Doing Business in the UAE Part 1
In Category: Thoughts
Doing Business in the United Arab Emirates
Part 1: General Considerations
As with any potential investment, domestic or international, prior to commencing operations a company needs to assess the probability and timing of profit return, business risks, including to the return of capital, and exit strategy, as appropriate.
Doing business overseas involves the added risks of operating in a new cultural, legal, commercial and political environment, forming new trusted relationships and ensuring profit can be repatriated.
The UAE is a young nation that has transformed into a powerful, modern economy in a short space of time. Whilst Islam is the official religion of the UAE, it is tolerant and respectful of all religions - the majority of Emiratis are Sunni. The working week respects Islamic traditions and runs from Sunday to Thursday.
The UAE Federation and each of its seven emirates is politically stable and each ruling royal family underpins the strength of its own emirate and the Federation. The Federation is led by the rulers of the two larger and most powerful emirates, Abu Dhabi - HH Sheikh Khalifa bin Zayed Al Nahyan, UAE President; and Dubai - Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President and Prime Minister.
Each emirate has its own ruler, ruling families, preference for a particular school of Islam, and tribal traditions. It is therefore to be expected that there is not just one way of doing or looking at things. As we see in the West with friendly rivalries between our cities and regions, there are friendly rivalries between the emirates, particularly the larger ones. Anyone considering business in the UAE should note that one size, approach and business presentation does not fit all.
In general, Emirati are an industrious, friendly and generous people possessing a good sense of humour.
Regulatory Environment and Conflict Resolution
Under the UAE Constitution each emirate is free to regulate matters not reserved to the Federation. Accordingly, businesses are subject to federal as well as local emirates law and regulation, and to the jurisdiction of federal and local emirate authorities. Being authorised to do business in one emirate is not automatic authority to operate in another.
The UAE court system consists of federal courts - a court of first instance, appeal and cassation. In addition, there are specialist courts, which hear commercial and employment matters.
As with many countries, a form of soft conflict resolution can be preferred between close parties, rather than an adversarial one, with the objective of ‘saving face’ of those involved. Arbitration is a valid form of dispute resolution and arbitration bodies exist in Abu Dhabi and Dubai.
The UAE government encourages business development and inward investment. Under the UAE Federal Government’s Vision 2021 policy the government has committed to UAE socio-economic development based on a competitive knowledge economy and diversification away from hydrocarbon revenue.
Vision 2021 commits to (i) promoting innovation, research and development, strengthening the UAE regulatory framework and encouraging high value sectors to increase their attractiveness to foreign investment; (ii) world class healthcare; (iii) a first rate education system; and (iv) a sustainable environment and infrastructure, including adopting clean energy.
The commitment to infrastructure involves the goal of the UAE being among the worlds’ best in the quality of its airports, ports, roads and electricity. The UAE government’s Vision 2021 offers great opportunity to companies in the necessary niches.
The World Bank Ease of Doing Business Index ranks the UAE number one in the Middle East for small to medium size enterprises. The UAE ranks particularly highly on investor minority protection, but less so on bankruptcy laws - although the latter is expected to be rectified when new UAE bankruptcy laws come into force.
Formal processes and laws are in place relating to procurement, particularly by governmental entities. Businesses do need to be careful to attend to all formalities, pre-, during and post procurement and contractual arrangements, in accordance with good governance and applicable rules to ensure legality and payment.
There are many ‘free zones’. Most are situated adjacent to ports and other ‘offshore’ facilities and offer benefits that include no income tax and low or no customs duty. Such free zones present the opportunity for global companies to substantially reduce their tax bills in the markets where they sell their products and services. Companies with the focus of selling goods or services to the UAE population or governmental or commercial entities will generally need to establish and base themselves on the UAE ‘mainland’.
Lastly, and not unimportantly, when it comes to doing business in the UAE, or in Arabia generally, wasta can dramatically affect your ability to get things done and ultimately make money. Someone possessing wasta has the authority, influence and/or connections to smooth and or speed up administrative processes and make valuable connections. Wasta is an important characteristic to look for when it comes to considering business relationships, partners and recruiting.
In part 2 of this Article I will discuss Legal Structures & Processes for setting up onshore and offshore and other options.
This article is intended to touch on some of the key, interesting and challenging aspects of preparing to do business in the UAE. If you have any particular questions or require more detailed advice about starting up in the UAE please feel free to contact the writer.
© John Dennett / GeneralCounsel.AE http://www.generalcounsel.ae
Mobile: +44 (0)7491 323 555
John Dennett is the former and founding General Counsel of Abu Dhabi Terminals, the operator of Khalifa Port Container Terminal. Prior to ADT John worked in the Corporate Commercial department of Al Tamimi & Co. in Abu Dhabi, UAE.
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