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Bahrain

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of Bahrain (GOB) has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses. Increasing foreign direct investment (FDI) is one of the government’s top priorities. The GOB permits 100 percent foreign ownership of a business or branch office, without the need for a local partner. The GOB does not tax corporate income, personal income, wealth, capital gains, withholding or death/inheritance. There are no restrictions on repatriation of capital, profits or dividends, aside from income generated by companies in the oil and gas sector, where profits are taxable at the rate of 46 percent.

To date, U.S. investors have not alleged any legal or practical discrimination against them based on nationality.

Limits on Foreign Control and Right to Private Ownership and Establishment

The GOB permits foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. The GOB imposes only minimal limits in foreign control, and the right of ownership and establishment of a business. MoICT maintains a small list of business activities that are restricted to Bahraini ownership, including press and publications, Islamic Pilgrimage, clearance offices, and workforce agencies. The U.S.-Bahrain Free Trade Agreement outlines all activities in which the two countries restrict foreign ownership.

U.S citizens may own and operate companies in Bahrain, though many such individuals choose to integrate influential local partners into the ownership structure to facilitate quicker resolution of bureaucratic issues such as labor permits, issuance of foreign visas, and access to industrial zones. The most common challenges faced by U.S firms are those related to bureaucratic government processes, lack of market information, and customs clearance.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted a formal Trade Policy Review of Bahrain in 2014 (available here ).

Business Facilitation

The Ministry of Industry, Commerce and Tourism (MoICT) made several changes to the commercial registration process in 2016 in an effort to enhance efficiency and transparency. The new commercial registration entity, called “Sijilat” (https://www.sijilat.bh/ ), in principle allows all Bahraini individuals to complete the company registration process online, following the two steps below:

  1. Obtain a business license
  2. Obtain approvals from relevant ministries to offer services in specific sectors of the economy

Only Gulf Cooperation Council (GCC) nationals can use the online platform to register their companies. U.S. citizens must still appear in person at MoICT’s Bahrain Investors Center to initiate their applications. The online platform can be accessed through a national identification tool called the e-key. Sijilat allows GCC companies and individuals the opportunity to apply for, track and get a “primary approval” for a new commercial registration online, usually within two business days. MoICT estimates it takes between 15 to 45 business days to complete the company registration process, including obtaining all licenses necessary to operate a business.

Although the website for Sijilat includes extensive explanations designed to assist applicants, preliminary feedback from site users indicates that it is still easier to complete the commercial registration process with the assistance of an expert, such as a lawyer or clearing agent.

In addition to obtaining primary approval to register a company, most business owners must also obtain licenses from the following entities to operate their businesses:

  • MoICT
  • Ministry of Electricity and Water
  • The Municipality in which their business will be located
  • Labor Market Regulatory Authority
  • General Organization For Social Insurance

Outward Investment

The Government of Bahrain (GOB) neither promotes nor incentivizes outward investment. The GOB does not restrict domestic investors from investing abroad.

Saudi Arabia

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Attracting foreign direct investment remains a critical component of the SAG’s broader program to diversify an economy overly dependent on oil exports and promote employment opportunities for a growing youth population. As such, the SAG seeks foreign investment that explicitly promotes economic development, transfers foreign expertise and technology to Saudi Arabia, creates jobs for Saudi nationals, and/or expands Saudi’s non-oil exports. The government encourages investment in nearly all economic sectors, with priority given to transportation, education, health, information and communications technology, life sciences, and energy, as well as in four new “Economic Cities” that are at various stages of development. The Economic Cities are large-scale and self-contained developments in different regions focusing on particular industries, e.g., information technology. In early 2017, the SAG expressed renewed interest in developing its nascent renewable energy sector, offering foreign investors valuable opportunities to participate in the market and ultimately sign power purchase agreements. Overall, prospective investors will find Saudi Arabia relatively attractive for its economic stability, large market (the largest in the Gulf region with a population of over 30 million), sound infrastructure, and well-regulated banking system.

The Saudi Arabian General Investment Authority (SAGIA) governs and regulates such investment in the Kingdom, issues licenses to prospective investors, and works to foster and promote investment opportunities across the economy, particularly in energy, education, transportation, health, life sciences, and knowledge-based industries. Established originally as a regulatory agency, SAGIA has increasingly shifted its focus to investment promotion and assistance, offering potential investors detailed guides and a catalogue of current investment opportunities on its website (www.sagia.gov.sa ).

