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.  The Bahrain Economic Development Board (EDB), charged with promoting FDI in Bahrain, places particular emphasis on attracting FDI to the manufacturing, logistics, information and communications technology (ICT), financial services and tourism and leisure sectors. As a reflection of the Kingdom’s openness to FDI, the EDB won the 2018 United Nations Investment Promotion Award for its role in attracting large-scale investments.

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 on foreign control, and the right of ownership and establishment of a business. The Ministry of Industry, Commerce and Tourism (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 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 related to bureaucratic government processes, lack of market information, and customs clearance.

Other Investment Policy Reviews

The World Trade Organization (WTO) has conducted a formal Trade Policy Review of Bahrain every seven years.  Its last formal review was in 2014 (see link below).

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol= percent20wt/tpr/g/*) percent20and percent20(( percent20@Title= percent20bahrain percent20) percent20or percent20(@CountryConcerned= percent20bahrain))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true#  

Business Facilitation

The Central Bank of Bahrain’s regulatory sandbox allows local and international FinTech firms and digitally focused financial institutions to test innovative solutions in a regulated environment, allowing successful firms to obtain licensing upon successful product application.

The Ministry of Industry, Commerce and Tourism (MoICT) operates an online commercial registration portal, “Sijilat” (www.sijilat.bh  ) to facilitate the commercial registration process.  Through Sijilat, investors can obtain a business license and requisite approvals from relevant ministries.  The registration process normally takes two to three weeks, but can take longer if a business requires specialized approvals.  In practice, some business people retain an attorney or clearing agent to assist them through the commercial registration process.

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
• Labour Market Regulatory Authority
• General Organization for Social Insurance

The GOB provides industrial lands at reduced rental rates for short periods of time to incentivize foreign investment in Bahrain’s targeted investment zones.

Outward Investment

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

Bahrain and the United States signed a bilateral investment treaty (BIT) in September 1999, the first BIT between the United States and a Gulf Cooperation Council (GCC) state.  The agreement entered into force in May 2001. The U.S.-Bahrain FTA does not include a separate investment chapter.

According to the United Nations Conference on Trade and Development (UNCTAD), Bahrain has bilateral investment protection agreements in place with Algeria, Belarus, Brunei, Bulgaria, the Czech Republic, China, Egypt, France, Germany, India, Italy, Iran, Jordan, Lebanon, Malaysia, Mexico, Morocco, Netherlands, Singapore, Spain, Sudan, Syria, Thailand, Turkey, Turkmenistan, the United Kingdom, the United States, Uzbekistan, and Yemen.

The Government of Bahrain signed the Foreign Account Tax Compliance Act (FATCA) with the United States Government in January 2017.  The GOB issued legislation implementing the agreement in February 2018.

Transparency of the Regulatory System

In 2018, the Government of Bahrain issued competition, a personal data protection, bankruptcy, and health insurance laws to enhance the country’s investment ecosystem.  The so-called Law of Commerce (Legislative Decree No. 7, passed in 1987) addresses the concept of unfair competition and prohibits acts that would have a damaging effect on commercial competition.  Companies also are forbidden from undertaking practices detrimental to their competitors or from attracting the customers of their competitors. There is no official competition authority in Bahrain and the country has yet to institute comprehensive anti-monopoly laws or an independent anti-corruption agency.

Bahrain’s industrial sector exhibits dominance by state-controlled companies such as Aluminum Bahrain (ALBA) and Gulf Petrochemical Industries Company (GPIC).  De facto monopolies also exist in some industries led by individuals or family-run businesses.

The GOB uses International Financial Reporting Standards (IFRS) as part of its implementation of Generally Accepted Accounting Principles (GAAP).  IFRS are used by domestic listed and unlisted companies in their consolidated financial statements for external financial reporting.

Bahrain adopted International Accounting Standard 1 (IAS 1) in 1994 in the absence of other local standards.  Non-listed banks and other business enterprises use IASs in the preparation of financial statements.

The 2001 Bahrain Commercial Companies Law requires each registered entity to produce a balance sheet, a profit-and-loss account and the director’s report for each financial year.  All branches of foreign companies, limited liability companies and corporations must submit annual audited financial statements to the Directorate of Commerce and Company Affairs at the MoICT, along with the company’s articles and /or articles of association.

Depending on the company’s business, financial statements may be subject to review by other regulatory agencies such as the Bahrain Monetary Agency (BMA) and the Bahrain Stock Exchange (banks and listed companies).

Bahrain encourages firms to adhere to both the IFRS and Bahrain’s Code of Corporate Governance.  Bahrain-based companies by and large remain in compliance with IAS 1 disclosure requirements.

There are no informal regulatory processes managed by non-governmental organizations or private sector associations.

According to the World Bank, the GOB does not have the legal obligation to publish the text of proposed regulations before they are implemented and there is no period of time set by law for the text of the proposed regulations to be publicly available.  Bahrain, therefore, ranks among the countries the World Bank identifies with low rule-making transparency.

• http://rulemaking.worldbank.org/en/data/explorecountries/bahrain  

Laws and regulatory actions can be proposed by legislators, the government, or the King and are normally drafted under the Cabinet’s guidance prior to being transferred back to the Council of Representatives (COR).  If the bill or legislation is approved by a majority of the COR, the legislation advances to the Shura Council. If approved by a majority in the Shura Council, legislation is referred back to the Cabinet for the King’s ratification.  If the COR advances a version that the Shura Council disagrees with, a revised draft goes back to the COR. If the two houses cannot agree, they meet in what is known as the National Assembly, where both chambers meet to reconcile differences on a specific bill.  The publication of the regulatory action in the Official Gazette is the final legislative step. The implementation of any laws takes place the day following its publication. The media sometimes publishes the draft laws and offers commentary on various legal interpretations.

Commercial regulations can be proposed by the EDB, MoICT, the Cabinet, or the COR.  Draft regulations are debated within the COR’s Finance and Economic Committee. The Bahrain Chamber of Commerce board of directors may raise concerns over draft legislation at committee meetings or send written comments for review by Members of Parliament, but the bills are otherwise not available for public comment.  The Cabinet issues final approval of regulations.

The e-Government portal and the Legislation and Legal Opinion Commission website list laws by category and date of issuance.  Some laws are translated into English. The National Audit Office publishes results of its annual audits of government ministries and parastatals.

International Regulatory Considerations

Bahrain is a member of the GCC.  The GOB has agreed to enforce GCC standards and regulations where they exist, and not to create any domestic rules that contradict established GCC-wide standards and regulations.  In certain cases, the GOB applies international standards where domestic or GCC standards have not been developed.  For example, the GOB mandates that imported vehicles meet either the U.S. Federal Motor Vehicle Safety Standards or the so-called “1958 Agreement” standards developed by the United Nations Economic Commission for Europe.  Bahrain is a member of the WTO and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade.  Bahrain ratified the Trade Facilitation Agreement (TFA) in September 2016 through Law No. 17 of 2016.  Bahrain Customs and MoICT have begun working toward implementing the TFA’s requirements.

Legal System and Judicial Independence

Bahrain’s Constitution defines the Kingdom as a sovereign, independent, Arab Muslim State.  Although Article 2 of the Constitution states that Islamic Sharia (Islamic) law is the main source of legislation, general matters and private transactions are governed mainly by laws derived from modern legislation.  Three types of courts are present in Bahrain – civil, criminal, and family (Sharia) courts. The civil court system consists of lower courts, courts of appeal, and the Court of Cassation — the highest appellate court in the Kingdom, hearing a variety of civil, criminal and family cases.  Civil courts deal with all administrative, commercial, and civil cases, as well as disputes related to the personal status of non-Muslims.  Family courts deal primarily with personal status matters, such as marriage, divorce, custody, and inheritance.

Many of the high-ranking judges in Bahrain come from the ruling family, prominent families, or are non-Bahrainis (mainly Egyptians).  Bahraini law borrows a great deal from other Arab states, particularly Egyptian legal codes.

Bahrain has a long-established framework of commercial law.  English is widely used, and a number of well-known international (including U.S.) law firms, working in association with local partners, are authorized to practice law in Bahrain and provide expert legal services, both nationally and regionally.  Fees are charged according to internationally accepted practices. Non-Bahraini lawyers can represent clients in Bahraini courts. In April 2007, the government permitted international law firms to be established in Bahrain. These firms provide services such as commercial and financial consultancy in legal matters.

Entrenched local business interests with government influence can sometimes cause problems for foreign companies.  Interpretation and application of the law sometimes varies by ministry and may be dependent on the stature and connections of an investor’s local partner.  These departures from the consistent, transparent application of regulations and the law are not common, and investors report general satisfaction with government cooperation and support.

The GOB is eager to develop its legal framework further.  The U.S. Department of Commerce’s Commercial Law Development Program (CLDP) has conducted training and capacity-building programs in Bahrain for several years, in cooperation with the Ministry of Justice and Islamic Affairs, the Higher Supreme Council for Judges, and the Judicial and Legal Studies Institute.

Judgments of foreign courts are recognized and enforceable under local courts.  Article nine of the U.S.-Bahrain Bilateral Investment Treaty outlines how problems with U.S. investments should be handled within the Bahraini legal system.  The most common source of investment-related problems in Bahrain is slow or incomplete application of the law. In general, the judicial process is fair and cases are appealable.

Laws and Regulations on Foreign Direct Investment

The U.S.-Bahrain BIT provides benefits and protection to U.S. investors in Bahrain, such as most-favored nation and national treatment, the right to make financial transfers freely and immediately, the application of international legal standards for expropriation and compensation cases, and access to international arbitration.  The BIT guarantees national treatment for U.S. investments across most sectors, with exceptions only for ownership of television, radio or other media, fisheries, and dredging or oil exploration. Bahrain also provides most-favored nation or national treatment status to U.S. investments in air transportation, the purchase or ownership of land, and the purchase or ownership of shares traded on the Bahrain Bourse.

The national treatment clause in the BIT ensures American firms interested in selling products exclusively in Bahrain are no longer required to appoint a commercial agent, though they may opt to do so.  A commercial agent is any Bahraini party appointed by a foreign party to represent the foreign party’s product or service in Bahrain.

With few exceptions, Bahrain permits 100 percent foreign-ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors.  Wholly foreign-owned companies may be set up for regional distribution services and may operate within the domestic market as long as they do not exclusively pursue domestic commercial sales. Private investment (foreign or Bahraini) in petroleum extraction is permitted only under a production-sharing agreement with the Bahrain Petroleum Company (BAPCO), the state-owned petroleum company.

Expatriates may own land in designated areas in Bahrain.  Non-GCC nationals, including Americans, may own high-rise commercial and residential properties, as well as properties used for tourism, banking, financial and health projects, and training centers.

Bahrain issued Bankruptcy Law No. 22 in May 2018 governing corporate reorganization and insolvency.  The law is based on U.S. Chapter 11 insolvency legislation and provides companies in financial difficulty with an opportunity to restructure under court supervision.

Below is a link to a site designed to assist foreign investors navigate the laws, rules, and procedures related to investing in Bahrain: http://cbb.complinet.com/cbb/microsite/laws.html  

Competition and Anti-Trust Laws

The GOB issued Competition Law No. 31 in July 2018 to prevent the formation of monopolies or the practice of anti-competitive behavior.  This law makes it easier for new businesses to enter existing markets and compete with significant players.

MoICT’s Consumer Protection Directorate is responsible for ensuring that the law determining price controls is implemented and that violators are punished.  There are general restrictions on FDI in some sectors, including the oil and gas and petrochemicals sectors, in which all companies are government-owned.

Expropriation and Compensation

There have been no expropriations in recent years, and there are no cases in contention.  The U.S.-Bahrain BIT protects U.S. investments by banning all expropriations (including “creeping” and “measures tantamount to”) except those for a public purpose.  Such transactions must be carried out in a non-discriminatory manner, with due process, and prompt, adequate, effective compensation.

Dispute Settlement

ICSID Convention and New York Convention

Bahrain uses multiple international and regional conventions to enhance its commercial arbitration legal framework.  Bahrain is a party to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, the New York Convention, the International Centre for the Settlement of Investment Disputes (ICSID), and the GCC Convention for Execution of Judgments, among others.  These conventions and international agreements established the foundation for the GCC Arbitration Centre, and the Bahrain Chamber for Disputes & Resolution (BCDR). Bahrain’s Constitution stipulates international conventions and treaties have the power of law.

Investor-State Dispute Settlement

The U.S.-Bahrain BIT provides for three dispute settlement options:

1. Submitting the dispute to a local court;
2. Invoking dispute-resolution procedures previously agreed upon by the national or company   and the host country government; or,
3. Submitting the dispute for binding arbitration to the International Center for Settlement of Investment Disputes (ICSID) or any other arbitral institution agreed upon by both parties.

In 2010, the Ministry of Justice established the Bahrain Chamber for Dispute Resolution (BCDR).  In partnership with the American Arbitration Association (AAA), the BCDR specializes in alternative dispute resolution services.  The jurisdiction of the BCDR-AAA is twofold: Jurisdiction by Law (Section 1 cases), and Jurisdiction by Party Agreement (arbitration, also referred to as Section 2 cases).

Jurisdiction by Law (Section 1 Cases)

Disputes exceeding BD 500,000 (approximately USD 1.3 million) which involve either an international commercial dispute or a party licensed by the Central Bank of Bahrain (CBB) are referred to the BCDR-AAA.  Prior to the creation of the BCDR, these cases fell within the jurisdiction of the courts of Bahrain.

From the establishment of the BCDR-AAA through December 2018, 231 cases were filed under Section 1, with claims totaling over USD 3.9 billion.  Of these cases, 29.4 percent were decided or settled within 6 months; 41.1 percent were decided/settled within 6–12 months; 11.3 percent were decided or settled within 12–18 months; 6.1 percent were decided or settled within 18–24 months; 3.0 percent were decided or settled after 24 months; and 9.1 percent were ongoing.

Arbitration (Section 2 Cases)

As of April 2018, ten cases have been filed: one in 2013, one in 2015, three in 2016, and five in 2017.  Of these cases only three of the cases filed in 2017 as of April 2018 were ongoing and the rest were awarded or settled.

Bahrain Chamber for Dispute Resolution
Suite 301, Park Plaza
Bldg. 247, Road 1704
P.O. Box 20006
Manama, Kingdom of Bahrain
Telephone: + (973) 17-511-311
Website: www.bcdr-aaa.org  

The United Nations Conference on Trade and Development (UNCTAD) reported that Bahrain faced its first known Investor-State Dispute Settlement (ISDS) claim in 2017.  The case involves investor claims over the Central Bank of Bahrain’s 2016 move to close the Manama branch of Future Bank, a commercial bank whose shareholders include Iranian banks.  Bahrain and Iran are party to a BIT.

International Commercial Arbitration and Foreign Courts

Arbitration procedures are largely a contractual matter in Bahrain.  Disputes historically have been referred to an arbitration body as specified in the contract, or to the local courts.  In dealings with both local and foreign firms, Bahraini companies have increasingly included arbitration procedures in their contracts.  Most commercial disputes are resolved privately without recourse to the courts or formal arbitration. Resolution under Bahraini law is generally specified in all contracts for the settlement of disputes that reach the stage of formal resolution but is optional in those designating the BCDR.  Bahrain’s court system has adequately handled occasional lawsuits against individuals or companies for nonpayment of debts.

Bahrain Law No. 9 of 2015 promulgating the Arbitration Law (the “New Arbitration Law”) came into effect on August 9, 2015.  The law provides that the UNCITRAL 1985 Model Law, with its 2006 amendments on international commercial arbitration (the “UNCITRAL Law”), will apply to any arbitration, taking place in Bahrain or abroad, if the parties to the dispute agreed to be subject to the UNCITRAL Law.

The GCC Commercial Arbitration Center, established in 1995, serves as a regional specialized body providing arbitration services.  It assists in resolving disputes among GCC countries or between other parties and GCC countries. The Center implements rules and regulations in line with accepted international practice.  Thus far, few cases have been brought to arbitration. The Center conducts seminars, symposia, and workshops to help educate and update its members on any new arbitration-related matters.

GCC Commercial Arbitration Center
P.O. Box 2338
Manama, Kingdom of Bahrain
Arbitration Boards’ Secretariat
Telephone: + (973) 17278000
Email: case@gcccac.org
Website: http://www.gcccac.org/en/  

Bankruptcy Regulations

The GOB enacted its original bankruptcy and insolvency law as a Decree by Law No. 11 in 1987.  On May 30, 2018, the GOB issued and ratified Law No. 22 /2018, updating the original legislation.  Modeled on U.S. Chapter 11 legislation, the law introduces reorganization whereby a company’s management may continue business operations during the administration of a case. The Bankruptcy Law also includes provisions for cross-border insolvency, and special insolvency provisions for small and medium-sized enterprises.

The Bahrain credit reference bureau, known as “BENEFIT,” is licensed by the Central Bank of Bahrain (CBB) and operates as the credit monitoring authority in Bahrain.

Investment Incentives

The GOB offers a variety of incentives to attract FDI.  The Bahrain Logistics Zone, Bahrain Economic Development Board (EDB), Bahrain Development Bank (BDB), Bahrain International Investment Park (BIIP), and Tamkeen all offer incentives to encourage FDI.  Some examples of incentives include assistance in registering and opening business operations, financial grants, exemption from import duties on raw materials and equipment, and duty-free access to other GCC markets for products manufactured in Bahrain.

Foreign Trade Zones/Free Ports/Trade Facilitation

Khalifa bin Salman Port, Bahrain’s primary commercial seaport provides a free transit zone to facilitate the duty-free import of equipment and machinery.  The Government of Bahrain has developed two main industrial zones, one to the north of Sitra and the other in Hidd. The Hidd location, known as the Bahrain International Investment Park (BIIP), is adjacent to a logistics zone, known as the Bahrain Logistics Zone.  Foreign-owned firms have the same investment opportunities in these zones as Bahraini companies.

Bahrain’s Ministry of Industry, Commerce and Tourism (MoICT) operates the BIIP, a 2.5 million square-meter, tax-free zone located minutes from Bahrain’s main Khalifa bin Salman port.  Many U.S. companies operate out of this park. BIIP is most suited to manufacturing and services companies interested in exporting from Bahrain. The park offers manufacturing companies the ability to ship their products duty free to countries in the Greater Arab Free Trade Area.  BIIP has space available for potential investors, including some plots of vacant land designated for new construction, and some warehouse facilities for rental.

A 1999 law requires that investors in industrial or industry-related zones launch a project within one year from the date of receiving the land, and development must conform to the specifications, terms, and drawings submitted with the application.  Changes are not permitted without approval from the MoICT.

Performance and Data Localization Requirements

Companies in Bahrain are obliged to comply with so-called “Bahrainization” employment targets  , under which the Labour Market Regulatory Authority (LMRA) mandates that a certain percentage of each company’s employees are Bahraini.  Companies may contact LMRA to determine their Bahrainization rate, which differs based on the sector of the economy in which they work, or use a calculator available at http://lmra.bh/portal/en/page/show/193  .  The applicable Bahrainization rate  s are mandatory across the board in the company structure, applying equally to senior management and line workers.  Per Cabinet Resolution Number 27 of 2016, LMRA announced that companies that are unable to comply with the Bahrainization rates would only be eligible to apply for new work permits and sponsorship transfers by paying an additional annual fee of BD  500 (roughly USD 1,329) per non-Bahraini worker. LMRA may apply fines to companies that do not comply with Bahrainization requirements.

The GOB issued Law 1/2019 in March 2019 amending Article 14 of the Private Health Establishments Law, which gives priority to recruiting qualified Bahraini physicians, technicians, and nursing staff in private health establishments.

There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting the mobility of foreign investors or their employees in Bahrain.  Americans and citizens of many other countries can obtain a two-week visa with relative ease upon arrival in Bahrain or online. Bahrain also offers a multiple-entry visa that lasts for five years, if required.

Bahrain has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses; no product localization is forced and foreign investors are not obliged to use domestic content in goods or technology.  There are no government-imposed conditions on permission to invest, including tariff and non-tariff barriers, on American investments.

There are no special performance requirements imposed on foreign investors.  The U.S.-Bahrain Bilateral Investment Treaty forbids mandated performance requirements as a condition for the establishment, acquisition, expansion, management, conduct, or operation of a covered investment.  Foreign and Bahraini-owned companies must meet the same requirements and comply with the same environmental, safety, health, and labor requirements. Officials at the Ministry of Labour and Social Development, LMRA and the MoICT supervise companies operating in Bahrain on a non-discriminatory basis.

The Central Bank of Bahrain regulates financial institutions and foreign exchange offices.  Foreign and locally owned companies must comply with the same rules, policies, and regulations.

There are no requirements for foreign IT providers to turn over source code and/or to provide access to surveillance.

Bahrain enacted Law No. 30 of 2018 with respect to Personal Data Protection on July 12, 2018. The nationwide Data Protection Law, which goes into force on August 1, 2019, promotes the efficient and secure processing of big data for commercial use and provides guidelines for the effective transfer of data across borders.

Real Property

The Government of Bahrain enforces property rights protections for land and homeowners.  Most land has a clear title. Ownership of land is highly concentrated among a few royal family members, and certain areas are off-limits for Bahraini nationals and expatriates alike.  Foreign firms and GCC nationals may own land in certain areas in Bahrain. Non-GCC nationals may own high-rise commercial and residential properties in certain areas. Foreign investors may own property to operate businesses in various fields of business, including but not limited to manufacturing, tourism, banking and financial services, education and training, design, and advertising.

Foreign investors may own commercial property in the following geographic areas of Bahrain:

• Ahmed Al-Fateh (Juffair) district
• Hoora district
• Bu Ghazal district
• Seef district
• Northern Manama, including the Diplomatic Area, where the main international corporations are located.

Foreign investors may own residential property in the following tourist areas:

• Durrat Al Bahrain
• Riffa Views
• Amwaj Islands
• Bahrain Financial Harbor
• Bahrain Bay
• Reef Island
• Diyyar Al Muharraq
• Some areas in Saar

Most of the new development projects in Bahrain permit expatriates and international investors to own houses, buildings, outlets, or freehold apartments.  Legally purchased property cannot revert to other owners, even if such property is unoccupied.

Intellectual Property Rights

Under the U.S.-Bahrain Free Trade Agreement, the GOB committed to enforce intellectual property rights (IPR) protections.  Bahrain signed the Berne Convention for the Protection of Literary and Artistic Works and the Paris Convention for the Protection of Industrial Property in 1996.  The GOB ratified revised legislation in 2006 to implement Bahrain’s obligations under the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  The GOB has passed laws related to IPR to bring Bahrain’s local laws into compliance with its current Paris Convention commitment and in anticipation of acceding to the Nice Agreement, Vienna Agreement, Patent Cooperation Treaty, Trademark Law Treaty, Madrid Agreement, Budapest Treaty, and the Rome Convention.  Bahrain has acceded to the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty.

The government has made progress in reducing copyright piracy and there are few reports of significant violations of U.S. patents and trademarks in Bahrain.  The government’s copyright enforcement campaign began in late 1997 and was based on inspections, closures, and improved public awareness. The campaign targeted the video, audio, and software industries with impressive results.  Commercially pirated video and audio markets have been mostly eliminated. However, audio, video, and software piracy by end-users remain problematic.

There are no technology transfer requirements that force firms to share or divulge technology through compulsory licensing to a domestic partner, nor are firms required to undertake research and development activities in Bahrain.

In May 2016, the GOB issued the Implementing Regulations for the Trademark Law of the Gulf Cooperation Council (GCC), which had originally been approved by Law No. 6 of 2014.  Law No. 6 provided a unified trademark regime for all six GCC countries.

Bahrain is not included in the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.  Bahrain does not track or report on seizures of counterfeit goods.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  .

The Embassy’s webpage also offers a link to local lawyers, some of whom specialize in IPR and/or patent law: https://bh.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

Resources for Rights Holders

Peter Mehravari
Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Kuwait City, Kuwait
U.S. Patent & Trademark Office
Telephone: +965 2259 1455
Email Peter.Mehravari@trade.gov

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  .

Capital Markets and Portfolio Investment

Consistent with the GOB’s liberal approach to foreign investment, government policies facilitate the free flow of financial transactions and portfolio investments.  Expatriates and Bahrainis alike have ready access to credit on market terms. Generally, credit terms are variable, but often are limited to 10 years for loans under USD 50 million.  For major infrastructure investments, banks often offer to assume a part of the risk, and Bahrain’s wholesale and retail banks have shown extensive cooperation in syndicating loans for larger risks.  Commercial credit is available to private organizations in Bahrain but has been increasingly crowded out by the government’s local bond issuances.

In 2016, the GOB launched a new fund designed to inject greater liquidity in the Bahrain Bourse, worth USD 100 million.  The Bahrain Liquidity Fund is supported by a number of market participants and will act as a market maker, providing two-way quotes on most of the listed stocks with a reasonable spread to allow investors to actively trade their stocks.  Despite these efforts, the market remains relatively small compared to others in the region.

The GOB and the Central Bank of Bahrain are members of the IMF and fully compliant with Article VIII.

Money and Banking System

The Central Bank of Bahrain (CBB) is the single regulator of the entire financial sector, with an integrated regulatory framework covering all financial services provided by conventional and Islamic financial institutions.  Bahrain’s banking sector remains quite healthy despite sustained lower global oil prices. Bahrain’s banks remain well capitalized, and there is sufficient liquidity to ensure a healthy rate of investment. Bahrain remains a financial center for the GCC region, though many financial firms have moved their regional headquarters to Dubai over the last decade.  The GOB continues to be a driver of innovation and expansion in the Islamic finance sector. In 2018, Bahrain ranked as the GCC’s leading Islamic finance market and second out of 92 countries worldwide, according to the ICD-Thomson Reuters Islamic Finance Development Indicator.

Bahrain has an effective regulatory system that encourages portfolio investment, and the CBB has fully implemented Basel II standards, while attempting to bring Bahraini banks into compliance with Basel III standards.  Bahrain’s banking sector includes 98 retail banks, of which 68 are wholesale banks, 16 are branches of foreign banks, and 14 are locally incorporated. Of these, seven are representative offices, and twenty-one are Islamic banks.  There are no restrictions on foreigners opening bank accounts or corporate accounts. Bahrain is home to many prominent financial institutions, among them Citi, American Express, and JP Morgan.

Ahli United Bank is Bahrain’s largest bank with total assets estimated at USD 35.5 billion in December 2018.

Bahrain implemented the Real-Time Gross Settlement (RTGS) System and the Scripless Securities Settlement (SSS) System in 2007, to enable banks to carry out their payment and securities-related transactions securely on a real time basis.  In 2018, the CBB was in the process of introducing a private network as an alternative communication network for the RTGS-SSS Systems.

In 2017, Bahrain became the first in the GCC to introduce Financial Technology “sandbox” regulations that enabled the launch of cryptocurrency and blockchain startups.  In the same year, the CBB released additional regulations for conventional and Sharia-compliant, financing-based crowdfunding businesses.  Any firm operating electronic financing/lending platforms must be licensed in Bahrain under the CBB Rulebook Volume 5 – Financing Based Crowdfunding Platform Operator.  In February 2019, the CBB also issued cryptocurrency   regulations.

Foreign Exchange and Remittances

Foreign Exchange Policies

Bahrain has no restrictions on the repatriation of profits or capital and no exchange controls.  Bahrain’s currency, the Bahraini Dinar (BD), is fully and freely convertible at the fixed rate of USD  1.00 = BD 0.377 (1 BD = USD 2.659). There is no black market or parallel exchange rate.

There are no restrictions on converting or transferring funds, whether or not associated with an investment.

Remittance Policies

The Central Bank of Bahrain is responsible for regulating remittances, and its regulations are based on the Central Bank Law ratified in 2006.  The majority of the workforce in the Kingdom of Bahrain is comprised of foreign workers, many of whom remit large amounts of money to their countries of origin.  Commercial banks and currency exchange houses are licensed to provide remittances services.

The commercial banks and currency exchange houses require two forms of identification before processing a routine remittance request, and any transaction exceeding USD 10,000 must include a documented source of the income.

Bahrain enables foreign investors to remit funds through a legal parallel market, with no limitations on the inflow or outflow of funds for remittances of profits or revenue.  The GOB does not engage in currency manipulation tactics.

Bahrain is a member of the Gulf Cooperation Council (GCC), and the GCC is a member of the Financial Action Task Force (FATF).  Additionally, Bahrain is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), whose headquarters are located in Bahrain.  Participating countries commit to combat the financing of terrorist groups and activities in all its forms and to implement FATF recommendations.  The Government of Bahrain hosted the MENAFATF’s 26th Plenary Meeting Manama in 2017.

Sovereign Wealth Funds

The Kingdom of Bahrain established Mumtalakat, its sovereign wealth fund, in 2006.  Mumtalakat, which maintained an investment portfolio valued at roughly USD 15.4 billion as of 2017, conducts its business transparently, issuing an annual report online.  The annual report follows international financial reporting standards and is audited by external, internationally recognized auditing firms. By law, state-owned enterprises (SOEs) under Mumtalakat are audited and monitored by the National Audit Office.  In 2018, Mumtalakat received the highest-possible ranking in the Linaburg-Maduell Transparency Index, which specializes in ranking the transparency of sovereign wealth funds. However, Bahrain’s sovereign wealth fund does not follow the Santiago Principles.

The sovereign wealth fund holds majority stakes in several firms.  Mumtalakat invests 62 percent of its funds in the Middle East, 30 percent in Europe, and eight percent in the United States.  The fund is diversified across a variety of business sectors including real estate and tourism, financial services, food & agriculture, and industrial manufacturing.

Mumtalakat often acts more as an active asset management company than a sovereign wealth fund, including by taking an active role in managing SOEs.  Most notably, Mumtalakat has been instrumental in helping Gulf Air, Bahrain’s flagship air carrier, restructure and minimize its losses. A significant portion of Mumtalakat’s portfolio is invested in  30 Bahrain-based SOEs.

Through 2016, Mumtalakat had not been directly contributing to the National Budget.  Beginning in September 2017, however, Mumtalakat announced it would distribute profits of BD 20 million to the National Budget for two consecutive years, distributed equally for the years 2017 and 2018.

Bahrain’s major state-owned enterprises (SOEs) include the Bahrain Petroleum Company (BAPCO), Aluminum Bahrain (ALBA), Gulf Petrochemical Industries Company (GPIC), Gulf Air, Bahrain Telecommunications Company (BATELCO), the National Bank of Bahrain (NBB) Bahrain Flour Mills, Tatweer Petroleum, and the Arab Shipbuilding & Repair Yard (ASRY).  While the GOB maintains full ownership of oil production, refineries, and heavy industries, it allows investment in ALBA, BATELCO, and ASRY, and encourages private sector competition in the banking, manufacturing, telecommunications, shipyard repair, and real estate sectors.

The SOEs are managed by two government-run holding companies: the National Oil and Gas Authority (NOGA) Holding Company, which owns nine energy sector companies, and Mumtalakat, which owns 38 domestic companies in all other sectors.  The full portfolio of the NOGA Holding Company can be viewed at www.nogaholding.com/portfolio/  , while the full portfolio of Mumtalakat companies can be viewed at www.bmhc.bh  .

Bahrain is not a party to the WTO Government Procurement Agreement (GPA), however, in 2008 Bahrain was granted “observer” status in the GPA committee.

Private enterprises can, in theory, compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives.  In practice, however, given the relatively small size of Bahrain’s economy, large SOEs such as ALBA, BAPCO, GPIC and ASRY have an outsized influence in the market.

In 2002, the GOB instituted guidelines to ensure its SOEs were in line with OECD policies on corporate governance.  SOEs produce quarterly reports. The National Audit Office monitors all SOEs and annually reports any irregularities, mismanagement, and corruption.

To enhance transparency and accountability the government appointed the Minister of Industry, Commerce and Tourism to be responsible for Mumtalakat.  The Minister of Oil and Gas is responsible for NOGA Holding, and all the companies under its umbrella.

All Bahraini SOEs have an independent board of trustees with well-structured management.  The Mumtalakat Holding Company is represented by a Board of Trustees appointed by the Crown Prince, while NOGA Holding’s Board of Trustees is appointed by a Royal Decree.  Each holding company then appoints the Board of Trustees for the SOEs under its authority. In some cases, the appointment of the Board of Trustees is politically driven.

Privatization Program

The GOB has been supportive of privatization as part of its Vision 2030 economic development plan, and it advocates for increased foreign investment as a means of driving private sector growth.  The GOB’s decision to privatize the telecommunications sector in the early 2000s is an example of incentivizing private sector growth in Bahrain. In 2018, the GOB began to privatize some medical services, such as pre-employment screenings that it previously had conducted.  It has also begun the process of privatizing by 2030 certain support services at GOB medical facilities, such as transportation, cleaning, laundry, textiles, maintenance, and security.

The Ministry of Social Development in 2011 authorized the creation of the Bahrain Corporate Social Responsibility Society (BCSRS) as a social and cultural entity.  Though there are no measures in Bahrain to compel businesses to follow codes of responsible business conduct, the BCSRS has sought to raise awareness of corporate social responsibility in the business community, and in 2018 held its second Bahrain International Corporate Responsibility Award ceremony.  The Society is a founding member of the Arab Association for Social Responsibility, which includes representatives of most Arab countries.

In 2006, Bahrain established a National Steering Committee on Corporate Governance to improve corporate governance practices.  The GOB then drafted a Corporate Governance Code to establish a set of best practices for corporate governance in the kingdom, and to provide protection for investors and other company stakeholders through compliance with those principles.  The GOB enforces the code through a combined monitoring system comprising the board, the shareholders and others including the MoICT, CBB, Bahrain Stock Exchange (BSE), Bahrain Courts and Professionals firms including auditors, lawyers and investment advisers.  The code does not create new penalties for non-complying companies, but it does state that the MoICT (working closely with the CBB and the BSE) will be able to exercise the penalty powers already granted to it under the Commercial Companies Law 2001.

The GOB, represented by the LMRA, has put in place advanced regulations and laws protecting labor rights, the most vulnerable category comprising migrant workers from Southeast Asia.  Labor courts have not been effective in settling labor disputes between employers and employees. However, there have been some reports of cases that were settled in favor of employees in Bahraini labor courts.

Law Number 35 of 2012, the Consumer Protection Law, ensures quality control, combats unfair business practices, and imposes sanctions for breaches of the law’s provisions.  MoICT is highly effective in implementing the law.

Bahrain’s amended Corporate Governance Law enhances transparency and ethical business conduct standards.  Among the changes, the GOB urged companies to submit audited ratified accounts to the MoICT.

The GOB does not maintain a National Contact Point (NCP) for the Organization for Economic Co-operation and Development (OECD) guidelines nor does it participate in the Extractive Industries Transparency Initiative (EITI).

The King and Crown Prince have advocated publicly in favor of reducing corruption and some ministries have initiated “clean-up” efforts.  Legislation regulating corruption is outlined in Bahrain’s “Economic Vision 2030” plan, and in the National Anti-Corruption Strategy. Bahrain joined the United Nations Convention Against Corruption (UNCAC) in 2003.  Accordingly, Bahrain ratified its penal code on combatting bribery in the public and private sectors in 2008, mandating criminal penalties for official corruption. Under the law, government employees at all levels are subject to prosecution and punishments of up to 10 years imprisonment if they use their positions to engage in embezzlement or bribery, either directly or indirectly.  The law does not require government officials to make financial disclosures. In 2010, Bahrain ratified the UNCAC and the Arab Convention Against Corruption, and in 2016, it joined the International Anti-Corruption Academy. In 2018, Bahrain again updated its penal code to more closely align with international standards. The General Directorate of Anti-corruption and Economic and Electronic Security dealt with 63 cases in 2018, of which 53 were referred to the Public Prosecutor.

Giving or accepting a bribe is illegal.  The government, however, has not fully implemented the law, and some officials reportedly continue to engage in corrupt practices with impunity.  Officials have at times been dismissed for what is widely believed to be blatant corruption, but the grounds for dismissal rarely have been tied to corruption.

The National Audit Office, established in 2002, is mandated to publish annual reports that highlight fiscal irregularities within government ministries and other public-sector entities.  The reports enable legislators to exercise oversight and call for investigations of fiscal discrepancies in government accounts. In 2013, the Crown Prince established an Investigation Committee to oversee cases highlighted within the National Audit Office’s annual report.

The Minister of Follow-Up Affairs at the Royal Court was designated in 2015 to execute recommendations made in that year’s National Audit Report.  At the same time, the Crown Prince urged all government entities and the Council of Representatives to work closely to implement the recommendations made in the report.  Bahrain’s National Audit Office issues annual reports that list violations committed by various Bahraini state bodies and agencies.

As a result of the 2011 National Dialogue process, the Ministry of Interior established an anti-corruption directorate.  In 2011 the Ministry of Interior signed a Memorandum of Understanding with the United Nations Development Program to enhance the anti-corruption directorate’s capabilities.

Bahrain has conflict-of-interest laws in place, however, in practice, their application in awarding contacts is not fully enforced.

Local NGOs generally do not focus their efforts on corruption-related issues, and human rights activists and members of the political opposition who have spoken out about corruption have at times been detained, prosecuted, and banned from travel for reasons related to their broader political activism.  All civil society groups are required to register with the Ministry of Labour and Social Development, which has the discretion to reject registration if it determines the organization’s services unnecessary, already provided by another society, or contrary to state security.

Few cases have been registered by U.S. companies reporting corruption as an obstacle to their investments in Bahrain.

Bahrain signed and ratified the UN Anticorruption Convention in 2005 and 2010, respectively.  Bahrain, however, is not a signatory to the OECD Convention on Combating Bribery. In 2018, Bahrain joined the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

General Directorate of Anti- Corruption & Economic & Electronic Security
Ministry of Interior
P.O. Box 26698, Manama, Bahrain
Hotline: 992

Contact at “watchdog” organization:

Sharaf AlMosawi
President
Bahrain Transparency Association
P.O. Box 26059
Adliya, Bahrain
Telephone: +973 39640929
Email: Sharaf115@gmail.com

Historically, Bahrain has been an open, politically moderate, economically liberal Gulf state that enjoys close ties to the United States.  Bahrain has experienced cyclical periods of violence often motivated by political and ideological divisions between the government and the Bahraini Shi’a majority.  Notably, since 2011, a violent minority of the opposition have occasionally targeted Bahraini security forces, including attacks using improvised explosive devices. The last such incident occurred in November 2017, when an explosion that caused a fire at the main oil pipeline in Buri was attributed to sabotage.  In 2016 and 2017, the government dissolved the country’s two largest opposition political societies and closed the only opposition-leaning independent newspaper. On May 13, 2018, the Bahraini parliament passed a law banning members of political societies dissolved by a government order from running as candidates in elections.

Neither demonstrators nor violent extremists have targeted Americans or Western expatriates.  U.S. citizens visiting Bahrain and companies interested in investing in Bahrain should visit the Embassy and State Department websites to receive the most up-to-date information about the security situation and register with the Embassy’s consular section.

• https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Bahrain.html

Bahrain’s Labor Law No. 36 of 2012  guarantees employees’ rights by requiring clear contractual terms for employing domestic staff, prohibiting discrimination practices of wages based on gender, ethnicity, religion, or language.  It also introduced enhancements for annual leave, maternity leave, sick leave entitlement, and resolution of labor disputes.  Expatriate workers should be registered by the employers with Labor Market Regulatory Authority (LMRA) and receive a valid residence permit and work permit.  Employers are prohibited from employing foreigners without a valid work permit. To work in Bahrain, foreign employees should be medically fit, have entered the country lawfully, possess a valid passport, and retain residence and work permits.

As of the second quarter of 2018, LMRA estimated Bahrain’s labor force to number 759,671, of which 600,857 were foreign and 158,814 were local workers.  Seventy-nine percent of the total workforce is comprised of foreigners, the majority being unskilled construction workers.  The number of new regular work permits issued by LMRA during the second quarter of 2018 was 78,868, representing an increase of 135 percent over the previous year.  According to Bahrain’s Information and e-Government Authority, foreigners comprised 54 percent of the Bahrain’s population in 2018.  LMRA stated that Bahrain’s unemployment rate was 4 percent in the second quarter of 2018.

The government’s primary initiative for combating unemployment is “Bahrainization,” or the replacement of expatriate workers by national citizens.  In 2009, under the initiative of the Crown Prince the Bahrain Economic Development Board launched “Bahrain Economic Vision 2030,” a long-term plan to raise Bahrainis’ standard of living, reform the government, education, and health sectors, and increase privatization, training and education of the Bahraini workforce to establish Bahrain as a regional center for human capital.  For more information please refer to: http://www.mofa.gov.bh/img/partners/Vision2030Englishlowresolution.pdf .

Periodically, foreign firms experience difficulty obtaining required work permits and residence visas for expatriate employees due to Bahrainization efforts.  In 2019, the GOB stepped up efforts to enforce Bahrainization targets. Decree No. (1) of 2019 stipulated that priority be given to Bahraini physicians, technicians, and nurses with the required qualifications and experience.  Separately, the GOB issued an order on March 5, 2019 requiring employers pay a BD 500 fee payable every two years for per work permit beyond the Bahrainization quota allotted. Where problems occur, U.S. businesses are encouraged to appeal to the highest levels of the concerned ministries, and to consult with the U.S. Embassy.

In 2006 the King ratified the Labor Reforms Law, establishing two entities: the Labour Market Regulatory Authority (LMRA), and the capacity-building organization known as Tamkeen.  The law imposed a monthly fee of BD 10 (USD 26.67) on each expatriate employed by a company. The revenues collected under this program are earmarked to provide job training for Bahrainis.  The Prime Minister suspended the LMRA fee after the unrest of 2011 over pressure from the Bahrain Chamber of Commerce and Industry and reinstated it in 2013 as a legal amendment to the labor law.  Companies pay BD 5 (USD 13.35) for the first five foreign workers and BD 10 (USD 26.67) for every employee over that limit. The Council of Representatives has attempted unsuccessfully to amend the fee structure, most recently in late 2017.

The Labor Law of 2012 allows an employer to terminate an employee in the event of the total or partial closure of an establishment.  The employer must render a notice and reason for termination to the Ministry of Labour and Social Development at least 30 days prior to serving notice of termination to the affected employee.  The amount of compensation due an employee for termination is set by law and is based in part on length of service.

In 2007, the Minister of Labour and Social Development introduced an unemployment allowance to be paid from a general labor fund.  The fund is financed by deducting one percent from the wages of all workers and is the first such program in the GCC.

In 2002, the King approved the Workers Trade Union Law of 2002 that recognizes the right of workers to collectively organize and form trade unions and provides limited rights to strike.  The law prohibits workers from striking in certain vital sectors including security, aviation, ports, hospitals, and utilities. With the exception of domestic servants, foreign workers are allowed to join trade unions.  The law prohibits employers from dismissing an employee for trade union activities. In 2011, the King issued a decree that changed Bahrain’s labor law as it pertained to trade unions and federations. Union leadership heavily criticized the new law for some of its other provisions that appear to inhibit freedom of association.  The 2012 law prohibits multi-sectoral labor federations and prohibits individuals convicted of felonies from holding union leadership posts. While the amendment also allowed for the formation of multiple trade union federations, it gave the Minister of Labour and Social Development the sole right to select the federation to represent the country’s workers in international fora and in national-level bargaining.

In 2010, the U.S. Department of Labor and the Bahrain Ministry of Labour and Social Development convened the first meeting of the U.S.-Bahrain Sub-Committee on Labor Affairs, as established under the U.S.-Bahrain FTA.  At the meeting, they reaffirmed their obligations under the FTA related to internationally recognized labor rights, including their obligations as members of the International Labor Organization (ILO) and commitments stated in the ILO Declaration on Fundamental Principles and Rights at Work (1998).  In July 2018, Bahrain achieved “Tier 1” status in the U.S. Department of State’s Trafficking in Persons Report.

During the political and civil unrest of 2011, thousands of Bahraini employees were dismissed from their private and public-sector jobs.  In June 2011, the AFL-CIO filed a petition with the Department of Labor accusing Bahrain of violating the labor rights terms of the U.S.-Bahrain Free Trade Agreement.  The November 2011 Bahrain Independent Commission of Inquiry report concluded that the majority of dismissals were motivated by retaliation against employees suspected of being involved in demonstrations.  By the end of 2012, the vast majority of dismissed workers in the public and private sectors were reinstated, with the GOB working to resolve the remaining cases. In March 2014, the Minister of Labour and Social Development, the Bahrain Chamber of Commerce and Industry, and the General Federation of Bahrain Trade Unions signed a Tripartite agreement to resolve the remaining worker reinstatement cases.  Subsequently, the ILO dropped the complaint it initiated in 2011. Bilateral consultations between the U.S. and Bahrain — invoked under the Labor Chapter of the FTA in response to the 2011 AFL-CIO complaint — are ongoing.

Since 1987, the Government of Bahrain and the U.S. Government have maintained an Investment Incentive Agreement permitting the U.S. Overseas Private Investment Corporation (OPIC) to provide investment insurance and reinsurance for companies operating in Bahrain.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Gary Schumann
Economic and Commercial Officer

Hadeel Hassan
Commercial Assistant

U.S. Embassy Manama
P.O. Box 26431
Bldg. 979, Rd. 3119
Block 331, Zinj
Kingdom of Bahrain
Telephone: +973 1724-2700
E-mail: manamacommercial@state.gov

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.

Kuwait has signed bilateral investment treaties with 90 countries, 66 of which are in force, and 12 other treaties with investment provisions, six of which are in force.  More information about these may be found at the following website: http://investmentpolicyhub.unctad.org/IIA/CountryBits/112#iiaInnerMenu  .

Kuwait signed a Trade and Investment Framework Agreement (TIFA) with the United States in 2004.  The last bilateral TIFA Council meeting took place in 2008. In October 2012, however, the United States signed a TIFA with the GCC, which the Kuwait National Assembly ratified in April 2014.  The last U.S.-GCC TIFA Council meeting took place in June 2015.

Kuwait and the United States signed a bilateral agreement on investment guarantees in April 1989 that entered into force in October 1989.

Kuwait does not have a bilateral taxation treaty with the United States.  However, Kuwait and the United States signed an intergovernmental Foreign Account Tax Compliance Act (FATCA) agreement in 2015, which can be accessed via the following website:  https://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx  

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.

Investment Incentives

Incentives under the 2013 Foreign Direct Investment Law include tax benefits (15 percent corporate tax on foreign firms may be waived for up to 10 years), customs duties relief, land and real estate allocations, and permissions to recruit required foreign labor.

Other tax benefits exist.  For example, entities incorporated in the GCC that are 100 percent owned by GCC nationals are exempt from paying a tax on corporate profits.  Capital gains arising from trading in securities listed on Kuwait’s stock market are exempt from tax. Foreign principals selling goods through Kuwaiti distributors are not subject to tax.

Kuwait does not have personal income, property, inheritance, or sales taxes; the government is preparing legislation to implement a value added tax and certain excise taxes.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Kuwait Free Trade Zone was established at Shuwaikh port in 1999.  The Council of Ministers approved legislation that would establish a new Free Trade Zone area as part of Kuwait’s Northern Gateway megaproject.  The legislation is pending in the National Assembly. Many restrictions normally faced by foreign firms, as well as corporate taxes, would not apply within the free trade zone.  The Kuwait Direct Investment Promotion Authority is planning to utilize existing legislation to develop two new free trade zones at Al-Abdali and Al-Nuwaiseeb. The Council of Ministers issued a resolution dissolving the Free Trade Zone status at Shuwaikh port because that area will be used for other purposes.

Performance and Data Localization Requirements

The government requires foreign firms to hire a percentage of Kuwaitis that varies according to sector.  The percentages are as follows:

• banking: 70 percent
• communications: 65 percent
• investment and finance: 40 percent
• petrochemicals and refining industries: 30 percent
• insurance: 22 percent
• real estate: 20 percent
• air transportation, foreign exchange, cooperatives: 15 percent
• manufacturing and agriculture: 3 percent.

Employers must obtain a no objection certificate for a work permit for foreign employees from the Public Authority for Manpower (PAM) prior to the employee’s arrival in the country.  Obtaining a no objection certificate may require submission of the employee’s criminal history and a completion of a health screening through a Kuwaiti Embassy or Consulate. Upon arrival, the employee must obtain a work permit from PAM and complete health and security screenings before receiving final status as a resident foreign worker from the Ministry of Interior.

Kuwait does not require that foreign companies store data locally, or that foreign investors use Kuwaiti domestic content when manufacturing goods locally.  Each company may determine whether and how it chooses to store data. Most governmental agencies follow International Organization for Standardization (ISO) certificate standards, which mandate the storage of data for five years.  Banks and other financial institutions are required by the Anti-Money Laundering/Combatting the Financing of Terrorism Law 106 of 2013 to maintain transactions data for five years.

Real Property

Non-GCC citizens may own properties only under special conditions that require Cabinet approval.  Kuwait ranked 69 out of 190 in Ease of Registering a Property in the World Bank’s Doing Business 2019 report.

Intellectual Property Rights

Kuwait acceded to the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 1995 and the World Intellectual Property Organization (WIPO) Patent Cooperation Treaty in 2016.  The government enacted the GCC Trademark Law in 2015 and the Copyright and Related Rights Law in 2016. The Office of the U.S. Trade Representative (USTR) included Kuwait on its 2019 Special 301 Report Priority Watch List, which identifies countries that are trading partners that do not adequately or effectively protect and enforce intellectual property rights (IPR).  Kuwait has been on the Priority Watch List for five consecutive years. USTR closed the Out-of-Cycle Review in 2019 for Kuwait without a change in status. Kuwait has not yet brought its copyright regime in line with its international commitments by making the necessary improvements to the regulations implementing its 2016 Copyright and Related Rights Law.

Right holders continue to raise systemic concerns regarding difficulty in having the Ministry of Commerce and Industry’s Consumer Protection Department remove illicit physical goods from the market, as well as the lack of transparency of administrative and criminal enforcement proceedings.  The government did not adequately take action to curb the relabeling, repackaging, and sale of counterfeit and pirated goods, including by targeting manufacturers and increasing fines and penalties to deterrent levels. The government did not prioritize the prosecution of criminal behavior in such cases nor reduce the undue delays in the judicial process.

The following descriptions characterize the protection of IPR in Kuwait:

• Trademarks: strong; trademark applications can be filed at the Kuwaiti Trademark Office, organized under the Ministry of Commerce and Industry.  Kuwait applies the GCC trademark law.
• Patents: strong; the Kuwait Patent Office announced that it began accepting Patent Cooperation Treaty compliant national applications in March 2018.
• Copyright: medium; can be protected by the Ministry of Information/National Library of Kuwait. There are efforts underway to amend the new copyright law and join WIPO’s Copyright and Internet Treaties.

The IPR enforcement regime has improved, most notably in the following areas:

• The Ministry of Information (MOI) has conducted raids, seized pirated goods (such as DVDs), and referred cases for prosecution.  In addition, it continued blocking Internet domains that allow downloads of pirated copyrighted materials and websites that sell counterfeit goods.
• The Criminal Investigations Department (CID) established a specialized IPR unit to combat counterfeit goods.  Brand owners are able to bring complaints directly to this unit for action in cooperation with the Ministry of Commerce and Industry.  The CID conducted raids and criminal proceedings on a range of pirated and counterfeit physical goods.
• Ministry of Commerce and Industry performed raids and seizures under the direction of the Assistant Undersecretary of Trade Control, but focused more on small retail shops than more important targets like sources and suppliers of counterfeit goods.
• General Administration of Customs officials improved enforcement in part due to their close collaboration with U.S. Customs and Border Protection.  Kuwait Customs’ Intellectual Property Rights Unit reported approximately three hundred seizures of counterfeit or pirated goods last year, enhanced outreach and communication with brand owners and copyright owners, and no longer permitted the re-export of seized counterfeit goods.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at the following website: http://www.wipo.int/directory/en  

Resources for Rights Holders

Mr. Peter Mehravari
Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Kuwait
Tel: +965 2259 1455
Email: Peter.Mehravari@trade.gov

Embassy list of local lawyers: http://2016.export.gov/kuwait/businessserviceproviders/index.asp  

Capital Markets and Portfolio Investment

Foreign financial investment firms operating in Kuwait characterize the government’s attitude toward foreign portfolio investment as welcoming.  An effective regulatory system exists to encourage and facilitate portfolio investment. Existing policies and infrastructure facilitate the free flow of financial resources into the capital market.  Government bodies comply with guidelines outlined by IMF Article VIII and refrain from restricting payments and transfers on current international transactions. In November 2015, the Capital Markets Authority issued a regulation covering portfolio management, but it does not apply to foreign investors.

The privatized stock exchange, named the Boursa, lists 176 companies.  In February 2019, a consortium led by Kuwait National Investment Company, that included the Athens Stock Exchange, won a tender to acquire 44 percent of the Kuwaiti Boursa.  Kuwait Boursa plans to sell 50 percent of its shares as part of an Initial Public Offering. FTSE Russell upgraded the status of the Boursa to Secondary Emerging Market in 2017.  In March 2019, MSCI announced a proposal to reclassify the MSCI Kuwait Index from Frontier to Emerging Markets. MSCI aims to implement the potential reclassification to coincide with the May 2020 Semi-Annual Index Review.

While the debt market is not well developed, local banks have the capacity to meet domestic demand.  Credit is allocated on market terms. Foreign investors are able to obtain local credit on terms that correspond to collateral provided and intended use of financing.  The private sector has access to a variety of credit instruments. The Central Bank restricts commercial banks’ use of structured and complex derivatives, but permits routine hedging and trading for non-speculative purposes.  In March 2017, the government issued USD 8 billion in five- and ten-year notes, but was unable to secure approval from the National Assembly for issuance of 30-year notes.

Money and Banking System

The Central Bank of Kuwait reported that banking sector assets totaled KD 65 billion (USD 214 billion) in September 2018.  Twenty-three banks operate in Kuwait: five conventional local banks, five Islamic banks, 12 foreign banks, and one specialized bank.  Conventional banks include: National Bank of Kuwait, Commercial Bank of Kuwait, Gulf Bank, Al-Ahli Bank of Kuwait, and Burgan Bank. Sharia-compliant banks include Kuwait Finance House, Boubyan Bank, Kuwait International Bank, Al-Ahli United Bank, and Warba Bank.  Foreign banks include: BNP Paribas, HSBC, Citibank, National Bank of Abu Dhabi, Qatar National Bank, Doha Bank, Dubai-based Mashreq Bank, the Bank of Muscat, Riyadh-based Al Rajhi Bank (the largest Sharia-compliant bank in the world), the Bank of Bahrain and Kuwait (BBK), the Industrial and Commercial Bank of China (ICBC), and Union National Bank.  The government-owned Industrial Bank of Kuwait provides medium- and long-term financing to industrial companies and Kuwaiti citizens through customized financing packages.

Following the global financial crisis in 2008 when large losses reduced confidence in the local banking sector, the Council of Ministers and the National Assembly passed legislation to guarantee deposits at local banks to rebuild confidence.

Foreign banks can offer retail services.  In 2013, the Central Bank announced that foreign banks could open multiple branches on a case-by-case basis.  In 2017, the Al-Rajhi Bank opened its second branch. Qatar National Bank received CBK’s approval in 2014 and opened its second branch in 2018.  Kuwaiti law restricts foreign banks from offering investment banking services. Foreign banks are subject to a maximum credit concentration equivalent to less than half the limit of the largest local bank and are prohibited from directing clients to borrow from external branches of their bank.  Foreign banks may also open representative offices.

Foreign Exchange and Remittances

Foreign Exchange Policies

The Kuwaiti dinar has been tied to an undisclosed and changing basket of major currencies since May 2007.  Reverse engineering suggests that the U.S. dollar accounts for some 70-80 percent of this basket. Foreign exchange purchases must be processed through a bank or licensed foreign exchange dealer.  Equity, loan capital, interest, dividends, profits, royalties, fees, and personal savings can be transferred into or out of Kuwait without hindrance. The Foreign Direct Investment Law permits investors to transfer all or part of their investment to another foreign or domestic investor, including cash transfers.

Remittance Policies

No restrictions exist on the inflow or outflow of remittances, profits, or revenue.  Foreign investors may elect to remit through a legal parallel market, including one utilizing convertible, negotiable instruments.  Nevertheless, each investor must ensure compliance with Kuwait’s anti-money laundering laws. Time limitations or waiting periods do not apply to remittances.  Kuwait is not known to engage in currency manipulation. The Central Bank advises buy, sell, and middle rates on a daily basis.

Sovereign Wealth Funds

The Kuwait Investment Authority (KIA) manages the Kuwait General Reserve Fund and the Kuwait Fund for Future Generations.  By law, ten percent of oil revenues must be deposited each year into the Fund for Future Generations. KIA management reports to a Board of Directors that is appointed by the Council of Ministers.  The Minister of Finance chairs the board; other members include the Minister of Oil, the Central Bank Governor, the Undersecretary of the Ministry of Finance, and five representatives from Kuwait’s private sector (three of whom must not hold any other public office).  An internal audit office reports directly to the Board of Directors and an external auditor. This information is provided to the State Audit Bureau, which audits KIA continuously and reports annually to the National Assembly.

The 1982 law establishing the KIA prohibits the public disclosure of the size of sovereign wealth holdings and asset allocations.  KIA conducts closed-door presentations for the Council of Ministers and the National Assembly on the full details of all funds under its management, including its strategic asset allocation, benchmarks, and rates of return.  The Sovereign Wealth Fund Institute estimated that KIA manages the world’s fourth largest sovereign fund with more than USD 592 billion in assets (March 2019).

The energy sector is dominated by parastatals, as law precludes private participation in most sector activities.  Outside the energy sector, Kuwait has few fully state-owned enterprises (SOEs). One notable exception is Kuwait Airways.  No published list of SOEs exists. The government owns shares in various Kuwaiti companies through the Fund for Future Generations managed by the Kuwait Investment Authority or the Social Security Fund managed by Kuwait’s Public Institution for Social Security.  SOEs are permitted to control their own budgets.

Privatization Program

The National Assembly has passed several privatization laws since 2008.  One legal stipulation is that Kuwaiti employees have the right to retain their jobs in a privatized company for at least five years with the same salary and benefits.  Another stipulation is that the privatization of any public service must offer shares as follows:

• 40 percent of shares reserved for Kuwaiti citizens;
• 20 percent of shares retained by the government;
• five percent of shares distributed to Kuwaiti employees, both former and current; and
• the remaining 35 percent of shares sold at auction to a local or foreign investor.

Kuwait privatized its stock exchange in April 2016.  With a market capitalization of KD 30.96 billion (USD 101.8 billion) as of March 2019, the Boursa is the fourth largest stock exchange in the GCC after Saudi Arabia, UAE’s combined exchanges, and Qatar.  In February 2019, a consortium led by Kuwait National Investment Company, that included the Athens Stock Exchange, won a tender to acquire 44 percent of the Kuwaiti Boursa. Kuwait Boursa plans to sell 50 percent of its shares as part of an Initial Public Offering.

Telecommunications is the largest service sector in Kuwait.  The Ministry of Communications owns and operates landlines and owns a fiber optic network.  Internet providers may access both landlines and fiber optic networks. Three private mobile telephone companies provide cellular telephone and data services to the country.  The government owns a significant minority interest in each, but foreign companies own majority interests in two of them. In 2014, the National Assembly passed legislation creating the independent Communication and Information Technology Regulatory Authority (CITRA), in part to prepare for the liberalization of mobile communications and Internet markets.  Officially opened in 2016, CITRA serves as the primary national telecom regulator and cybersecurity agency. CITRA also has a mandate to attract hi-tech investment.

Kuwaitis have a general awareness of expectations for responsible business conduct, including environmental, social, and governance issues.  No specific government program is in place to require or encourage compliance. One aspect of responsible business conduct in Kuwait is commonly manifested through contributions to local charities and causes.  The Kuwait Environment Public Authority has been active in enforcing compliance and addressing environmental violations, since the passage of the Environmental Protection Law of 2014.

Corruption is criminalized, and several investigations and trials involving current or former government officials accused of malfeasance are underway.

Transparency International’s 2018 Corruption Perceptions Index ranked Kuwait 78 out of 180 countries.  Within the Gulf Cooperation Council, Kuwait ranked behind UAE, Qatar, Saudi Arabia, and Oman, ahead of only Bahrain.  According to Transparency International, Kuwait’s numeric score of 41 (out of 100) indicated that the country has a serious corruption problem.

The often-lengthy procurement process in Kuwait occasionally results in accusations of attempted bribery or the offering of other inducements by bidders.  In 1996, the government passed Law No. 25, which required all companies securing contracts with the government valued at KD 100,000 (USD 330,000) or more to report all payments made to Kuwaiti agents or advisors while securing the contract.  The law similarly requires entities and individuals to report any payments they received as compensation for securing government contracts.

Kuwait signed the UN Convention Against Corruption in 2003 and ratified it in 2007.  In 2016, the National Assembly passed legislation to establish the Anti-Corruption Authority, also known as Nazaha (integrity).  The legislation was passed in order to comply with the United Nations Convention Against Corruption. Nazaha has sent several cases to the Public Prosecution Office for failure to comply with financial disclosure requirements.

Resources to Report Corruption

Contact information for the government agency responsible for combating corruption is as follows:

Mr. Abdulrahman Al-Namash
President
Kuwait Anti-Corruption Authority (Nazaha)
Shamia, Block 2, Opposite Wahran Park, Kuwait City, Kuwait
Tel:  +965 2464-0200

The U.S. Embassy occasionally receives threat information indicating possible targeting of official and private U.S. citizens for terrorist attacks.  Soft targets are vulnerable to terrorist attack, although many are making improvements to their perimeters and internal security. There have been no terror incidents in Kuwait since 2016.  There have been no attacks targeting businesses or infrastructure. Since late 2013, Kuwait has seen no large-scale, politically motivated demonstrations. U.S. citizens are encouraged to enroll in the U.S. Department of State’s Smart Traveler Enrollment Program (STEP) for up-to-date information from the Embassy.  The Department of State shares credible threat information through its Consular Information Program, including Travel Advisories, Alerts, and Country Information for Kuwait, available at https://travel.state.gov/content/travel.html or the Embassy’s website: https://kw.usembassy.gov/

Kuwait has a diverse labor force.  According to the Public Authority for Civil Information (PACI), 2.4 million expatriate workers account for 86 percent of a workforce of 2.8 million (data as of December, 2018: https://www.paci.gov.kw/stat/SubCategory.aspx?ID=7  ).  The vast majority of expatriate workers are low-paid laborers from other Middle Eastern countries, South Asia, and the Philippines working in Kuwait under a legally established “sponsorship” system.  Abuse of the sponsorship system is widespread.

A number of white-collar workers from advanced countries occupy high-skilled positions in Kuwait, while many middle management positions are occupied by Egyptian, Lebanese, and South Asian nationals.  A Public Authority for Manpower decree, banning the issuance of work permits in the private sector to college degree-holders under the age of 30, scheduled to take effect in July 2018, was suspended in May 2018 by ministerial decree.

Kuwaiti nationals occupy most of the top management positions in the private and public sectors.  Unemployment among Kuwaitis is quite low, despite the growing influx of young Kuwaitis moving into the labor force.  The new entrants are reluctant to enter the private sector and cannot easily be absorbed by the government. Results of a Public Authority for Manpower survey revealed that 58 percent of unemployed Kuwaitis would prefer to work in the public sector and do not want a private sector job, even if offered.  Given the fiscal deficit, IMF staff have stressed that limiting public sector employment growth should be part of broader public sector reforms and accompanied by efforts to boost private sector job and entrepreneurship opportunities for the youth.

Since 1991, the government has adopted inconsistent policies intended to limit growth of the resident expatriate population, however this population has continued to increase steadily.  Lower-paid, unskilled workers often suffer unfavorable working conditions. The government has a labor tracking system to allow companies only enough work permits to be issued for pre-verified positions.  The tracking system is designed to protect workers, following years of visa fraud whereby Kuwaiti sponsors could create ghost positions and sell the visas for personal profit. The consequence of the fraud was the importation of workers who then found themselves unemployed.  These workers often remained in country working illegally. Unskilled foreign workers are restricted from transferring from one sponsor to another within the private sector for a minimum of two years, but college graduates may transfer after one year.

Kuwaiti workers have the right to organize and bargain collectively, but Kuwaiti law restricts the right of freedom of association to only one union per occupational trade.  The law permits only one federation, the Kuwait Trade Union Federation, which comprises 15 of the 47 licensed unions. Foreign workers are permitted by law to join unions only as non-voting members after five years of work in the particular sector the union represents.  Private sector workers have the right to strike; however, negotiation and arbitration are compulsory in the case of disputes.

Public sector workers do not have the legal right to strike, though groups of public sector workers threatened to strike on occasion during the past few years.  Kuwaiti labor law prohibits anti-union discrimination.

Separate Kuwaiti labor laws establish work conditions in the public and private sectors, with the exception of the oil sector.  Kuwaiti law prohibits forced labor. Workers in industrial and dangerous jobs must be at least 18 years old; youth under the age of 18 can work part-time in some non-industrial positions.  A multi-tiered labor market ensures higher wages for Kuwaiti employees. In the private sector, the minimum wage is KD 75 (USD 250) per month. In the public sector, the minimum wage is KD 250 (USD 825) per month for Kuwaiti bachelors and KD 325 (USD 1,070) per month for married Kuwaitis, plus KD 50 (USD 165) for each child, compared to a standard monthly minimum wage of KD 90 (USD 295) for non-Kuwaitis in the public sector.  Kuwaitis, whether employed in the private or public sector receive substantial government payments on top of their base salaries. The amended labor law of 2010 did not change the previous workweek limitation from 48 hours, but extended annual leave to 30 days after six months of employment. Labor laws are not consistently enforced and disputes over the payment of salaries and contract switching are common, especially among unskilled workers.  A different set of laws and regulations cover domestic (household) workers.

The International Labor Organization’s (ILO) Committee of Experts has longstanding criticisms concerning discrepancies between the Kuwaiti Labor Code and ILO Conventions 1, 30, and 87 regarding work hours and freedom of association.  Areas criticized by the ILO include the prohibition of more than one trade union for a given field; the requirement that a new union have at least 100 workers; the regulation that workers must reside in Kuwait for five years before joining a trade union; the denial of the right to vote and to be elected to trade union leadership positions for foreign workers; the prohibition against trade unions engaging in political or religious activity; and the reversion of trade union assets to the Public Authority for Manpower in the event of dissolution.

During recent years, the Government of Kuwait has taken several measures to address human trafficking and to improve protections for workers.  In 2016, the government passed several new amendments to the 2010 private sector labor law that increased penalties for those involved in visa trading and illegally employing workers.

Since 2007, labor laws have banned women from working between 8:00 p.m. and 7:00 a.m., except for sectors approved by the Public Authority for Manpower.  The law also banned women from working in jobs that are judged to be hazardous, rough, and damaging to health, as well as in immoral jobs that abuse women’s femininity and in places that exclusively serve men.

Kuwait’s Public Authority for Manpower assists all residents of Kuwait with private sector employment and labor disputes.  Offices assist residents according to the location of the employer and are open Sunday through Thursday, 8:00am – 1:00pm. It is recommended that residents seeking assistance be accompanied by an Arabic speaker.  Following is information on Public Authority for Manpower offices:

Capital Business Administration: Sharq,
Mohammad al-Haqan Street
Tel: +965 2246-6830 and 2246-6831

Hawalli Business Administration: Hawalli
Tunis Street, opposite Ahli Bank of Kuwait
Tel: +965 266-0229 and 2266-0228

Al-Farwaniya Business Administration: Dajeej
Adjacent to General Department of Criminal Evidence
Tel: +965 2431-9555

Al-Jahra Business Administration: Saad al-Abdullah (Amgarah)
Street 1, Block 10
Tel +965 9494-5446

Al-Ahmadi Business Administration: Al Ahmadi
Next to Kuwait Oil Company
Block 1, Street 20
Tel: +965 2398-2059

Mubarak Al-Kabeer Business Administration: Mubarak Al-Kabeer
Co-op #4, beside National Bank of Kuwait and Kuwait Finance House
Tel: +965 2543-8595

The Public Authority for Manpower offers Arabic and English responses via their Twitter handle: @manpower_KWT, or Instagram account: pr.manpower.  The Authority attempts to answer inquiries within one business day.

Kuwait and the United States concluded an investment guarantee agreement in 1989, which facilitated the extension of programs from the Overseas Private Investment Corporation.  There are no active Overseas Private Investment Corporation programs in Kuwait at this time. Kuwait is a member of the Multilateral Investment Guarantee Agency.

According to the 2018 World Investment Report published by the United Nations Conference on Trade and Development, Kuwait attracted USD 301 million in foreign direct investment in 2017, compared to USD 8.1 billion in foreign direct investment outflows.

According to the U.S. Department of Commerce Bureau of Economic Analysis, 2017 U.S. direct investment in Kuwait was USD 296 million, up from USD 250 million in 2016.  Kuwait’s FDI position in the United States totaled USD 1.15 billion in 2017. Kuwaiti direct investment in the United States is primarily in real estate. Estimates of total Kuwaiti investment in the United States, including securities and real estate, range from USD 500 billion to USD 1 trillion.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy (millions)

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Economic Section
U.S. Embassy Kuwait
P.O. Box 77
Safat 13001
Kuwait
+965 2259 1001
KuwaitDirectLine@state.gov

Policies Towards Foreign Direct Investment

Oman actively seeks foreign direct investment and is in the process of improving the regulatory framework to encourage such investments.  A draft foreign capital investment law proposes to allow 100 percent foreign ownership and remove the minimum capital requirement to provide foreign investors with an open market in Oman: privileges already extended to U.S. nationals due to the provisions in the U.S.-Oman Free Trade Agreement (FTA).  If enacted, this law could boost foreign investment.

The Government of Oman’s (GoO) “In-Country Value” (ICV) policy seeks to incentivize companies, both Omani and foreign, to procure local goods and services and provide training to Omani national employees.  The GoO includes bidders’ demonstrations of support for ICV as one factor in government tender awards. While the GoO initially applied ICV primarily to oil and gas contracts, the principle is now embedded in government tenders in all sectors, including transportation and tourism.  The original policy included a number of factors to determine a project’s ICV rating including capital investment, local training, local supplier development, and investment in local institutions. This GoO policy aims to increase economic diversification and local capacity building.  New-to-market foreign companies, including U.S. firms, may find the bid requirements related to ICV prohibitive.

Limits on Foreign Control and Right to Private Ownership and Establishment

With the implementation of the United States-Oman FTA in 2009, U.S. firms may establish and fully own a business in Oman without a local partner.  Although U.S. investors are provided national treatment in most sectors, Oman has an exception in the FTA for legal services, limiting U.S. ownership in legal services firms to no more than 70 percent.  The GoO also has a “negative list” that restricts foreign investment to safeguard national security interests. The list includes some services related to radio and television transmission as well as air and internal waterway transportation. 

According to current Omani laws, foreign nationals seeking to own 100 percent shares in local companies must seek approval of the Ministry of Commerce and Industry (MOCI).  To obtain such approval, a company must submit a detailed business plan highlighting the capital investment and the projected benefits to the Omani economy, including the number of local jobs to be created; minimum of two shareholders and two directors and minimum capital of one million Omani rials (RO) (approximately USD 2.6 million).

Over the past year, Oman has banned non-Omani ownership of real estate and land in various governorates and other areas the government deems necessary to restrict under Royal Decree 29/2018.  However, Oman has allowed the establishment of real estate investment funds (REIF) in order to encourage new inflows of capital into Oman’s property sector. The new regulations permit foreign investors, as well as expatriates in Oman, to own units in REIFs.  The first Omani REIF is set to debut on the Muscat Securities Market in 2019.

Other Investment Policy Reviews

Oman has not undergone any third-party investment policy reviews in the past five years.  The last World Trade Organization (WTO) Trade Policy Review was in April 2014, before the drop in global oil prices.  (Link to 2014 report: https://www.wto.org/english/tratop_e/tpr_e/tp395_e.htm  .)

Business Facilitation

The GoO has tasked the Public Authority for Investment Promotion and Export Development (ITHRAA), with attracting foreign investors and smoothing the path for business formation and private sector development.  ITHRAA works closely with government organizations and businesses based in Oman and internationally to provide a comprehensive range of business support. ITHRAAalso offers a comprehensive range of business investor advice geared exclusively to support international companies looking to invest in Oman, and this service is based on company-specific needs.

MOCI has an online business registration site, known as “Invest Easy” (business.gov.om  ), and businesses can obtain a Commercial Registration certificate from MOCI in approximately three or four days.  However, commercial registration and licensing decisions often require the approval of multiple ministries, slowing down the process in many cases. 

Outward Investment

The government neither promotes nor provides incentives for outward investment but does not restrict its citizens from investing abroad.

Although Oman does not have a bilateral investment treaty (BIT) with the United States, there is a chapter governing investment in the FTA.  Oman has 26 BITs with the following countries:  Algeria, Austria, Belarus, China, Croatia, Egypt, Finland, France, Germany, India, Iran, Italy, Republic of Korea, Lebanon, Morocco, Netherlands, Pakistan, Singapore, Sudan, Sweden, Switzerland, Tunisia, Turkey, United Kingdom, Uzbekistan, and Yemen.

Oman does not have a bilateral taxation treaty with the United States, but it has signed double taxation treaties with 34 countries.

Transparency of the Regulatory System

The legal, regulatory, and accounting systems in Oman remain less than fully transparent and new policies are often ambiguous.  There are no regulatory processes managed by community organizations or private sector associations.  

Although a new law expanded the policy review function of the Majlis Oman, or Council of Oman (Oman’s parliamentary body), its powers remain limited.  Omani community organizations and private sector associations do not play a significant role in the regulatory environment.

The Ministry of Legal Affairs (MOLA) prepares and revises draft laws, drafts royal decrees, and negotiates international agreements and contracts in which the GoO is one of the involved parties.  MOLA also gives legal opinions and advice on matters from other ministries and government departments. Its website contains copies of actual royal decrees and some ministerial decisions, mostly in Arabic, but some have English translations.  It also publishes Oman budget documents within a reasonable period of time.

Oman has not enacted any recent regulatory reform relevant to foreign investors.  Ministries or regulatory agencies do not solicit comments on proposed regulations from the general public and do not conduct impact assessments of proposed regulations.  There is no requirement that regulations be periodically reviewed. 

Oman’s budget is widely and easily accessible to the general public, including online on the MOLA website and via the Official Gazette.  The government maintains off-budget accounts, including sovereign wealth funds.  Their portfolios are opaque, and transfers to and from these funds are only included in the debt-financing section of the budget as a debt financing mechanism.  Limited information on debt obligations is publicly available. 

International Regulatory Considerations

As a member of the GCC, Oman largely follows its regional regulatory system.  In December 2013, GCC Member States issued regulations on the GCC Regional Conformity Assessment Scheme and GCC “G” Mark in an effort to “unify conformity marking and facilitate the control process of the common market for the GCC members, and to clarify requirements of manufacturers.”  U.S. and GCC officials continue to discuss concerns about consistency of interpretation and implementation of these regulations across all six GCC Member States, as well as the relationship between national conformity assessment requirements and the GCC regulations, with a view to avoiding inconsistencies or unnecessary duplication.

As Oman is a member of the WTO, it is committed to update the WTO Committee on any Technical Barriers to Trade (TBT).  Oman’s Trade Facilitation Agreement (TFA) with the WTO entered into force on February 22, 2017.

Legal System and Judicial Independence

Oman’s legal system is code-based, but incorporates elements from a variety of legal traditions, most notably modern English and French law, as well as Islamic law in the Ibadhi interpretation. 

In February, the Sultan promulgated a new Commercial Companies Law (Royal Decree No. 18/2019).  The Minister of Commerce and the Chairman of the Capital Market Authority will issue executive regulations and enforcement decisions within a year of its implementation.   Key changes in the new law relate to capital contributions, limited liability companies, joint stock committees, joint stock and holding companies, corporate governance, and sanctions. 

Business disputes within Oman are resolved through the Commercial Court.  The Commercial Court has jurisdiction over most tax and labor cases, and can issue orders of enforcement of decisions.  The Commercial Court can accept cases against governmental bodies, but can only issue, and not enforce, rulings against the government.  The Commercial Court replaced the Authority for Settlement of Commercial Disputes.

Oman’s judicial system is independent and reliable, though its procedures can be long and many steps are required to initiate a case.  Oman’s multi-level court system has an appeals process, but regulations and enforcement actions are not appealable beyond the Supreme Court.

Laws and Regulations on Foreign Direct Investment

The Foreign Capital Investment Law (Royal Decree No. 102/94) provides the legal framework for non-GCC foreign investors.  Oman amended this law in 2000 as part of its WTO accession and in 2009 to implement the United States-Oman FTA. The Council of Oman has held hearings and readings for a new draft foreign capital investment law that would remove the minimum Omani ownership requirement for all investors.  U.S. investors are not currently subject to that restriction, due to the FTA. The new law would only become effective after all due legal and governmental processes are completed. 

“Invest Easy” (business.gov.om/  ) is an online portal that enables business owners and investors to get the business procedures done easily in a short time.  According to the website, the main purpose of “Invest Easy” is to provide citizens, entrepreneurs, and prospective businesses and investors with the services and information they need quickly and efficiently. 

Competition and Anti-Trust Laws

Investments are not screened for competition considerations, and Oman does not have an active competition commission.  The Competition and Anti-Monopoly Law (Royal Decree No. 67/2014), promulgated in December 2014, aims to combat monopolistic practices by prohibiting anti-competitive agreements and price manipulation.  It includes a reporting requirement for any activity, such as mergers and acquisitions, which results in a dominant market position for one firm.

Expropriation and Compensation

Oman’s interest in increased foreign investment and technology transfer make expropriation or nationalization unlikely.  In the event that a property is nationalized, Article 11 of the Basic Law of the State stipulates that the Government of Oman must provide prompt and fair compensation.  There are no recent examples of expropriation or nationalization. 

Dispute Settlement

ICSID Convention and New York Convention

Oman is a party to the International Convention for the Settlement of Investment Disputes between States and Nationals of other States (ICSID) and the United Nations New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

In June 2018, Oman sued U.S. mining company owner Adel Hamadi Al Tamini in Massachusetts federal court for a USD 5.6 million arbitration award issued against him by ICSID.  In 2011, Al Tamini filed a claim against the Government of Oman alleging that it improperly ended limestone mining leases that violated his rights under the FTA. The Tamini case was the first ICSID case filed against Oman and the first case filed under the bilateral FTA.  An ICSID tribunal dismissed the claim and rendered an award for Oman, which the government is now seeking to enforce.

Investor-State Dispute Settlement

Oman has a modern arbitration law that is largely based on the United Nations Commission on International Trade Law (UNCITRAL) model. Pursuant to its arbitration law, an arbitration agreement must be in writing, and it can be in one or more instruments.  The parties are free to choose any law relating to the arbitration agreement and, in the absence of an explicit law, the courts are given the power to make the determination. Additionally, there are specific dispute resolution mechanisms through the FTA that can assist Omani and U.S. companies in resolving disputes outside of the Omani legal system.

International Commercial Arbitration and Foreign Courts

Many corporate entities in Oman are increasingly turning to arbitration to resolve their disputes, as arbitration is considered a more efficient and reliable mechanism than court processes.  An arbitral award is usually rendered in Oman within 12 months after the aggrieved party states in writing that a dispute has arisen. In contrast, court processes can often be much lengthier, particularly where technically complex issues are involved.  Cases normally go through three tiers of justice (Primary, Appeal, and Supreme), lengthening the process.

The Omani Arbitration Law (Royal Decree 47/97 as amended) defines the term “arbitration” as a dispute resolution mechanism agreed to by parties of their own volition.  Usually, the parties will state in their initial contract that any dispute will be resolved by arbitration pursuant to, for instance, the Omani Arbitration Law. The Law mandates that an arbitration agreement should be in writing.  It is also permissible for parties to agree in writing, once a dispute has arisen, that it will be resolved by arbitration. In such cases, however, the agreement has to specify the underlying issues that the parties have agreed to resolve by arbitration.

The Omani government recognizes binding international arbitration of investment disputes with foreign investors, though the government has increasingly challenged rulings in favor of foreign companies in payment collection cases.  The government has been slow in the payment of some arbitration awards to foreign companies. Oman’s legal framework provides for the enforcement of international arbitration awards and most foreign companies elect for dispute resolution by arbitration.  Arbitration is generally cheaper, quicker, and easier than settling commercial disputes in the normal court system, where judges often lack expertise on technical commercial issues.

Bankruptcy Regulations

Oman has written and consistently applied commercial and bankruptcy laws.  However, insolvency laws currently allow only for complete dissolution rather than restructuring, and many businesses opt to simply shut their doors rather than go through the insolvency process.

The Commercial Companies Law sets out the grounds for dissolution or liquidation of a company.  The declaration of bankruptcy of a company is one of the grounds for its dissolution. As a result of being declared bankrupt, a company must be liquidated and struck off the Commercial Register.

The focus of Omani laws is on protecting creditors as much as possible and ensuring the insolvent company is liquidated efficiently.  Private credit bureaus first opened in 2009 to enable banks to make more informed lending decisions, thus providing advantages to both consumers and financial institutions.  

According to the World Bank, it takes on average four years to complete foreclosure proceedings in Oman, and the cost of resolving bankruptcy as a percentage of the estate (3.5 percent) is lower in Oman than elsewhere the region.  In 2018, the World Bank ranked Oman 100th in the world for resolving insolvency, but Oman ranked higher than many other countries in the region.

Investment Incentives

Oman offers several incentives to attract foreign investors, though some of these incentives have been reduced in recent years.  Most industrial and commercial consumers now pay cost-reflective tariffs for utilities, and many tax exemptions for foreign investors were eliminated as part of Oman’s overhaul of its corporate tax law in 2017.  However, Ithraa (Oman’s investment promotion authority) still identifies an array of incentives used to encourage investment attraction, such as land at competitive lease rates in specific locations, and a competitive tax regime.  Oman taxes corporate earnings at 15 percent and has no personal income or capital gains tax. Additional incentives may be offered for certain types of companies established in recognized industrial estates or free zones. Other incentives may be offered by the government on a case-by-case basis.

The Omani government actively encourages foreign direct investment.  Accordingly, the government offers a number of incentives and Free Zones that contribute to an accommodating investment environment.

Foreign Trade Zones/Free Ports/Trade Facilitation

The government has established free trade zones to complement its port development projects in Duqm, Salalah, and Sohar.  These areas include strategically located ports and are well connected with modern infrastructure and facilities. An incentive package for investors includes a tax holiday, duty-free treatment of all imports and exports, and tax-free repatriation of profits.  Additional benefits include streamlined business registration, processing of labor and immigration permits, assistance with utility connections, and lower “Omanization” (employment quotas for Omani nationals) employment quota requirements. Foreign-owned firms have the same investment opportunities as Omani entities.

Performance and Data Localization Requirements

Since 1988, the GoO has had a labor market policy of Omanization, which includes employment quotas for Omani nationals.  These quota targets vary depending on the sector; they can be as low as 10 percent in the Special Economic Zone at Duqm (SEZAD) and as high as 90 percent, for example, in the banking sector.  Most government ministries have achieved Omanization rates at or near 100 percent.

Omanization targets are prevalent throughout the private sector but are enforced inconsistently.  In practice, each company in Oman is required to submit an Omanization plan to the Ministry of Manpower (MoM), which has the authority to reduce the requirements for some businesses and to adjust required Omanization percentages accordingly.  The MoM has recently adopted more heavy-handed tactics to force companies to increase their employment of Omanis.

Employers seeking to hire expatriate workers must seek a visa allotment from the MoM and Royal Oman Police (ROP).  Specific visas allocations are scrutinized using sometimes opaque criteria.  Foreign investors complain of the difficulty in hiring expatriates to the point that it frustrates or deters companies from investing in Oman.  Additionally, expatriate workers in Oman are required to leave Oman and remain outside the country for two years between changing employers (unless the initial employer agrees otherwise).  Persons may seek exemptions to this rule from the ROP on a case-by-case basis.

In January 2018, the MoM issued a decree that imposed a six-month ban on visas for expatriates in 87 job categories across 10 private sector industries.  The MoM extended the decree in February 2019, and will enforce it through July 2019. The decree does not apply to business owners registered with the Public Authority for Small and Medium Enterprise Development (Riyada) or to the owners insured by the Public Authority for Social Insurance.

Currently, Oman does not have any requirements for companies to turn over source code or to provide access to surveillance.  However, the Telecommunications Regulatory Authority (TRA) requires service providers to house servers in Oman if they are to provide services in Oman.  The TRA is the lead agency on establishing data quotas in Oman.

Securitized interests in property, both moveable and real, are recognized and enforced in Oman, with mortgages and liens also existing in the country.  Foreign nationals are generally not able to own real estate in Oman, other than residential property located in a few designated Integrated Tourism Complexes.  Individuals record their interest in property with the Land Registry at the Ministry of Housing. The legal system, in general, facilitates the acquisition and disposition of property rights.

There are lands reserved for tribal use and ownership, but there are no clear definitions or regulations.  These tribes legally own the land, as opposed to the government owning the land, and therefore control access and any commercial activities.

According to the World Bank, it takes on average 16 days to register property, and the cost of the registration process as a percentage of the property value (five percent) is lower in Oman than elsewhere the region.  In 2018, the World Bank ranked Oman 52nd in the world for registering property, and Oman ranked higher than many other countries in the region.

Intellectual Property Rights

Oman has a relatively robust legal and regulatory framework for Intellectual Property Rights (IPR) protection.  Oman was not listed in the U.S. Trade Representative’s latest Special 301 Report, nor was it designated as a notorious market.

U.S. stakeholders have experienced difficulty getting appropriate agencies, including the Public Authority for Consumer Protection, the Public Prosecution, MOCI, and the ROP, to take enforcement action.  Adding to the lack of efficiency in IPR enforcement is the continued confusion as to which government agencies are responsible for investigating different types of IPR violations.

Public Authority for Consumer Protection officials have confirmed that they do not accept responsibility for complaints arising from brand-owners; they only take action on consumers’ complaints.  MOLA also confirmed that the Law of Copyrights and Neighboring Rights (Royal Decree No. 65/2008) stipulates that the MOCI shall be responsible for IPR enforcement at the retail level, including inspections and seizures.

Oman revised its intellectual property and copyright laws to comply with its obligations under the 2009 U.S.-Oman FTA.  As a result, Oman offers increased IPR protection for copyrights, trademarks, trade secrets, geographical indications, and patents.  FTA-related revisions to IPR protection in Oman built upon the existing IPR regime, already strengthened by the passage of WTO-consistent intellectual property laws on copyrights, trademarks, industrial secrets, geographical indications and integrated circuits.  The FTA’s chapter on IPR can be found at: https://om.usembassy.gov/business/u-s-oman-free-trade-agreement/texts-free-trade-agreement/.

Oman is a member of the World Intellectual Property Organization (WIPO) and is registered as a signatory to the Madrid, Paris, and Berne Conventions on trademarks and intellectual property protection.  Oman has also signed the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. Oman is also a signatory to the International Convention for the Protection of New Varieties of Plants.

Trademark laws in Oman are Trade Related Aspects of Intellectual Property Rights (TRIPs) compliant.  Trademarks must be registered and noted in the Official Gazette through the Ministry of Commerce and Industry.  Local law firms can assist companies with the registration of trademarks. Oman’s copyright protection law extends protection to foreign copyrighted literary, technical, or scientific works; works of the graphic and plastic arts; and sound and video recordings.  In order to receive protection, a foreign-copyrighted work must be registered with the Omani government by depositing a copy of the work with the government and paying a fee. Trademarks are valid for 10 years while patents are generally protected for 20 years.  As literary works, software and audiovisual content are protected for 50 years.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at:

https://www.wipo.int/directory/en/details.jsp?country_code=OM  .

Resources for Rights Holders:

Ministry of Commerce and Industry – Department of IPR Enforcement
Director of Intellectual Property
Ahmed Al-Saidi
Tel: +968- 9942-1551
Fax: +968-2481-7412
E-mail:  saidy3916@yahoo.com
Web: http://www.moci.gov.om/  

Oman Chamber of Commerce & Industry

Director General
Abdul Adheem Al-Bahrani
Tel: +968-2479- 9146
Fax: +96-2479-1713
E-mail: adheem@chamberoman.om
Web: www.chamberoman.om  

U.S. Patent & Trademark Office
Regional IP Attaché
Pete C. Mehravari Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Kuwait City, Kuwait
U.S. Department of Commerce Foreign Commercial Service, U.S. Patent & Trademark Office Tel: +965 2259 1455
E-mail: Peter.mehravari@trade.gov
Web: https://www.uspto.gov/learning-and-resources/ip-policy/intellectual-property-rights-ipr-attach-program/intellectual 

United States Trade Representative
IPR Director for the GCC
Sung Chang
Tel: +1 (202) 395-9564
E-mail: Sung.E.Chang@ustr.eop.gov
Web: http://www.ustr.gov  

U.S. Department of Commerce – International Trade Administration
IPR Lawyer
Kevin Reichelt
Tel: +1-202-482-0879
E-Mail: Kevin.reichelt@trade.gov
Web: http://www.trade.gov/cs/‎  

Capital Markets and Portfolio Investment

There are no restrictions in Oman on the flow of capital and the repatriation of profits.  Foreigners may invest in the Muscat Securities Market (MSM) so long as they do so through an authorized broker.  Access to Oman’s limited commercial credit and project financing resources is open to Omani firms with foreign participation.  At this time, there is not sufficient liquidity in the market to allow for the entry and exit of sizeable amounts of capital. According to the 2017 annual report on exchange arrangements and exchange restrictions of the IMF, Article VIII practices are reflected in Oman’s exchange system.

Joint stock companies with capital in excess of USD 5.2 million must be listed on the MSM.  According to the Commercial Companies Law, companies must have been in existence for at least two years before being floated for public trading.  Publicly traded firms in Oman are still a relatively rare phenomenon; the majority of businesses are private family enterprises.

Money and Banking System

The banking system is sound and well-capitalized with low levels of non-performing loans and generally high profits.  Oman’s banking sector includes eight local banks, nine foreign banks, two Islamic banks, and two specialized banks. Bank Muscat, the largest domestic bank operating in Oman, has USD 28.1 billion in assets.  The Central Bank of Oman (CBO) is responsible for maintaining the internal and external value of the national currency. It is also the single integrated regulator of Oman’s financial services industry. The CBO issues regulations and guidance to all banks operating within Oman’s borders.  Foreign businesspeople must have a residence visa or an Omani commercial registration to open a local bank account. There are no restrictions for foreign banks to establish operations in the country as long as they comply with CBO instructions.

Foreign Exchange and Remittances

Foreign Exchange

Oman does not have restrictions or reporting requirements on private capital movements into or out of the country.  The Omani rial () is pegged at a rate of RO 0.3849 to USD 1, and there is no difficulty in obtaining exchange.  In general, all other currencies are first converted to dollars, then to the desired currency; national currency rates fluctuate, therefore, as the dollar fluctuates.  The government has consistently stated publicly that it is committed to maintaining the current peg.  The government has also stated publicly that it will not join a proposed GCC common currency.  There is no delay in remitting investment returns or limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains returns on intellectual property, or imported inputs.

Remittance Policies

Oman does not restrict the remittance abroad of equity or debt capital, interest, dividends, branch profits, royalties, management and service fees, and personal savings, but it does apply withholding tax to many of these transfers at a rate of 10 percent.  Because Oman’s currency is pegged to the dollar, the GoO is unable to engage in currency manipulation tactics.  Investors can remit through legal parallel markets utilizing convertible, negotiable instruments.  There are no surrender requirements for profits earned overseas.

The GCC, of which Oman is a member, is a member of the Financial Action Task Force (FATF) and its regional body.  In February 2019, Oman hosted a workshop on combating money laundering and terrorism in cooperation with FATF. The level of compliance of Oman’s anti-money laundering and counter-terrorist financing regime with the FATF Recommendations is comparatively high for the region, and the legal framework is sound.  However, the government has not yet fully addressed a number of gaps, including completing the certification procedures for anti-money laundering/countering the financing of terrorism (AML/CFT), issuing AML/CFT regulations to the sectors identified in Oman’s CFT law, and designating wire transfer amounts for customer due diligence procedures.   Statistics regarding suspicious transaction reports, investigations and convictions are not widely available.

Sovereign Wealth Funds

The State General Reserve Fund (SGRF) is Oman’s principal Sovereign Wealth Fund.  The SGRF joined the International Forum of Sovereign Wealth Funds in 2015 as a full member and follows the Santiago Principles.  Omani law does not require sovereign wealth funds to publish an annual report or submit their books for an independent audit. Many of the smaller wealth funds and pension funds actively invest in local projects.

The SGRF focuses on two main investment categories: Public Markets Assets (tradable) that include global equity, fixed income bonds and short-term assets, and Private Markets Assets (non-tradable) which includes private investments in real estate, logistics, services, commercial, and industrial projects.

State-Owned Enterprises (SOE) are active in many sectors in Oman, including oil and gas extraction, oil and gas services, oil refining, liquefied natural gas processing and export, manufacturing, telecommunications, aviation, infrastructure development, and finance.  The GoO does not have a standard definition of an SOE, but tends to limit its working definition to companies wholly owned by the government and more frequently refers to companies with partial government ownership as joint ventures. The GoO does not have a complete, published list of companies in which it owns a stake.

In general, private enterprises are allowed to compete with public enterprises under the same terms and conditions with access to markets, and other business operations, such as licenses and supplies.  SOEs purchase raw materials, goods, and services from private domestic and foreign enterprises. Public enterprises, however, have comparatively better access to credit. Board membership of SOEs is composed of various government officials, with a cabinet-level senior official usually serving as chairperson.

SOEs receive operating budgets, but, like budgets for ministries and other government entities, the budgets are flexible and not subject to hard constraints.  The information that the GoO published about its 2019 budget did not include allocations to and earnings from most SOEs.

Privatization Program

The GoO has indicated that it hopes to reduce its budget deficits by privatizing or partially privatizing some government-owned companies.  The plan for privatization is not publicly available; however, the GoO has already begun to reorganize its holdings in the electricity and logistics sector in anticipation of a public offering.  In October 2018, the government announced the launch of a privatization program for five electricity transmission and distribution companies of Nama Holding, a government-owned holding company.

The government’s divestment of a portion of its ownership in Omantel is one example of a past partial privatization.  In this case, the government offered Omantel stock on the Muscat Securities Market, but only to Omani investors. Foreign investors are allowed to participate fully in some privatization programs, even in drafting public-private partnership frameworks.

Responsible business conduct is generally referred to as corporate social responsibility (CSR) in Oman, where the term carries a different connotation than in other parts of the world.  In Oman, CSR programs are organized, “extra-curricular” programs hosted and supported by a business entity to engender goodwill in the community and to provide a social benefit. Examples include:  competitions in elementary and secondary schools for academic performance and artistic skill; sponsorship of charitable, academic, and social events; entrepreneurship incubators; and women’s or tribal empowerment events.

Labor and employment disputes and consumer rights violations (mostly the sale of expired food or counterfeit medicine or car parts) are widely covered in the press.  There is a general culture of accountability, and a sense that companies who violate these tenets of corporate social responsibility will suffer in business and market share.

There are no independent consumer organizations promoting CSR; however, many business associations, including the Oman American Business Center (the local AmCham affiliate), pursue CSR initiatives as a part of their annual activities.

While the GoO does not have specific guidance for companies, it has an expectation that companies will generally follow OECD-comparable guidelines.  Additionally, each ministry has a department dedicated to facilitating CSR compliance and initiatives. Regulations promoting CSR have not, in the past, been waived to attract foreign investment.

U.S. businesses do not identify corruption as one of the top concerns of operating in Oman.

The Sultanate has the following national legislation in place to address corruption in the public and private sectors:

The Law for the Protection of Public Funds and Avoidance of Conflicts of Interest (the “Anti-Corruption Law” promulgated by Royal Decree 112/2011)  The Law predominantly concerns employees working within the public sector.  It is also applicable to private sector companies if the government holds at least 40 percent shares in the company or in situations where the private sector company has punishable dealings with government bodies and officials.

The Omani Penal Code (promulgated by Royal Decree 7/2018)  In January 2018, the GoO issued a new penal code that completely replaced Oman’s 1974 penal code.  Minimum sentencing guidelines for public officials guilty of embezzlement have increased from three months to three years.  The definition of “public officials” has also expanded to include officers of parastatal corporations in which the GoO has at least a 40 percent controlling interest.  The new penal code may make Oman seem more investment-friendly, by virtue of modern references to corporations as legal entities, as an example. However, its language on money laundering is still ambiguous and descriptions of licit and illicit banking are unclear, potentially contributing to confusion about investment regulations.

A lack of domestic whistleblower protection legislation in Oman has resulted in the private sector taking the lead in enacting internal anti-bribery and whistleblowing programs.  Omani and international companies doing business in Oman that plan on implementing anti-corruption measures will likely find it difficult to do so without also putting in place an effective whistleblower protection program and a culture of zero tolerance.

Ministers are not allowed to hold offices in public shareholding companies or serve as chairperson of a closely held company.  However, many influential figures in government maintain private business interests and some are also involved in public-private partnerships.  These activities either create or have the potential to create conflicts of interest. In 2011, the Tender Law (Royal Decree No. 36/2008) was updated to preclude Tender Board officials from adjudicating projects involving interested relatives to “the second degree of kinship.”

The Sultan has dismissed several ministers and senior government officials for corruption during his reign.  The “State Financial and Administrative Audit Institution” (SFAAI) was granted expanded powers under Royal Decree 27/2011, largely in response to public protests against the perception of corruption and nepotism at the highest levels of government.

Oman has stiff laws, regulations, and enforcement against corruption, and authorities have pursued several high profile cases.  For example, cases this year involving alleged bribes to public officials were well covered in the media and resulted in heavy fines and jail terms.  The Courts have signaled that corruption will not be tolerated.

In an extra attempt to prevent and eradicate corruption in the Sultanate of Oman, Oman joined the United Nations Convention Against Corruption (the “UNCAC”) in 2013.  Oman is not a party to the OECD Convention on Combating Bribery.

Resources to Report Corruption

State Audit Institution
http://www.sai.gov.om/en/Complain.aspx  
Phone number: +968 8000 0008

There are no “watchdog” organizations operating in Oman that monitor corruption.

Oman is stable, and politically-motivated violence is rare.  Incidents of violence were associated with Arab Spring-related demonstrations in 2011, including several demonstrations that resulted in blocked pedestrian and vehicle access to the Port of Sohar.  Although most protests were peaceful, one demonstration that turned violent resulted in several injuries and one fatality. Omani law provides for limited freedom of assembly, and the government allows some peaceful demonstrations to occur.  For example, in January, small groups of young Omani job-seekers protested against unemployment outside government buildings in Muscat and Salalah.

Foreign workers play a significant role in the Omani economy, as Indians and Bangladeshis alone constitute more than half of the workforce population.  There is a shortage in labor-intensive sectors, particularly construction, due to Omanization laws curbing the number of foreign workers who can be brought in to fulfill these roles.

Omani national private sector employees often work in administrative or managerial roles carved out for them through Omanization.  Most drivers and secretaries are required to be Omanis across all sectors. Generally speaking, there is a surplus of workers in desirable fields, such as information technology and engineering.  According to the World Bank, unemployment in Oman stood at about 17.5 percent in 2016, and the most severely impacted demographic is young men. There are no available statistics about the informal economy, but it is mostly limited to agriculture and fishing in rural areas.

Omani citizens enjoy a high degree of protection, making labor dispute resolution very difficult and lengthy.  Both the MoM and the courts have broad powers to reinstate Omani national employees or mandate a severance package that provides pay for several months or, in some cases, several years.  Foreign workers may also appeal termination to the MoM but have less legal protection.

While unions are allowed to operate in the private sector, they are not very influential and do not engage in collective bargaining.  Most unions only exist to ensure that employers provide government-mandated benefits to employees, such as required annual raises. Workers generally direct appeals for wage increases, by sector or throughout the economy, towards the government.  The government has sometimes responded to such demands by passing a law increasing worker benefits, as it did during the Arab Spring.

There were no significant organized private sector strikes in the past year, but several small-scale protests about the lack of jobs, inadequate unemployment benefits, and recruitment policies have occurred outside MoM headquarters in Muscat and Salalah over the last few years.  The Omani government takes public concern about unemployment very seriously. It has attempted to respond by mandating private companies to hire more Omanis.

Oman is a member of the International Labor Organization (ILO).  Oman has ratified four of the eight core ILO standards, including those on forced labor, abolition of forced labor, minimum working age, and the worst forms of child labor.  Oman has not ratified conventions related to freedom of association, collective bargaining, equal remuneration, or the conventions related to the elimination of discrimination with respect to employment and occupation.  Oman has been criticized by the international community for insufficient efforts to detect, deter, and prosecute labor violations, including Trafficking in Persons.

No new labor-related laws were enacted in 2018.  A new comprehensive labor law has been long anticipated but there is no clear indication of when such a law will be published or come into force.  Government officials have not shared publicly the contents of any proposed draft.

Oman is eligible for Export-Import Bank of the United States (EXIM) financing, and Overseas Private Investment Corporation (OPIC) insurance coverage.  Unusual for a Gulf country, Oman provides export credit insurance against commercial and political risk, through the Oman Development Bank. In addition, the independent Export Credit Guarantee Agency of Oman, a closed stock company, extends credit insurance, guarantees and financial support to Omani exporters, though its limit is USD 1 million per transaction.  The U.S. Embassy in Muscat purchases local currency at the fixed rate of RO 1 to USD 2.6.

Oman’s National Centre for Statistics and Information (NCSI) is currently the only source of 2018 data on Foreign Direct Investment (FDI).  Total cumulative FDI at the end of the second quarter of 2018, was RO 9.7 billion (over USD 25.22 billion) compared to RO 8.3 billion (about USD 21.58 billion) from the second quarter of last year, a growth rate of almost 17 percent.

The United Kingdom remains by far the biggest investor in FDI, followed by other Gulf countries (see Table 3), but the U.S. investors are not far behind.  World Bank data for net outflows in FDI shows a steep drop after 2014 followed by a gradual recovery.

Major foreign investors that have entered the Omani market within the last five years include BP (UK), Sembcorp (Singapore), Daewoo (Korea), LG (Korea), Veolia (France), Huawei (China), SinoHydro (China), and Vale (Brazil).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: National Centre for Statistical Analysis, 2018 Q2.

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Data not available.

Economic & Commercial Officer
U.S. Embassy, P.O. Box 202, Postal Code 115, MSQ, Muscat, Sultanate of Oman
+968-2464-3623
Email: muscatcommercial@state.gov

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:

• Ministry of Commerce and Industry’s Invest in Qatar Center:  https://invest.gov.qa    
• Qatar Financial Centre:  http://www.qfc.qa/  
• Qatar Free Zones Authority:  https://fza.gov.qa/   
• Qatar Science and Technology Park:  https://qstp.org.qa/  
• Qatar Petroleum Tawteen Program:  https://www.tawteen.com.qa/  

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).

Qatar has 56 bilateral investment treaties (BITs), according to the United Nations Conference on Trade and Development (UNCTAD).  Twenty-two BITs are in force, namely with Belarus, Belgium, Luxembourg, Bosnia and Herzegovina, China, Costa Rica, Cyprus, Egypt, Finland, France, Gambia, Germany, Iran, Italy, Jordan, South Korea, Montenegro, Morocco, Portugal, Romania, Russia, Switzerland, and Turkey.  The most recent BIT was signed with Rwanda in November 2018, but has not yet come into force. A full list of current BITs with the State of Qatar can be found at: http://investmentpolicyhub.unctad.org/IIA/CountryBits/171   

While Qatar has not entered into a bilateral investment or trade treaty with the United States, the two nations established a Trade and Investment Framework Agreement (TIFA) in 2004.  Additionally, as part of the GCC, Qatar has signed 12 treaties with investment provisions (TIPs), including one between the GCC and the United States in 2012, but this treaty has not yet entered into force.  The United States and Qatar hold an annual high-level Strategic Dialogue, through which the two governments discuss matters related to trade and investment cooperation. 

Qatar does not have a double taxation treaty with the United States.  In January 2015, Qatar became the first GCC country to sign a Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement with the United States.  In total, Qatar has over 58 agreements for the Avoidance of Double Taxation, including, most recently, with Ghana (November 2018) and Paraguay (March 2018).

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.

Investment Incentives

Qatar does not impose a personal income tax and the new foreign investment law (Law 1/2019) offers a variety of other incentives to foreign investors, which may include the following:

• Exemption from 10 percent corporate tax for a period of up to 10 years.
• Allocation of land by way of a renewable rent for a period of up to 50 years.
• Exemption from customs duties on the imports of necessary machinery and equipment.
• Exemption from customs duties on imports of raw materials or half-manufactured goods necessary for production and not available in the local market, for industrial projects.

Some industrial projects can be established in designated industrial zones governed by the Qatar Free Zones Authority, and are offered the following incentives:

• Exemption from 10 percent corporate tax for a period of up to 20 years.
• Zero custom duties on imports.
• Potential access to a USD 3 billion government-backed fund.

The Ministry of Energy Affairs determines the amount of foreign equity and the extent of incentives for industrial projects, as stipulated by Law 8/2018.

Foreign Trade Zones/Free Ports/Trade Facilitation

Qatar has several free zones and business facilitation options:

Qatar Financial Centre

Qatar Financial Centre (QFC) is an onshore business platform that allows international financial institutions and professional service companies to establish offices in Qatar with 100 percent foreign ownership and full repatriation of profits.  Locally-sourced profits are subject to a 10 percent corporate tax. The QFC has its own independent regulatory regime based on English common law. The QFC Regulatory Authority acts as the regulator for financial firms operating in the QFC. The QFC Regulatory Tribunal and Qatar International Court hear and adjudicate cases, though these bodies’ judgments are only of value if enforced by Qatari courts against persons and assets in Qatar.  Goldman Sachs International, Mastercard Gulf, Uber, and Oracle are among the companies registered with QFC.

Qatar Science and Technology Park

The Qatar Science and Technology Park (QSTP) is a hub designed to undertake research and development and facilitate the transfer of expertise and technology.  The hub offers grants and incubators to foreign and local innovators. Licensed foreign companies are permitted 100 percent ownership and full capital and income repatriation benefits.  Companies operating at the QSTP can import goods and services duty free and export goods produced in the park are tax-free. Firms at the park are also exempt from all taxes, including the 10 percent income tax.  The property of these businesses cannot be seized under any circumstance, but capital and other cash may be seized on the orders of a local court. Microsoft, ExxonMobil, GE, and ConocoPhillips are among QSTP member companies.

Free Zones

In 2018, the government created an independent Free Trade Zone Authority to oversee free zones in Qatar and offer opportunities and benefits to investors.  The Authority currently administers two such free trade zones: Ras Bufontas near the country’s international airport and Um Alhoul adjacent to the country’s largest commercial seaport.  Additionally, in 2011, Qatar established Manateq, a state-owned company affiliated with the Ministry of Commerce and Industry, to manage and develop economic zones. Manateq has oversight of one special economic zone (Al Karaana), four logistic parks (​Jery Al Samur, Al Wakra, Birkat Al Awamer and Aba Saleel​), four warehousing parks ​(Bu Fesseela, Bu Sulba, Umm Shaharaine 1 and Umm Shaharaine 2) and one industrial zone (Mesaieed). 

In the last two years, the Ministry of Commerce and Industry has also aimed to introduce a public-private partnership (PPP) law to further attract foreign investors.  The draft law is currently under judicial review. 

Performance and Data Localization Requirements

There are no laws that obligate the private sector to hire Qatari nationals, but the public sector and institutions working closely with the government on projects and joint ventures are required to hire Qatari nationals—these notably include energy companies operating in Qatar.  Nonetheless, this manpower localization policy (known as “Qatarization”) in the public sector is a main focus of the country’s National Vision 2030 and foreign investors wishing to operate fully-owned companies will be required to submit a “Qatarization” plan. Employers are allocated visa slots for the hiring of specific nationalities and such positions are non-transferable without approval of the Ministry of Administrative Development, Labor, and Social Affairs.

While Qatar does not follow a forced localization policy, when competing for government contracts, preferential treatment is given to suppliers that use local content in bids.  Goods produced with Qatari content are also given a 10 percent price preference. As a rule, participation in government tenders with a value of QAR 5,000,000 or less (equivalent to USD 1,373,626) are confined to local contractors, suppliers, and merchants registered by the Qatar Chamber of Commerce, and tenders with a value of more than this amount do not require any local commercial registration to participate, but in practice certain exceptions exist. 

In February 2019, national oil company Qatar Petroleum announced a localization initiative, Tawteen, which, among other things, will require all suppliers for Qatar Petroleum and its subsidiaries, as well as bidders for select contracts, to be assessed by a third-party auditor to determine their In-Country Value (ICV) score.  Qatar Petroleum and its subsidiary companies will assess the ICV score in addition to technical and commercial criteria when evaluating bidders. The formula for calculating a company’s ICV score may be found here: https://www.tawteen.com.qa/In-Country-Value-Policy/ICV-Formula-Calculation  

Performance requirements for foreign investment in Qatar do not exist.  Disclosure of financial and employment data is required, but proprietary information is not.

There are no known formalized requirements for foreign IT providers to turn over source code or provide access to surveillance.  Information and communications technology is regulated by Qatar’s Communications Regulatory Authority, established as an independent body by Amiri Decree 42/2014, under the Ministry of Transport and Communications.  Qatar is the first Arab Gulf nation to enact a Data Protection Law 13/2016, which obliges companies to comply with restrictions relating to the collection, disclosure, and safekeeping of personal data. The regulator responsible for enforcing the Data Protection Law is the Ministry of Transport and Communications.

Real Property

A set of laws, ministerial decrees, and resolutions make up the country’s jurisprudence on property rights and ownership.

Law 16/2018 designates 10 zones in which foreign investors, companies, and real estate developers are permitted full property ownership.  The law also allows foreign investors usufructuary right of real estate of up to 99 years in 16 other zones. Additionally, foreigners may own villas within residential complexes, as well as retail outlets in certain commercial complexes.  In December 2018, a committee was formed under the Ministry of Justice to regulate foreign real estate ownership and use. According to subsequent regulations announced in March 2019, non-Qatari real estate owners will be granted residency in Qatar for as long as they own their property.

Law 6/2014 regulates real estate development and promulgates that non-Qatari companies should have at least 10 years of experience and headquarters in Qatar to carry out real estate development activities within selected locations. 

Property leasehold rights are enforced.  Qatar’s Rent Law 4/2008 protects the lessee and regulates the lessor.  There are a number of enforceable rights granted to the lessee including protection from rent hikes during the lease period and enforcement of the terms of the lease contract should the lessor transfer ownership.  The lessor is also protected from tenants who violate their lease agreements. Qatar’s Leasing Dispute Settlement Committee enforces these regulations. The committee hears and issues binding decisions and all lessors are required by law to register their lease agreements with this committee.

The Ministry of Municipality and Environment oversees the preparation of all records related to the selling, leasing, waiver, and bequeathing of real estate.  A reliable electronic database exists to check for encumbrances, including liens, mortgages, and restrictions. In addition, all titles and deed records are kept in digital format.

Qatar was ranked 20th globally for ease of registering property by the World Bank’s 2019 Doing Business Report:  http://www.doingbusiness.org/data/exploreeconomies/qatar#registering-property  

Intellectual Property Rights

Qatar’s intellectual property (IP) legal regime, albeit still developing in capacity, is robust and wide-ranging in terms of the number of laws protecting different types of intellectual property rights (IPR).  Qatar has signed many international intellectual property treaties, which are implemented through Qatari laws and regulations. Qatar’s IP legislation includes the Trademark and Copyright Law (enacted in 2002), the Protection of Trade Secrets and Protection of Layout Design law (2005), and the Patent Law (2006).  These laws grant foreign applicants the same rights as Qataris, provided they are nationals of a state that grants Qatar reciprocal treatment.

Intellectual property owners can apply for IP rights at the Ministry of Commerce and Industry, which is mandated (by Law 20/2014) to enforce IP laws and regulations.  Within the ministry, an IP Protection Department has been set up with offices focusing on trademarks, copyrights, neighboring rights, patents, industrial designs, and innovations.  The following are the periods of validity for the different types of registered intellectual property:

Patents:  Valid for 20 years from filing.

• With regard to pharmaceutical products, the Ministry of Public Health requires registration of all products imported into the country and will not register unauthorized copies of products patented in other countries.  Qatar also recognizes GCC patents on pharmaceutical products. To obtain patent protection in the GCC, pharmaceutical companies must apply for a GCC patent at the GCC Patent Office. Once granted, protection should extend to all the GCC countries. 

Copyrights:  Protected for 50 years after the author’s death.

• Per Qatari law, failure to register at the Ministry of Commerce and Industry will not affect protection of the copyright.  While the law does not protect unpublished works and does not criminalize end-user piracy, Qatar is party to the Berne and Paris Conventions and abides by their mandates concerning unpublished works.  The IP Protection Department works with law enforcement authorities to prosecute resellers of unlicensed video and software.

Trademarks:  Valid for 10 years but can be renewed indefinitely, while trademarks unused for five consecutive years are subject to cancellation. 

• As part of the GCC Customs Union, inaugurated in 2015, the GCC approved a common trademark law and Qatar is taking steps to enact it. 

The law on Intellectual Property Border Protection (Law 17/2011) forbids the import of any products that infringe any IPR protected in Qatar and obliges the General Authority of Customs to take measures to prevent the entrance of infringing products.  The law also permits IP rights holders to block the release of imported products that infringe on their rights, given sufficient evidence. In February 2017, the General Authority of Customs launched an electronic system to detect counterfeit goods coming into the country.  The system is accredited by the World Customs Organization and has been introduced to limit the imports of counterfeit goods. The General Authority of Customs, the Consumer Protection and IP Protection Departments at the Ministry of Commerce and Industry, and the Ministry of Interior conduct surveys, search shops, and seize and destroy counterfeit products. 

In March 2017, the Cabinet approved a draft law on the protection of industrial designs in an attempt to modernize existing Law 9/2002 on trademarks, trade indications, trade names, geographical indications, and industrial designs and templates, but the new law has not come into force yet.

The existing Penal Code stipulates hefty fines on those dealing in counterfeit products and imprisonment for offenders convicted of counterfeiting, imitating, fraudulently affixing, or selling products, or offering services of a registered trademark, or other intellectual property violations.  However, the level of awareness about IPR and enforcement is low among the public. The IP Protection Department in the Ministry of Commerce and Industry has taken the lead in promoting awareness through workshops and seminars.

The United States Trade Representative Office (USTR) does not consider Qatar a market that engages in, turns a blind eye to, or benefits from piracy and counterfeit products, nor is Qatar listed in USTR’s Special 301 Report.

Qatar is a member of the World Trade Organization and the World Intellectual Property Organization (WIPO), and is a signatory of several WIPO treaties.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/wipolex/en/profile.jsp?code=QA  .

Resources for Rights Holders:

U.S. Patent & Trademark Office
Regional IP Attaché
Peter C. Mehravari, Intellectual Property Attaché for the Middle East & North Africa
U.S. Department of Commerce Foreign Commercial Service, U.S. Patent & Trademark Office
U.S. Embassy Kuwait City, Kuwait
+965 2259 1455
Email: Peter.mehravari@trade.gov
Web:  https://www.uspto.gov/learning-and-resources/ip-policy/intellectual-property-rights-ipr-attach-program/intellectual  

United States Trade Representative
IPR Director for the GCC
Sung Chang
+1 (202) 395-9564
Email: Sung.E.Chang@ustr.eop.gov
Web: http://www.ustr.gov  

A list of local attorneys that may be able to provide assistance in pursuing IP protections and enforcement claims in Qatar can be found at the U.S. Embassy Doha website:  https://qa.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

Capital Markets and Portfolio Investment

Foreign portfolio investment has been permitted since 2005.  There is no restriction on the flow of capital in Qatar. The Qatar Central Bank (QCB) adheres to conservative policies aimed at maintaining steady economic growth and a stable banking sector.  Loans are allocated on market terms, and foreign companies are essentially treated the same as local companies.

Currently, foreign ownership is limited to 49 percent of Qatari companies listed on the Qatar Stock Exchange.  Foreign capital investment up to 100 percent is permitted in most sectors upon approval of an application submitted to the Invest in Qatar Center under the Ministry of Commerce and Industry. Foreign portfolio investment in national oil and gas companies or companies with the right of exploration of national resources cannot exceed 49 percent. 

Almost all import transactions are controlled by standard letters of credit processed by local banks and their correspondent banks in the exporting countries.  Credit facilities are provided to local and foreign investors within the framework of standard international banking practices. Foreign investors are usually required to have a guarantee from their local sponsor or equity partner.  In accordance with QCB guidelines, banks operating in Qatar give priority to Qataris and to public development projects in their financing operations. Additionally, single customers may not be extended credit facilities by a bank exceeding 20 percent of the bank’s capital and reserves.  QCB does not allow cross-sharing arrangements among banks. QCB requires banks to maintain a maximum credit ratio of 90 percent. QCB respects IMF Article VIII and does not restrict payments or transfers for international transactions.

QCB manages liquidity by requiring a reserve ratio of 4.5 percent and utilizing treasury bonds, bills, and other macroprudential measures.  Banks that do not abide by the required reserve ratio are penalized. QCB uses repurchase agreements, backed by government securities, to inject liquidity into the banks.  

Qatar has become an important banking and financial services center in the Gulf region.  Qatar’s monetary freedom score is 72.6 out of 100 (“mostly-free”) and it ranks 28th out of 180 countries in the 2019 Index of Economic Freedom, according to the Heritage Foundation.  Qatar is ranked third in the Middle East/North Africa region in terms of economic freedom and its overall score is above the world average. 

Money and Banking System

There are 18 licensed banks in Qatar, seven of which are foreign institutions.  Qatar also has 20 exchange houses, five investment and finance companies, 16 insurance companies, and 17 investment funds.  The Qatar Central Bank (QCB), in its role as the sole financial regulator, continues to introduce incentives for local banks to ensure a strong financial sector that is resilient during economic volatility. 

According to QCB data, total banking assets reached nearly USD 155 billion in the fourth quarter of 2018.  The country is home to the Qatar National Bank, the largest financial institution in the Middle East and Africa, with total assets exceeding USD 236 billion. The IMF estimated that 2.1 percent of Qatar’s bank loans in 2017 were nonperforming – the lowest ratio in the GCC.  International ratings agencies have expressed confidence in the financial stability of the country’s banks, given liquidity levels and strong earnings.

Foreign Exchange and Remittances

Foreign Exchange

Due to minimal demand for the QAR outside Qatar and the national economy’s dependence on oil and gas revenues, which are priced in dollars, the government has pegged the riyal to the U.S. dollar.  The officially pegged rate is QAR 1.00 per USD 0.27 or USD 1.00 per QAR 3.64, as set by the government in June 1980 and reaffirmed by Amiri decree 31/2001.

There is no restriction on foreign exchange in Qatar and currency declaration is not required of visitors.  Residents of Qatar may also move cash easily and in any form.

Remittance Policies

Qatar neither delays remittance of foreign investment returns nor restricts transfer of funds associated with an investment, such as return on dividends, return of capital, interest and principal payments on private foreign debt, lease payments, royalties, management fees, amounts generated from sale or liquidation, amounts garnered from settlements and disputes, and compensation from expropriation to financial institutions outside Qatar.

In accordance with Law 4/2010 on Anti-Money Laundering/Counter-Terrorism Finance (AML/CFT), the Qatar Central Bank requires financial institutions to apply due diligence prior to establishing business relationships.  Certain originator information should be secured when a wire transfer exceeds QAR 4,000 (USD 1,098). Similarly, due diligence is required when a customer is completing occasional transactions in a single operation or several linked operations of an amount exceeding QAR 55,000 (USD 15,109), per the provisions of Article 23 of Law 4/2010. 

Qatar is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), a Financial Action Task Force-style regional body.  Qatar will undergo its next MENAFATF mutual evaluation in 2021. In July 2017, Qatar signed a counterterrorism Memorandum of Understanding (MOU) with the United States, which includes information sharing, training, enhanced cooperation, and other deliverables related to AML/CFT. 

Sovereign Wealth Funds

The Qatar Investment Authority (QIA), Qatar’s sovereign wealth fund, was established by Amiri Decree 22/2005.  QIA is overseen by the Supreme Council for Economic Affairs and Investment, chaired by the Amir, and does not disclose its assets (independent analysts estimate QIA’s holdings at around USD 330 billion).  QIA pursues direct investments and favors luxury brands, prime real estate, and banks. Various QIA subsidiaries invest in other sectors, as well. 

In September 2015, QIA opened an office in New York City to facilitate over USD 45 billion allocated for investments in the United States over the course of five years.  QIA’s real estate subsidiary, Qatari Diar, has operated an office in Washington, D.C. since 2014.

QIA was one of the early supporters of the Santiago Principles and among the few members who drafted the initial and final versions of the principles, and continues to be a proactive supporter of its implementation.  QIA was also a founding member of the IMF-hosted International Working Group of Sovereign Wealth Funds. QIA fully supported the establishment of the International Forum of Sovereign Wealth Funds (IFSWF) and helped create the Forum’s constitution.

