With the global impact of COVID-19, many businesses may feel that now is the time to consider exploring new markets such as the Gulf Cooperative Council countries and their wider Middle Eastern regional neighbours.
With thirteen years experience in the Middle East as a Foreign Direct Investment Specialist, Wayne Merrick, Managing Director for CBD Corporate Services, identifies some of the key considerations to successfully establish and operate a business in the Middle East. Wayne has advised and assisted hundreds of international companies with their market entry requirements in multiple jurisdictions such as UAE, Qatar, KSA, Kuwait, Oman and Bahrain.
Market research and feasibility
As with any market or region it is vitally important to undertake research to see if it is feasible to be successful by gathering, analysing, and interpreting information about a segment of a specific market. The objective is to determine how the business concept / model is likely to fit within the current market conditions and will include research about your competitors and the needs and preferences of your target audience. The regulatory business landscape can change very quickly in the Middle East and therefore it is increasingly important to determine all market requirements before considering the establishment of an entity. Risk management professionals are playing increasingly important strategic roles. In some cases, risk managers will be called upon to help determine the viability of doing business in the region based on in-depth analysis of risk and reward. Historically reliant on oil and gas, the Middle East countries are committed to continuing to diversify their economies into other sectors, including tourism, institutional investments, healthcare, technology, artificial intelligence, real estate and more. In September 2020 the UAE signed the Abraham Accord, a normalisation agreement with Israel to drive economic growth between the two countries.
Understand the applicable laws and regulations in the target market
The regulatory landscape across all countries in the Middle East has evolved at some pace in the last twenty five years. During that time there have been many new regulations enacted or updated and therefore it is very important that companies are in full compliance. One example is the wage protection system (WPS) in the UAE, this was enabled to ensure that salaries are paid on time and in full to employees. There are strict fines and penalties for offending companies, therefore ensuring compliance is critically important.
It is typical in the Middle East countries that the General Manager is responsible for ensuring all necessary processes, governance and controls are in place for the success of the business. Such responsibilities are enshrined in the laws and regulations, failure to observe them can result in civil and / or criminal cases. It is therefore vital that the Manager is aware of the regulatory changes and developments, that all important decisions are recorded in the Company book and calling a General Meeting if the company losses fall below the percentage as prescribed in the Companies Law in that jurisdiction. All of this should be considered to avoid exposure to any personal liability.
The importance of legal advice when entering the UAE market is paramount. There are many examples where international companies or investors have not engaged legal counsel to save initial costs but, the real risk of higher cost can be far greater by not taking this important step from the onset. As a corporate service provider, CBD stipulate that clients take independent legal advice before market entry and that the law firm drafts and advises on the suite of legal documentation to incorporate the company. As well as legal advisors it’s just as important to have a number of experienced and professional companies that cover all areas of doing business in the Middle East. Whether this is tax, audit, office solutions or corporate service providers it is imperative to the success of the ongoing maintenance and health of the company to have on the ground expertise to call upon.
Once the international company has decided to enter the market it needs to consider the optimum corporate structure taking into consideration the legal, operational and tax implications. From a legal and operational perspective, the two key considerations are the business activity to be undertaken and the target client audience. The former will determine the type of licence and ownership requirements whereas the latter will dictate which authority to be registered in. Most international companies who want to contract with both public and private sector businesses should consider setting up onshore, commonly known as mainland.
Choice of partner
In the last ten years there have been numerous examples whereby foreign companies have had a relationship with a local partner, national service agent or commercial agent which has unfortunately broken down. It is therefore critical to the success of the business in the Middle East that the choice of partner or agent is considered carefully and due diligence undertaken before entering the market. There are several options in this regard, but it is very common for new market entrants to choose a corporate service provider such as CBD where the international company has beneficial ownership of the business and guarantees a clear exit and succession plan. Many companies are sometimes influenced by agents promising contracts wins without considering the security and protection of their asset. Having a secure corporate structure with 100% control means you don’t have to be concerned with any potential issues in the future whilst at the same time independently seeking new business relationships and wins with unlimited clients.
Corporation tax is not applied in all countries in the Middle East. For example, it does apply in Qatar and KSA but is not applicable in the UAE. However, VAT was introduced in the UAE at the beginning of 2018 and therefore companies should develop an effective implementation and continuation strategy in order to be well-positioned in terms of compliance, reducing risk, and managing cash flow. Other tax considerations include withholding tax and import / customs tax so taking professional advice from the onset is extremely important.
The terms and conditions with target clients depends on the nature of the activity to be undertaken and the jurisdiction. In some cases, the terms can seem excessive and risky to international companies looking to do business in the Middle East and not akin to what they are used to in other countries. Investing in professional and experienced contract experts is a key consideration to ensure that the company won’t encounter future commercial disputes such as non-payment.
Know your audience
An important point of consideration is cultural etiquette when looking to secure contracts in the Middle East. This can involve several meetings, building trust and relationship with the key contacts at the end user regarding the capability of the company to deliver the service. Displaying patience and always ensuring respect to local laws and customs is imperative. It is important to study Middle Eastern cultures, particularly as this communicates an individual’s credibility and is a key driver of their personal reputation. Business and personal relationships are the same thing, so aim to develop a true bond.
For those companies trading in products it is important to research the procedures for import and export. This will be aided by partnering with professional and experienced clearing agents. The UAE is constantly innovating and seeking opportunities to increase its attractiveness as the regional hub for international business. One example of that is the creation of the "free zone" corridor linking the port, Jebel Ali Free Trade Zone and Al Maktoum Airport, making the UAE and the GCC a highly attractive destination for regional and international business and investment.
All applications for foreign nationals looking to reside in the country are subject to the government authorities in that jurisdiction. It is worth noting that as part of the HR plan, international companies should have contingencies and not assume that an entity will get the desired number of visas allocated or the applicant will be approved by the Ministry. Engaging with a corporate service provider, such as CBD, will ensure that companies get the right professional advice to assist with their visa requirements.
CBD Corporate Services is the UAE’s leading nominee partner providing reliable and secure professional sponsorship and structuring services to businesses throughout the Middle East. Their advice is to laser in on one country, do your homework, put your boots on the ground, get an understanding for the culture and, to assist you along the way, partner with a number of professional firms who specialize in the various other disciplines already discussed in this article. CBD are happy to provide guidance in this regard and look forward to assisting your business entry and initiatives in this exciting commercial region.