shine webinars - doing business in the middle east - november 13
TRANSCRIPT
Doing Business in the Middle East – focus on
UAE and Saudi Arabia
Faisal Tabbaa, Deputy Managing Partner, Dhabaan and Partners (in association with Eversheds) and Geraldine Ahern, Principal Associate (UAE), Eversheds LLP
21 November 2013
Today’s speakers
Faisal Tabbaa Deputy Managing Partner, Dhabaan and Partners (in association with Eversheds)
Geraldine Ahern, Principal Associate (UAE), Eversheds LLP
• The state of the regional economies – plenty of opportunities
• Contextual landscape – one region, many jurisdictions
• The Regulatory Framework
• Your routes to market
• Your business structure options
• Cultural considerations...reality -v- myth
Agenda
• GCC growth & forecasts
• Projects in design, bid or construction stage valued at US$ 2.54 trillion
• The desire of diversification
• Impact of the ‘Arab Spring’
The state of the regional economies – plenty
of opportunities
Dubai
• Traditional & historic trading hub
• Oil reserves depleted
• Preferred regional hub
• Financial sector, tourism, logistics, etc
• Net gain from the ‘Arab Spring’
Abu Dhabi
• By far the wealthiest Emirate...oil rich
• Government driven economy
• 2030 plan...diversification is priority
• Sector driven...aerospace, security, health, education, pharma etc
The state of the regional economies – plenty
of opportunities
UNITED ARAB EMIRATES: One country, separate economies
Saudi Arabia
• A ‘proper’ economy
• Pent up consumer demand
• Investment required in civil and social infrastructure
• Diversification
• Distribution of wealth...the challenges of Saudization
• Micro economies between regions
The state of the regional economies – plenty
of opportunities
“...we assume the rules, laws, regulations and procedures are the same across the Middle East...”
“...if we set up in Dubai, this will enable our business to operate freely throughout the Middle East...”
Contextual landscape – one region, many
jurisdictions
Myths
United Arab Emirates
• 7 Emirates, all with own laws and procedures
• Federal laws –v- laws of individual Emirates
• Opt in or out of Federal judicial system
• Authorities & regulators...navigating federal and individual Emirate authorities
• Free Zones –v- Mainland
– special economic zones...sector clusters
– separate jurisdictions
– own laws, regulations, practice & procedures
– each have own separate regulatory body
– more about this later...
Contextual landscape – one region, many
jurisdictions
Saudi Arabia
• Is one country...no federation
• No Free Zones
• Economic cities
• Economic centres
– Riyadh – financial/banks
– Jeddah – merchant families and shipping
– Dammam/Khobar – oil and gas/Aramco
Contextual landscape – one region, many
jurisdictions
United Arab Emirates
• All trading entities located in UAE must have requisite licences
• Licences are personal to the entity
• Some licences are restricted
• Foreign ownership restrictions may apply
• Dangers of ‘fronting’...policy change risk
• Myriad of interested authorities and regulators
The Regulatory Framework
Saudi Arabia
• Licences mandatory
• Differing categories of licences
• Restrictions on foreign ownership
• Concerned authorities for FDI (SAGIA and MOCI)
• Restricted sectors – the SAGIA ‘blacklist’
• Political will to stamp out ‘fronting’...it’s happening
• Governing law and application
The Regulatory Framework
Essentially there are 3 routes to market for foreign business...