The State Audit Bureau oversees state-owned enterprises (SOEs), several of which operate as monopolies or with exclusive rights in most economic sectors.  Despite the dominant role of SOEs in Qatar’s economy, the government has affirmed support for the local private sector and encourages small and medium-sized enterprise development as part of its National Vision 2030.  The Qatari private sector is favored in bids for local contracts and generally receives favorable terms for financing at local banks. The following are Qatar’s major SOEs:

Energy and Power:

• Qatar Petroleum (QP), its subsidiaries, and its partners operate all oil and gas activities in the country.  QP is wholly owned by the government. Non-Qataris are permitted to invest in stock exchange listed subsidiaries, but shareholder ownership is limited to two percent and total non-Qatari ownership to 49 percent.
• Qatar General Electricity and Water Corporation (Kahramaa) oversees all water and electricity activities and is majority-owned by Qatari government entities.  The government has indicated that it may privatize segments of the water and electricity sectors. A first step in this direction occurred when the Ras Laffan Power Company, which is 55 percent owned by a U.S. company, was established in 2001.

Aerospace:

• Qatar Airways is the country’s designated national carrier and is wholly owned by the state.

Services:

• Qatar General Postal Corporation is the state-owned postal company.  Several other delivery companies are allowed to compete in the courier market:  Aramex, DHL Express, and FedEx Express.

Information and Communication:

• Ooredoo Group is a telecommunications company founded in 2013.  It is the dominant player in the Qatari telecommunications market and is 68 percent owned by Qatari government entities.  Ooredoo (previously known as Q-Tel) dominates both the mobile and fixed line telecommunications markets in Qatar.
• Vodafone Qatar, the only other telecommunications operator in Qatar at present, is owned by the semi-governmental Qatar Foundation, Qatari government entities, and Qatar-based investors.  In 2017, Vodafone Qatar announced that it achieved 21 percent market share in Qatar.

Qatar SOEs may adhere to their own corporate governance codes and are not required to follow the OECD Guidelines on Corporate Governance.  Some SOEs publish online corporate governance reports to encourage transparency, but there is no general framework for corporate governance across all Qatari SOEs.  When an SOE is involved in an investment dispute, the case is reviewed by the appropriate sector regulator.

Privatization Program

There is no ongoing official privatization program for major SOEs.  Qatar Airline executives state the government plans to take the company public within the next decade.

There is a general awareness in Qatar of responsible business conduct.  In 2007, Qatar created the Corporate Social Responsibility (CSR) Network, a research and reporting entity that publishes annual reports highlighting best practices and honoring CSR leaders in the country.  Many companies in Qatar publicize their CSR policies.

Sustainability is the focus of the National Development Strategy 2018-2022, released in March 2018; it is also an important goal of the National Vision 2030.  Law 30/2002 is the main legislation protecting the environment. It prohibits the use of polluting equipment, machineries, and vehicles, and restricts the dumping and treatment of liquid or solid wastes to certain designated areas.  The law also limits emissions of harmful vapors, gases, and smoke in the energy sector. This applies to all companies working in exploration and production of crude oil and natural gas.

The Ministry of Commerce and Industry has a dedicated Consumer Protection and Combating Commercial Fraud Department which has intensified its efforts in recent years by increasing the monitoring of records and inspection of stores and factories that sell or manufacture counterfeit goods.  The Ministry prosecutes violators when business misconduct is detected or reported and announces these violations publicly.

The Government of Qatar maintains a reporting regime for suspicious transactions and requirements for consumer due diligence and record keeping.

As an economy dependent on extractive industries, Qatar participates in the Extractive Industries Transparency Initiative (EITI).  Nonetheless, the Qatari government has not improved transparency regarding its management of the petroleum industry, as no regulatory body oversees resources extraction or revenue management.  Moreover, Qatar has no freedom of information law.

With regard to labor and human rights, Qatari law prohibits all forms of forced or compulsory labor and reserves two percent of jobs in government agencies and public institutions for persons with disabilities.  The law also prohibits employment of children under 16 years old. The Ministry of Administrative Development, Labor, and Social Affairs (MADLSA); the Ministry of Interior; and the National Human Rights Committee (NHRC) conduct training sessions for migrant laborers to educate them on their rights in the country.  International media and human rights organizations continue to allege numerous abuses against foreign workers, including forced or compulsory labor, withheld wages, unsafe working conditions, and poor living accommodations. In January 2018, the United States and Qatar signed a government-level memorandum of understanding to exchange expertise and foster capacity building in combating human trafficking.  In March 2019, the Department of Labor and MADLSA signed an MOU on labor, which focuses on two pillars: labor inspections and protecting domestic workers’ rights in Qatar.

Some non-governmental organizations (NGOs) in Qatar focus on labor rights and often work in conjunction with the government.  Researchers from international NGOs such as Amnesty International and Human Rights Watch continue to visit and report on the country with limited interference from authorities.  International labor NGOs have been able to send researchers to Qatar under the sponsorship of academic institutions and quasi-governmental organizations such as the NHRC.

Corruption in Qatar does not generally affect business although the power of personal connections plays a major role in business culture.  Qatar is one of the least corrupt countries in the Middle East and North Africa, according to Transparency International’s 2018 Corruption Perceptions Index, and ranked 33 out of 180 nations globally with a score of 62 out of 100, with 100 indicating full transparency.

Qatari law imposes criminal penalties to combat corruption by public officials and the government practices these laws.  In recent years, corruption and misuse of public money has been a focus of the executive office. Decree 6/2015 restructured the Administrative Control and Transparency Authority, granting it juridical responsibility, its own budget, and direct affiliation with the Amir’s office.  The objectives of the Authority are to prevent corruption and ensure that ministries and public employees operate with transparency. It is also responsible for investigating alleged crimes against public property or finances perpetrated by public officials.

Law 22/2015 stipulates hefty penalties for corrupt officials and Law 11/2016 grants the State Audit Bureau more financial authority and independence, allowing it to publish parts of its findings (provided that confidential information is removed) – something it was not previously empowered to do.

In 2007, Qatar ratified the UN Convention for Combating Corruption (through Amiri Decree 17/2007) and established a National Committee for Integrity and Transparency, (through Amiri Decree 84/2007).  The permanent committee is headed by the Chairman of the State Audit Bureau. Qatar also opened the Anti-Corruption and Rule of Law Center in 2013 in Doha in partnership with the United Nations. The purpose of the center is to support, promote, and disseminate legal principles to fight against corruption.

Those convicted of embezzlement and damage to the public treasury are subject to terms of imprisonment of no less than five and up to ten years.  The penalty is extended to a minimum term of seven and a maximum term of fifteen years if the perpetrator is a public official in charge of collecting taxes or exercising fiduciary responsibilities over public funds.  Investigations into allegations of corruption are handled by the Qatar State Security Bureau and Public Prosecution. Final judgments are made by the Criminal Court.

Bribery is also a crime in Qatar and the law imposes penalties on public officials convicted of taking action in return for monetary or personal gain, or for other parties who take actions to influence or attempt to influence a public official through monetary or other means.  The current Penal Code (Law 11/2004) governs corruption law and stipulates that individuals convicted of bribery may receive up to ten years imprisonment and a fine equal to the amount of the bribe but no less than USD 1,374.

The Procurement Law 24/2015 is designed to promote a fair, transparent, simple, and expeditious tendering process.  It abolishes the Central Tendering Committee and establishes a Procurement Department within the Ministry of Finance which has oversight over the majority of government tenders.  The new department has an online portal which consolidates all government tenders and provides relevant information to interested bidders, facilitating the process for foreign investors (https://monaqasat.mof.gov.qa  ). 

Despite these efforts, some American businesses continue to cite lack of transparency in government procurement and customs as recurring issues faced in the Qatari market.  U.S. investors and Qatari nationals, if they are agents of U.S. firms, are subject to the provisions of the U.S. Foreign Corrupt Practices Act.

Qatar is not a party to the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials.

Resources to Report Corruption

In 2015, the Public Prosecution’s Anti-Corruption Office launched a campaign encouraging the public to report corruption and bribery cases, establishing hotlines and a tip reporting inbox and vowing to protect the confidentiality of submitted information:

Public Prosecution
Anti-Corruption Office
Hotlines:  +974-3353-1999 and +974-3343-1999
Email: aco@pp.gov.qa

Qatar is a politically stable country with low crime rates.  There are no political parties or labor unions, or any credible organized domestic political opposition.  The U.S. government believes the potential exists for acts of transnational terrorism to occur in Qatar.

In June 2017, the neighboring countries of Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt severed diplomatic and economic ties with Qatar.  This geopolitical rift has not altered the political and security environment for U.S. investors in Qatar.

U.S. citizens in Qatar are encouraged to stay in close contact with the State Department and the U.S. Embassy in Doha for up-to-date threat information.  U.S. visitors to Qatar are invited to enroll in the State Department’s Smart Traveler Enrollment Program to receive further information regarding safety conditions in Qatar:  https://step.state.gov/step/.

According to the World Bank’s Migration & Remittances Fact Book 2016, Qatar has the world’s highest level of migrant workers relative to population, with foreigners making up around 90 percent of the country’s population.  Qatar’s labor force consists primarily of expatriate workers. In the private sector, foreigners make up over 95 percent of the labor force per statistics from the country’s Planning and Statistics Authority.  Qatar’s resident population is estimated at 2.7 million as of February 2019, doubling in the last decade. Qatari citizens are estimated to number approximately 300,000 – 11 percent of the total population. The largest group of foreign workers comes from the Indian sub-continent.  Men make up more than 75 percent of the population, while unskilled and limited-skilled labor makes up around 66 percent of the population.

Unemployment rates in Qatar are among the lowest in the world, with 0.1 percent unemployment rate for men and 0.4 percent unemployment rate for women as of December 2018.  The Ministry of Interior and the Ministry of Administrative Development, Labor, and Social Affairs (MADLSA) regulate recruitment of expatriate labor.

Labor Law 14/2004 largely governs employment in Qatar and stipulates that employment may be terminated without any reason being given by the terminating party.  The effect of termination will be for the employer to pay the employee his wages and other benefits due to him in full, provided that the employee performs work as usual during the notice period, which varies depending on years of employment.  Companies registered with Qatar Financial Centre (QFC) are governed by English common law, and labor issues are administered by QFC’s Regulation 10/2006. The rules that govern recruitment and immigration of QFC employees differ from those that govern other expatriate employees in the country.

Labor Law 12/2004 and subsequent regulations grant Qatari citizens the right to form workers’ committees in private enterprises with more than 100 Qatari citizen workers.  Qatari citizens employed in the private sector also have the right to strike, but the restrictive conditions imposed by the law make the likelihood of an approved strike remote.  There are no labor unions in the country. Non-citizens are not eligible to form worker committees or strike, though according to an agreement signed between the MADLSA and the International Labor Organization (ILO), joint worker committees including 50-50 representation of workers and employers are planned for all medium to large-sized companies.  Those working in the government sector, regardless of nationality, are prohibited from joining unions. Over three-quarters of Qatari citizens are employed by the government.

In November 2017, the MADLSA issued a ministerial decree to set a temporary minimum wage of USD 195 per month.  Local courts handle disputes between workers and employers though the process is widely regarded as inefficient.  Recently, in an effort to speed up the process of resolving labor disputes, the government created new Labor Disputes Settlement Committees headed by a judge and representatives from the MADLSA.  As of March 2018, there are three such committees, all of which operate outside of the traditional Supreme Judicial Committee structure and are required to address any complaints within three weeks.

To combat the problem of late and unpaid wages, the government issued Law 1/2015 amending certain provisions of Labor Law 14/2004 on wage protection and mandating electronic payment to all employees subject to the local labor law. The law notably does not cover domestic workers.  The government requires all employers to open bank accounts for their employees and pay wages electronically through a system subject to audits by an inspection division at the MADLSA. Employers who fail to pay their workers faced penalties of USD 550 – USD 1,650 per case and possible prison sentences.  The system currently covers over 1.4 million workers.

In an effort to eliminate forced labor, the government issued reforms to the sponsorship system through Law 21/2015 to allow employees to switch employers at the end of their contract, which can be up to five years, without the permission of their employer.  In September 2018, Qatar passed Law 13/2018 to allow most workers – those covered by the Labor Law – to leave the country without exit permits from their employers. Employers still have the right to require up to five percent of their workforce to request permission to leave, after submitting their names to the MADLSA with justifications based on the nature of their work.  However, this reform does not cover domestic workers. The law prohibits the practice of employers withholding workers’ passports and increases penalties for employers who continue this practice. A further loosening of these restrictions is expected, given the three-year technical agreement signed with the ILO in November 2017 to address weaknesses in Qatar’s labor oversight and recruitment system.

To protect workers from fraudulent employment contracts, the Ministry of Interior signed an agreement with a Singaporean company in November 2017 to establish Qatar Visa Centers (QVCs) with the aim to simplify residency procedures for expat workers from India, Nepal, Sri Lanka, Pakistan, Bangladesh, Indonesia, the Philippines, and Tunisia (workers from these countries constitute 80 percent of Qatar’s workforce).  In cooperation with both MOI and MADLSA, the contracted company established QVCs in these countries to facilitate biometric enrollment, medical records verification, and the signing of work contracts before these workers enter Qatar. To date, QVCs have been established in Sri Lanka, Pakistan, Bangladesh, and India.

Qatar is a member of the ILO and claims that its labor law meets ILO minimum requirements.  In November 2017, Qatar made commitments to address some ILO complaints by launching a comprehensive three-year ILO technical cooperation program in Qatar.

In January 2018, the Qatari Minister of Foreign Affairs signed an MOU with the U.S. Department of State during the U.S.-Qatar Strategic Dialogue.  The MOU lays out plans for cooperation in combating trafficking in persons including strengthening the labor sector to reduce instances of forced labor.  In March 2019, the MADLSA signed a new MOU with the US Department of Labor to enhance cooperation in the fields of labor inspection and protecting domestic workers rights.

The Overseas Private Investment Corporation (OPIC) has not maintained a presence in Qatar since 1995.  Qatar is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: Qatar’s Planning and Statistics Authority http://www.mdps.gov.qa/en/  

Table 3: Sources and Destination of FDI

* Source: 2017 Data form Qatar’s Planning and Statistics Authority http://www.mdps.gov.qa/en/  

Economic Specialist
U.S. Embassy
22nd February Street, Al Luqta District, P.O. Box 2399, Doha, Qatar
+974-4496-6000
Email: EskandarGA@state.gov

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.

Saudi Arabia has signed bilateral trade and investment agreements with over 20 countries.  The United States and Saudi Arabia signed a Trade and Investment Framework Agreement (TIFA) in 2003, building upon a bilateral agreement on secured private investment with the United States that has been in place since February 1975.  The United States and Saudi Arabia last held TIFA consultations in May 2018 in Washington, D.C.

Saudi Arabia is a founding member of the Gulf Cooperation Council (GCC), which also includes Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates.  While still under development, the GCC Customs Union formally ensures the free movement of labor and capital within the bloc. (Note: On June 5, 2017, Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt announced they were severing diplomatic relations with Qatar.  The land border between the Kingdom and Qatar remains closed and there are no direct flights between the two countries.)

The GCC currently maintains free trade agreements (FTA) with Lebanon, Singapore, the European Free Trade Association (Norway, Switzerland, Iceland, and Liechtenstein), and the Greater Arab Free Trade Area of 18 Arab countries.  The GCC is in the process of negotiating additional FTAs with China, the European Union, New Zealand, and several other trade partners.

Saudi Arabia does not have a bilateral taxation treaty with the United States, though the country maintained double taxation agreements with more than 43 countries as of March 2019.

The corporate tax treatment in Saudi Arabia of foreign and domestic companies is imbalanced and favors Saudi companies and joint ventures with Saudi participation.  The SAG imposes a flat 20 percent corporate tax rate on foreign investors. Saudi investors do not pay corporate income tax but are subject to a 2.5 percent tax, or “zakat,” on net current assets.

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.

Investment Incentives

SAGIA advertises a number of financial advantages for foreigners looking to invest in the Kingdom, including the lack of personal income taxes and a corporate tax rate of 20 percent on foreign companies’ profits.  SAGIA also lists various SAG-sponsored, regional, and international financial programs to which foreign investors have access, such as the Arab Fund for Economic and Social Development, the Arab Trade Financing Program, and the Islamic Development Bank.  

The Saudi Industrial Development Fund (SIDF), a government financial institution established in 1974, supports private-sector industrial investments by providing medium- and long-term loans for new factories and for projects to expand, upgrade, and modernize existing manufacturing facilities.  The SIDF offers loans of 50 percent to 75 percent of a project’s value, depending on the project’s location. Foreign investors that set up manufacturing facilities in developed areas (Riyadh, Jeddah, Dammam, Jubail, Mecca, Yanbu, and Ras Al-Khair), for example, can receive a 15-year loan for up to 50 percent of a project’s value; investors in the Kingdom’s least developed areas can receive a 20-year loan for up to 75 percent of the project’s value.  The SIDF also offers consultancy services for local industrial projects in the administrative, financial, technical and marketing fields. (The SIDF’s website is at https://www.sidf.gov.sa/en/Pages/default.aspx  .)  

The SAG offers several incentive programs to promote employment of Saudi nationals.  The Saudi Human Resources Development Fund (HRDF) (https://www.hrdf.org.sa/), for example, will pay 30 percent of a Saudi national’s wages for the first year of work, with a wage subsidy of 20 percent and 10 percent for the second and third year of employment, respectively (subject to certain limits and caps).   

American and other foreign firms are able to participate in SAG-financed and/or -subsidized research-and-development programs.  Many of these programs are run though the King Abdulaziz City for Science and Technology (KACST), which funds many of the Kingdom’s R&D programs.   

Foreign Trade Zones/Free Ports/Trade Facilitation

Saudi Arabia does not operate free trade zones or free ports.  However, as part of its Vision 2030 program, the SAG has announced it will create special zones with special regulations to encourage investment and diversify government revenues.  The SAG is discussing the establishment of special regulatory zones in certain areas, including at the NEOM giga-project, and the King Abdullah Financial District project in Riyadh.  

Saudi Arabia has established a network of “economic cities” as part of the country’s efforts to diversify away from oil.  Overseen by SAGIA, these four economic cities aim to provide a variety of advantages to companies that choose to locate their operations within the city limits, including in matters of logistics and ease of doing business.  The four economic cities are: King Abdullah Economic City near Jeddah, Prince AbdulAziz Bin Mousaed Economic City in north-central Saudi Arabia, Knowledge Economic City in Medina, and Jazan Economic City near the southwest border with Yemen.  The cities are in various states of development, and their future development potential is unclear, given competing Vision 2030 economic development projects.

The Saudi Industrial Property Authority (MODON) oversees the development of 35 industrial cities, including some still under development.  MODON offers incentives for commercial investment in these cities, including competitive rents for industrial land, government-sponsored financing, export guarantees, and certain customs exemptions.  (MODON’s website is at https://www.modon.gov.sa/en/Pages/default.aspx  .)

The Royal Commission for Jubail and Yanbu (RCJY) was formed in 1975 and established the industrial cities of Jubail, located in eastern Saudi Arabia on the Gulf coast, and Yanbu, located in north western Saudi Arabia on the Red Sea coast.  A significant portion of Saudi Arabia’s refining, petrochemical, and other heavy industries are located in the Jubail and Yanbu industrial cities. The RCJY’s mission is to plan, promote, develop, and manage petrochemicals and energy intensive industrial cities.  In connection with this mission, RCJY promotes investment opportunities in the two cities and can offer a variety of incentives, including tax holidays, customs exemptions, low cost loans, and favorable land and utility rates. More recently, the RCJY has assumed responsibility for managing the Ras Al Khair City for Mining Industries (2009) and the Jazan City for Primary and Downstream Industries (2015).  (The RCJY’s website is at https://www.rcjy.gov.sa).

Performance and Data Localization Requirements

The government does not impose systematic conditions on foreign investment.  For example, there are no requirements to locate in a specific geographic area (except for some restrictions on the distribution of retail outlets and the location of industrial activities).  Investors are not required to export a certain percentage of output. There is no requirement that the share of foreign equity be reduced over time. Investors are not required to disclose proprietary information to the SAG as part of the regulatory approval process, except where issues of health and safety are concerned.    

Although investors have not been required heretofore to purchase from local sources, the situation is changing.  In line with its bid to diversify the economy and provide more private sector jobs for Saudi nationals, the SAG has embarked upon a broad effort to source goods and services domestically and is seeking commitments from investors to do so.  In 2017, the Council of Economic and Development Affairs (CEDA) established the Local Content and Private Sector Development Unit (NAMAA in Arabic) to promote local content and improve the balance of payments. NAMAA is responsible for monitoring and implementing regulations, suggesting new policies, and coordinating with the private sector on all local content matters.  

Government-controlled enterprises are also increasingly introducing local content requirements for foreign firms.  Aramco’s “In-Kingdom Total Value Added” program, for example, strongly encourages the purchase of goods and services from a local supplier base and aims to double Aramco’s percentage of locally-manufactured energy-related goods and services to 70 percent by 2021.  

In the defense sector, Saudi Arabia’s military is in the process of reforming its procurement processes and policies to incorporate new ambitious goals of Saudi employment and localized production.  The SAG has shifted over the last two years away from offsets in favor of “localization” of purchases of goods and services and “Saudization” of the labor force. Previously, the government required offsets in investments equivalent to up to 40 percent of a program’s value for defense contracts, depending on the value of the contract.  The SAG is currently mandating increasingly strict localization requirements for government contracts in the defense sector. The SAG’s Vision 2030 program calls for 50 percent of defense materials to be produced and procured locally by 2030, and simultaneously seeks comparable increases in the number of Saudis employed in this sector.

The government encourages recruitment of Saudi employees through a series of incentives (see section 11 on “Labor Policies” for details of the “Saudization” program) and limits placed on the number of visas for foreign workers available to companies.  The Saudi electronic visitor visa system defaults to five-year visas for all U.S. citizen applicants. “Business visas” are routinely issued to U.S. visitors who do not have an invitation letter from a Saudi company; the visa applicant must provide evidence that he or she is engaged in legitimate commercial activity.  “Commercial visas” are issued by invitation from Saudi companies to applicants who have a specific reason to visit a Saudi company.

In the fall of 2016, the SAG implemented a series of significant visitor fee increases for expatriates whose countries do not have reciprocity agreements with Saudi Arabia, doubling the cost of a single-entry business visit visa to USD 533.  (U.S. citizens are exempt from such increases on the basis of reciprocity.) The SAG also imposed higher exit and reentry visa fees for all foreign workers residing in the Kingdom, including U.S. citizens. Furthermore, in January 2018, the SAG implemented new fees for expatriate employers ranging between USD 80 and USD 107 per employee per month and increased levies on expatriates with dependents to a USD 54 monthly fee for each dependent (see section 11 on “Labor Policies”).  In January 2019, fees on expatriate employees increased to between USD 133 to USD 160 per month, and levies on expatriate dependents increased to USD 80 per month. These fees are scheduled to increase again in 2020, but no additional increases are planned at this time.

Data Treatment

There are no requirements for foreign IT providers to turn over source code or provide access to encryption.  Other than a requirement to retain records locally for ten years for tax purposes, there is no requirement regarding data storage or access to surveillance.   

The Saudi legal system protects and facilitates acquisition and disposition of all property, consistent with Islamic practice of upholding private property rights.  Non-Saudi corporate entities are allowed to purchase real estate in Saudi Arabia in accordance with the foreign-investment code. Other foreign-owned corporate and personal property is protected by law.  Saudi Arabia has a system of recording security interests, and plans to modernize its land registry system. Saudi Arabia ranked 24th out of 190 countries for ease of registering property in the 2019 World Bank Doing Business Report.

In 2017, the Saudi Ministry of Housing implemented an annual vacant land tax of 2.5 percent of the assessed value on vacant lands in urban centers in an attempt to spur development.  Additionally, in January 2018, in an effort to increase Saudis’ access to finance and stimulate the mortgage and housing markets, Saudi Arabia’s central bank lifted the maximum loan-to-value rate for mortgages for first-time homebuyers to 90 percent from 85 percent, and increased interest payment subsidies for first-time buyers.  This further liberalized stringent down-payment requirements that prevailed up to 2016, when the central bank raised the maximum loan-to-value rate from 70 percent to 85 percent.

Intellectual Property Rights

In the last two decades, Saudi Arabia undertook a comprehensive revision of its laws governing intellectual property rights (IPR) to bring them in line with the WTO agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs); the changes were promulgated in coordination with the World Intellectual Property Organization (WIPO).  The SAG updated its Trademark Law (2002), Copyright Law (2003), and Patent Law (2004) with the dual goals of TRIPs compliance and effective deterrence against IPR violations.

