose all essential details and information to the companies’ registrar. By providing the registrar with this designated point of contact, legal entities contribute to streamlined and effective information exchange.

Through the implementation of the Decree, Kuwait aims to strengthen its business environment through heightened transparency and adherence to international best practices. Further guidance is awaited from the Ministry on this subject.

—

HFW operates in Kuwait in association with Attorney Rula Dajani.

—

Text by: