Tips, opportunities and potential pitfalls for international companies establishing in the UAE

Tips, opportunities and potential pitfalls for international companies establishing in the UAE 

By: Contributor
Thought Leadership

Wayne Merrick, Managing Director for CBD Corporate Services, identifies some of the key considerations to successfully establish and operate a business in the UAE.

With thirteen years of 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 UAE. 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 will be feasible to launch a business there, by gathering, analysing, and interpreting information about a segment of a specific market, in addition to conducting research about your competitors and the needs and preferences of your target audience. The objective is to determine how the business concept/model is likely to fit within the current market conditions.

The regulatory business landscape can change very quickly in the UAE 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 UAE is committed to continuing to diversify its economy 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 your target market

The regulatory landscape across the UAE has evolved at a notable 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, which 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.

Corporate governance

It is typical in the UAE 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, and failure to observe them can result in civil and/or criminal cases. It is therefore vital that the Manager is aware of regulatory changes and developments, and that all important decisions are recorded in the Company Book, calling a general meeting if company losses fall below the percentage prescribed in the Companies Law in that jurisdiction. All of this should be considered to avoid exposure to any personal liability.

Professional advice

The importance of legal advice when entering the UAE market is paramount. There are many examples where international companies or investors had not engaged legal counsel to save initial costs, but the resulting risk can be far greater by not taking this important step from the onset. As a corporate service provider, CBD stipulates 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. 

In addition to legal advisors, it’s just as important to have a number of experienced and professional support companies that cover all areas of doing business in the UAE. Whether this is tax, audit, office solutions or corporate service providers, it is imperative to the success and health of the company to have on-the-ground expertise to call upon.

Corporate structure

Once the international company has decided to enter the UAE 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 UAE 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.

Unlike other countries in the GCC, the UAE has recently updated its Commercial Companies Law, allowing for foreign investors to own 100% of their business in their country, and without the need for an Emirati sponsor.

Tax

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, while 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.

Contracts

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 UAE  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 UAE. This can involve several meetings, building trust and relationships with 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 UAE culture, 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.

Logistics

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 Jebel Ali Free Trade Zone and Al Maktoum Airport, making the UAE a highly attractive destination for regional and international business and investment.

Visas

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 that 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.

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