Business expansion: Soaring investment opportunities in the Middle East

Burgeoning economies in the Middle East are attracting attention from foreign investors, but what do companies looking to establish a base in the region need to know about these markets and their challenges?

The Middle East and North Africa (“MENA”) economy is projected to grow 2.7% in 2024 and 4.2% in 2025, according to the World Bank Group. While the region will not be immune to the deceleration of global economic growth, increasing numbers of international companies are looking to establish a presence there and take advantage of the growth opportunities presented by the Gulf Cooperation Council (“GCC”) region. Saudi Arabia, the United Arab Emirates (“UAE”), and Qatar remain among the top 10 emerging markets globally, according to the Agility Emerging Market Logistics Index, with the UAE and Saudi Arabia ranking 1 and 3 for business fundamentals.

A large part of that is the significant progress that MENA countries have made in diversifying away from oil across a wide range of sectors. For example, Abu Dhabi’s Department for Economic Development is working to support development across chemical, electrical, and transportation industries to boost economic growth in the city. Across the UAE, 73% of its gross domestic product is now a result of a non-oil economy, the Minister of Economy Abdulla bin Tour announced earlier this year, reflecting the “confidence of the private sector and investors around the world in the UAE’s investment environment”.

Similarly, in the Kingdom of Saudi Arabia (“KSA”), the government has made huge investments in IT infrastructure, construction, manufacturing, and tourism to meet the objectives of Vision 2030. In 2023, revenue from nonresidents visiting Saudi Arabia increased by 43% to USD 36 billion.

The opportunities

Since the COP28 event on sustainability, hosted in Dubai at the end of 2023, the renewable energy sector has continued to gather momentum in the region.

In January, Oman published its Sustainable Finance Framework, which outlined its commitment to addressing climate change, and in May 2023, the First Abu Dhabi Bank (“FAB”) launched its carbon trading desk, which traded around USD 80 million of carbon credits in its first five months. The desk offers corporate and investment banking clients financing options for projects or organizations that work to reduce or remove emissions.

Rapidly increasing interest in artificial intelligence (“AI”) has also made its way to the Middle East, with the UAE and KSA both introducing fiscal policies to attract entrepreneurs looking to establish tech start-ups.

To support that, both jurisdictions have a number of special economic zones (“SEZs”) offering attractive incentives for businesses and investors – notably the Dubai International Finance Centre (“DIFC”) and Abu Dhabi’s International Finance Centre (“ADGM”) in the UAE. Government data shows 412,000 business licenses were active in Dubai in 2023, 30% more than in 2022 and a massive 75% up on 2021. Last year also saw the largest volume of new company registrations through the DIFC.

In Saudi Arabia, four new SEZs were launched in 2023 to enhance its competitiveness and industrial progress, strengthen its entrepreneurship capabilities and create new routes for investors to do business in the kingdom.

The challenges

In the Middle East, each nation has its own regulations on entity registration, licensing procedures, and a variety of legal frameworks, which means setting up an entity – whether a limited liability company (“LLC”), holding company, joint-stock or single-shareholder company – can be daunting.

The key decision for many companies will be choosing where to register their business, and understanding the key differences between each country’s regulations, whether the KSA or the UAE, is crucial.

In the KSA, foreign investors can fully own businesses in most sectors, removing the need for a local partner. By comparison, the UAE mandates a local sponsor owning 51% of the business in mainland areas but allows for 100% ownership if the company is registered through a free zone.

When registering a trading company, the UAE has no paid-up capital requirements, whereas, in the KSA, any trading companies that are completely foreign-owned are subject to a paid-up share capital requirement. However, this can be reduced if a local partner is involved.

There are differences in regulations surrounding value-added tax (“VAT”), withholding tax, and corporate tax. For example, corporate tax in Saudi Arabia is 20% of net adjusted profits in most cases, whereas in the UAE a corporate tax of 9% is applied on income exceeding AED 375,000 for businesses operating in the mainland. Free zone entities enjoy a 0% corporate tax rate, providing they meet certain criteria.

There are notable cultural differences and working practices that need to be considered when deciding on where to incorporate a business. For example, the working week in the UAE starts on a Monday, while in Saudi Arabia it starts on a Sunday. There are also differences surrounding employment contracts, legal frameworks, and employment of nationals in the private sector.

How can Amicorp help?

The Middle East’s dynamic landscape presents a variety of business expansion opportunities. However, it requires an in-depth understanding of the local nuances and legal frameworks that exist.

With offices in Riyadh, Dubai, and Abu Dhabi, as well as a partnership network across other GCC jurisdictions, our team can offer a wide range of services to help you get established – from setting up your entity to opening bank accounts, providing Premium Residency support, to tax and accounting services, to Corporate Secretarial services.

We can also provide structuring solutions in investment, holding, finance, license, and trading and assist clients with establishing and managing free zone entities that benefit their trading activities.

To find out more, contact our Globalization team here.