by Michael Frigo |
In 2009, the emirate of Dubai in the United Arab Emirates (UAE) found itself caught in the middle of the debt crisis. Its real estate sector faced a very challenging time and this resulted in some rescheduling of its debt.Yet the emirate quickly recovered, with Dubai World seen to pay off its debt ahead of schedule.
With the recovery of one of its key emirates, the UAE has grown in strength and is looking forward to years of growth. It remains one of the most viable places to work and establish companies, thanks to its relatively strong economy and the presence of 38 free trade zones, with 9 more under construction. The presence of these free trade zones make it possible for companies to operate with 100% export tax exemptions, 100% repatriation of capital and profits, and for employees to be exempted from income taxes. It’s the UAE’s expertise in shrewd trading that continues to be its strength, which has been bolstered by wealth from oil and gas.
These factors make the UAE a viable market where exporters can introduce their products. However, foreign exporters need to make some important decisions when venturing into this market. Below are some principles which business people have to take note of when trading in the UAE.
Choose the right route into the market
There are essentially three ways to get into the UAE market: direct exporting, via an agent or agents in the Emirates or by establishing a physical presence in the market. The first of these, while simple, may not be the best solution if you’re looking to achieve high growth. Engaging a distributor, franchisee or licensee may be a better option, but the laws contain a high level of protection for local ‘agents’. (In UAE law, the term ‘agent’ encompasses all of the above, as well as ‘agent’ in the usual sense).
Agents may be able to register their agreements with the Ministry of Economy in certain circumstances and that places added obligations on principals. Rights conferred on the agent by registration include a right to receive compensation on termination (even where that occurs in accordance with the contract) and a right to block imports of the principal’s products of which the agent is not the consignee. Most foreign principals appointing local agents take steps to avoid the application of this law. Establishing a physical presence in the UAE can take several forms: usually by setting up one or more branch offices, or a limited liability company. A branch of a foreign company must have a sponsor – called a national agent – who must be a UAE national or a company wholly owned by UAE nationals. Similarly, a UAE company must be at least 51% owned by UAE nationals (although these rules are relaxed for the nationals of other Gulf Cooperation Council countries, namely the Kingdom of Saudi Arabia, Qatar, Kuwait, Oman and Bahrain).
The UAE has also established various free zones, each of which applies its own company laws. Technically, these companies are ’off-shore’ so there is no automatic right to trade in on-shore UAE. Foreign companies are permitted to establish branches or set up subsidiaries in a free zone without the need for local ownership or sponsorship.
Check that there’s demand for your products and services
Unless you’re in the business of supplying crude oil, which the UAE already has in abundance, there’s a very good chance that your products and services will be in demand in the UAE. The UAE economy has gained momentum since 2011, and this has given a boost to many construction projects, its appetite for foreign goods and its tourism industry. The main imports are consumer goods, machinery and transportation equipment, chemicals and food.
But the UAE is also committed to high quality education and health care, and is investing heavily in its infrastructure and information and communication technology (ICT), creating opportunities for many areas of foreign expertise and partnership.
Take time to understand the importance of Islam
The UAE’s culture is rooted in Islamic tradition: Islam is the official religion of the UAE and pervades all aspects of life, both social and business. And, while there is a level of acceptance of other faiths and cultures – after all, the population of the UAE is made up largely of ‘expat’ foreigners – it is essential to show respect for Islam and courtesy in the way that you act when visiting the Emirates and when conducting business dealings there.
Indeed, that word – ‘respect’ – neatly sums up the way that you will be expected to present yourself in negotiations. Dress modestly, but do not try to adopt the UAE’s traditional clothing as this may be perceived as offensive. Emirati companies tend to be extremely hierarchical, so bear this in mind at meetings and greet the most senior person first. Always use the right hand to shake hands, to eat or to distribute documents.
Business in the UAE is usually conducted between Sunday and Thursday, with rest days on Friday and Saturday. The initial meeting will serve to build trust, so don’t try to hurry negotiations. Arab coffee and pastries are a traditional accompaniment to meetings, and it would be rude not to accept. There are many more do’s and don’ts to Islamic business culture, so taking time to familiarise yourself with them is essential. Chambers of Commerce for each of the Emirates can be helpful in this respect, as can an Emirati agent. Indeed, having an agent or other Emirati business acquaintance will be helpful in making the introductions to your potential customers or business partners.
Respect local regulations when advertising
This is in many ways connected to the previous principle. Advertising standards in the UAE place great emphasis on the need for respect for religious and political institutions, and for the cultural and social values prevalent in the UAE. For example, they prohibit any advertising of alcohol and tobacco, or the use of content that breaches public morals. Advertisements for medicines, pharmaceutical and food products all require the prior agreement of the relevant authority. Advertisements must use standard Arabic or the local Emirati dialect. Permits are required for most types of outdoor advertising, as well as for prize draws or promotions.
Despite its strict advertising laws, media advertising in the UAE is a thriving business. Indeed, one key aim of the UAE’s advertising standards is to develop this sector as a vital economic development tool for the UAE.
Comply with customs laws
The UAE is a member of the Gulf Cooperation Council (GCC), which has established the main structure of the UAE’s import regulations. This in some ways simplifies the import of goods into any GCC country, because of the ‘single port of entry’ principle which states that imports into the UAE or any other GCC country are subject to customs duty only at the first GCC port of entry.
The GCC’s Common External Tariff of 5% of the value of goods is levied on most imports, except for imports destined for the UAE’s free trade zones. Alcohol and tobacco attract a higher rate, while some categories of goods, including certain agricultural products, printed material and pharmaceuticals are exempt. Goods imported for industrial or manufacturing purposes may also be granted exemptions.
The ports in Dubai and Abu Dhabi are the main ports of entry into the UAE. In general, customs clearance would require the foreign exporter to provide:
- An import goods declaration
- Delivery order
- Original bill of lading
- Certificate of origin
- Packing list with harmonised system (HS) code
Some goods are either restricted or prohibited entry, and the UAE Customs authorities rigorously enforce the rules concerning such products. For information concerning these products, and for full details of GCC customs regulations, contact the Chamber of Commerce of the Emirate with which you are dealing.
Atradius’ UAE country manager Schuyler D’Souza explains why this is such a promising export market: “The UAE is the Middle East’s most dynamic market. It’s a strategic hub for foreign trade in the Middle East and the only Gulf nation with a well-defined free trade policy, encouraging imports for both domestic consumption and re-export. That is greatly aided by the UAE’s well-developed ports and modern transport, communications and business infrastructure, and of course the high standard of living and tax free income of its residents.”
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Michael was appointed to his present position as Country Manager for Singapore at the start of 2012, following three years where he played a significant role in establishing the Atradius Singapore office as an important regional risk underwriting centre in Asia.
Michael joined Atradius in 2008 as Senior Underwriting Manager in Singapore after a decade with Bank of New Zealand, where he specialised in cashflow lending and project finance. After joining Atradius he was instrumental in the migration of the South East Asian risk underwriting function from Atradius’ Sydney office to Singapore as well as managing the Japan underwriting team.
As Country Manager, he is responsible for Atradius’ commercial operations in Singapore and the wider South East Asian region involving the management of Atradius co-operation partners that issue policies in Malaysia, Thailand, Philippines, Indonesia and Vietnam.