REUTERS | Stephanie Mcgehee

GCC investment laws: to arbitrate or not to arbitrate, that is the question (Part 1)

Driven by an incentive to promote foreign direct investment (FDI) in their respective economies, the majority of Gulf Corporation Council (GCC) countries have adopted stand-alone FDI legislation. These include Kuwait (Kuwait Law No. 116/2013 Amending the Law on the Regulation of Direct Investment of Foreign Capital in the State of Kuwait, in force since 16 December 2013), Oman (Foreign Capital Investment Law, Oman Sultani Decree No. 102/1994 to Promulgate the Foreign Capital Investment Law, in force since 2 November 1996), Qatar (Qatar Law No. 13/2000 on the Regulation of the Foreign Capital Investment in the Economic Activity, in force since 25 November 2000), Saudi Arabia (Saudi Arabia Royal Decree No. M1/1421 on the Approval of the Foreign Investment Law, in force since 16 September 2002), and most recently the United Arab Emirates (UAE) (UAE Federal Decree Law No. 19/2018 on Foreign Direct Investment, issued on 23 September 2018, which entered into force on 1 October 2018). The only remaining exception is Bahrain.

This blog is published in two parts. Part 1 discusses the landscape of existing investment laws in the GCC, with a focus on the main investment protections and dispute resolution mechanisms they offer. Part 2, to be published in March, will address the main provisions of the new UAE Investment Law and how these compare to the investment regimes established by existing, longer-standing GCC investment laws. In doing so, the blog will also explore the question of whether arbitration is a viable form of dispute resolution under the various GCC investment laws.

Investment guarantees

The GCC investment laws all seek to protect FDI by affording a number of basic, yet fundamental, investment guarantees to foreign investors. These variously include:

  • Protection of the investment from expropriation and confiscation, subject to public interest considerations and fair compensation.
  • Free disposal or transfer of ownership of the investment.
  • Free transfer and repatriation of funds, including the imported capital and the income generated therefrom, to be made in any exchangeable currency. This may include the free transfer of savings and entitlements by employees in the investment entity.
  • Use of land for investment projects.

Investment incentives

In addition, in order to attract FDI on a larger scale, the GCC investment laws also offer foreign investors a number of investment incentives, such as:

  • Tax exemptions in relation to the income generated from the investment.
  • Exemptions from custom duties arising from material imported in relation to the investment.

Taken in the round, despite their generally favourable, pro-investment language, the GCC investment laws are not as advanced as the bilateral investment treaties (BITs) and multilateral investment treaties (MITs) that individual GCC countries have in place. Importantly, none of them contains provisions on equal and non-discriminatory treatment between local and foreign investors.

“Investor” and “investment”

For a person or an individual company to be able to benefit from any of the investment guarantees or incentives provided for under the individual GCC investment laws, it must qualify as an “investor” making an “investment” within the meaning given to it under that law.

All GCC investment laws allow investments by both individual and corporate investors, and of a foreign nationality.

Most GCC investment laws, including those of Oman, Qatar and Saudi Arabia, require the investor to obtain a foreign investment licence for their investment activity in the host state. The Kuwait Investment Law, by contrast, distinguishes between foreign direct investments made by an “investor”, who is defined as a “natural or legal person of any nationality” (Article 1, Kuwait Investment Law) on the one hand and investments made by a licensed “investment entity” (Articles 1, 12, 30, Kuwait Investment Law) on the other. Some GCC investment laws do not allow 100% foreign corporate ownership and require partnering with a local investor, subject to exceptions (notably Kuwait and Qatar).

Qualifying investments under the GCC investment laws vary in scope and variously include:

  • Tangibles, such as physical assets relating to the investment activity in question, cash, securities and negotiable instruments.
  • Intangible rights, such as intellectual property rights, patents, trademarks, licences.
  • Capital, including cash and proceeds from the investment in question.

The Oman Investment Law does not define investment. Article 1 of the Qatar Investment Law expressly requires any qualifying investments to be made in the state of Qatar. Some sectors are expressly excluded from foreign direct investment, including for example:

  • Audio and visual services.
  • Banks.
  • Communication services.
  • Education.
  • Insurance companies.
  • Commercial agencies.
  • Real estate brokerage.
  • Production of petroleum products and pipeline transport services.
  • Land and air transport services.

Other than that, no other specifications are made, for example, in relation to timing of the investment.

Dispute resolution/arbitration

Not all of the GCC investment laws feature dispute resolution provisions that empower a dissatisfied investor to take the host state to arbitration in the event of a dispute and to the extent that they do, they provide for arbitration ad hoc, that is, outside a designated institutional framework.

More specifically, Article 14 of the Oman Investment Law allows the parties (in terms similar to Article 11 of the Qatar Investment Law) to agree on referring a dispute to a “local or international arbitration tribunal”. Article 26 of the Kuwait Investment Law entitles the parties to refer investment disputes to “arbitration” despite designating the Kuwaiti courts as “solely competent to consider any disputes arising between investment projects and third parties”. Article 13 of the Saudi Investment Law envisages settlement of investment disputes “in accordance with the relevant laws” failing “amicable settlement”. The wording of these clauses contains a number of pathologies that may ultimately make a successful reference by a dissatisfied investor to arbitration comparatively difficult, if not impossible. Recourse to local courts may hence be the only, yet unsatisfactory remedy to enforce the investment incentives and guarantees granted to a foreign investor under the various GCC investment laws (bar, of course, possible reliance on BITs or MITs that bind individual GCC jurisdictions and offer similar investment protection).

… to be continued…

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