Foreign Ownership Laws in the GCC

With economic diversification and industrial growth becoming a key part of the reforms agenda in the GCC, there is much attention being focused on the foreign ownership regime across the bloc. This note will delve into the foreign ownership laws in the GCC, starting with Kuwait.

Kuwait:
In 2013, the Kuwaiti authorities issued the new Foreign Direct Investment Law (“FDI Law”) with respect to the promotion of direct investment in Kuwait. According to the new FDI Law, investments into Kuwait can take one of three forms:

1. A Kuwaiti company with up to 100% foreign equity (previously restricted to 49%)
2. A branch of a foreign company licensed to operate in Kuwait for the purpose of direct investment
3. A representative office with the sole purpose of preparing market studies and production feasibilities, without engaging in a commercial activity or activity of commercial agents

Kuwait now follows the ‘Negative List’ approach, as per which investments into sectors outside the Negative List are eligible for 100% foreign ownership. Article 1 of Resolution 75 (2015) sets out the Negative List that includes ten different sectors into which investments by foreign entities are not permitted. As per Kuwait’s Negative List, the following direct investments shall be excluded from the scope of the 2013 FDI Law. They are:

• 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 (excluding privately operated building development projects)
• Security and investigation activities
• Public administration and defense; compulsory social security
• Activities of membership organizations

Kingdom of Saudi Arabia (KSA):
With respect to the KSA, foreign investors may be allowed to own up to 100% of the capital of a company or enterprise depending upon the nature of the business activity. However, certain businesses have defined minimum Saudi ownership requirements. The following table lists out the requirements:

Table 1: Minimum Saudi ownership requirements by sector type

Source: Al Tamimi & Company

The KSA practices the Negative List approach, too, with certain industries under the industrial and the services sectors not open for foreign investments. The following are the industries under the Saudi Negative List.

Table 2: The Saudi Negative List

Source: Saudi Arabian General Investment Authority

The United Arab Emirates (UAE)
In the case of the UAE, foreign investors cannot own more than 49% of any UAE firm or entity unless it is incorporated in a special “free zone”. But, in the case of the free trade zones, 100% foreign ownership is possible. Recent media reports suggest that the UAE is at an advanced stage of drafting an upgraded foreign investment law that would permit 100% foreign ownership of businesses in some sectors outside free zones.

In March 2015, it was reported that a first draft of the law has been approved by a UAE Ministry of Justice committee, and the country’s Cabinet. After redrafting by the Ministry of Justice, it is expected to be sent to the Federal National Council and the Cabinet for approval. However, there has been no official confirmation with respect to which sectors could or would see a relaxation of the foreign ownership restrictions and with respect to the timeframe by when the law could be expected to be introduced.

Qatar:
For Qatar, foreign participation is allowed in all sectors, except in banking & insurance, commercial agency and real estate trading sectors. With respect to banking & insurance, permission may be obtained in case it is authorized by a decision of the Cabinet of Ministers. According to the Foreign Investment Law No. 13 of 2000, non-Qataris, whether juristic or natural persons, may invest in any sector of the Qatari economy only via the medium of a company incorporated in Qatar in which one or more Qatari nationals and/or 100% Qatari entities hold not less than 51% of the share capital.

Moreover, foreign investors, by virtue of a ministerial approval, can increase their investment from 49% to 100% if the entity works in the fields of agriculture, industry, health, education, tourism, development and use of natural resources, energy, mining, consultancy, technical works services, information technology, cultural, sports, entertainment and distribution services. Also, where it is considered that the projects are in line with the nation’s development plan (outside the aforementioned fields), foreign investors may be permitted to hold 100% of an entity’s capital, though the authorizations are conducted on a case-by-case basis.

With respect to investments into listed companies in Qatar, a law introduced in August 2014 allows foreign investors to own up to 49% of listed Qatari companies. The law also authorizes foreigners to hold more than 49% of a Qatari company in special cases if approval is obtained from the Qatari cabinet. Also notable is the fact that, citizens from the rest of the GCC will be considered as Qatari citizens for the purpose of owning companies listed on the Qatar Exchange.

Oman:
In Oman, 100% foreign ownership is possible on a selective basis. Usually, an Omani partner must hold at least 51% ownership of the joint venture project, according to Article 7 of the Commercial Companies Code. The following lists the conditions or areas that allow 100% foreign ownership in Oman.

• Unites States-Oman Free Trade Agreement (can be 100% owned by U.S. investors without an Omani partner)
• Free zones (e.g., Salalah Free Zone)
• Knowledge Oasis Muscat (A technology park dedicated to Oman’s entrepreneurs, SMEs, multinational corporations and leading technical educational institutions)

Bahrain:
In Bahrain, a foreign investor may operate as a limited liability company, single-person company, closed joint stock company, branch office, regional office, or holding company. In Bahrain, 100% foreign ownership of business is allowed, though sector-specific and/or company type-specific restrictions may apply. Examples of sectors open to 100% foreign investment include technology, tourism, healthcare, education, manufacturing, and business services. Otherwise, foreign ownership may be limited to 49%. The following table summarizes the business activities prohibited in Bahrain and those business sectors that are open only to Bahraini citizens and companies.

Table 3: Business activities prohibited in Bahrain and those business sectors that are open only to Bahraini citizens and companies

Source: Ministry of Industry & Commerce, Kingdom of Bahrain

It is notable that GCC natural persons and entities are allowed to perform all of the business activities and professions in Bahrain, apart from the following activities and professions:

• Hajj and Umra services
• Manpower recruitment offices
• Commercial agencies
• Real estate services, lease and re-lease and management of lands and buildings