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

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

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.

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.

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.