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Kuwait

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Kuwait reintroduced its national development plan in 2018 as NewKuwait.  Key economic objectives in the plan include creating a business environment that will stimulate private sector growth and attract foreign investors.  The Foreign Direct Investment Law of 2013 allows up to 100 percent foreign ownership in certain industries, including: infrastructure (water, power, wastewater treatment, and communications); insurance; information technology and software development; hospitals and pharmaceuticals; air, land, and sea freight; tourism, hotels, and entertainment; housing projects and urban development; and investment management.  The law also established KDIPA (http://kdipa.gov.kw/en  ) to solicit investment proposals, evaluate their potential, and assist foreign investors in the licensing process.  The government believes that providing greater access to the Kuwaiti market will encourage foreign companies to invest in the private sector elements of the Northern Gateway/Five Islands and other projects that constitute the NewKuwait development plan.

In 2015, KDIPA delivered its first investment license to IBM, allowing the company to establish a 100 percent foreign-owned company in Kuwait and to benefit from the incentives and exemptions granted under the new law.  Since then, KDIPA has granted foreign ownership licenses to 28 additional foreign firms, including U.S. companies GE, Berkeley Research Group, Malka Communications, Maltbie, and McKinsey & Company.

U.S. companies operate successfully in the country.  American engineering firms such as Fluor have participated in large infrastructure development projects, including the USD 16 billion Al-Zour Refinery and Clean Fuels Project.  Dow Chemical Company participates in several joint ventures in the petrochemical industry. General Electric is a major vendor to power generation and desalination facilities. Citibank operates a branch in Kuwait City.  Numerous franchises of U.S. restaurants and retail chains operate successfully.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Companies Law No. 1 of 2016 simplified the process for registering new companies and has helped to reduce wait-times associated with starting a new business.  This law maintained the requirement that a Kuwaiti or GCC national own at least 51 percent of a local company. If non-GCC investors qualify to invest through the Kuwait Direct Investment Promotion Authority , this requirement may be waived.  In 2017, the law was amended to eliminate prohibitive requirements placed on limited liability companies.

Council of Ministers Decision No. 75 of 2015 directs KDIPA to exclude foreign firms from sensitive sectors.  Sensitive sectors include: extraction of crude petroleum, extraction of natural gas, manufacture of coke oven products, manufacture of fertilizers and nitrogen compounds, manufacture of gas, distribution of gaseous fuels through mains, real estate, security and investigation activities, public administration, defense, compulsory social security, membership organizations, and recruitment of labor.

Other Investment Policy Reviews

In the past three years, no investment policy reviews on Kuwait were conducted by the Organization of Economically Developed Countries, the World Trade Organization (WTO), or the United Nations Conference on Trade and Development.

Business Facilitation

Kuwait’s ranking in the World Bank’s Doing Business Index improved to 133 (from 149) out of 190 for Starting a Business in 2019.  The World Bank’s Doing Business project lists the steps required to start a business in Kuwait in the following link: (http://www.doingbusiness.org/data/exploreeconomies/kuwait/starting-a-business  ).

Its time-to-complete estimates may be optimistic, as anecdotal reports indicate that starting a new business in Kuwait can take up to a year.  The government has been working with the World Bank to resolve doing business issues in Kuwait.

In 2016, the Ministry of Commerce and Industry (MOCI) inaugurated the Kuwait Business Center (KBC) (visit website: http://www.kbc.gov.kw  ) to facilitate the issuance of commercial licenses and to start limited liability and single owner companies within 3-5 working days.  However, the business center has encountered challenges in coordinating interagency cooperation. The government outlines steps for starting a business in the following website: https://www.e.gov.kw/sites/kgoenglish/Pages/Business/InfoSubPages/StartingABusiness.aspx  .

KDIPA also established a unit to streamline registration and licensing procedures for qualifying foreign investors.  Its goal is to approve licenses within 30 days of the completed application.

The April 2013 Law No. 98 established the National Fund for the Support and Development of small- and medium-sized enterprises, which it defines as enterprises that employ up to 50 Kuwaitis and require less than Kuwaiti Dinars (KD) 500,000 in financing.  Financing is limited to enterprises established by Kuwaiti citizens. During FY 2017/18, the National Fund approved 350 project applications, including applications for 137 industrial projects.

Outward Investment

The government neither promotes nor restricts outward private investment.  The largest, single outward investor is the country’s Future Generations sovereign wealth fund, managed by the Kuwait Investment Authority (KIA).  By law, however, KIA may not disclose the total amount of its investments. In 2018, the Sovereign Wealth Fund Institute estimated that KIA managed USD 592 billion in assets, which would make it the fourth largest sovereign wealth fund in the world.  Kuwaiti officials have indicated that KIA has invested more than USD 300 billion in the United States across a wide portfolio. The press has reported that KIA holds a significant interest in the New York City Hudson Yards project, one of the largest private redevelopment projects in U.S. history.  Another large Kuwaiti investment involves MEGlobal, a subsidiary of Equate, which is a partnership between Kuwait’s Petrochemicals Industries Company and Dow Chemical Company. MEGlobal is building a billion-dollar monoethylene glycol production facility in Texas, which is scheduled to be completed by the end of 2019.  Individual Kuwaitis have found investments in U.S. securities and real estate attractive.

3. Legal Regime

Transparency of the Regulatory System

Kuwait does not have a centralized online location where key regulatory actions are published akin to the Federal Register in the United States.  The regulatory system does not require that regulations be made available for public comment. The government frequently passes draft regulations to interested parties in the private sector, such as the Kuwait Chamber of Commerce and Industry or the Bankers Association, for comment.

The State Audit Bureau reviews government contracts and audits contract performance, but does not publicly share its results.

Kuwait does not participate in the Extractive Industries Transparency Initiative (EITI), nor does it incorporate domestic transparency measures requiring the disclosure of payments made to other governments related to the commercial development of oil, natural gas, or mineral deposits.  However, the Kuwait economy is almost wholly dependent upon oil, the extraction of which is deemed a responsibility of the government and that is subject to close National Assembly oversight.

International Regulatory Considerations

Kuwait joined the General Agreement on Tariffs and Trade (GATT) in 1963 and became a founding member of the WTO in 1995.  However, Kuwait is not a signatory to every WTO plurilateral agreement, such as the Agreement on Government Procurement. In April 2018, Kuwait deposited its Trade Facilitation Agreement instrument of ratification with the WTO after Kuwait’s National Assembly approved the Agreement the previous month.

Kuwait has been part of the GCC since its formation in 1981.  The GCC launched a common market in 2008 and a customs union in 2015.  The GCC continues to forge agreements on regional standards and coordinate trade and investment policies.  American standards and internationally recognized standards are typically accepted. For more information regarding GCC standards and policies, please refer to the following website (link to GCC website): http://www.gcc-sg.org/en-us/Pages/default.aspx  

Legal System and Judicial Independence

Kuwait has a developed civil legal system, based in part on Egyptian and French law and influenced by Islamic law.  Having evolved in a historically active trading nation, the court system in Kuwait is familiar with international commercial law.  Kuwait’s judiciary includes specialized courts, including a commercial court to adjudicate commercial law. Residents who are not Kuwaiti citizens involved in legal disputes with citizens have frequently alleged the courts tend to show bias in favor of Kuwaiti citizens.  Holders of legal residence have been detained and deported without recourse to the courts.

Persons who have been charged with criminal offenses, placed under investigation, or are involved in unresolved financial disputes with local business partners have in some cases been subjected to travel bans.  Travel bans are meant to prevent an individual from leaving Kuwait until a legal matter is resolved or a debt settled. Travel bans may remain in place for a substantial period while the case is investigated, resolved, and/or prosecuted.  Failure to repay a debt can result in a prison term ranging from months to years, depending upon the amount owed.

