A summary of the changing foreign investment legal frameworks of Gulf countries

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Frank Bracco Senior Manager, Economics, PwC Middle East 11 October, 2019

Last summer, our region saw a flurry of announcements heralding efforts to reduce barriers to foreign investment in most Gulf countries. Some of the changes were only legal drafts, while others were still only part of national vision or strategy documents. Remarkable progress has been made in the past year on these foreign investment liberalization efforts and it is worthwhile to recap some of these developments.

United Arab Emirates

Since 2013, the UAE has been the Gulf’s leading destination for foreign direct investment. What changed in 2017 and 2018, however, is that the emirates attracted more inward FDI in each year than all of its other GCC neighbors combined.1

Inward foreign direct investment (USD, millions) 2015-2018

Inward foreign direct investment (USD, millions) 2015-2018

In last year’s July 2018 Middle East Economy Watch, we highlighted how changes being considered for the UAE’s residency programme could boost FDI by 10-15%. These residency programme changes became reality at the beginning of 2019 and provide additional reasons for current expats and foreigners to invest in the country and provide direct routes to residency visas without requiring a local sponsor2:

  • A 10-year visa now exists for those investing AED 10M in a new or existing company or AED 10M in a UAE based fund. The visa also can be used to sponsor the investor’s spouse, children, an advisor, and an executive director.

  • A 10-year visa for those with special talents, such as accredited or awarded scientists, artists, patent holders, or world recognized leaders in their fields.

  • A 5-year visas for investors in property above AED 5M, entrepreneurs investings AED 500,000 or more, and outstanding students.

Another set of reforms are set to open more sectors up to 100% foreign ownership. The UAE created a framework to relax the 51% Emirati ownership through its FDI Law (No. 19 of 2018).  In July 2019 the Cabinet announced a decision allowing up to 100% foreign ownership in 122 economic activities across 13 sectors.3 The activation of this “positive list” of sectors is subject to how individual Emirates choose to implement the liberalization of these fields. We are already seeing movement on this front in Dubai as Mars, the food maker, upped its ownership of its Dubai LLC from 49% to 100%.4

At a local level, Abu Dhabi also allowed foreigners to have freehold ownership of land and properties in investment zones5. This shift away from the previously permitted leasehold agreements is intended to increase legal certainty and spur additional investment.

Reforms in this area are expected to continue, with the Minister for Infrastructure Development and chair of the UAE Federal Transport Authority announcing in July that he expected new legislation in 2020 allowing up to 100% foreign ownership in the maritime industry 6- a traditionally protected, strategic industry for domestic ownership in the Gulf.

Saudi Arabia

As part of the Kingdom’s efforts to cement its inclusion in the MSCI emerging markets index, the Capital Market Authority announced in June 2019 a relaxation of the 49% limit of “strategic” foreign ownership in publicly traded companies.7 A “strategic” ownership is intended to promote long-term investment into Saudi companies whereby the foreign investor may not dispose of their shares for a minimum of 2 years and the shareholder must be engaged in, “promoting the financial or operational performance of the company.”8

Saudi Arabia also joined the UAE in reforming some of its residency laws. The new “Premium Residency9 announced in June 2019 allows foreigners to apply online to get either an unlimited residency visa - at a cost of SAR 800,000 - or a one-year renewal residency visa - at a cost of SAR 100,000. The programme allows visa holders to buy property, sponsor family, switch jobs, and hire housemaids. The program aims to raise $10 billion annually - a lofty goal for a pay-for-residency scheme.

Oman

Business environment reforms in Oman have picked up steam to support the market given the implementation of excise tax in June 2019.10 Actions includes:

  • A temporary suspension of withholding tax on dividend and interest for a period of 3 years. It was also clarified that LLCs are excluded from the withholding tax.11

  • The introduction of the Foreign Capital Investment Law (Royal Decree 50/2019)12. The law will come into effect until January 2020 and executive regulations will be introduced by the Ministry of Commerce and industry by July 2020. It is expected that the executive regulations will relax or eliminate foreign ownership limits in many industries. 

