Ban on ‘Article 18’ expats to own companies as managing partner

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Need to change status to Article 19

KUWAIT CITY, March 19: Relevant regulatory authorities are currently discussing a mechanism for banning expatriates, who hold residency of Article No. 18, from owning companies as a partner or managing partner either at incorporation or in existing entities. This ban will include limiting the granting of this capacity to non-Kuwaiti holders of Article No. 19 residency, reports Al-Rai daily. According to the point of view of the Public Authority for Manpower (PAM), these properties should not be registered in the Ministry of Justice’s register, as it is not permissible to combine the two capacities of worker and employer. PAM explained that the executive regulations of the foreigner residence law did not deprive non-citizens residents of Kuwait the status of partner or investor, as it granted them this capacity, but under the provision of Article No. 19.

The expatriate partners who hold Article 18 residency must adjust their status by changing it to Article No. 19; otherwise, they will have to exit from their holdings. To clarify, workers who hold a work permit according to Article 18 of the executive regulations of the foreigners law issued by the ministerial resolution No. 957/2019 are subject to the supervision and subordination of employers, as the provisions of Article No. 1 of Law No. 6/2010 apply on them regarding work in the private sector, which defined the worker as, “Every male or female who performs manual or mental work for the benefit of the employer and under his management and supervision in exchange for a wage.”

The same article defined the employer as, “Every natural or legal person who employs workers in exchange for wage.” Article 19 stipulates that, “It is permissible to grant normal residency to an investor or a foreign partner in a commercial or industrial activity according to conditions, including that the expatriate is a partner and is committed to attending the last two budgets certified by the Ministry of Commerce and Industry.” PAM explained that expatriates holding Article 18 residency are not permitted to be included in the company’s incorporation contract as co-owners or managing partners on the grounds that it is not legally correct for expatriate workers in the private sector to hold the capacity of a partner at the time when they work for employers.

The importance of this prohibition from the supervisory point of view is growing due to the different legal positions between the status of the expatriate worker and the partner, in addition to the fact that this contradicts the nature of bringing workers into the country to work for employers. This will have a great impact in providing investment opportunities for Kuwaiti citizens. There is also the difficulty of verifying the practice of this labor with the employers they are registered with.

On the ground, it was proven to PAM by conducting inspections of commercial licenses in which expatriate workers hold the capacity of a partner that they sometimes do not practice commercial activity in the first place, despite the registration of workers on those licenses. This constitutes a violation of the provisions of the labor law, and raises suspicions of human trafficking. PAM affirmed that, in light of the keenness to organize the labor market, create opportunities for the national workforce in the labor market, and stimulate their involvement in the private sector, and in implementation of the provisions of various laws related to work and foreign investment, it is necessary to stop granting partner status to expatriate workers who hold residency under the article No. 18, and limiting this capacity to workers who hold article 19 residency.

As a result of this approach, the concerned authorities will stop allowing expatriates under article 18 to work in the capacity of a partner or managing partner of a company. As for the list currently registered with these titles, those included in it will have to change their residency to Article 19 or give up their ownership. Since the contributions of this segment resulted in legal and financial positions and in order to preserve their rights, those who are unable to amend their residency status will be given a period of mostly one year to liquidate their shares within an appropriate period of time, in order to avoid getting rid of them in a defensive manner that harms their rights or gives unreal evaluation indicators in the market due to the increase in the rate of sale.

According to the recent procedures of the Ministry of Justice not to document any real estate sales in the Real Estate Registration Department unless the transaction papers include a bank transfer and states the purpose of the money transfer, or a copy of the certified cheque through which the value of the sold property was paid, it is expected that this procedure will apply to the exit of expatriates covered by the decision. This procedure means stopping cash transactions in such deals, or claiming to have received the value of the deal outside the contract, which blocks the way for the implementation of fake concessions to people who hold article 19 residency. According to PAM’s database, there are about 9,600 expatriate workers in the private sector who hold Article 18 work permits and are also partners of other companies.

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