U.S. firms are advised to consult with a Kuwaiti law firm or the local office of a foreign law firm before executing contracts with local parties.  Fees for legal representation can be very high. Contracts between local and foreign parties serve as the basis for resolving any future commercial disputes.  The process of resolving disputes in the Kuwaiti legal system can be subject to lengthy delays, sometimes years, depending on the complexity of the issue and the parties involved.  During these delays, U.S. citizens can be deprived of income streams related to their business venture and be forced to surrender assets and ownership rights before being allowed to depart the country.  Sentences for drug-related convictions can include lengthy prison terms, life sentences, and even the death penalty.

Laws and Regulations on Foreign Direct Investment

In an attempt to diversify the economy by attracting foreign investment and growing private sector employment, Kuwait passed a new foreign direct investment law in 2013 permitting up to 100 percent foreign ownership of a business – if approved by the Kuwait Direct Investment Promotion Authority (KDIPA).  Without KDIPA approval, all businesses incorporated in Kuwait must be 51 percent-owned by Kuwaiti or GCC citizens and seek licensing through the Ministry of Commerce and Industry. In reviewing applications from foreign investors, KDIPA places emphasis on creating jobs and the provision of training and education opportunities for Kuwaiti citizens, technology transfer, diversification of national income sources, increasing exports, support for local small- and medium-sized enterprises, and the utilization of Kuwaiti products and services.  KDIPA has sponsored 29 foreign firms, including six U.S. companies. In addition to KDIPA assistance in navigating the bureaucracy, available investment incentives include tax benefits, customs duties relief, and permission to recruit required foreign labor. Government control of land limits its availability for development.

Other recent legal measures to facilitate foreign direct investment and economic growth include Law No. 116 of 2014 regarding public-private partnerships (PPP) and a new Companies Law No. 1 of 2016.  The PPP law created the Kuwait Authority for Partnership Projects [see: http://www.kapp.gov.kw/en/Home  ].

Competition and Anti-Trust Laws

Kuwait’s open economy has generally promoted a competitive market.  In 2007, the government enacted the Protection of Competition Law No. 10 and by-laws in 2012 that facilitated the establishment of a Competition Protection Bureau to safeguard free commerce, ban monopolies, investigate complaints, and supervise mergers and acquisitions.  However, as of April 2019, the Competition Protection Bureau was still not fully operational. U.S. investors have alleged instances of discrimination.

The Commercial Agency Law No. 13 of 2016 removed exclusivity, enabling foreign firms to have multiple agents to market their products.

In 2016, the National Assembly passed a new Public Tenders Law No. 49.  All bids on government-funded infrastructure projects (excluding military and security tenders) in excess of KD 75,000 (USD 250,000) must be submitted to the Central Agency for Public Tenders.  The law requires that foreign contractors bidding on government contracts purchase at least 30 percent of their inputs locally and award at least 30 percent of the work to local contractors, where available.  The law favors local sourcing by mandating a 15 percent price preference for locally- and GCC-produced items, however this provision may be waived on a case-by-case basis.

Expropriation and Compensation

Kuwait has had no recent cases of expropriation or nationalization involving foreign investments.  The 2013 Foreign Direct Investment Law guarantees investors against expropriation or nationalization, except for public benefit as prescribed by law.  In such cases, investors should be compensated for the real value of their holdings at the time of expropriation. The last nationalization occurred in 1974.

Dispute Settlement

ICSID Convention and New York Convention

Kuwait is a signatory to the International Center for the Settlement of Investment Disputes (ICSID Convention) and to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

The FDI law stipulates that Kuwaiti courts alone are responsible for adjudicating disputes involving a foreign investor, although arbitration is permitted.  Few contracts contain clauses specifying recourse to traditional commercial arbitration. The Kuwaiti judicial system recognizes and enforces foreign judgments only when reciprocal arrangements are in place.

International Commercial Arbitration and Foreign Courts

The recognition and enforcement of foreign arbitral awards occurs more expeditiously than the enforcement of foreign judgments.  Enforcement of the former, however, must meet with the same reciprocity and procedural criteria of enforcing foreign judgments under Articles 199 and 200 of the Civil and Commercial Procedure Code No. 38 of 1980.  Accordingly, an award passed by a foreign arbitral panel or tribunal may be enforced in Kuwait provided that: a) the country where the award has been rendered is a member of the New York Convention; b) the foreign award is rendered by a competent arbitrator in accordance with the laws of the country in which it was awarded; c) the parties have been promptly summoned to appear and duly represented before the arbitral tribunal; d) the award must become a res judicata according to the laws of the country in which it was awarded; and e) the award must not be in conflict with an ordered judgment that has been rendered by a local court in Kuwait and additionally does not contradict mandatory provisions or constitute criminal conduct, or violations to morality or public policy, under Kuwaiti laws.

Alternative Dispute Resolution (ADR) mechanisms include conciliation, negotiation, and mediation.  These mechanisms depend on the parties’ goodwill to settle their disputes with or without the help of a third party.

Law No. 11 of 1995 on Judicial Arbitration for Civil and Commercial Articles, the relevant organizing and explanatory Ministerial Resolutions thereof, and Civil and Commercial Procedure Code No. 38 of 1980 outline the formation, operation, jurisdiction, and procedures of the arbitral panel, and the issuance of arbitral awards through the Kuwait Arbitration Center, located at the Kuwait Chamber of Commerce and Industry.  They also define regulations for international conventions, free trade agreements, and the just application of the reciprocal clause between parties.

Bankruptcy Regulations

Bankruptcy is still governed under Law No. 68 of 1980, which does not meet international standards in covering the full range of companies, or in restructuring debt.  While the 1980 law does not criminalize bankrupt individuals, indebtedness may result in incarceration, and a bankruptcy declaration limits political rights. A bankrupt individual may not serve as a candidate or elector in any political position, be appointed to a public post or assignment, or serve as director or chairman in any company until the individual’s rights are reinstated in accordance with law.  Kuwait is working with the World Bank to draft bankruptcy legislation designed to assist businesses to recover from financial difficulties as an alternative to liquidation. The Council of Ministers approved new legislation to support competition and create bankruptcy protections and sent it to the National Assembly, where as of April 2019 it was in committee.

Qatar

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

In pursuit of its National Vision 2030, the government of Qatar has enacted reforms to incentivize foreign investment in the economy.  As Qatar finalizes major infrastructure developments in preparation for hosting the 2022 FIFA World Cup, the government has allocated USD 13.2 billion for new, non-oil sector projects in its FY2019 budget.  The government also plans to increase LNG production by 43 percent by 2024. Significant investment in the upstream and downstream sectors is expected. In February 2019, national oil company Qatar Petroleum announced a localization initiative, Tawteen, which will provide incentives to local and foreign investors willing to establish domestic manufacturing facilities for approximately 100 oil and gas sector inputs.  These economic spending plans create significant opportunities for foreign investors.

In 2019, the government enacted a new foreign investment law (Law 1/2019) to ease restrictions on foreign investment.  The law permits full foreign ownership of businesses in most sectors with full repatriation of profits, protection from expropriation, and several other benefits.  Excepted sectors include banking, insurance, and commercial agencies, where foreign capital investment remains limited at 49 percent, barring special dispensation from the Cabinet.  Qatar’s primary foreign investment promotion and evaluation body is the Invest in Qatar Center within the Ministry of Commerce and Industry. The government is currently in the process of publishing regulations for the implementation of the new law; pending these new regulations, the old law still applies (Law 13/2000).  Qatar is also home to the Qatar Financial Centre, Qatar Science and Technology Park, and the Qatar Free Zones, all of which offer full foreign ownership and repatriation of profits, tax incentives, and investment funds for small- and medium-sized enterprises.