Despite Saudi Arabia’s overall welcoming approach to foreign investment, some structural rigidity remains. As noted earlier, foreign investment is banned in three industrial sectors and 12 service sectors, among them real estate in Mecca and Medina, some subsectors in printing and publishing, audiovisual services, land-transportation services excluding intra-city rail transport, and upstream petroleum. The complete “negative list” can be found at www.sagia.gov.sa . Additionally, older laws remaining on the books prohibit or otherwise restrict foreign investment in some economic subsectors not on the “negative list” above, including many areas of healthcare.

Foreign investors must also contend with a local content requirement of subcontracting 30 percent of the value of their government contracts to local firms, a requirement to hire increasingly larger proportions of Saudi nationals at higher costs, an increasingly restrictive visa policy for foreign workers, and enforced segregation of the sexes in nearly all business and social settings. Further, over the course of 2016, the SAG has increasingly signaled its interest in introducing new local content requirements for foreign firms, in a bid to stimulate domestic manufacturing, hire more Saudi nationals, and transfer technology and knowhow. Last, foreign and domestic contractors also reported severe payment delays from the Saudi government over the course of 2016, a problem stemming from the SAG’s 2015 decision to freeze payments to major contractors in the wake of a budget crunch induced by sustained low oil prices.

Limits on Foreign Control and Right to Private Ownership and Establishment

Saudi Arabia fully recognizes rights to private ownership and establishment of private business. As outlined above, the SAG does exclude foreign investors from some economic sectors and places some limits on foreign control. With respect to energy, Saudi Arabia’s largest economic sector, foreign firms are barred from investing in the upstream petroleum sector, but the SAG permits foreign investment in the downstream energy sector, including refining and petrochemicals. There is significant foreign investment in these sectors. ExxonMobil and Shell are both 50 percent partners in refineries with Saudi Aramco. ExxonMobil, Chevron Texaco, and Shell, as well as several other international investors, have formed joint ventures with the Saudi Basic Industries Corporation (SABIC) to build large-scale petrochemical plants that utilize natural-gas feedstock from Aramco’s existing operations at Ras Tanura. Aramco selected the Dow Chemical Company in 2006 as its partner in a $20 billion joint venture to construct, own, and operate a chemicals and plastics production complex in Saudi Arabia’s Eastern Province.

With respect to other non-oil natural resources, the national mining company, Maaden, has a $12 billion joint venture with Alcoa for bauxite mining and aluminum production and a $7 billion joint venture with the leading American fertilizer firm Mosaic and SABIC to produce phosphate-based fertilizers.

Joint ventures almost always take the form of limited-liability partnerships, to which there are some disadvantages. Foreign partners in service and contracting ventures organized as limited-liability partnerships must pay, in cash or in kind, 100 percent of their contribution to authorized capital. SAGIA’s authorization is only the first step in setting up such a partnership.

Professionals, including architects, consultants, and consulting engineers, are required to register with, and be certified by, the Ministry of Commerce and Investment (MCI), in accordance with the requirements defined in the Ministry’s Resolution 264 from 1982. These regulations, in theory, permit the registration of Saudi-foreign joint-venture consulting firms. As part of its WTO accession commitments, Saudi Arabia generally allows consulting firms to establish a local office without a Saudi partner. However, offices practicing law, accounting and auditing, design, architecture, engineering, or civil planning or providing healthcare, dental, or veterinary services must have a Saudi partner, and the foreign partner’s equity cannot exceed 75 percent of the total investment. A recent legal challenge to the MCI’s right to license joint venture law offices based on the contention that jurisdiction should properly rest with the Ministry of Justice has resulted in suspension of the issuance of new licenses, pending resolution of the jurisdictional issue.

In recent years, Saudi Arabia has opened additional service markets to foreign investment, including financial and banking services; aircraft maintenance and repair and computer reservation systems; wholesale, retail, and franchise distribution services (traditionally subject to minimum 25 percent local ownership and minimum SR 20 million [$5.3 million] foreign investment); both basic and value-added telecom services; and investment in the computer and related services sectors. In 2016, for example, Saudi Arabia formally approved full foreign ownership of retail and wholesale businesses in the Kingdom, thereby removing the former 25 percent local ownership requirement. While nearly a half dozen companies have already received licenses under the new rules, the restrictions attached to obtaining full ownership – including a requirement to invest over $50 million over the first five years and ensure that 30 percent of all products sold are manufactured locally – have precluded many investors from taking full advantage of the reform.

The SAG has also signaled its possible intention to begin enforcing offset requirements for major investments. In 2014, the SAG issued a royal decree requiring all foreign companies fulfilling contracts valued at over SR 400 million ($107 million) to implement a 40 percent offset requirement across all economic sectors. Previously unenforced outside of the defense sector, the offset mandate appeared in an early 2016 tender issued by the Gulf Cooperation Council (GCC) Health Ministers’ Council for contracts with the Saudi Ministry of Health, signaling the SAG’s intention to apply the requirement more broadly. Although the matter has yet to be clarified officially, a number of SAG investment and offset officials have indicated informally that the 40 percent offset requirement will apply across all sectors.

