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  • Service: Tax
  • Type: Business and industry issue
  • Date: 10/18/2013

Setting up business in the Middle East 

With their rapidly expanding economies and populations, countries across the MESA region are constantly reviewing their tax and business policies to attract foreign investment to fuel their growth. Foreign investors in the region have opportunities to earn substantial returns, which can be even more lucrative due to concessions for investments in certain activities and regions.

Some key considerations when investing in the region are as follows:


  • 100-percent foreign investment is restricted in most regions, with majority ownership required by the local partner.
  • be aware of the laws, developments and practices of the region, particularly regarding the introduction of withholding taxes
  • always have a good Arabic translator. Do not rely on English translations, as laws are in Arabic
  • engage in discussion with the tax authorities with the help of a local professional adviser
  • manage your tax affairs solely from your home location is not efficient – be there and be visible.

In the table below, we present a round-up of specific issues relating to setting up business operations that should be considered by potential foreign investors in Bahrain, Kuwait, Oman, Saudi Arabia, United Arab Emirates (UAE), Qatar, Pakistan and Iraq. For details about setting up business in these countries, please get in touch with the appropriate KPMG member firm contact.


Find out more – inbound and outbound


Tax policy and practical issues involved in inbound and outbound investors in the Middle East were featured at the 2013 KPMG EMA Tax Summits. Our Tax Views series captures the insights of two KPMG Tax leaders on the issues that matter most:


  • Tax policy in the Middle East – Ashok Hariharan, Partner and Head of Tax, KPMG in Oman & United Arab Emirates reviews the current economic situation in the Middle East and the emerging tax policies developing in the region.
  • Middle East tax concerns – Nilesh Ashar, Tax Partner, KPMG in the UAE, reviews the key tax issues for Middle East businesses investing outside its borders.

Setting up business in the Middle East – key issues
Foreign investment restrictions? Types of entities Minimum paid-up capital Permanent establishment issues?
Bahrain Yes (maximum 49%); relaxed for some sectors relaxed subject to Ministry approvals Single person company (SPC), Limited liability company (LLC), Bahraini Shareholding Company (BSC), BSC(c), branch SPC – USD 132,500
LLC – USD 53,000
BSC(c) – USD 662,500
BSC – USD 2,650,000
Branch – N/A
No
Kuwait Yes (maximum 49%); some sectors permit 100% subject to approval of Foreign Capital Investment Committee) With Limited Liability (WLL) company/LLC LLC – USD 26,250 (subject to increment by Ministry discretion) Yes, taxable to the extent of foreign participation
Oman Yes (maximum 70%); threshold may be higher for investors from countries with which Oman has a free trade agreement Branch, LLC LLC 70% foreign-owned – USD 390,000
LLC with no foreign ownership – USD 52,000
Branch – N/A
Yes
Saudi Arabia 100% foreign investment allowed in most sectors. In certain sectors (i.e., trading); however, a Saudi partner with a minimum share of 25% is required Branch, LLC (listed and unlisted companies) Branch:
  • Services: USD 0.13 million*
  • Industrial: USD 0.27 million

LLC:
  • Services: USD 0.03 million*
  • Industrial: USD 0.27 million
  • Trading: USD 5.33 million
  • Agriculture: USD 6.67 million
  • Real estate: USD 8 million
Defined in the tax law; interpretative issues may arise
UAE Yes (maximum 49%); possibility to set up 100% foreign-owned entities in free trade zones, subject to restrictions Branch, LLC Varies based on location No
Qatar Yes (maximum 49%); relaxed for some sectors subject to Ministry approvals and also in Qatar Financial Center where no local participation is required Branch, LLC LLC – USD 55,000
Branch – N/A
Yes to the extent of foreign participation including non resident GCC participation
Pakistan No – 100% of equity is permitted without government permission (except specified industries, e.g., arms and ammunitions, currency and mint) Branch, LLC None The treaty definition of “permanent establishment” applies if there is a treaty; if not, the broader concept of a “business connection” applies
Iraq No – 100% foreign ownership is permitted, but foreign entities should consider the place of their business for registration and tax purposes as requirements differ among Iraqi governorates Branch, LLC LLC – USD 900
Oil & Gas – USD 1.7 million
Branch – N/A
PE is not defined in Iraq tax law; in practice, the tax treatment is based on a differentiation between doing business in Iraq (taxable) and doing business with Iraq (non-taxable)

* Requirements may be prescribed


Source: KPMG in the United Arab Emirates 2013.

 

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