In accordance with Law 24/2015, which was enacted to increase transparency of available investment opportunities, the Qatari government streamlined its procurement processes and the Ministry of Finance launched an online procurement portal to consolidate information on government tenders.  The procurement portal can be accessed via this link: https://monaqasat.mof.gov.qa  

When competing for government contracts, preferential treatment is given to suppliers who use local content in their bids.  To further boost local production amid an economic and political rift with neighboring Gulf countries, the government announced in October 2017 that it will favor bids that use Qatari products that meet necessary specifications and obey tender rules.  Participation in tenders with a value of Qatari riyal (QAR) 5 million or less (USD 1.37 million) is confined to local contractors, suppliers, and merchants registered by the Qatar Chamber of Commerce and Industry. Higher-value tenders sometimes do not require any local commercial registration to participate, but in practice certain exceptions exist. 

Qatar maintains ongoing dialogue with the United States through both official and private sector tracks, including through the annual U.S.-Qatar Strategic Dialogue and official trade missions undertaken in cooperation with both nations’ chambers of commerce.  Qatari officials have repeatedly emphasized their desire to increase both American investments in Qatar and Qatari investments in the United States. 

Limits on Foreign Control and Right to Private Ownership and Establishment

The government has recently reformed its foreign investment legal framework.  As noted above, full foreign ownership is now permitted in all sectors with the exception of banking, insurance and commercial agencies.  Law 1/2019 on Regulating the Investment of Non-Qatari Capital in Economic Activity (replacing Law 13/2000) stipulates that foreigners can invest in Qatar either through partnership with a Qatari investor owning 51 percent or more of the enterprise, or by applying to the Ministry of Commerce and Industry for up to 100 percent foreign ownership.  The Invest in Qatar Center within the Ministry of Commerce and Industry is the entity responsible for vetting full foreign ownership applications. The law includes provisions on the protection of foreign investment from expropriation, the exemption of some foreign investment projects from income tax and customs duties, and the right to transfer profits and ownership without delay.

Another recent foreign investment reform is Law 16/2018 on Regulating Non-Qatari Ownership and Use of Properties, which allows foreign individuals, companies, and real estate developers freehold ownership of real estate in 10 designated zones and ‎usufructuary rights up to 99 years in 16 other zones.  Foreigners may also own villas within residential complexes, as well as retail outlets in certain commercial complexes. Foreign real estate investors and owners will be granted residency in Qatar for as long as they own their property. The Committee on Non-Qatari Ownership and Use of Real Estate, formed in December 2018 under the Ministry of Justice, is the regulator of non-Qatari real estate ownership and use. 

There are also other FDI incentives in the country provided by the Qatar Financial Centre, the Qatar Free Zones, and the Qatar Science and Technology Park.  A draft Public-Private Partnership law to facilitate direct foreign investment in national infrastructure development (currently focused on schools, hospitals, and drainage networks) was approved by the Cabinet on April 4, 2019, and is currently pending the Amir’s final review. 

U.S. investors and companies are not any more disadvantaged by ownership or control mechanisms, sector restrictions, or investment screening mechanisms relative to other foreign investors. 

For more information on FDI in Qatar, visit:

Other Investment Policy Reviews

Qatar underwent a World Trade Organization (WTO) policy review in April 2014.  The review may be viewed on the WTO website: https://www.wto.org/english/tratop_e/tpr_e/tp396_e.htm  

Business Facilitation

Recent reforms have further streamlined the commercial registration process.  Local and foreign investors may apply for a commercial license through the Ministry of Commerce and Industry’s physical “one-stop-shop” or online through the Invest in Qatar Center’s portal.  Per Law 1/2019, upon submission of a complete application, the Ministry will issue its decision within 15 days. Rejected application can be resubmitted or appealed. For more information on the application and required documentation, visit:  https://invest.gov.qa    

The World Bank’s 2019 Doing Business Report estimates that registering a small-size limited liability company in Qatar takes seven to eight days. For detailed information on business registration procedures, as evaluated by the World Bank, visit:   http://www.doingbusiness.org/data/exploreeconomies/qatar/  

Outward Investment

Qatar does not restrict domestic investors from investing abroad.  According to the latest foreign investment survey from the Planning and Statistics Authority, Qatar’s outward foreign investment stock reached USD 105.8 billion in the third quarter of 2018.  In 2017, sectors that accounted for most of Qatar’s outward FDI were finance and insurance (40 percent of total), transportation, storage, information and communication (33 percent), and mining and quarrying (18 percent).  As of 2017, Qatari investment firms held investments in about 80 countries; the top destinations were the European Union (34 percent of total), the Gulf Cooperation Council (GCC, 24 percent), and other Arab countries (14 percent).

3. Legal Regime

Transparency of the Regulatory System

The World Trade Organization recognizes Qatar’s legal framework as conducive to private investment and entrepreneurship and enabling of the development of an independent judiciary system.  Qatar has taken measures to protect competition and ensure a free and efficient economy. In addition to the National Competition Protection and Anti-Monopoly Committee, regulatory authorities exist for most sectors in the economy and are mandated with monitoring economic activity and ensuring fair practices. 

Nonetheless, according to the World Bank’s Global Indicators of Regulatory Governance, Qatar lacks a transparent rulemaking system, as government ministries and regulatory agencies do not share regulatory plans or publish draft laws for public consideration.  An official public consultation process does not exist in Qatar. The 45-member Shura Council (which statutorily is obligated to have 30 publicly-elected officials, but in practice is comprised solely of direct appointees by the Amir) must reach consensus to pass draft legislation, which is then returned to the Cabinet for further review and to the Amir for final approval.  Laws and regulations are developed by relevant ministries and entities. The text of all legislation is published online and in local newspapers upon approval by the Amir. All Qatari laws are issued in Arabic and eventually translated into English. Qatar-based legal firms provide translations of Qatari legislation to their clients. Qatar’s official legal portal is http://www.almeezan.qa  

Each approved law explicitly mandates one or more government entities with the responsibility to implement and enforce legislation.  These entities are clearly defined in the text of each law. In some cases, the law also sets up regulatory and oversight committees made of representatives of concerned government entities to safeguard enforcement. 

Qatar’s primary commercial regulator is the Ministry of Commerce and Industry (formerly the Ministry of Economy and Commerce).  Commercial Companies’ Law 11/2015 necessitates that public shareholding companies submit financial statements to the Ministry, in compliance with the International Financial Reporting Standards (IFRS) and the International Accounting Standards (IAS).  Publicly-listed companies must also publish financial statements at least 15 days before Annual General Meetings in two local newspapers (in Arabic and English) and on their websites. All companies are required to keep accounting records, prepared according to standards promulgated by the IAS Board.

The Qatar Central Bank (QCB) is the main financial regulator that oversees all financial institutions in Qatar, per Law 13/2012.  To promote financial stability and enhance regulation coordination, the law established the Financial Stability and Risk Control Committee, which is headed by the QCB Governor.  According to the Law 7/2005, the Qatar Financial Centre (QFC) Regulatory Authority is the independent regulator of the QFC firms and individuals conducting financial services in or from the QFC, but the QCB also oversees financial markets housed within QFC.  QFC regulations are available at http://www.qfcra.com/en-us/legislation/  .

The government of Qatar is transparent about its public finances and debt obligations.  QCB publishes quarterly banking data, including on government external debt, government bonds, treasury bills, and sukuk (Islamic bonds).

International Regulatory Considerations

Qatar is part of the GCC, an economic regional union, notwithstanding an ongoing diplomatic rift with three GCC member states.  Laws based on GCC regulations must be approved through Qatar’s domestic legislative process and are reviewed by the Qatari Cabinet and the Shura Council prior to implementation. 

Qatar has been a member of the WTO since 1996 and notifies the WTO Committee on Technical Barriers to Trade (TBT) with draft technical regulations.  Qatar is a signatory to the Trade Facilitation Agreement (TFA) and has implemented 92.9 percent of TFA commitments to help expedite the movement and clearance of goods and improve cooperation between customs authorities and other appropriate authorities on trade facilitation and compliance issues. 

