SHINE webinars - Doing Business in the Middle East - November 13

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The Middle East remains a focus for many businesses as a growth market with more traditional markets remaining stagnant or slow to recover. Many new entrants or those contemplating expanding their services or products into the Middle East region find the complexities of setting up, carrying on business and the cultural nuances of trading in this emerging market difficult to navigate. Facing unfamiliar systems of law, custom, practice and regulation can become disproportionally outfacing. In this session we seek to guide you through some of the issues and common pitfalls to be avoided and also dispel some of the myths about the difficulties in establishing and doing business in two of the main markets in the Middle East, Saudi Arabia and the United Arab Emirates.

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SHINE webinars - Doing Business in the Middle East - November 13

  1. 1. 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
  2. 2. Today’s speakers Faisal Tabbaa Deputy Managing Partner, Dhabaan and Partners (in association with Eversheds) Geraldine Ahern, Principal Associate (UAE), Eversheds LLP
  3. 3. Agenda • • • • • • 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
  4. 4. The state of the regional economies – plenty of opportunities • • • • 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’
  5. 5. The state of the regional economies – plenty of opportunities UNITED ARAB EMIRATES: One country, separate economies 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
  6. 6. The state of the regional economies – plenty of opportunities 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
  7. 7. Contextual landscape – one region, many jurisdictions Myths “...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...”
  8. 8. Contextual landscape – one region, many jurisdictions 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...
  9. 9. 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
  10. 10. The Regulatory Framework 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
  11. 11. 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
  12. 12. Your routes to market Essentially there are 3 routes to market for foreign business... 1. Direct sales from overseas 2. Through a licensed agent / distributor 3. Through your own licensed entity ‘incountry’
  13. 13. Your routes to market - Direct sales from overseas Abroad Overseas supplier UAE/Saudi order payment import Customer invoice supply • • • • 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
  14. 14. Your routes to market – through a licensed agent/distributor Abroad UAE/Saudi agency agreement Overseas supplier payment Agent supply payment for product payment of commission • • • • Registered –v- unregistered agency Termination and compensation Reliance...business risk Quality control onward supply order Customer
  15. 15. Your routes to market – through your own licensed entity ‘in-country’ • • 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
  16. 16. Your business structure options - UAE • • Typical options favoured for FDI – Limited Liability Company – representative office – branch of foreign company Free Zone options
  17. 17. 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 • • • • • • •
  18. 18. Your business structure options - UAE • • • • • 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
  19. 19. Your business structure options – Saudi Arabia • • • Typical options favoured for FDI – Limited Liability Company – branch of foreign company – representatives / sales office Different licences – services – trading – manufacturing No Free Zone options
  20. 20. 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 • 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 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 • • • • • • Branch of Foreign Company Technical Scientific Office  • • • • • • • • • 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
  21. 21. Cultural considerations...reality -v- myth “...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
  22. 22. 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
  23. 23. 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
  24. 24. Cultural considerations - general • 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!
  25. 25. Any questions
  26. 26. Contact us Faisal Tabbaa DD: +966 11 48 44448 faisaltabbaa@eversheds.com Geraldine Ahern DD: +971 2494 3632 geraldineahern@eversheds.com

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