Your routes to market
1. Direct sales from overseas
2. Through a licensed agent / distributor
3. Through your own licensed entity ‘in-country’
• Customer is importer of record
• Customer is technically responsible for import duty
• Customer is technically required to collect from point of entry to country
• Tends to be a limiting business model
Your routes to market - Direct sales from
overseas
Overseas supplier Customer
invoice supply
order payment import
Abroad UAE/Saudi
• Registered –v- unregistered agency
• Termination and compensation
• Reliance...business risk
• Quality control
Your routes to market – through a licensed
agent/distributor
Overseas supplier
Customer Agent
Abroad UAE/Saudi
agency agreement
supply
payment for product
onward supply
payment
order
payment of commission
• Tends to create best opportunity to expand into market
• Number of options dictated by many dynamics
– type of sector
– how many employees on the ground
– who are your customers going to be
– services –v- product
– appetite for minority ownership risk
– tax?...not usually decisive factor
Your routes to market – through your own
licensed entity ‘in-country’
• Typical options favoured for FDI
– Limited Liability Company
– representative office
– branch of foreign company
• Free Zone options
Your business structure options - UAE
Your business structure options - UAE
Entity Type
Limited Liability Company
• Most free to trade product and services • Most sectors covered by licences • Ring fence liability for Middle East
business • ‘Unlimited’ visa quota for employees
• Foreign ownership restrictions • Minority ownership for foreigners • Need for Emirati ‘sponsor’ • Dangers of ‘side agreements’
Branch of Foreign Company
• Full foreign ownership • No requirement for Emirati interest or
management participation • Minimal ‘capital commitment’ • Fully controlled by you • ‘Unlimited’ visa quota for employees
• Restricted in some sectors • Cannot trade product – services only • Need/cost of National Service Agent
Representative Office
• Relatively easy way to set up ‘shop window’
• Full foreign ownership • No requirement for Emirati interest or
management participation • Fully controlled by you
• Restricted in some sectors • Limitations on via quota for employees
(usually only 2 or 3) • Is limited to marketing and facilitating
customer supply lines • No trade services • Need/cost of National Service Agent • As costly to set up as branch
• Free Zone options
• LLC, branch and representative office all available
• Advantages
– 100% foreign ownership
– duty and tax free
– relatively quick and easy to set up
• Disadvantage
– relatively high real estate cost
– cannot ‘trade’ outside the Free Zone
• Usually a work around the last major disadvantage
Your business structure options - UAE
• Typical options favoured for FDI
– Limited Liability Company
– branch of foreign company
– representatives / sales office
• Different licences
– services
– trading
– manufacturing
• No Free Zone options
Your business structure options – Saudi Arabia
Your business structure options – Saudi Arabia
Entity Type
LLC • 100% foreign ownership possible on manufacturing and services
• Ring fence liability for Middle East business
• Flexible governance rules • Non-Saudi GM
• Minimum two shareholders • Taxable • Statutory reserve • Shareholder liability with losses
Branch of Foreign Company
• Full foreign ownership • No requirement for Saudi interest or
management participation • Single shareholder • Fully controlled by you
• Restricted in some sectors • No limited liability – extension of
mother company • Taxable • Must stick to activities of mother
company
Technical Scientific Office
• Relatively easy way to set up ‘shop window’
• Full foreign ownership • No requirement for Saudi interest or
management participation • Fully controlled by you • Not taxed
• Cannot conduct business – no revenues • Limitations on visa quota for employees
(usually only 2 or 3) • Is limited to marketing and facilitating
customer supply lines • As costly to set up as branch
“...this seems all too bureaucratic - we will never be able to navigate our way through this...!”
• Yes and no. It is a different style of ‘up front’ regulation
• It takes time but there is generally a solution to fit your business
• Factor in ‘lead-in’ time
Cultural considerations...reality -v- myth
“...cracking Middle East markets is too difficult for new entrants...”
• With the right strategy, opportunities are huge
• Personal relationships are key...be persistent
• Demonstrate commitment to the region
• Plans for the long term
Cultural considerations – reality -v- myth
“...the cultural, language and business practices are so unfamiliar to us, we are not sure we can make inroads into these markets...”
• Emirati’s and Saudi’s have had years of experience dealing with international investors
• They have adopted, or at least understand, international business practices
• Most business is conducted in the English language
• Emirate and Saudi business leaders are often Western educated and very business savvy
Cultural considerations – reality -v- myth
• Some dos and don'ts in Saudi Arabia
– appropriate greeting
– using your right hand
– addressing your counterpart
– appropriate behaviour/conduct
– appropriate dress
– nature of meetings
– how to conduct negotiations
– keeping notes!
Cultural considerations - general
Any questions
Faisal Tabbaa
DD: +966 11 48 44448
Geraldine Ahern
DD: +971 2494 3632
Contact us