Legal System and Judicial Independence

Qatar’s legal system is based on a combination of civil and Sharia Islamic law.  The Constitution takes precedence over all laws, followed by legislation and decrees, and finally ministerial resolutions.  All judges are appointed by the Supreme Judicial Council, under Law 10/2003. The Supreme Judicial Council oversees Qatari courts and functions independently from the executive branch of the government, per the Constitution. 

Qatari courts adjudicate civil and commercial disputes in accordance with civil and Sharia laws.  International agreements have equal status with Qatari laws; the Constitution ensures that international pacts, treaties and agreements, to which Qatar is a party, are respected and taken into account.  Qatar does not currently have a specialized commercial court; domestic commercial disputes are generally settled in civil courts. Decisions made in civil courts can be appealed before the Court of Appeals, or later the Court of Cassation. 

Companies registered with the Ministry of Commerce and Industry are subject to Qatari courts and laws—primarily the Commercial Companies’ Law 11/2015—while companies set up through QFC are regulated by commercial laws based on English Common Law and the courts of the QFC Regulatory Authority, per Law 7/2005.  The QFC legal regime is separate from the Qatari legal system—with the exception of criminal law—and it is only applicable to companies licensed by the QFC. Similarly, companies registered within the Qatar Free Zones have specialized regulations.

Laws and Regulations on Foreign Direct Investment

In the past year, the Amir enacted Law 1/2019 on Regulating the Investment of Non-Qatari Capital in Economic Activity and Law 16/2018 on Regulating Non-Qatari Ownership and Use of Properties.  These laws are aimed at encouraging greater foreign investment in the economy by authorizing, incentivizing and protecting foreign ownership. 

The Ministry of Commerce and Industry’s Invest in Qatar Center is the main investment promotion body.  It has a physical “one-stop-shop” and an online portal. Preference is given to investments that add value to the local economy and align with the country’s national development plans.  For more information on investment opportunities, commercial registration application and required documentation, visit: https://invest.gov.qa     

Separate laws and regulations govern and protect foreign direct investment at the Qatar Financial Centre (http://www.qfc.qa/  ), the Qatar Free Zones (https://fza.gov.qa/  ), and the Qatar Science and Technology Park (https://qstp.org.qa/  ).

Competition and Anti-Trust Laws

Certain sectors are not open for domestic or foreign competition, such as public transportation and fuel distribution and marketing.  Instead, semi-public companies have complete or predominant control of these sectors. Law 19/2006 for the Protection of Competition and Prevention of Monopolistic Practice established the Competition Protection and Anti-Monopoly Committee in charge of receiving complaints about anti-competition violations.  The law, however, exempts state institutions and government-owned companies. 

International law firms with 15 years of continuous experience in their countries of origin are allowed to set up operations in Qatar, but can only become licensed if Qatari authorities deem their fields of specialization useful to Qatar (the Cabinet may grant exemptions).  Cabinet Decision Number 57/2010 states that the Doha office of an international law firm is allowed to practice in Qatar only if its main office in the country of origin remains open for business.

Expropriation and Compensation

Under current legislation (Law 1/2019 and Law 16/2018), the government protects foreign investment and property from direct or indirect expropriation, unless for public benefit, in a non-discriminatory manner, and after providing adequate compensation.  The same procedures are applied to expropriated property of Qatari citizens. Law 13/1988 covers the rules of expropriation for public benefit. 

In 2018, there were four expropriation-related Cabinet decisions.  Expropriation is unlikely to occur in the investment zones in which foreigners may purchase or obtain rights to property, although the law does not restrict the power to expropriate in these areas. 

Dispute Settlement

ICSID Convention and New York Convention

Qatar has been party to the 1958 New York Convention since 2011 and a member of the International Center for the Settlement of Investment Disputes (ICSID) since 2002.  Qatar enforces foreign arbitral decisions concluded in states that are party to the New York Convention. 

Investor-State Dispute Settlement

If investment disputes occur, Qatar accepts binding international arbitration.  However, Qatari courts will not enforce judgments or awards from other courts in disputes emanating from investment agreements made under the jurisdiction of other nations.

International Commercial Arbitration and Foreign Courts

The Qatar Financial Centre (QFC) features an Alternative Dispute Resolution (ADR) center.  Although primarily concerned with hearing commercial matters arising from within the QFC itself, the QFC intends to expand the court’s jurisdiction to enable it to accept other disputes at its discretion.  The Qatar International Court and Dispute Resolution Center adjudicates disputes brought by firms associated with the QFC in accordance with British common law. 

Qatar’s arbitration law (Law 2/2017) based on the United Nations Commission on International Trade Law (UNCITRAL) gives Qatar’s International Court and Dispute Resolution Centre the jurisdiction to oversee arbitration cases in Qatar in line with recent local and international developments.  The purpose of this law is to stimulate and strengthen Qatar’s investment and business environment.

There is no set duration for dispute resolution and the time to obtain a resolution depends on the case.  The Qatar International Court and Dispute Resolution Centre publishes past judgments on its website (https://www.qicdrc.com.qa/the-courts/judgments  ).

In order to protect their interests, U.S. firms are advised to consult with a Qatari or foreign-based law firm when executing contracts with local parties.

Bankruptcy Regulations

Two concurrent bankruptcy regimes exist in Qatar.  The first is the local regime, the provisions of which are set out in Commercial Law 27/2006 (Articles 606-846).  The bankruptcy of a Qatari citizen or a Qatari-owned company is rarely announced and the government sometimes plays the role of guarantor to prop up domestic businesses and safeguard creditors’ rights.  The Qatar Central Bank (QCB) established the Qatar Credit Bureau in 2010 to promote credit growth in Qatar. The Credit Bureau provides QCB and the banking sector with a centralized credit database to inform economic and financial policies and support the implementation of risk management techniques as outlined in the Basel II Accord.

The second bankruptcy regime is found in the Qatar Financial Centre (QFC) Insolvency Regulations of 2005 and applies to corporate bodies and branches registered within the QFC.  There are firms that offer full dissolution bankruptcy services to QFC-registered companies.

Saudi Arabia

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

Attracting foreign direct investment remains a critical component of the SAG’s broader Vision 2030 program to diversify an economy overly dependent on oil and to create 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 increases Saudi’s non-oil exports. The government encourages investment in nearly all economic sectors, with priority given to transportation, health/biotechnology, information and communications technology (ICT), media/entertainment, industry (mining and manufacturing), and energy.

Saudi Arabia’s economic reform programs are opening up new areas for potential investment.  For example, in a country where most public entertainment was once forbidden, the SAG now regularly sponsors and promotes entertainment programming, including live concerts, dance exhibitions, sports competitions, and other public performances.  Significantly, the audiences for many of those events are now gender-mixed, representing a larger consumer base. In addition to the reopening of cinemas in April 2018, the SAG hosted its first Formula E race in December 2018 in Riyadh, as well as the Saudi International Golf Tournament in Jeddah in early 2019 (a leg of the PGA European Tour).