Additional business environment laws13 were introduced including the long-awaited Bankruptcy Law, a law establishing a Public Authority for Public-Private Partnership, and the Privatization Law. All of these decrees are meant to provide additional predictability for investors and facilitate orderly entry and exit of foreign capital into the Sultanate.

Qatar

The State of Qatar kicked off the year by issuing a new Foreign Investment Law14(Investment of Non-Qatari Capital in the Economic Activity) - complete with the symbolic designation as Qatar Law No. 1 of 2019. The law allows for 100% foreign ownership in sectors listed in executive regulation, however it also excludes some sectors like banking and insurance (but does allow the Council of Ministers to change in the future without a royal decree). The limit on foreign ownership in publicly listed companies has also been increased to 49% (subject to approval of the Ministry of Commerce and Industry) and this limit can be lifted in the future based on a Council of Ministers decision.

Why now, and does it matter?

The move towards liberalization of foreign investment is largely being driven by “lower-for-longer” oil prices. Countries have recognized that simply being open to global trade and using government investments to diversify the economy is not enough. As noted by the IMF, OECD, and World Economic Forum, “FDI can boost growth by triggering technology spillovers, promoting knowledge, creating a more competitive business environment, and enhancing productivity.”15 Past studies have consistently shown that FDI contributes to both productivity growth and income growth in the domestic market beyond what domestic resource mobilization could alone achieve.16

For the Middle East, foreign investment outside of the oil sector presents a real opportunity to advance domestic knowledge and develop competitive, value-add sectors outside of the hydrocarbon supply chain. Special economic zones in particular have proven the economic effectiveness of allowing foreign investment into a country - with the free zones in the UAE being particularly strong examples in the region. As such, policymakers are now allowing lessons learned to be applied to the broader base economy in the hopes of generating more economic growth in support deeper diversification efforts, the creation of a more skilled workforce, and more opportunities for residents and citizens alike.

(1) UNCTAD, UNCTADStat, “Foreign direct investment: Inward and outward flows and stock, annual.” Accessed 4 August 2019.
(2) UAE Government, “Long-term residence visas in the UAE.” 1 July 2019.
(3) Williams, Christopher R. and Mosuro, Ado, “UAE Foreign Direct Investment Law.” Bracewell LLP. 25 July 2019.
(4) Nagraj, Aarti. “Food chain Mars buys 100% of Dubai unit following new UAE foreign ownership law.” Gulf Business. 29 August 2019.
(5) Nagraj, Aarti. “Food chain Mars buys 100% of Dubai unit following new UAE foreign ownership law.” Gulf Business. 29 August 2019.
(6) Hamdan, Lubna. “Owning it: lifting the cap on foreign ownership in the UAE.” Arabian Business. 15 July 2019.
(7) Reuters, “Saudi Arabia relaxes ownership limits for foreign investors.” Gulf Business. 27 June 2019.
(8) Capital Market Authority, “Instructions for the Foreign Strategic Investors Ownership in Listed Companies.” 17 June 2019.
(9) Newsheim, Christopher, “Saudi Arabia’s New €187,000 Residence by Investment Program Could Raise $10bn a Year, Says Crown Prince.” Investment Migration Insider. 24 June 2019.
(10) Thompson Reuters, “Oman to impose new excise tax this month to boost revenues.” 9 June 2019.
(11) PwC, “Oman: Temporary suspension of Withholding tax on dividend and interest.” May 2019.
(12) Paul Sheridan & Fatma Makki, “Oman issues new Foreign Capital Investment Law.” Clyde & Co. 31 July 2019.
(13) Times of Oman, “New investment laws to boost Oman economy.” 02 July 2019.
(14) Eversheds Sutherland, “The Foreign Investment Law: the first law in Qatar in 2019.” 09 January 2019.
(15) IMF, “Trade and Foreign Investment—Keys to Diversification and Growth in the GCC.” 6 December 2018.
(16) OECD, “Foreign Direct Investment for Development.” 2002.

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Frank Bracco

Senior Manager, Economics, PwC Middle East

Richard Boxshall

Middle East Senior Economist, PwC Middle East

Tel: +971 4 304 3100

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