Saudi Arabia was included on USTR’s Special 301 “Priority Watch List” in April 2019 following an increase in the number of stakeholder complaints about the protection of IPR in the Kingdom, particularly with respect to pharmaceuticals, rampant digital and signal piracy, software, and counterfeit goods.

Recent steps by the Saudi Food and Drug Authority (SFDA) to license locally-manufactured, cheaper generic versions of patent-pending drugs within their five year regulatory data protection period have created significant concern among U.S. industry stakeholders, who allege commercial loss resulting from this abrogation of their patent and data protection rights.  Additionally, in 2017, the SFDA granted a license to a local generic pharmaceutical manufacturer for an innovative treatment developed by a U.S. pharmaceutical company that had filed for patent protection with the GCC patent office. According to the U.S. pharmaceutical and biologics industry, the SFDA’s failure to recognize the patent and protect the data constitutes a serious breach of intellectual property rights.  

During 2018, an illicit broadcast and streaming service called “beoutQ” became widely available in Saudi Arabia.  beoutQ is suspected of satellite and online piracy, as well as supporting piracy devices and related services, such as apps that allow access to unlicensed movies and television productions, including sports events. 

U.S. software firms report that the Saudi government continues to use unlicensed and “under-licensed” (in which an insufficient number of licenses is procured for the total number of users) software on government computer systems in violation of their copyrights.  Other concerns include the lack of seizure and destruction of counterfeit goods in enforcement actions by MCI, and limits on the ability of MCI to enter facilities suspected of involvement in the sale or manufacture of counterfeit goods, including facilities located in residential areas.

The Saudi government is in the process of reorganizing its IPR agencies and centralizing responsibility for all IPR matters in the new Saudi Authority for Intellectual Property (SAIP).  SAIP’s Board of Directors held its first meeting in March 2018 under the chairmanship of the Minister of Commerce and Investment. SAIP also signed a Memorandum of Understanding in September 2018 with the U.S. Patent and Trademark Office.  SAIP’s objective is to ensure the unification and integration of IPR in Saudi Arabia. SAIP is expected to prepare a new national IPR strategy and oversee its implementation.

Resources for Rights Holders

Embassy point of contact:

Brian Barone
Economic Officer
+966 11 488-3800 Ext. 4140
Email: BaroneBA@state.gov

Regional IPR Attache:

Pete C. Mehravari
U.S. Intellectual Property Attache for Middle East and North Africa
Patent Attorney
U.S. Embassy Kuwait | U.S. Department of Commerce
Office: +965 2259-1455
Email: Peter.mehravari@trade.gov

Capital Markets and Portfolio Investment

Saudi Arabia’s financial policies generally facilitate the free flow of private capital, while currency can be transferred in and out of the Kingdom without restriction.  Saudi Arabia maintains an effective regulatory system governing portfolio investment in the Kingdom. The Capital Markets Law, passed in 2003, allows for brokerages, asset managers, and other nonbank financial intermediaries to operate in the Kingdom.  The law created a market regulator, the Capital Market Authority (CMA), which was established in 2004, and opened the Saudi stock exchange (Tadawul) to public investment.  

Prior to 2015, the CMA only permitted foreign investors to invest in the Saudi stock market through indirect “swap arrangements,” through which foreigners had accumulated ownership of one per cent of the market.  In June 2015, the CMA opened the Tadawul to “qualified foreign investors,” but with a stringent set of regulations that only large financial institutions could meet.  Since 2015, the CMA has progressively relaxed the rules applicable to qualified foreign investors, easing barriers to entry and expanding the foreign investor base.  The CMA adopted regulations in 2017 permitting corporate debt securities to be listed and traded on the exchange; in March 2018, the CMA authorized government debt instruments to be listed and traded on the Tadawul.  The Tadawul was incorporated into the FTSE Russell Emerging Markets Index as of March 2019, resulting in an initial foreign capital injection of approximately USD 700 million.  This was the first of five staged capital infusions over the next 12 months totaling USD 6.8 billion. Separately, the USD 11 billion infusion into the Tadawul from integration into the MSCI Emerging Markets Index will take place in two tranches beginning in May 2019.

Money and Banking System

The banking system in the Kingdom is generally well-capitalized and healthy.  The public has easy access to deposit-taking institutions. The legal, regulatory, and accounting systems used in the banking sector are generally transparent and consistent with international norms.  The Saudi Arabian Monetary Authority (SAMA), the central bank, which oversees and regulates the banking system, generally gets high marks for its prudential oversight of commercial banks in Saudi Arabia.  SAMA is a member and shareholder of the Bank for International Settlements in Basel, Switzerland.

The SAG has authorized increased foreign participation in its banking sector over the last several years.  SAMA has granted licenses to a number of foreign banks to operate in the Kingdom, including Deutsche Bank, J.P. Morgan Chase N.A., and Industrial and Commercial Bank of China (ICBC).  A number of additional, CMA-licensed foreign banks participate in the Saudi market as investors or wealth management advisors. Citigroup, for example, returned to the Saudi market in early 2018 under a CMA license.  

Credit is normally widely available to both Saudi and foreign entities from commercial banks and is allocated on market terms.  The Saudi banking sector has one of the world’s lowest non-performing loan (NPL) ratios, in the range of 1.5 per cent for 2017. In addition, credit is available from several government institutions, such as the SIDF, which allocate credit based on government-set criteria rather than market conditions.  Companies must have a legal presence in Saudi Arabia in order to qualify for credit. The private sector has access to term loans, and there have been a number of corporate issuances of sharia compliant bonds, known as sukuk.  

Foreign Exchange and Remittances

Foreign Exchange

There is no limitation in Saudi Arabia on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs, other than certain withholding taxes (withholding taxes range from five percent for technical services and dividend distributions to 15 percent for transfers to related parties, and 20 percent or more for management fees).  Bulk cash shipments greater than USD 10,000 must be declared at entry or exit points. Since 1986, when the last currency devaluation occurred, the official exchange rate has been fixed by SAMA at 3.75 Saudi riyals per U.S. dollar. Transactions typically take place using rates very close to the official rate.

Remittance Policies

Saudi Arabia is one of the largest remitting countries in the world, with roughly 75 percent of the Saudi labor force comprised of foreign workers.  Remittances totaled approximately USD 39 billion in 2018. There are currently no restrictions on converting and transferring funds associated with an investment (including remittances of investment capital, dividends, earnings, loan repayments, principal on debt, lease payments, and/or management fees) into a freely usable currency at a legal market-clearing rate.  There are no waiting periods in effect for remitting investment returns through normal legal channels.

The Ministry of Labor and Social Development is progressively implementing a “Wage Protection System” designed to verify that expatriate workers, the predominant source of remittances, are being properly paid according to their contracts.  Under this system, employers are required to transfer salary payments from a local Saudi bank account to an employee’s local bank account, from which expatriates can freely remit their earnings to their home countries.

In 2017, SAMA enhanced and updated its previous Circular on Guidelines for the Prevention of Money Laundering and Terrorist Financing.  The enhanced guidelines have increased alignment with the Financial Action Task Force (FATF) 40 Recommendations, the nine Special Recommendations on Terrorist Financing, and relevant UN Security Council Resolutions.  Saudi Arabia is a member of the Middle East and North Africa Financial Action Task Force (MENA-FATF). In 2015 Saudi Arabia obtained observer status to the FATF and is seeking full membership in the organization.

Sovereign Wealth Funds

The Public Investment Fund (PIF, www.pif.gov.sa  ) is the Kingdom’s officially designated sovereign wealth fund.  While PIF lacks many of the attributes of a traditional sovereign wealth fund, it has evolved into the SAG’s primary investment vehicle.  

Established in 1971 to channel oil wealth into economic development, the PIF has historically been a holding company for government shares in partially privatized state-owned enterprises (SOEs), including SABIC, the National Commercial Bank, Saudi Telecom Company, and others.  Crown Prince Mohammed bin Salman is the chairman of the PIF and announced his intention in April 2016 to build the Fund into a USD 2 trillion global investment fund, relying in part on proceeds from a potential initial public offering of up to five percent of Saudi Aramco shares.  

Since that announcement, the PIF has made a number of high-profile international investments, including a USD 3.5 billion investment in Uber, a commitment to invest USD 45 billion into Japanese SoftBank’s VisionFund, a commitment to invest USD 20 billion into U.S. Blackstone’s Infrastructure Fund, a USD 1 billion investment in U.S. electric car company Lucid Motors, and a partnership with cinema company AMC to operate movie theaters in the Kingdom.  Under the Vision 2030 reform program, the PIF is financing a number of strategic domestic development projects, including: “NEOM,” a new USD 500 billion project to build an “independent economic zone” in northwest Saudi Arabia; “Qiddiya,” a new, large-scale entertainment, sports, and cultural complex near Riyadh; “the Red Sea Project”, a massive tourism development on the western Saudi coast; and “Amaala,” a wellness, healthy living, and meditation resort also located on the Red Sea.  

As of early 2019, the PIF had an investment portfolio valued at approximately USD 250-260 billion, mainly in shares of state-controlled domestic companies.  In an effort to rebalance its investment portfolio, the PIF has divided its assets into six investment pools comprising local and global investments in various sectors and asset classes:  Saudi holdings; Saudi sector development; Saudi real estate and infrastructure development; Saudi giga-projects; international strategic investments; and an international diversified pool of investments.  The PIF has ambitions to achieve USD 600 billion in assets under management by 2020.

In practice, SAMA’s foreign reserve holdings also operate as a quasi-sovereign wealth fund, accounting for the majority of the SAG’s foreign assets.  SAMA invests the Kingdom’s surplus oil revenues primarily in low-risk liquid assets, such as sovereign debt instruments and fixed-income securities. SAMA’s foreign reserves stood at approximately USD 497 billion at the end of 2018.  Total reserves increased by approximately USD 165 million in 2018, after falling USD 39.4 billion and USD 80.6 billion in 2017 and 2016, respectfully. SAMA’s foreign reserve holdings peaked at USD 746 billion in mid-2014.

Though not a formal member, Saudi Arabia serves as a permanent observer to the International Working Group on Sovereign Wealth Funds.

SOEs play a leading role in the Saudi economy, particularly in water, power, oil, natural gas, petrochemicals, and transportation.  Saudi Aramco, the world’s largest producer and exporter of crude oil and a large-scale oil refiner and producer of natural gas, is 100 percent SAG-owned, and its revenues typically contribute the majority of the SAG’s budget.  Five of the eleven representatives on Aramco’s board of directors are from the SAG, including the chairman and vice chairman. The SAG announced a plan for an initial public offering (IPO) of up to five percent of Aramco shares in 2018, but the IPO has been delayed.  The SAG claims the company is valued at USD 2 trillion, which would make a five percent IPO the largest in history. Saudi Aramco has announced it will acquire SABIC, Saudi Arabia’s leading petrochemical company, which is 70 percent owned by the SAG. Five of the nine representatives on SABIC’s board of directors are from the SAG, including the chairman and vice chairman.  The SAG is similarly well-represented in the leadership of other SOEs. The SAG either wholly owns or holds controlling shares in many other major Saudi companies, such as the Saudi Electricity Company, Saudi Arabian Airlines (Saudia), the Saline Water Conversion Company, Ma’aden (mining), and the National Commercial Bank and other leading financial institutions.

Privatization Program

Saudi Arabia has undertaken a limited privatization process for state-owned companies and assets dating back to 2002.  The process, which is open to domestic and foreign investors, has resulted in partial privatizations of state-owned enterprises in the banking, mining, telecommunications, petrochemicals, water desalination, insurance, and other sectors.

As part of Vision 2030 reforms, the SAG has announced its intention to privatize additional sectors of the economy.  Privatization is a key element underpinning the Vision 2030 goal of increasing the private sector’s contribution to GDP from 40 percent to 65 percent by 2030.  In April 2018, the SAG launched a Vision 2030 Privatization Program that aims to: strengthen the role of the private sector by unlocking state-owned assets for investment, attract foreign direct investment, create jobs, reduce government overhead, improve the quality of public services, and strengthen the balance of payments.  (The full Privatization Program report is available online at http://vision2030.gov.sa/en/ncp  .)  The program report references a range of approaches to privatization, including:  full and partial assets sales, initial public offerings, management buy-outs, public-private partnerships (build-operate-transfer models), concessions, and outsourcing.  The SAG aims to create 10,000-12,000 jobs and generate USD 9-USD 11 billion in non-oil revenue by 2020 through the Privatization Program. While the Privatization report outlines the general guidelines for the Program, it does not include an exhaustive list of assets to be privatized.  The report does, however, reference education, healthcare, transportation, renewable energy, power generation, waste management, sports clubs, grain silos, and water desalination facilities as prime areas for privatization or public-private partnerships.

In 2017, Saudi Arabia established the National Center for Privatization and Public Private Partnerships, which will oversee and manage the Privatization Program.  (The Center’s website is at http://www.ncp.gov.sa/en/pages/home.aspx  .)  The NCCP’s mandate is to introduce privatization through the development of programs, regulations, and mechanisms for facilitating private sector participation in entities now controlled by the government.

There is a growing awareness of corporate social responsibility (CSR) in Saudi Arabia.  The King Khalid Foundation issues annual “responsible competitiveness” awards to companies doing business in Saudi Arabia for outstanding CSR activities.

Foreign firms have identified corruption as a barrier to investment in Saudi Arabia.  Saudi Arabia has a relatively comprehensive legal framework that addresses corruption, but many firms perceive enforcement as selective.  The Combating Bribery Law and the Civil Service Law, the two primary Saudi laws that address corruption, provide for criminal penalties in cases of official corruption.  Government employees who are found guilty of accepting bribes face 10 years in prison or fines of up to one million riyals (USD 267,000). Ministers and other senior government officials appointed by royal decree are forbidden from engaging in business activities with their ministry or organization.  Saudi corruption laws cover most methods of bribery and abuse of authority for personal interest, but not bribery between private parties. Public officials are not subject to financial disclosure laws. Some officials have engaged in corrupt practices with impunity, and perceptions of corruption persist in some sectors.  

On November 4, 2017, King Salman issued a royal decree forming a new Supreme Anti-Corruption Committee.  The SAG subsequently detained approximately 200 government officials, businesspersons, and royal family members as part of the anti-corruption campaign.  The royal decree exempted committee members – which included the Crown Prince, attorney general, chairman of the National Anticorruption Commission (“Nazaha”), chief of the General Audit Bureau, chairman of the Saudi Monitoring and Investigation Commission, and head of the State Security Presidency – from “all laws, regulations, instructions, orders, and decisions” that would impede anticorruption efforts.  Some of the detainees reportedly negotiated financial settlements in exchange for their release. In January 2018, the attorney general announced that the SAG had collected more than USD 100 billion in various types of assets, including real estate, commercial entities, securities, cash, and other assets as part of its anti-corruption campaign. In January 2019, the Saudi government announced the end of the anti-corruption campaign.  

The Supreme Anti-Corruption Committee, National Anticorruption Commission/Nazaha, the Public Prosecutor’s Office, and the Control and Investigation Board are units of the government with authority to investigate reports of criminal activity, corruption, and “disciplinary cases” involving government employees.  These bodies are responsible for investigating potential cases and referring them to the administrative courts.

Nazaha, established in 2011, is responsible for promoting transparency and combating all forms of financial and administrative corruption.  Nazaha’s ministerial-level director reports directly to the King. Nazaha refers cases of possible public corruption to the Public Prosecutor’s Office.  Some evidence suggests the organization has not shied away from prosecuting influential players whose indiscretions may previously have been ignored. In 2016, for example, it referred the Minister of Civil Service for investigation over allegations of abuse of power and nepotism.  In November 2016, Nazaha announced it found irregularities in the appointment of the minister’s son to the Ministry of Municipal and Rural Affairs. The Commission regularly publishes news of its investigations on its website (http://www.nazaha.gov.sa/en/Pages/Default.aspx  ).

The Control and Investigation Board is responsible for investigating financial and administrative malfeasance, and the Public Prosecutor’s Office has the lead on all criminal investigations.  The General Auditing Bureau is also charged with combating corruption, as is the Human Rights Commission, which responds to and researches complaints of corruption.

SAMA, the central bank, oversees a strict regime to combat money laundering.  Saudi Arabia’s Anti-Money Laundering Law provides for sentences up to 10 years in prison and fines up to USD 1.3 million.  The Basic Law of Governance contains provisions on proper management of state assets and authorizes audits and investigation of administrative and financial malfeasance.  

The Government Tenders and Procurement Law regulates public procurements, often a source of corruption.  The law provides for public announcement of tenders and guidelines for the award of public contracts. Saudi Arabia is an observer of the WTO Agreement on Government Procurement (GPA).  Although Saudi Arabia committed to initiate negotiations for accession to the WTO GPA when it became a WTO Member in 2005, it has not yet begun those negotiations.

Saudi Arabia ratified the UN Convention against Corruption in April 2013 and signed the G20 Anti-Corruption Action Plan in November 2010.

Globally, Saudi Arabia ranks 58th out of 180 countries in Transparency International’s Corruption Perceptions Index 2018.  

Resources to Report Corruption

The National Anti-Corruption Commission’s address is:  

National Anti-Corruption Commission
P.O. Box (Wasl) 7667, Al Olaya – Ghadir District
Riyadh 2525-13311
The Kingdom of Saudi Arabia
Fax: 0112645555
E-mail: info@nazaha.gov.sa

Nazaha accepts complaints about corruption through its website http://www.nazaha.gov.sa  or mobile application.

Saudi Arabia is a monarchy ruled by King Salman bin Abdulaziz Al Saud.  The King’s son, Crown Prince Mohammed bin Salman, has assumed a central role in government decision-making.  The Department of State regularly reviews and updates a travel advisory to apprise U.S. citizens of the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions.  As of March 2019, the Travel Advisory for Saudi Arabia urges U.S. citizens to exercise increased caution when traveling to Saudi Arabia due to terrorism and the threat of missile and drone attacks on civilian targets.  The Travel Warning notes that terrorist groups continue plotting possible attacks in Saudi Arabia and that terrorists may attack with little or no warning, targeting tourist locations, transportation hubs, markets/shopping malls, and local government facilities.  In the past, terrorists have targeted both Saudi and Western government interests, mosques and other religious sites (both Sunni and Shia), and places frequented by U.S. citizens and other Westerners. Additionally, Houthi rebel groups operating in Yemen have fired missiles and rockets into Saudi Arabia, targeting populated areas and civilian infrastructure, and have publicly stated their intent to continue to do so.  Missile attacks have targeted major cities such as Riyadh and Jeddah, Riyadh’s international airport, Saudi Aramco facilities, and vessels in Red Sea shipping lanes. The Houthi rebel groups are also in possession of unmanned aerial systems (drones), which they have used to target civilian infrastructure and military facilities in Saudi Arabia. U.S. citizens living and working on or near such installations, particularly in areas near the border with Yemen, are at heightened risk of missile and drone attack.

Please visit https://travel.state.gov/ for further information, including the latest Travel Advisory.

The Ministry of Labor and Social Development sets labor policy and, along with the Ministry of Interior, regulates recruitment and employment of expatriate labor, which makes up a majority of the private-sector workforce.  About 75 percent of total jobs in the country are held by expatriates, who number roughly 12.6 million out of a total population of approximately 33.4 million. The largest groups of foreign workers come from India, Pakistan, Bangladesh, Egypt, the Philippines, and Yemen.  Saudis occupy about 96 percent of government jobs, but only about 25 percent of the total jobs in the Kingdom. Over one-third of Saudi nationals are employed in the public sector.

Saudi Arabia’s General Authority for Statistics estimates unemployment at 6.0 percent for the total population and 12.8 percent for Saudi nationals (Q3 2018 figures), but these figures mask a high youth unemployment rate, a Saudi female unemployment rate of 30.9 percent, and low Saudi labor participation rates (42.0 percent overall;19.7 percent for women).  With approximately 60 percent of the Saudi population under the age of 30, job creation for new Saudi labor market entrants will prove a serious challenge for a number of years.

The SAG encourages Saudi employment through “Saudization” policies that place quotas on employment of Saudi nationals in certain sectors, coupled with limits placed on the number of visas for foreign workers available to companies.  In 2011, the Ministry of Labor and Social Development laid out a sophisticated plan known as Nitaqat, under which companies are divided into categories, each with a different set of quotas for Saudi employment based on company size.  Reforms enacted in 2017 refine the program to incentivize further the employment of women, individuals with disabilities, and managerial and high-wage positions.  Each company is determined to be in one of four strata based on its actual percentage of Saudi employees, with platinum and green strata for companies meeting or exceeding the quota for their sector and size, and yellow and red strata for those failing to meet it.  Expatriate employees in red and yellow companies can move freely to green or platinum companies, without the approval of their current employers, and green and platinum companies have greater privileges with regard to securing and renewing work permits for expatriates.

Over the past few years, the SAG has taken additional measures to strengthen the Nitaqat program and expand the scope of Saudization to require the hiring of Saudi nationals.  The Ministry of Labor and Social Development has mandated that certain job categories in specific economic sectors only employ Saudi nationals, beginning with mobile phone stores in 2016.  The ministry has since broadened the policy to include car rental agencies, retail sales jobs in shopping malls, and other sectors. The ministry has likewise mandated that only Saudi women can occupy retail jobs in certain businesses that cater to female customers, such as lingerie and cosmetics shops.  In 2017, the Ministry of Labor and Social Development began to phase in rules forbidding employment of foreigners in retail sales positions in 12 sectors, including: watches, eyewear, medical equipment and devices, electrical and electronic appliances, auto parts, building materials, carpets, cars and motorcycles, home and office furniture, children’s clothing and men’s accessories, home kitchenware, and confectioneries.  Because many retail shops in sectors subject to Saudization are owned and operated by expatriates, these policies have resulted in numerous store closures across the country. Many elements of Saudization and Nitaqat have garnered criticism from the private sector, but the SAG claims these policies have substantially increased the percentage of Saudi nationals working in the private sector over the last several years, despite near-record unemployment levels.    

In 2017, the Ministry of Labor and Social Development and the Ministry of Interior launched the latest phase of an ongoing campaign to deport illegal and improperly documented workers.  Furthermore, in January 2018, the SAG implemented new fees for expatriate employers (ranging between USD 80 and USD 107 per employee per month), as well as increased levies on expatriates with dependents (a USD 54 monthly fee for each dependent).  In January 2019, fees on expatriate employees increased to between USD 133 to USD 160 per month, and levies on expatriate dependents increased to USD 80 per month. These fees are scheduled to increase again in 2020, but no additional increases are planned at this time.  The combination of Saudization and Nitaqat policies, new expatriate fees, increased visa and entry/exit permit fees, the new VAT, and other measures that have raised the cost of living, has prompted approximately 1.5 million expatriates to depart the Kingdom over the past two years.  These measures have also significantly increased labor costs for employers, both Saudi and foreign alike.

Saudi Arabia’s labor laws forbid union activity, strikes, and collective bargaining.  However, the government allows companies that employ more than 100 Saudis to form “labor committees” to discuss work conditions and grievances with management.  In 2015, the SAG published 38 amendments to the existing labor law with the aim of expanding Saudi employees’ rights and benefits. Domestic workers are not covered under the provisions of the latest labor law; separate regulations covering domestic workers were issued in 2013, stipulating employers provide at least nine hours of rest per day, one day off a week, and one month of paid vacation every two years.

Saudi Arabia has taken significant steps to address labor abuses, but weak enforcement continues to result in credible reports of employer violations of foreign employee labor rights.  In some instances, foreign workers and particularly domestic staff encounter employer practices (including passport withholding and non-payment of wages) that constitute trafficking in persons.  The Department’s annual Trafficking in Persons Report details concerns about labor law enforcement within Saudi Arabia’s sponsorship system is available at: https://www.state.gov/trafficking-in-persons-report/

Overtime is normally compensated at time-and-a-half rates.  The minimum age for employment is 14. The SAG does not adhere to the International Labor Organization’s convention protecting workers’ rights.  Non-Saudis have the right to appeal to specialized committees in the Ministry of Labor and Social Development regarding wage non-payment and other issues.  Penalties issued by the ministry include banning infringing employers from recruiting foreign and/or domestic workers for a minimum of five years.