The SAG is proceeding with “economic cities” and new “giga-projects” that are at various stages of development and welcomes foreign investment in them.  These projects are large-scale and self-contained developments in different regions focusing on particular industries, e.g., technology, energy, tourism, and entertainment.  Principal among these projects are:

  • Qiddiya, a new, large-scale entertainment, sports, and cultural complex near Riyadh;
  • King Abdullah Financial District, a USD 10 billion commercial center development in Riyadh;
  • Red Sea Project, a massive tourism development on the western Saudi coast, which aims to create 70,000 jobs and attract one million tourists per year.
  • Amaala, a wellness, healthy living, and meditation resort on the Kingdom’s northwest coast, projected to include more than 2,500 luxury hotel rooms and 700 villas.  
  • NEOM, a new USD 500 billion project to build a futuristic “independent economic zone” in northwest Saudi Arabia;

The Saudi Arabian General Investment Authority (SAGIA) governs and regulates foreign investment in the Kingdom, issues licenses to prospective investors, and works to foster and promote investment opportunities across the economy.  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 impediments remain.  Foreign investment is currently prohibited in 11 sectors, including:

  1. Oil exploration, drilling, and production;
  2. Catering to military sectors;
  3. Security and detective services;
  4. Real estate investment in the holy cities, Makkah and Medina;
  5. Tourist orientation and guidance services for religious tourism related to Hajj and Umrah;
  6. Recruitment offices;
  7. Printing and publishing (subject to a variety of exceptions);
  8. Certain internationally classified commission agents;
  9. Services provided by midwives, nurses, physical therapy services, and quasi-doctoral services;
  10. Fisheries; and
  11. Poison centers, blood banks, and quarantine services.

(The complete “negative list” can be found at www.sagia.gov.sa  .)  

In addition to the negative list, older laws that remain in effect prohibit or otherwise restrict foreign investment in some economic subsectors not on the list, including some areas of healthcare.  In 2018, Saudi Arabia began to allow foreign ownership in businesses providing services relating to road transportation, real estate brokerage, labor recruitment, and audiovisual display. At the same time, SAGIA has demonstrated some flexibility in approving exceptions to the “negative list” exclusions.  

Foreign investors must also contend with increasingly strict localization requirements in bidding for certain government contracts, labor policy requirements to hire more Saudi nationals (usually at higher wages than expatriate workers), an increasingly restrictive visa policy for foreign workers, and gender segregation in business and social settings (though gender segregation is becoming more relaxed as the SAG introduces socio-economic reforms).  

Additionally, in a bid to bolster non-oil income, the government implemented new taxes and fees in 2017 and early 2018, including significant visa fee increases, higher fines for traffic violations, new fees for certain billboard advertisements, and related measures.  The government implemented a value-added tax (VAT) in January 2018 at a rate of five percent, in addition to excise taxes implemented in June 2017 on cigarettes (at a rate of 100 percent), carbonated drinks (at a rate of 50 percent), and energy drinks (at a rate of 100 percent).  In January 2018, the government also implemented new fees for expatriate employers ranging between USD 80 and USD 107 per employee per month, as well as increasing levies on expatriates with dependents amounting to a USD 54 monthly fee for each dependent. These expatriate fees are scheduled to increase every year through 2020.  On January 1, 2018, the SAG also reduced previous subsidies on electricity and gasoline, which resulted in a doubling of residential electricity rates and an increase in price of gasoline by more than 80 percent.

Limits on Foreign Control and Right to Private Ownership and Establishment

Saudi Arabia fully recognizes rights to private ownership and the establishment of private business.  As outlined above, the SAG excludes 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 hydrocarbon 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, Shell, China’s Sinopec, and Japan’s Sumitomo Chemical are partners with Saudi Aramco (the SAG’s state-owned oil firm) in domestic refineries. ExxonMobil, Chevron, Shell, and other international investors have joint ventures with Aramco and/or the Saudi Basic Industries Corporation (SABIC) in large-scale petrochemical plants that utilize natural-gas feedstock from Aramco’s operations.  In Saudi Arabia’s Eastern Province, the Dow Chemical Company and Aramco are partners in a USD 20 billion joint venture to construct, own, and operate the world’s largest integrated petrochemical production complex.

With respect to other non-oil natural resources, the national mining company, Ma’aden, has a USD 12 billion joint venture with Alcoa for bauxite mining and aluminum production and a USD 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. The requirement that law firms and engineering consulting firms must have a Saudi partner was rescinded in 2017.  Foreign engineering consulting companies must have been incorporated for at least 10 years and have operations in at least four different countries to qualify. However, offices practicing accounting and auditing, architecture, or civil planning, or providing healthcare, dental, or veterinary services must still have a Saudi partner, and the foreign partner’s equity cannot exceed 75 percent of the total investment.  

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 20 million Saudi riyal (USD 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 some companies have already received licenses under the new rules, the restrictions attached to obtaining full ownership – including a requirement to invest over USD 50 million during the first five years and ensure that 30 percent of all products sold are manufactured locally – have proven difficult to meet and precluded many investors from taking full advantage of the reform.

Other Investment Policy Reviews

Saudi Arabia completed its second WTO trade policy 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 often takes 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 three to five months from the time an initial SAGIA application is complete, placing the country at 141 of 190 countries in terms of ease of starting a business, according to the World Bank (2019 rankings).  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.

Saudi officials have stated their intention to attract foreign small- and medium-sized enterprises (SMEs) to the Kingdom.  The SAG established the Small and Medium Enterprises General Authority in 2015 to facilitate the growth of the SME sector. In 2016, the SAG released a new Companies Law designed in part to promote the development of the SME sector.  The law allows one person, rather than the previous minimum of two, to form a corporation, though in very limited cases. It also substantially reduced the minimum capital and number of shareholders required to form a joint stock company (from five previously to two).

Outward Investment

Saudi Arabia does not restrict domestic investors from investing abroad.  Private Saudi citizens, Saudi companies, and SAG entities hold extensive overseas investments.  The SAG is attempting to transform its Public Investment Fund (PIF), traditionally a holding company for government shares in state-controlled enterprises, into a major international investor and sovereign wealth fund.  In 2016, the PIF made its first high-profile international investment by taking a USD 3.5 billion stake in Uber. The PIF has also announced a USD 400 million investment in Magic Leap, a Florida-based company that is developing “mixed reality” technology, and a USD 1 billion investment in Lucid Motors, a California-based electric car company.  Saudi Aramco and SABIC are also major investors in the United States. In 2017, Aramco acquired full ownership of Motiva, the largest refinery in the United States, in Port Arthur, Texas. SABIC has announced a multi-billion dollar joint venture with ExxonMobil in a petrochemical facility in Texas.

3. Legal Regime

Transparency of the Regulatory System

Saudi Arabia received the lowest score possible (zero out of five) in the World Bank’s 2018 Global Indicators of Regulatory Governance Report, which places the Kingdom in the bottom 13 countries among 186 countries surveyed (http://rulemaking.worldbank.org/  ).  Few aspects of the SAG’s regulatory system are entirely transparent, although Saudi investment policy is less opaque than other areas.  Bureaucratic procedures are cumbersome but can generally be overcome with persistence. Foreign portfolio investment in the Saudi stock exchange is well-regulated by the Capital Markets Authority (CMA), with clear standards for interested foreign investors to qualify to trade on the local market.  The CMA is progressively liberalizing requirements for “qualified foreign investors” to trade in Saudi securities. Insurance companies and banks whose shares are listed on the Saudi stock exchange are required to publish financial statements according to International Financial Reporting Standards (IFRS) accounting standards.  All other companies are required to follow accounting standards issued by the Saudi Organization for Certified Public Accountants.

Stakeholder consultation on regulatory issues is inconsistent.  Some Saudi organizations are scrupulous about consulting businesses affected by the regulatory process, while others tend to issue regulations with no consultation at all.  Proposed laws and regulations are not always published in draft form for public comment. An increasing number of government agencies, however, solicit public comments through their websites.  The processes and procedures for stakeholder consultation are not generally transparent or codified in law or regulations. There are no private-sector or government efforts to restrict foreign participation in the industry standards-setting consortia or organizations that are available.  There are no informal regulatory processes managed by NGOs or private-sector associations.

