Setting up a business in any of the GCC countries is in principle possible for any individual or corporate entity capable of entering into a contract (although it should be noted that, depending on the business, women in Saudi Arabia might need consent from their legal guardian).

Possible corporate structures

All GCC countries have different types of commercial vehicles, including public joint-stock companies, limited liability companies (LLCs), and limited and unlimited partnerships. In most jurisdictions, nationals can conduct business through a sole proprietorship. A few GCC countries also offer special corporate vehicles for particular purposes, for example when acting together with or for the government.

For a small or medium-sized business, the most commonly used structure is the LLC. In most jurisdictions, the LLC must have at least two shareholders; consequently, a business partner or sponsor is needed, but there are exceptions. For example, some free zones in the UAE allow LLCs with a single shareholder, and in Bahrain and Qatar a single-person company with limited liability can be incorporated.

Foreign ownership restrictions

Another key aspect to be considered is that all GCC countries impose restrictions on either the percentage of shares that may be owned by foreigners, or the activities permitted to be conducted by foreigners. Both may be restricted, although the extent varies. For example, in the UAE (excluding the free zones where firms can be wholly owned by foreign investors), Kuwait and Qatar, in principle at least 51 per cent of an LLC’s shares need to be held by nationals. In Oman, a national needs to hold at least 30 per cent of the shares in an LLC where his partner is a non-GCC national. In Saudi Arabia and Bahrain, the limitation on the ability of foreigners to do business is mostly implemented by prohibiting foreigners from conducting certain activities.

It is common that a limited number of activities may only be conducted by nationals of the concerned state. The activity might limit the investor’s choice with regards to the jurisdiction, corporate structure and business partner available, particularly for non-GCC nationals.

Commercial Agents

In most GCC countries (Oman and Bahrain are exceptions), one of the activities strictly reserved for nationals of a state is their exclusive right to act as a registered commercial agent. The purpose of having a commercial agent registered in a country is that a foreign company does not need to establish a presence in that country, but can appoint the commercial agent to distribute the principal’s products in that state.

Having a registered agent is often required if the principal intends to conduct business with the government of a GCC country or apply for certain approvals from the authorities. If the new company intends to do business in multiple GCC states, it may need to consider entering into agency arrangements in at least some of those countries.

The most important point to be aware of is that when appointing commercial agents, no matter whether or not they are 100 per cent owned by nationals, in the majority of the GCC jurisdictions, the agency contract, if registered, cannot be terminated unilaterally by the principal except where the agent is in flagrant, substantial and persistent breach of his contractual obligations. Even in such an event, the principal may be required to pay the agent compensation, and this is more likely where the principal seeks the agent’s consent to the de-registration of the commercial agency without resort to litigation.

Minimum share capital requirements

The costs of incorporation and the provision of sufficient capital for the business are key issues for every investor, and their importance should never be underestimated. When calculating the costs of establishing a company, shareholders should be aware that many GCC countries have minimum share capital requirements that depend on multiple factors, such as company type and intended activity. In the majority of jurisdictions, such minimum share capital will have to be paid into the new company’s bank account prior to incorporation, although this requirement is currently not always enforced.

Set-up process

In general, setting up a company is a time and cost-consuming process. Approvals from different authorities will need to be obtained, and a certain sequence usually needs to be followed. The responsibilities of the government and municipal authorities vary in the different GCC countries and, depending on the activity, multiple authorities might be involved. Documents often have to be translated into Arabic before applications can be made. While some jurisdictions allow for part of the process to be completed online, mostly the physical presence of an authorised person in the country is required and the processing of applications often takes more time than expected.

Costs will include the following, although this list is by no means complete: fees for registration and licence; professional advisers and document notarisation/legalisation; various authority (pre-)approvals; and insurance costs. The company will also usually be required to rent office space. Companies considering purchasing office space should note that most GCC countries have certain ownership restrictions for real estate.

Memberships and registrations

Obtaining the ‘operating’ licence is not necessarily the end of the set-up process. In most GCC countries, a company also has to register with various other authorities (for example, the relevant chamber of commerce, customs authority, and labour and immigration authorities). Arabic speakers are likely to be needed for many of these procedures where documents have to be completed in Arabic.

Once the company is incorporated, it should protect its intellectual property through the local intellectual property authorities in a particular country or countries. It is possible in each GCC state to register a trademark locally (in the absence of a central GCC trademark registry). However, only Oman and Bahrain are party to the Madrid Protocol and permit international registrations.

Legal framework

Finally, it should be noted that most legislation within GCC countries is based on a civil law system (in contrast to a common law system), which refers to or is based on sharia (Islamic law) in varying degrees. The companies and commercial transactions laws in most countries are not affected for practical purposes by sharia (except for Saudi Arabia). However, certain Islamic principles (such as the requirement for good faith or fairness between the parties) would, in case of a dispute, be likely to be taken into account by local courts. Furthermore, as the legal frameworks in the GCC countries are relatively young, they are constantly developing, resulting in fairly frequent changes in their laws and procedures, and you should seek advice from local professional advisers regarding these before setting up in any GCC country.