The U.S. Overseas Private Investment Corporation (OPIC) ceased operating in Saudi Arabia in 1995 due to the SAG’s failure to take steps to adopt and implement laws that extend internationally recognized workers’ rights to its labor force.  Saudi Arabia has been a member of the Multilateral Investment Guarantee Agency since April 1988.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: Saudi General Authority for Statistics

Table 3: Sources and Destination of FDI

According to the 2018 UNCTAD World Investment Report, Saudi Arabia’s total FDI inward stock was $232.2 billion and total FDI outward stock was $79.6 billion (in both cases, as of 2017).   

Detailed data for inward direct investment (below) is as of 2010, which is the latest available breakdown of inward FDI by country.

*Source: IMF Coordinated Direct Investment Survey (2010 – latest available complete data)

Table 4: Sources of Portfolio Investment

Source: IMF’s Coordinated Portfolio Investment Survey (CPIS); data as of December 2017.

Economic Section and Foreign Commercial Service Offices
Embassy of the United States of America
P.O. Box 94309
Riyadh 11693, Saudi Arabia
Phone: +966 11 488-3800

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.

The United Nations Conference on Trade and Development (UNCTAD) lists the UAE as currently having 48 bilateral investment treaties, of which 34 are in force, and 14 other international investment agreements (IIAs), of which seven are in force. There is currently no bilateral investment treaty between the United States and the UAE.

In July 2018, the UAE and China signed four partnerships and investment agreements in multiple sectors.

In June 2018, the UAE signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI), to reinforce its position as a cooperative and transparent jurisdiction.  However, in March 2019, the European Union (EU) added the UAE to its list of non-cooperative tax jurisdictions, a list of 15 countries that refuse to engage with the EU on addressing tax-related governance shortcomings.

In March 2004, the United States signed a Trade and Investment Framework Agreement (TIFA) with the UAE to provide a formal framework for dialogue on economic reform and trade liberalization: https://ustr.gov/sites/default/files/uploads/agreements/tifa/asset_upload_file305_7741.pdf .  As a member of the GCC, the UAE is also party to the U.S.-GCC Framework Agreement on Trade, Economic, Investment, and Technical Cooperation, signed in 2012.

The U.S. Department of State negotiated and signed a Memorandum of Understanding creating an Economic Policy Dialogue (EPD) with the UAE Ministry of Foreign Affairs in 2012, to address a variety of topics, including trade, investment, sector-specific cooperation, competitiveness, and entrepreneurship.  A CEO Summit process for the EPD was established in 2013, bringing recommendations from the private sector directly into the EPD discussions. The most recent EPD was held in December 2014 with plans to restart the annual forum in the summer of 2019.

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.

Investment Incentives

All free trade zones provide incentives to foreign investors.  Outside the free trade zones, the UAE provides no incentives, although the ability to purchase property as freehold in certain favored projects could be considered an incentive to attract foreign investment.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are numerous free trade zones throughout the UAE.  Foreign companies generally enjoy the same investment opportunities within those zones as Emirati citizens.  The chief attraction of free trade zones is that foreigners may own up to 100 percent of the equity in a free trade zone enterprise.  All free trade zones provide 100 percent import and export tax exemption, 100 percent exemption from commercial levies, 100 percent repatriation of capital and profits, multi-year leases, easy access to ports and airports, buildings for lease, energy connections (often at subsidized rates), and assistance in labor recruitment.  In addition, free trade zone authorities provide significant support services, such as sponsorship, worker housing, dining facilities, recruitment, and physical security.

Free trade zones have their own independent authority with responsibility for licensing and helping companies establish their businesses.  Investors can register new companies in a free trade zone, or license branch or representative offices. Free trade zones have limited liability and are governed by special laws and regulations.  Companies in free trade zones seeking to operate within the UAE may be governed by the new Commercial Companies Law, if the laws of the relevant free trade zone permit companies to operate outside of the free zones.

Performance and Data Localization Requirements

The Emiratization Initiative is a federal incentive program that aims to increase the number of Emirati citizens employed within the private sector.  Exact requirements vary by industry, but the Vision 2021 national strategic plan aims to increase the percentage of Emiratis working in the private sector from five percent in 2014 to eight percent by 2021.  Most Emirati citizens are employed by the government or one of its many government-related entities (GREs). A guest worker system generally guarantees transportation back to country of origin at conclusion of employment.  There have been no reports of excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. There are government and government authority-imposed conditions on permission to invest, in the form of the 49 percent limitation of ownership/control by foreign individuals or corporations.  The UAE does not force foreign investors to use domestic content in goods or technology or compel foreign IT providers to turn over source code.

All foreign defense contractors with over USD 10 million in contract value over a five-year period must participate in the Tawazun Economic Program, previously known as the UAE Offset Program.  This program also requires defense contractors that are awarded contracts valued at more than USD 10 million to establish commercially viable joint ventures with local business partners, which would be projected to yield profits equivalent to 60 percent of the contract value within a specified period, usually seven years.

In February 2018, the Abu Dhabi National Oil Company piloted a new In-Country Value (ICV) strategy, which gives preference in awarding contracts to foreign companies that use local content and employ Emirati citizens.  UAE government officials have indicated plans to expand the ICV program to other sectors of the economy, and to other emirates, in the coming years.

Real Property

The UAE government allows individual emirates to decide on the form in which ownership of land may be transferred within its borders.  Generally, Abu Dhabi has limited ownership to Emirati or other GCC citizens, who may then lease the land to foreigners. The property reverts back to the owner at the conclusion of the lease.  Although Dubai has identified restricted areas within its borders, traditional freeholds, also known as outright ownership, are also available. Subject to very few regulations, freehold owners own the land and may sell it on the open market.  The contract rights of lienholders, as well as ownership rights of freeholders, are generally respected and enforced throughout the UAE, which in some cases has employed specialized courts for this purpose.

Mortgages and liens are permitted, with restrictions.  Each emirate has its own system of record-keeping. In Dubai, for example, the system is centralized within the Dubai Land Department, and is considered extremely reliable.  Land not otherwise allocated or owned is the property of the emirate, and may be disposed of at the will of its ruler, who generally consults with his advisors prior to disposition.

The World Bank Ease of Doing Business Report notes that not all privately-held land plots in the economy are formally registered in an immovable property registry.  Much of the country is unregistered desert; such land is generally owned by emirate-specific governments. The UAE does not have a securitization process for lending purposes.

Intellectual Property Rights

Intellectual property rights (IPR) holders face four main challenges in the UAE: the trade of counterfeit goods, unpredictable pharmaceutical patent protection, the absence of a collective management organization (CMO) for royalty payments for copyrighted music, and burdensome trademark fees.  While some UAE enforcement authorities periodically seize and destroy counterfeit goods within UAE, concerns related to the re-exportation of seized goods, significant copyright piracy, and trademark infringement persist. UAE police forces and investigators have generally been responsive when policing against pirated CDs, DVDs, and software, however the failure to grant the necessary operating license to establish a CMO, which is allowed under the UAE’s 2002 Copyright Law and Ministerial Decision No. 133 of 2004, is a major obstacle to adequate enforcement of IPR.

The 2018-2019 Global Competitiveness Report issued by the World Economic Forum ranked the UAE 26th globally on IPR protection, down from 21 in 2017-2018, with the UAE ranking second regionally after Oman.  The UAE’s legal framework for IPR is generally considered compliant with international obligations.  Emirate-level authorities such as economic development authorities, police forces, and customs authorities enforce IPR-related issues, while federal authorities manage IPR policy.  However, many of these laws are inconsistently implemented or enforced at federal and emirate-levels, criminal sentences are often non-deterrent, and enforcement actions require specific written complaints from right holders.

In April 2017, UAE officials allowed domestic manufacture of generic versions of a pharmaceutical product still under patent protection in the United States.  The UAE claimed that Decree no. 404, a measure providing reliable protection for pharmaceutical products with valid country of origin patents, is no longer valid.  It is also unclear whether the UAE courts will consistently recognize patents granted by the Gulf Cooperation Council (GCC) Patent Office.

Concerns also exist over the high trademark filing fees in UAE.  The fees are the highest in the world and considered cost-prohibitive for protecting trademarks locally.

Dubai Police announced a total of 264 counterfeit cases and six copyright cases in 2018, comparable to 212 trademark violation and 11 copyright cases in 2017.  Enforcement authorities in the UAE’s northern emirates also conducted inspection campaigns during 2018. Many counterfeit products in the UAE are now promoted via social media, so the UAE Telecommunication Regulatory Authority (TRA) has also been active in tracking and blocking these accounts.  In 2018, TRA banned 152 websites for IPR violations, compared to 167 in 2017.

The UAE did not enact any new laws related to IP protection in 2018.  The UAE was included in both the U.S. Trade Representative (USTR) 2019 Special 301 Report (https://ustr.gov/sites/default/files/2019_Special_301_Report.pdf ) and the 2018 Notorious Markets List (https://ustr.gov/sites/default/files/2018_Notorious_Markets_List.pdf ).  The latter mentions two physical marketplaces in the UAE, with both locations cited as important markets for local purchasers and as gateways to distribute Chinese-sourced counterfeit goods to other markets in the region, North Africa, and Europe.

Capital Markets and Portfolio Investment

The UAE government is focused on building infrastructure to create an environment conducive to economic growth and outside investment.  It is also collaborating with its partners in the GCC to support ventures in the region. UAE government efforts to create such an environment for investments resulted in: i) no taxes or restrictions on the repatriation of capital; ii) free movement of labor and low barriers to entry (effective tariffs are five percent for most goods); and iii) an emphasis on diversifying the economy away from oil, which offers a broad array of investment options for FDI.  Drivers for the economy include real estate, tourism, manufacturing, and financial services.

The UAE has three stock markets:  Abu Dhabi Securities Exchange, Dubai Financial Market, and NASDAQ Dubai.  The regulatory body, the Securities and Commodities Authority (SCA), classifies brokerages into two groups:  “those which engage in trading only while the clearance and settlement operations are conducted through clearance members” and “those which engage in trading clearance and settlement operations for their clients.”  Under the regulations, trading brokerages require paid-up capital of USD 820,000, whereas trading and clearance brokerages need USD 2.7 million. Bank guarantees required for brokerages to trade on the bourses are USD 367,000.

The UAE issued investment funds regulations in September 2012, known as the “twin peak” regulatory framework designed to govern the marketing of investment funds established outside the UAE to domestic investors and the establishment of local funds domiciled inside the UAE.  This regulation gave the SCA, rather than the Central Bank, authority over the licensing, regulation and oversight of the marketing of investment funds. The marketing of a foreign fund (including “offshore” UAE-based funds, such as those domiciled in the DIFC) requires the appointment of a locally licensed placement agent.  Other restrictions contained in the regulations, such as limitations on funds investing more than 15 percent in any one underlying issuer, have led fund managers to question whether the UAE is seeking to attract international or regionally focused investment funds to be domiciled in the country. The UAE government has also encouraged certain high-profile projects to be undertaken via a public joint stock company in order to allow the issue of shares to the public.  Further, the UAE government requires any company carrying out banking, insurance, or investment services for a third party to be a public joint stock company.

The UAE has no restrictions on the making of payments and transfers for current international transactions, according to the IMF, except for those restrictions for security reasons that have been notified by authorities.  There are no restrictions on the transfer of funds into or out of the UAE, and currencies are traded freely at market-dictated rates.

Credit is generally allocated on market terms, and foreign investors can access local credit markets.  Interest rates are usually very close to those in the United States considering the local currency is pegged to the dollar.  There have been complaints that GREs crowd out private sector borrowers.

Money and Banking System

The UAE has a robust banking sector, with 49 banks, 27 of which are foreign institutions.  In January 2019, three UAE banks, Abu Dhabi Commercial Bank, Union National Bank, and Al Hilal Bank merged to create a bank with assets of USD 114 billion.

Non-performing loans comprised 6.4 percent of total loans in 2017, according to figures from the World Bank.  The Central Bank of the UAE recorded total sector assets of USD 733 billion as of December 2017.

There are some restrictions on foreigners’ ability to establish a current bank account, and legal residents and Emiratis can access loans under more favorable terms than non-residents.

Foreign Exchange and Remittances

Foreign Exchange Policies

According to the IMF, the UAE has no limitations on the making of payments and transfers for current international transactions, except for restrictions related to security reasons that have been notified by authorities.  Currencies are traded freely at market-determined prices. The UAE dirham has been pegged to the dollar since 2002. The mid-point between the official buying and selling rate for the dirham (AED or Dhs) is fixed at AED 3.6725 per USD 1.

Remittance Policies

The Central Bank of the UAE initiated the creation of the Foreign Exchange & Remittance Group (FERG), made up of various exchange companies, which is registered with the Dubai Chamber of Commerce & Industry.  Unlike their counterparts across the world that deal mainly in money exchange, exchange companies in the UAE are the primary channels for transferring large volumes of remittances through official channels. According to migration and remittance data from the World Bank, in 2017 the UAE had migrant remittance outflows of USD 44.4 billion.  The Central Bank reported migrant remittances totaling USD 46.1 billion in 2018. Exchange companies are important partners in the UAE government’s electronic salary transfer system, called the Wages Protection System, designed to ensure workers are paid according to the terms of their employment. They also handle various ancillary services ranging from credit card payments, to national bonds, and traveler’s checks.

Sovereign Wealth Funds

Abu Dhabi is home to two sovereign wealth funds—the Abu Dhabi Investment Authority (ADIA), and Mubadala Investment Company—with estimated total assets of approximately USD 1 trillion.  Each Abu Dhabi fund comprises a chair and board members appointed by the Ruler of Abu Dhabi. President Khalifa Bin Zayed Al Nahyan is the chair of ADIA and Abu Dhabi Crown Prince Mohammed Bin Zayed Al Nahyan is the chair of Mubadala.  Emirates Investment Authority, the UAE’s federal sovereign wealth fund, is modest by comparison with estimated assets of about USD 15 billion. The Investment Corporation of Dubai (ICD) is Dubai’s primary sovereign wealth fund, with an estimated USD 234 billion in assets according to ICD’s June 2018 financial report.

UAE funds vary in their approaches to managing investments.  ADIA generally does not actively seek to manage or take an operational role in the public companies in which it invests, while Mubadala tends to take a more active role in particular sectors, including oil and gas, aerospace, infrastructure, and early-stage venture capital.  ADIA exercises its voting rights as a shareholder in certain circumstances to protect its interests, or to oppose motions that may be detrimental to shareholders as a body. According to ADIA, the fund carries out its investment program independently and without reference to the government of Abu Dhabi.

ADIA in 2008 agreed to act alongside the IMF as co-chair of the International Working Group of sovereign wealth funds, which eventually became the International Forum of Sovereign Wealth Funds (IFSWF).  Comprising representatives from 31 countries, the IFSWF was created to demonstrate that sovereign wealth funds had robust internal frameworks and governance practices, and that their investments were made only on an economic and financial basis.

State-owned enterprises (SOEs) are a key component of the UAE economic model.  There is no published list of SOEs or GREs, either for the country as a whole or at the emirate level.  Some SOEs, such as the influential Abu Dhabi National Oil Company (ADNOC), are strategically important companies and a major source of revenues for the government.  Mubadala established Masdar in 2006 to develop renewable energy and sustainable technologies industries. A number of SOEs, such as Emirates Airlines and Etisalat, a large telecommunications firm, have in recent years emerged as internationally recognized brands.  Some but not all of these companies have competition. In some cases, these firms compete against other state-owned firms (Emirates and Etihad airlines, for example, or Etisalat against majority UAE government-owned du). While they are not granted full autonomy, these firms leverage ties between entities they control to foster national economic development.  Perhaps the best example of such an economic ecosystem is Dubai, where SOEs have been used as a motor of diversification in multiple sectors, including construction, hospitality, transport, banking, logistics, and telecommunications.

Sectoral regulations in some cases address governance structures and practices of state-owned companies.  The UAE is not party to the WTO Government Procurement Agreement.

Privatization Program

There is no privatization program.  There have been several listings of portions of SOEs, on local UAE stock exchanges, as well as some “greenfield” IPOs that are focused on priority projects.

There is a general expectation that businesses in the UAE adhere to responsible business conduct standards, and the UAE’s Governance Rules and Corporate Discipline Standards (Ministerial Resolution No. 518 of 2009) encourage companies to apply social policy towards local society.  In February 2018, the UAE issued Cabinet Resolution No. 2 regarding Corporate Social Responsibility (CSR), which encourages voluntary contributions to a National Social Responsibility Fund. The Emirate of Ajman has made annual CSR contributions of USD 417 mandatory for all businesses.  Many companies maintain CSR offices and participate in CSR initiatives, including mentorship and employment training; philanthropic donations to UAE-licensed humanitarian and charity organizations; and initiatives to promote environmental sustainability. The UAE government actively supports such efforts through official government partnerships, as well as through private foundations.

The 2015 Commercial Companies Law requires managers and directors to act for the benefit of the company and makes any company provisions exempting a directors and managers from personal liability voidable.

In April 2015, the Pearl Initiative and the United Nations Global Compact held their inaugural Forum in Dubai.  The Pearl Initiative is an independent, non-profit organization working across the Gulf region to encourage better business practices.  The UAE has not subscribed to the OECD Guidelines for Multinational Enterprises and has not actively encouraged foreign or local enterprises to follow the specific United Nations Guiding Principles on Business and Human Rights.  The UAE government has not committed to adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, nor does it participate in the Extractive Industries Transparency Initiative.  The Dubai Multi-Commodities Center (DMMC), however, passed the DMCC Rules for Risk-Based Due Diligence in the Gold and Precious Metals Supply Chain, which it claims are fully aligned with the OECD guidance.

The UAE has stiff laws, regulations, and enforcement against corruption, and has pursued several high profile cases.  For example, the UAE federal penal code and the federal human resources law criminalize the acceptance of bribes by public and private sector workers and embezzlement.  The Dubai financial fraud law criminalizes receipt of illicit monies or public funds. There is no evidence that corruption of public officials is a systemic problem. The State Audit Institution and the Abu Dhabi Accountability Authority investigate corruption in the government.  The Companies Law requires board directors to avoid conflicts of interest. In practice, however, given the multiple roles occupied by relatively few senior Emirati government and business officials, myriad conflicts of interest exist.

The monitoring organizations GAN Integrity and Transparency International describe the corruption environment in the UAE as low-risk, and rate the UAE highly with regard to anti-corruption efforts both regionally and globally.  Third-party organizations note, however, that the involvement of members of the ruling families in certain businesses can create economic disparities in the playing field, and most foreign companies outside the UAE’s free zones must rely on an Emirati national partner who retains majority ownership.  The UAE has ratified the United Nations Convention against Corruption. There are no civil society organizations or NGOs investigating corruption within the UAE.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Dr. Harib Al Amimi
President
State Audit Institution
20th Floor, Tower C2, Aseel Building, Bainuna (34th) Street, Al Bateen, Abu Dhabi, UAE
+971 2 635 9999
Email: info@saiuae.gov.ae

There have been no reported instances of politically motivated property damage in recent years.

Despite an economic slowdown in 2018, unemployment among UAE citizens remains low.  Expatriates, who represent over 85 percent of the country’s 9.7 million residents, account for more than 95 percent of private sector workers.  As a result, there would be large labor shortages in all sectors of the economy if not for expatriate workers. Most expatriate workers derive their legal residency status from their employment.

A significant portion of the country’s expatriate labor population comprises low-wage workers, who are primarily from South Asia and work in labor-intensive industries such as construction, maintenance, and sanitation.  In addition, several hundred thousand domestic workers, primarily from South and Southeast Asia and Africa, work in the homes of both Emirati and expatriate families. Federal labor law does not apply to domestic, agricultural, or public sector workers.  In 2014, the federal government implemented a law mandating a standard contract for all domestic workers. In 2017, the UAE issued a domestic workers law, which regulates their rights and contracts. Various regulations require businesses in certain sectors such as financial services to employ minimum quotas of Emiratis.

Under UAE labor law, employers must pay severance to workers who complete one year or more of service, except in cases of termination under certain conditions described in Article 120 of the federal labor law, which relate to misconduct by workers.  Expatriate workers do not receive UAE government unemployment insurance. Termination of UAE nationals in most situations requires prior approval from the Ministry of Human Resources and Emiratization.

In June 2018, the UAE cabinet approved a revamped repatriation scheme to replace the USD 817 guarantee employers had to deposit per worker.  Under the new system, repatriation insurance will cost USD 16 per year per employee. In November 2018, the UAE cabinet approved five-year residence visas for investors who purchase property worth USD 1.4 million or more, and 10-year residence visas for individuals who invest USD 2.8 million in a business.  The government also introduced new visas for entrepreneurs, and specialized talent in the fields of science, medicine and specialized technical fields. In 2018, The Ministry of Human Resources and Emiratization introduced a part-time work visa, allowing employees to undertake part-time jobs and to work for multiple employers simultaneously.

Although UAE federal law prohibits the payment of recruitment fees, many prospective workers continue to make such payments in their home countries.  In March 2017, the UAE government announced plans to replace recruitment agencies with “Tadbeer Centers,” which are publicly regulated but privately operated.  The first center opened in Dubai in September 2017. There are no minimum wages legally mandated by the UAE; however, some labor-sending countries require their citizens to receive minimum wage levels as a condition for allowing them to work in the UAE.

Federal Law No. 8 of 1980 prohibits labor unions.  The law also prohibits public sector employees, security guards, and migrant workers from striking, and allows employers to suspend private sector workers for doing so.  In addition, employers have the ability to cancel the contracts of striking workers, which can lead to deportation. According to government statistics there were approximately 30 to 60 strikes per year between 2012 and 2015, the last year for which data is available.  In November 2018, Abu Dhabi Police defused a strike by hundreds of laborers who protested their company’s alleged failure to pay wages on time. The company settled the dispute, and no deportations related to this incident were reported.

Mediation plays a central role in resolving labor disputes.  The federal Ministry of Human Resources and Emiratization and local police forces maintain telephone hotlines for labor dispute and complaint submissions.  The Ministry of Human Resources and Emiratization manages 11 centers around the UAE that provide mediation services between employers and employees. Disputes not resolved by the Ministry of Human Resources and Emiratization move to the labor court system.

The Ministry of Human Resources and Emiratization inspects company workplaces and company-provided worker accommodations to ensure compliance with UAE law.  Emirate-level government bodies, including the Dubai Municipality, also carry out regular inspections. The Ministry of Human Resources and Emiratization also enforces a mid-day break from 12:30 p.m. – 3:00 p.m. during the extremely hot summer months.  The federally-mandated Wage Protection System electronically transfers and monitors wages to approximately 4.5 million private sector workers (about 95 percent of the total private sector workforce).

Following the promulgation of similar legislation in Abu Dhabi, Dubai’s government fully implemented Law No. 11 in May 2017, which mandates employers provide basic health insurance coverage to their employees or face fines.  Dubai’s mandatory health insurance law covers 4.3 million people, and applies to employees residing in other emirates but working in Dubai.

The multi-agency National Committee to Combat Human Trafficking is the federal body tasked with monitoring and preventing human trafficking, including forced labor.  Child labor is illegal and rare in the UAE. The UAE continues to participate in the Abu Dhabi Dialogue, engage in the Colombo Process, and partner with other multilateral organizations such as the International Organization for Migration and International Labor Organization in regard to labor exploitation and human trafficking.

Section 7 of the Department of State’s Human Rights Report (https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/united-arab-emirates/) provides more information on worker rights, working conditions, and labor laws in the UAE. The Department of State’s Trafficking in Persons Report (https://www.state.gov/reports/2019-trafficking-in-persons-report-2/united-arab-emirates/) details the UAE government’s efforts to combat human trafficking.

The UAE does not have a bilateral agreement with OPIC after its agreement was suspended in 1995 for not meeting statutory “taking steps” standards on worker rights.  The UAE is a Very High Income country as defined by OPIC’s statute, and as a development finance agency, OPIC gives priority to financing projects in middle and low income countries.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Economic Report: Ministry of Economy

Table 3: Sources and Destination of FDI

Data from the Annual Report of the Ministry of Economy (2018) indicates that the GDP estimates for 2017 in real prices (base year 2010) were approximately USD 387.2 billion, while the estimated non-oil GDP at current prices was about USD 297.3 billion in 2017.

According to the UAE Ministry of Economy’s Annual Economic Report 2018, the net annual FDI inflows to the UAE in 2017 were $10.4 billion, compared to $9.6 billion in 2016. The largest investors in the UAE were:  India, United States, UK, Japan, China, Saudi Arabia, Germany, Kuwait, France and the Netherlands.

Table 4: Sources of Portfolio Investment

Data not available.

Paul Prokop
Economic Officer
First Street, Umm Hurair -1, Dubai UAE
+971 (0)4 309 4918
Email: prokoppg@state.gov