International Regulatory Considerations

Saudi Arabia uses technical regulations developed both by the Saudi Arabian Standards Organization (SASO) and by the Gulf Standards Organization (GSO).  Although the GCC member states continue to work toward common requirements and standards, each individual member state, and Saudi Arabia through SASO, continues to maintain significant autonomy in developing, implementing, and enforcing technical regulations and conformity assessment procedures in its territory.  More recently, Saudi Arabia has moved toward adoption of a single standard for technical regulations. This standard is often based on International Organization for Standardization (ISO) or International Electrotechnical Commission (IEC) standards, to the exclusion of other international standards, such as those developed by U.S.-domiciled standards development organizations (SDOs).

Saudi Arabia’s exclusion of these other international standards, which are often used by U.S. manufacturers, can create significant market access barriers for industrial and consumer products exported from the United States.  The United States government has engaged Saudi authorities on the principles for international standards per the WTO Technical Barriers to Trade Committee Decision and encouraged Saudi Arabia to adopt standards developed according to such principles in their technical regulations, allowing all products that meet those standards to enter the Saudi market.  Several U.S.-based standards organizations, including SDOs and individual companies, have also engaged SASO, with mixed success, in an effort to preserve market access for U.S. products, ranging from electrical equipment to footwear.

A member of the WTO, Saudi Arabia notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.

Legal System and Judicial Independence

The Saudi legal system is derived from Islamic law, known as sharia.  Saudi commercial law, meanwhile, is still developing.  In 2016, Saudi Arabia took a significant step in improving its dispute settlement regime with the establishment of the Saudi Center for Commercial Arbitration (see “Dispute Settlement” below).  Through its Commercial Law Development Program, the U.S. Department of Commerce provides capacity-building programs for Saudi stakeholders in the areas of contract enforcement, public procurement, and insolvency.

The Saudi Ministry of Justice oversees the sharia-based judicial system, but most ministries have committees to rule on matters under their jurisdictions.  Judicial and regulatory decisions can be appealed. Many disputes that would be handled in a court of law in the United States are handled through intra-ministerial administrative bodies and processes in Saudi Arabia.  Generally, the Saudi Board of Grievances has jurisdiction over commercial disputes between the government and private contractors. The Board also reviews all foreign arbitral awards and foreign court decisions to ensure that they comply with sharia.  This review process can be lengthy, and outcomes are unpredictable.

The Kingdom’s record of enforcing judgments issued by courts of other GCC states under the GCC Common Economic Agreement, and of other Arab League states under the Arab League Treaty, is somewhat better than enforcement of judgments from other foreign courts.  Monetary judgments are based on the terms of the contract – i.e., if the contract is calculated in U.S. dollars, a judgment may be obtained in U.S. dollars. If unspecified, the judgment is denominated in Saudi riyals. Non-material damages and interest are not included in monetary judgments, based on the sharia prohibitions against interest and against indirect, consequential, and speculative damages.  

As with any investment abroad, it is important that U.S. investors take steps to protect themselves by thoroughly researching the business record of a proposed Saudi partner, retaining legal counsel, complying scrupulously with all legal steps in the investment process, and securing a well-drafted agreement.  Even after a decision is reached in a dispute, enforcement of a judgment can still take years. The U.S. government recommends consulting with local counsel in advance of investing to review legal options and appropriate contractual provisions for dispute resolution.

ICSID Convention and New York Convention

The Kingdom of Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994.  Saudi Arabia is also a member state of the International Center for the Settlement of Investment Disputes Convention (ICSID), though under the terms of its accession it cannot be compelled to refer investment disputes to this system absent specific consent, provided on a case-by-case basis.  Saudi Arabia has yet to consent to the referral of any investment dispute to the ICSID for resolution.

Investor-State Dispute Settlement

The use of any international or domestic dispute settlement mechanism within Saudi Arabia continues to be time-consuming and uncertain, as all outcomes are subject to a final review in the Saudi judicial system and carry the risk that principles of sharia law may potentially supersede a judgment or legal precedent.  The U.S. government recommends consulting with local counsel in advance of investing to review legal options and contractual provisions for dispute resolution.

International Commercial Arbitration and Foreign Courts

Traditionally, dispute settlement and enforcement of foreign arbitral awards in Saudi Arabia have proven time-consuming and uncertain, carrying the risk that sharia principles can potentially supersede any foreign judgments or legal precedents.  Even after a decision is reached in a dispute, effective enforcement of the judgment can take a long period of time.  In several cases, disputes have caused serious problems for foreign investors. For instance, Saudi partners and creditors have blocked foreigners’ access to or right to use exit visas, forcing them to remain in Saudi Arabia against their will.  In cases of alleged fraud or debt, foreign partners may also be jailed to prevent their departure from the country while awaiting police investigation or court adjudication of the case. Courts can in theory impose precautionary restraint on personal property pending the adjudication of a commercial dispute, though this remedy has been applied sparingly.

In recent years, the SAG has demonstrated a commitment to improving the quality of commercial legal proceedings and access to alternative dispute resolution mechanisms.  Local attorneys indicate that the quality of final judgments in the court system has improved, but that cases still take too long to litigate. In 2012, the SAG updated certain provisions in Saudi Arabia’s domestic arbitration law, paving the way for the establishment of the Saudi Center for Commercial Arbitration (SCCA) in 2016.  Developed in accordance with international arbitration rules and standards, including those set by the American Arbitration Association’s International Centre for Dispute Resolution and the International Chamber of Commerce’s International Court of Arbitration, the SCCA offers comprehensive arbitration services to firms both domestic and international.  The SCCA reports that both domestic and foreign law firms have begun to include referrals to the SCCA in the arbitration clauses of their contracts. However, it is currently too early to assess the quality and effectiveness of SCCA proceedings, as the SCCA is still in the early stages of operation. Awards rendered by the SCCA can be enforced in local courts, though judges remain empowered to reject enforcement of provisions they deem noncompliant with sharia law.  

In December 2017, the United Nations Commission on International Trade Law (UNCITRAL) recognized Saudi Arabia as a jurisdiction that has adopted an arbitration law based on the 2006 UNCITRAL Model Arbitration Law.  While Saudi Arabia adopted this law in 2012, UNCITRAL did not consider it as a model law jurisdiction due to the SAG’s reference to sharia’s supremacy over UNCITRAL-adopted provisions.  After discussions between UNCITRAL representatives and Saudi judges, during which the Saudi judges clarified that sharia would not affect the enforcement of foreign arbitral awards, UNCITRAL added Saudi Arabia to the list of model law jurisdictions.  The potential impact of the decision is that foreign investors and companies in Saudi Arabia have slightly more certainty that their arbitration agreements and awards will be enforced, as in other UNCITRAL countries.  Whether (and how) Saudi courts will apply this latest interpretation of the relationship between foreign arbitral awards and sharia law remains to be seen.  

Laws and Regulations on Foreign Direct Investment

In January 2019, the Saudi government established the Foreign Trade General Authority (FTGA), which aims to strengthen Saudi Arabia’s non-oil exports and investment, increase the private sector’s contribution to foreign trade, and resolve obstacles encountered by Saudi exporters and investors.  The new authority will also monitor the Kingdom’s obligations under international trade agreements and treaties, negotiate and enter into new international commercial and investment agreements, and represent the Kingdom before the World Trade Organization. The Governor of the Foreign Trade General Authority will report to the Minister of Commerce and Investment. 

Until the FTGA becomes operational (possibly later in 2019), MCI and SAGIA remain the primary Saudi government entities responsible for formulating policies regarding investment activities, proposing plans and regulations to enhance the investment climate in the country, and evaluating and licensing investment proposals.  

Despite the list of activities excluded from foreign investment (see “Policies Toward Foreign Direct Investment”), foreign minority ownership in joint ventures with Saudi partners may be allowed in some of these sectors.  Foreign investors are no longer required to take local partners in many sectors and may own real estate for company activities. They are allowed to transfer money from their enterprises out of the country and can sponsor foreign employees, provided that “Saudization” quotas are met (see “Labor Section” below).  Minimum capital requirements to establish business entities range from zero to 30 million Saudi riyals (USD 8 million), depending on the sector and the type of investment.

