DOING BUSINESS IN THE GCC : MODES OF ENTRY
Hicham Bahsoun, our Vice-President in the Middle East and Africa shares his experience of the region with you! Thanks to him, you will get to know this area and have more information if you want to do business in the Gulf countries. A concise but informative and efficient report.
Doing Business in the Gulf countries : The case for a careful Model of Engagement
Despite the regional turmoil, government budgets still relying on high oil prices and a dense competitive environment, the Gulf countries (Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates and Oman) continue to represent a safe haven for business and a mandatory first step to conquer the Middle-Eastern market. However, before shouting « Open Sesame ! », you should realize that many of these countries enforce regulations that favor nationals and resident expats over foreign investors. This problematic should be one of the first topics on your table when defining your Go-to-Market strategy.
A first regulation relates to shareholding. In most countries, would you decide to create a company, it will be required to be owned in majority by a national, regardless of residence (51% in the U.A.E., Kuwait, Qatar and Oman ; 0-25% in Saudi Arabia, depending on sector ; a local sponsor in Bahrain)
Foreign shareholding also impacts Corporate Income Tax. If you are non-resident in Kuwait, hold shares in a company or act through an agent, you will be subject to 15% tax on the full net income generated. In Saudi Arabia, the company will pay a 20% Income Tax to the extent of the percentage held by non-residents, while the resident’s share is subject to a lower Islamic tax (2,5%). In Qatar and Oman, a rate of respectively 10 and 12% will be applied regardless of origin, while the U.A.E. and Bahrain stand out as Income Tax free.
Last but not least, national preference in Human Resources is enforced by law through very diverse mechanisms. For instance: in Saudi Arabia, companies are categorized depending on their ratio of hired national staff. Companies that comply the best have access to easier visa procedures while low tier categories will not be allowed to get new visas or renew them.
Knowing all that, will you decide to engage directly or will you prefer to negotiate a Commercial Representation ? Depending on your requirement for local support, integration or sales supervision, you might have to bear these constraints to reach the pot of gold. In any case, market expertize and networking are of the essence when trying to find the right partner, especially in a region where reporting and resolution of conflicts are notoriously not easy tasks.
And you can take a look at this article to have even more information about the African market.