Other Investment Policy Reviews

Saudi Arabia completed its second WTO review in late 2015, which included investment policy (https://www.wto.org/english/tratop_e/tpr_e/tp433_e.htm ).

Business Facilitation

In addition to applying for a license from SAGIA as described above, foreign and local investors must register a new business via the MCI, which has begun offering online registration services for limited liability companies at: http://www.mci.gov.sa/en . Though users may submit Articles of Association and apply for a business name within minutes on MCI’s website, final approval from the ministry can often take a week or longer. Applicants must also complete a number of other steps in order to start a business, including obtaining a municipality (Baladia) license for their office premises and registering separately with the Ministry of Labor and Social Development, Chamber of Commerce, Passport Office, Tax Department and the General Organization for Social Insurance. From start to finish, registering a business in Saudi Arabia takes a foreign investor on average two to three months from the time an initial SAGIA application is complete, placing the country at 147 of 190 countries in terms of ease of starting a business, according to the World Bank. With respect to foreign direct investment, the investment approval by SAGIA is a necessary, but not sufficient, step in establishing an investment in the Kingdom. There are a number of other government ministries, agencies, and departments regulating business operations and ventures.

Though Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom, no formal mechanism yet exists to facilitate investment and business operations by foreign SMEs. In 2016, the SAG released a new Companies Law designed in part to promote the development of the SME sector, which allows one person, rather than the previous minimum of two, to form a corporation, though in very limited cases. It also substantially cuts the minimum capital and number of shareholders required to form a joint stock company (from five previously to two). In fall 2015, the SAG announced the establishment of a new Saudi SME Authority, housed within the MCI, but the organization has yet to announce any initiatives targeted at foreign entrepreneurs.

Outward Investment

In 2016, Saudi Arabia announced a number of high-profile outward investments via its Public Investment Fund, including a $3.5 billion stake in Uber and an agreement with Japanese Softbank Group Corp. to jointly create a $100 billion technology investment fund. Saudi Arabia does not restrict domestic investors from investing abroad.

United Arab Emirates

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment

The UAE is generally open to foreign direct investment (FDI), citing it as a key part of its long term economic plans. The UAE Vision 2021 strategic plan aims to achieve FDI flows to the UAE of five percent of Gross National Product (GNP), a number one rank for the UAE in the global index for ease of doing business, and a place among the top 10 countries worldwide in the Global Competitiveness Index. UAE investment laws and regulations are evolving in support of these goals. However, current frameworks still favor local over foreign investors. While recently updated laws validate the practice of foreign-owned free zone companies operating “onshore” in some instances, and permit majority-Gulf Cooperation Council (GCC) ownership of public joint stock companies, there remains no national treatment for investors and foreign ownership of land and stocks is restricted. Non-tariff barriers to investment persist in the form of restrictive agency, sponsorship, and distributorship requirements. Investment promotion agencies exist based on the emirate. For example, the Sharjah Investment and Development Authority, or Shurooq, is an independent government agency that assists investors in finding partnerships in the emirate.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign companies or individuals are limited to 49 percent ownership/control in any part of the UAE not in a free trade zone, pursuant to law. There have been waivers of the application of this law granted on a case-by-case basis. The 2015 Commercial Companies Law allows for full ownership by GCC nationals.

Other Investment Policy Reviews

The UAE government (UAEG) underwent a World Trade Organization (WTO) Trade Policy Review in 2016. The full WTO Review is available at: https://www.wto.org/english/tratop_e/tpr_e/s338_e.pdf 

Business Facilitation

UAEG figures generally emphasize the importance of facilitating business, and tout the broad network of Free Trade Zones as being attractive to foreign investment. The UAE’s business registration process varies based on the emirate. The business registration process is not available online. Generally registration happens through the particular emirate’s Department of Economic Development. Links to information portals from each of the emirates are available at https://ger.co/economy/197 . At a minimum, a company must generally register with the Department of Economic Development, the Ministry of Labor, and the General Authority for Pension and Social Security with a required notary in the process. The time it takes to start a business was eight days in 2016, according to the World Bank.

Outward Investment

The UAE is an important participant in global capital markets, primarily through its various sovereign wealth funds, as well as through a number of emirate-level, government related investment corporations.

Investment Climate Statements
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The Lessons of 1989: Freedom and Our Future