SAGIA offers detailed information on the investment process, provides licenses and support services to foreign investors, and coordinates with government ministries to facilitate investment.  According to SAGIA, it must grant or refuse a license within five days of receiving an application and supporting documentation from a prospective investor. SAGIA has established and posted on-line its licensing guidelines, but many companies looking to invest in Saudi Arabia continue to work with local representation to navigate the bureaucratic licensing process.  

SAGIA licenses foreign investments by sector, each with its own regulations and requirements:  (i) services, which comprise a wide range of activities including, IT, healthcare, and tourism; (ii) industrial, (iii) real estate, (iv) public transportation, (v) entrepreneurial, (vi) contracting, (vii) audiovisual media, (viii) science and technical office, (ix) education (colleges and universities), and (x) domestic services employment recruitment.  SAGIA also offers several special-purpose licenses for bidding on and performance of government contracts. Foreign firms must describe their planned commercial activities in some detail and will receive a license in one of these sectors at SAGIA’s discretion. Depending on the type of license issued, foreign firms may also require the approval of relevant competent authorities, such as the Ministry of Health or the Saudi Commission for Tourism and National Heritage.    

An important SAGIA objective is to ensure that investors do not just acquire and hold licenses without investing, and SAGIA sometimes cancels licenses of foreign investors that it deems do not contribute sufficiently to the local economy.  SAGIA’s periodic license reviews, with the possibility of cancellation, add uncertainty for investors and can provide a disincentive to longer-term investment commitments.

SAGIA has agreements with various SAG agencies and ministries to facilitate and streamline foreign investment.  These agreements permit SAGIA to facilitate the granting of visas, establish SAGIA branch offices at Saudi embassies in different countries, prolong tariff exemptions on imported raw materials to three years and on production and manufacturing equipment to two years, and establish commercial courts.  To make it easier for businesspeople to visit the Kingdom, SAGIA can sponsor visa requests without involving a local company. Saudi Arabia has implemented a decree providing that sponsorship is no longer required for certain business visas. While SAGIA has set up the infrastructure to support foreign investment, many companies report that despite some improvements, the process remains cumbersome and time-consuming.  

Competition and Anti-Trust Laws

SAGIA and the Ministry of Commerce and Investment review transactions for competition-related concerns.  Concerns have arisen that allegations of price fixing for certain products, including infant nutrition products, may have been used on occasion as a pretext to control prices.  The Ministry of Commerce and Investment has looked to the GCC’s reference pricing approach on subsidized products to assist the SAG in determining market-price suggested norms.

Saudi competition law prohibits certain vertically-integrated business combinations.  Consequently, companies doing business in Saudi Arabia may find it difficult to register exclusivity clauses in distribution agreements, but are not necessarily precluded from enforcing such clauses in Saudi courts.

Expropriation and Compensation

The Embassy is not aware of any cases in Saudi Arabia of expropriation from foreign investors without adequate compensation.  Some small- to medium-sized foreign investors, however, have complained that their investment licenses have been cancelled without justification, causing them to forfeit their investments.  

Bankruptcy Regulations

Potential investors should note that the “Resolving Insolvency” indicator most negatively affects Saudi Arabia’s World Bank “Doing Business” ranking.  

However, in February 2018, the SAG announced the approval of new bankruptcy legislation, which became effective in August 2018.  According to the SAG, the new bankruptcy law seeks to “further facilitate a healthy business environment that encourages participation by foreign and domestic investors, as well as local small and medium enterprises.”  The new law clarifies procedural processes and recognizes distinct creditor classes (e.g., secured creditors). The new law also includes procedures for continued operation of the distressed company via financial restructuring.  Alternatively, the parties may pursue an orderly liquidation of company assets, which would be managed by a court-appointed licensed bankruptcy trustee. Saudi courts have begun to accept and hear cases under this new legislation.

United Arab Emirates

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The UAE is generally open to FDI, citing it as a key part of its long-term economic plans.  The UAE Vision 2021 strategic plan aims to achieve FDI flows 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.  The Eight-Point Plan and the Fifty-Year Charter, issued by the ruler of Dubai, Sheikh Mohammed Bin Rashid Al Maktoum, stressed that Dubai is a politically neutral, business-friendly global hub and emphasized the importance of combating corruption.

UAE investment laws and regulations are evolving in support of these goals.  The long-awaited law on foreign direct investment was issued in 2018, and granted licensed foreign investment companies the same treatment as national companies, in certain sectors.

While some laws allow foreign-owned free zone companies to operate “onshore” in some instances, and permit majority-Gulf Cooperation Council (GCC) ownership of public joint stock companies, there remains no national treatment for foreign 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, although several emirates have recently introduced new long-term residency visas in an attempt to keep expatriates with sought-after skills in the UAE. Each emirate has its own investment promotion agency.

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.  These restrictions have been waived on a case-by-case basis. The 2015 Commercial Companies Law allows for full ownership by GCC nationals.  Neither Embassy Abu Dhabi nor Consulate General Dubai (collectively referred to as Mission UAE) has received any complaints from U.S. investors that they have been disadvantaged or singled out relative to other non-GCC investors.

Other Investment Policy Reviews

The UAE government 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

UAE officials 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, and generally happens through an 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.  In 2017, the Department of Economic Development of the Emirate of Dubai introduced an “Instant License” valid for one year, under which investors can obtain a license in minutes without a registered lease agreement.

Outward Investment

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

3. Legal Regime

Transparency of the Regulatory System

As indicated elsewhere in this report, the regulatory and legal framework in the UAE is generally more favorable for local rather than foreign investors.

The Commercial Companies Law requires all companies to apply international accounting standards and practices, generally International Financial Reporting Standards (IFRS).  The UAE does not have local generally accepted accounting principles.

Legislation is only published when it has been enacted into law and is not formally available for public comment beforehand, although the press will occasionally report details of high-profile legislation.  Final bills are published in an official register, usually only in Arabic, although there are private companies that translate laws into English. Regulators are not required to publish proposed regulations before enactment, but they share them either publicly or with stakeholders on a case-by-case basis.

International Regulatory Considerations

The UAE is a member of the GCC, along with Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia.  It maintains regulatory autonomy, but coordinates efforts with other GCC members through the GCC Standardization Organization (GSO).  Although not a member of the GCC, Yemen also participates in the GSO, with the same rights and obligations as GCC member states. In 2017, the UAE conducted 58 notifications to the WTO committee, including on restricting the use of hazardous materials in electronic devices, and on a guide for the control of imported foods.

Legal System and Judicial Independence

In the constitution, Islam is identified as the state religion, as well as the principal source of law.  The legal system of the country is generally divided between the British-based system of common law used in offshore free trade zones, and domestic law governed by Shari’a – the majority of which has been codified.  The mechanism for enforcing ownership of property through either court system is generally considered to be predictable and fair. As is the case with civil law systems, common law principles, such as adopting previous court judgments as legal precedents, are generally not recognized in the UAE, although lower courts typically apply higher court judgments.  Judgments of foreign civil courts are typically recognized and enforceable under the local courts.

The Dubai International Financial Center (DIFC) and Ras Al Khaimah International Corporate Centre maintain a wills and probate registry, allowing non-Muslims to register a will under internationally-recognized common law principles.  The United States District Court for the Southern District of New York signed a memorandum with the DIFC courts that provides companies operating in Dubai and New York with procedures for the mutual enforcement of financial judgments.

