A basic recommendation guide for foreigners planning to invest in the Middle East
Middle Eastern countries are known for having stricter rules when it comes to allowing foreign investments.
Several industries and sectors in the Middle East are still closed to foreigners to invest, and those sectors open to FDI usually require foreign companies to appoint national shareholders to be able to register and operate.
This guide will give you an overview of the requirements for foreign investments in the best countries of the Middle East, and some of our recommendations for our non-Middle East Clients who wish to invest in the region.
The main obstacle of investing in Saudi Arabia as a foreigner is, to be a shareholder of a company in the country the foreigner must secure a foreign capital investment license from the Saudi Arabian General Investment Authority.
This license is seldom given to all foreign investments.
Because of this reason, we usually recommend our Clients to:
- Either register a branch of a company incorporated in one of the GCC countries or;
- Sign an agency agreement with a local partner.
The choice of an agency agreement company is beneficial because it allows companies to conduct business in the country without the need for a license. The agent will be responsible for the representation, promotion and commercialization of goods and services of the parent company.
In Oman, a company open to foreign capital investments should meet one of the following conditions:
- 100% ownership by and Omani, GCC or US nationals;
- 100% ownership with approval from the Ministry of Commerce and Industry for activities benefiting the Omani economy and has a paid-up share capital of US$1.3 million;
- 100% foreign ownership for companies working on Oman Government contracts;
- Minimum of 35% local ownership and paid up capital of US$390,000;
- Company established in Oman free zone.
Due to these restrictions, we usually recommend our foreign Clients who are not US citizens or those do not have American partners to incorporate their companies in Oman’s free zones.
Companies incorporated and operating in the Oman free zone along with 100% foreign ownership has other benefits like:
- Can trade directly with the local market;
- No minimum paid-up capital requirement;
- Only require to hire 10% of local staff;
- Can enjoy several tax benefits and Government incentives.
Kuwait also strictly restricts 100% owned companies, requiring companies that have all shareholders as foreign nationals seek approval from the Investment Promotion Authorities.
The minimum capital required to obtain a license varies from investment to investment, we usually recommend our Clients to budget US$25,000, which should be deposited at the capital account before the incorporation of the company in Kuwait.
Due to such license requirements, we encourage our Clients to register a joint venture in Kuwait with a passive nominee shareholder, or to operate through an agency agreement. If deciding to work with a commercial agent, the foreign investor will sign an agreement with the commercial agent, which will be registered with the Ministry of Commerce and Industry. Thereafter, the agent will be responsible for representing the Client in Kuwait.
Under this agreement, the foreign Client will still have to file annual tax return and pay corporate income tax on their Kuwait income.
Bahrain is the most welcoming country in the Middle East for foreign investments. The most common type of business entity opened by foreigners is a LLC, locally known as WLL.
The requirements for this type of companies are:
- 2 directors;
- 2 shareholders;
- Minimum paid up capital of US$2,666;
- Resident manager.
The government imposes restrictions for investments in certain areas, such as trading and oil and gas. For those, foreign investors must form joint ventures with local partners. The local partners must own at least 51% of the company shares.
Qatar has strict laws regarding foreign investment, with many sectors closed for 100% foreign investments. If a company is going to be involved in one of these controlled areas, it should be formed in joined venture with local partners, who should own at least 51% of the shares.
For the other non-restricted sectors to invest in Qatar, which are listed in the Qatar Foreign Investment Law of 2010, foreign companies must first get approval from the Ministry of Business and Trade.
The company can then be registered with:
- 1 director and 1 shareholder, and;
- With a paid-up capital set by the Ministry during the review process.
We usually recommend our Clients to budget US$55,000 and above.
Dubai implements strict restrictions on foreign-ownership. It requires foreigners to form joint ventures with UAE nationals, who must hold at least 51% of the shares. The only exception are the free zones, which allow 100% foreign owned companies, which is why we usually recommend our Clients to incorporate in these areas.
Free zone companies can be registered with:
- Only 1 shareholder;
- Make a minimum capital contribution of US$50,000, fully paid-up before company formation;
- 1 director and;
- A lease agreement for an office, warehouse or factory space inside the zone.
Although these types of companies are encouraged to trade with overseas parties, these companies in Dubai free zones can conduct business with local Dubai residents if they have a local sponsor.
Like Dubai, in Abu Dhabi an LLC can only be registered if it has a 51% UAE national shareholder.
However, if a company will provide professional services, such as legal and accounting consultancy, IT and management consultancy, and marketing consultancy, it can be 100% foreign owned. It is just required to appoint a UAE national as a local service agent to obtain licenses, labor cards and to sponsor residency visas.
An alternative for companies not engaged in these activities is to sign a shareholder agreement with the UAE national shareholder.
The Companies Act allows foreign companies to draft flexible, differential profit sharing arrangements, independent of the shareholding percentage. The agreement can ensure that the silent partner does not interfere in the daily activities of the company.
As you can sense, investing in the Middle East countries as a foreigner is more complicated than investing in Europe or North America, however it is not impossible. With over 13 years of experience we have been able to assist Clients from all over the world to establish their companies in the Middle East.
For more information on how we can assist you set up your Middle Eastern business, give us a call at +65 6735 0120, or drop us an e-mail at: email@example.com.