KEY MONEY – The key to doing business in Kuwait
If you haven’t heard of key money, get ready for a shock. A growing practice in Kuwait for small businesses, key money is the price you pay for access to any suitable location. It’s not a deposit and you won’t get it back. It’s not rent – you still have to pay that each month. Instead, key money is the amount you pay up front to the landlord or owner of a shop or space that you want to rent.
Key money can run anywhere from KD 20,000 to KD 50,000 or more. It is not the ‘purchase’ price of the shop as you are not buying the shop but only renting it and the owner can at any time cancel the contract or throw you out and take key money from a new renter. “For a small baqala in Hawally, I was asked to pay KD 15,000 in key money.
How can I afford or manage the baqala after paying this amount? I thought I only have to rent the place and that’s it,” said Derek, a would-be small business owner and expatriate.
There are marathon obstacles that would-be small business owners must overcome to open a new business in Kuwait. To obtain a license for a small baqala, for example, the Ministry of Commerce and Industry requires a bank deposit of KD 5,000. Expats, of course, must have a Kuwaiti partner and there is a year’s worth of paperwork, stamps, ministries’ approval and other requirements.
Moreover, in order to obtain a license, any business must also have a place, and that means renting a shop or office somewhere. For companies in the service sector that need a location where customers can easily find and access the business, that means key money.
In Jleeb-Al Shuyoukh, landlords want an astounding KD 20,000 to KD 30,000 in key money for a small shop. “This place is very crowded, so you’ll never run out of customers here for whatever business you might want to set up. I bought the rights from the owner, so I must sell the rights too. This price is even smaller compared to the amount I paid to the previous owner,” a renter told Kuwait Times.
A 4×4 square meter shop in a low traffic location in Mubarakiya seeks KD 10,000 in key money plus KD 650 in monthly rental. There is no commercial law which governs the key money issue.
It is a tradition for businesses in Kuwait but has grown exponentially and risen dramatically in price in recent years. Key money is never returned, but a renter with a valid contract can sell the space to another renter who will pay him key money and take over the lease. “Key money in Kuwait is never an issue – it is a fact in the black market and in many commercial establishments elsewhere,” said Aamir Mohammad, CEO of the International Institute of Computer Science and Administration (ICSA) in Kuwait City. “If you want a business, you must have a reasonable amount to start a new venture and plan, and some luck too,” he noted.
The Ministry of Commerce and Industry requires businesses to deposit the following amounts as a prerequisite to getting their business license: Small restaurant (KD 5,000), baqala (KD 5,000), fresh poultry shop (KD 3,000), meat shop (KD 3,000), gift shop (KD 3,000), garment shop (KD 5,000), diamond and gold shop (KD 50,000), tailoring shop (KD 2,000) and salon (KD 2,000).
Some businesses such as advertising and travel agencies must be prepared to put down a security deposit (bond) of KD 25,000 to KD 50,000.
The security bond will be used for emergency purposes such as paying employees’ salaries, and in case the owner commits a serious mistake, a penalty will be imposed and automatically deducted from the security bond.
Sample of key money requirements for different locations in Kuwait
By Ben Garcia