The UAE constitution stipulates that each emirate can decide whether to set up its own judicial system (local courts) to adjudicate local cases, or use federal courts exclusively.  The Federal Judicial Authority has jurisdiction for all cases involving a “federal person,” with the Federal Supreme Court in Abu Dhabi, the highest court at the federal-level, having exclusive jurisdiction in seven types of cases:  disputes between emirates, disputes between an emirate and the federal government, cases involving national security, interpretation of the constitution, questions over the constitutionality of a law, and cases involving the actions of appointed ministers and senior officials while performing their official duties.  Although the federal constitution permits each emirate to have its own judicial authority, all emirates except Dubai, Ras Al Khaimah, and Abu Dhabi have incorporated their local judicial systems into the Federal Judicial Authority. The federal government administers the courts in Ajman, Fujairah, Umm al Quwain, and Sharjah, including the vetting and hiring of judges, and payment of salaries.  Judges in these courts apply both local and federal law, as warranted. Dubai, Ras Al Khaimah, and Abu Dhabi, on the other hand, administer their own local courts, hiring, vetting, and paying their own judges and attorneys. Abu Dhabi is the only emirate that operates both local (the Abu Dhabi Judicial Department) and federal courts in parallel. The local courts in Dubai, Ras al Khaimah, and Abu Dhabi have jurisdiction over all matters that the constitution does not specifically reserve for the federal system.

Laws and Regulations on Foreign Direct Investment

There are four major federal laws affecting investment in the UAE:  the Federal Companies Law, the Commercial Agencies Law, the Industry Law, and the Government Tenders Law.

The Federal Commercial Companies Law (Law No. 2, 2015) was issued in April 2015 and applies to commercial companies operating in the UAE.  The new law, with which all companies had to come into compliance before July 2016, provides a stronger, more current basis for corporate regulation.  Federal Law No.19 of 2018 eased restrictions on foreign ownership of companies incorporated “onshore”. The new law allows foreigners to own up to 100 per cent of the share capital in UAE companies operating in certain sectors, subject to licensing requirements.  The sectors covered by the new law will be set out in future legislation.

Branch offices of foreign companies are required to have a national agent with 100 percent UAE national ownership, unless the foreign company has established its office pursuant to an agreement with the federal or emirate-level government.  Existing commercial law allows companies to offer between 30 and 70 percent of shares in an initial public offering (IPO), and eliminates the requirement to issue new shares at the time of the IPO. The law also eases the process for forming a limited liability company by requiring between 1 to 75 shareholders (the prior requirement was between 2 to 50 shareholders).  Public joint stock companies are required to have 51 percent GCC ownership at the time of listing, and UAE nationals must chair and comprise the majority of board members of any public joint stock company. A provision to allow 100 percent foreign ownership outside free zones requires Cabinet approval on a case-by-case basis. For example, in 2015, Apple opened stores outside free zones without local partners, having secured permission to do so on an exceptional basis via a decree from the Ministry of Economy.

The Commercial Agencies Law’s provisions are collectively set out in Federal Law No. 18 of 1981 on the Organization of Commercial Agencies as amended by Federal Law No. 14 of 1988 (the Agency Law), and apply to all registered commercial agents.  Federal Law No. 18 of 1993 (Commercial) and Federal Law No. 5 of 1985 (Civil Code) govern unregistered commercial agencies. The Commercial Agencies Law requires that foreign principals distribute their products in the UAE only through exclusive commercial agents who are either UAE nationals or companies wholly owned by UAE nationals.  The foreign principal can appoint one agent for the entire UAE or for a particular emirate or group of emirates. The Ministry of Economy handles registration of commercial agents. It remains difficult, if not impossible, to sell in UAE markets without a local agent. Only UAE nationals or companies wholly owned by UAE nationals can register with the Ministry of Economy as local agents.

The Federal Industry Law stipulates that industrial projects must have 51 percent UAE national ownership.  The law also requires that projects either be managed by a UAE national or have a board of directors with a majority of UAE nationals.  Exemptions from the law are provided for projects related to extraction and refining of oil, natural gas, and select hydrocarbon projects governed by special laws or agreements are exempt from the industry law.

To register with the Abu Dhabi Securities Exchange, go to: https://www.adx.ae/English/Pages/Members/BecomeAMember/default.aspx  

To obtain an investor number for trading on the Dubai Exchanges, go to: http://www.nasdaqdubai.com/assets/docs/NIN-Form.pdf 

Competition and Anti-Trust Laws

The Competition Regulation Committee under the Ministry of Economy reviews transactions for competition-related concerns.

Expropriation and Compensation

Mission UAE is not aware of foreign investors involved in any expropriations in the UAE in the recent past.  There are no set federal rules governing compensation if expropriations were to occur, and individual emirates would likely treat expropriations differently.  In practice, authorities would be unlikely to expropriate unless there were a compelling development or public interest need to do so, and in such cases compensation would likely be generous to maintain foreign investor confidence.

Dispute Settlement

ICSID Convention and New York Convention

The UAE is a contracting state to the International Center for the Settlement of Investment Disputes (ICSID convention) and a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral awards (1958 New York Convention).

Investor-State Dispute Settlement

Mission UAE is aware of several substantial investment and commercial disputes over the past few years involving U.S. or other foreign investors and government and/or local businesses.  There have also been several contractor/payment disputes with the government as well as with local businesses. Some observers have characterized dispute resolution as difficult and uncertain.  Disputes are generally resolved by direct negotiation and settlement between the parties themselves, recourse to the legal system, or arbitration. Small, medium, and some larger enterprises continue to fear being frozen out of the UAE market for escalating payment issues through civil or arbitral courts, particularly when politically-connected local parties are involved.  Some firms might feel compelled to exit the UAE market as they are unable to sustain the pursuit of legal or dispute resolution mechanisms that can add months or years to the dispute resolution process. Arbitration may commence by petition to the UAE federal courts on the basis of mutual consent (a written arbitration agreement), independently (by nomination of arbitrators), or through a referral to an appointing authority without recourse to judicial proceedings.  There have been no confirmed reports of government interference in the court system that could affect foreign investors, but there is a widespread perception that domestic courts are likely to find in the favor of Emirati nationals over foreigners.

International Commercial Arbitration and Foreign Courts

The UAE government’s accession to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) became effective in November 2006.  An arbitration award issued in the UAE is now enforceable in all 138 states that have acceded to the Convention, and any award issued in another member state is directly enforceable in the UAE.  The Convention supersedes all incompatible legislation and rulings in the UAE. Mission UAE is not aware of any U.S. firms attempting to use arbitration under the UN convention on the recognition and enforcement of foreign arbitral awards.  While recognizing progress in compliance with this convention, some market watchers have raised concerns about delays and other obstacles encountered by firms seeking to enforce their arbitration awards in the UAE.

In June 2018, Federal Law No. 6 of 2018 on Arbitration came into force.  It repealed and replaced Articles 203 to 218 of Federal Law No 11 of 1992.  The Federal Law on Arbitration is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration.  Prior to this legislation, there was no federal law governing arbitration in the UAE.  The new law is expected to bolster confidence in the UAE’s arbitration regime.

Bankruptcy Regulations

A new bankruptcy law, Federal Decree Law No. 9 of 2016, came into effect in December 2016 and was used for the first time in February 2019.  The law covers companies governed by the Commercial Companies Law, most free trade zone companies, sole proprietorships, and civil companies conducting professional business.  It allows creditors that are owed USD 27,225 or more, to file insolvency proceedings against a debtor 30 business days after notification in writing to the debtor.

The law decriminalized “bankruptcy by default,” requiring companies and their owners in default more than 30 days to initiate insolvency procedures rather than face fines and potential imprisonment.  However, observers allege that the law offers little protection to individual investors, and non-payment of debt generally remains a criminal offense.

In April, 2017, the UAE Federal Government’s Al Etihad Credit Bureau began issuing credit scores to UAE citizens and residents, according to local media reports.  The bureau has been issuing credit reports to foreigners living in the UAE since 2014.

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