Tuesday, 21 February 2012

Doing Business in Dubai

Yesterday afternoon I attended the seminar on Doing Business in Dubai that I announced on 24 Jan 2012.. Shortly before the event I was advised that it had been moved from Knowles Warwick's offices to the Double Tree Hilton Hotel.  As you can see, the hotel's website is not particularly informative and nobody in the area seemed to have heard of an hotel by that name (though they had heard of a Moat House which had been there some years earlier).   There was not even a "Double Tree Hilton" sign outside the hotel.   As a result I missed Steve Knowles's speech altogether and the start of Zayd Maniar's.  However, I did get the slides for both presentations.

According to the slides, Steve dealt with two issues:
  • the benefits of people from the UK doing business abroad; and
  • how doing business abroad can actually reduce risk.
He also chaired the meeting.

The benefits that he identified were as follows:
  • Tax Incentives: some countries offer lower tax rates or other concessions which enable businesses to retain a bigger share of the profits and reduce their costs;
  • Cost Advantages: lower labour and raw materials costs;
  • Enhancing Brand Value: brands gain prestige if they are used outside the UK;
  • Diversification: new ides and technologies;
  • Economies of scale: and 
  • Enhanced competitiveness.
Doing business abroad reduced risk by enabling businesses to reducing exposure to the adverse economic conditions prevailing in the UK.

Zayd is the international liaison partner for Horwath MAK, Crowe Horwath's office in Dubai.  He read economics at Reading and qualified as a chartered accountant in England and Wales..   His background appears on the "Our Partners" page of the firm's website.  The slides that I missed were about Horwath MAK which has carried on business in Dubai for the last 30 years and an overview of the economic situation in Dubai.   According to the slides, the UAE had experienced a period of high inflation as a result of a property boom but that has now come to an end and the country expected strong and stable growth from tourism, transport, manufacturing and services as well as energy.

I joined the presentation as Zayd outlined the constitutional structure of the UAE (a topic that I had discussed  in "The Legal Order of the United Arab Emirates" on 11 Nov 2011) and profiled the emirates of Dubai and the federal capital, Abu Dhabi.  The economy of the Union has been boosted by the establishment of a number of free zones where foreign owned businesses could operate without a local partner and repatriate their profits as and when they wished.  Some of these zones were located around ports but others are specialist zones such as the Commodities Centre, the Knowledge Village and, of course, the Dubai International Financial Centre.  Zayd said Horwath MAK were in several of those zones.

Zayd outlined the types of businesses entity that can be established in the UAE. These are very much the same as everywhere else, namely public and private limited companies, general and limited partnerships and "partnerships limited with shares" which I took to be limited liability partnerships.  Except for businesses in the free zones, it is necessary to incorporate in the UAE with a local partner.  There is no federal income tax on salaries or wages but the federal government is thinking of introducing VAT and there are high import duties on certain goods.   

At this point, Steve chipped in to point out the absence of income tax meant that there was nothing against which one could get tax relief.  If losses were to be expected in the early stages of an enterprise it could be better to bear those losses here or some other country and somehow export the business to the UAE.  However, that will require a lot of thought and some care because Steve and Zayd also warned in a later discussion that tax is levied in the UK on earnings of businesses that are managed from this country wherever the income is generated.   Zayd told a very sad tale about one small business which was landed with a £400,000 tax bill because it failed to heed Zayd's advice to get tax advice from the UK as well as the UAE. It is worth mentioning that Steve's nickname is "tax champion".

Knowles Warwick had asked for questions to be submitted in advance and I had asked two to which I already knew the answers.   My first question was on the nature and extent of IP protection in the UAE. Zayd confirmed that the authorities took a dim view of counterfeiting and piracy. He mentioned a case in which he had been involved where Burgerking had moved against a fast food restaurant whose proprietor's surname was the Arabic word for King.  IP infringements can often be resolved without recourse to litigation because customs officers intercept infringing goods at the border or other administrative action can be taken. The penal code of the UAE is as tough as Texas's in that almost any offence is punished with a custodial sentence and/or deportation. There are, however, lacunae in that the emirates have their own laws which sometimes allow anomalies.   My second question was on the DIFC court which Zayd thought was a good thing.  He went into some detail about its small claims jurisdiction.  I made a few supplemental observations about the recent extension of jurisdiction and that the court was an English speaking, common law enclave with English and Commonwealth judges and counsel in a civil law federation.

Other questions covered setting up branches and businesses, restrictions on the import of goods such as medicines and medical devices, market research and making contacts.   We were told to familiarize ourselves with different business norms and customs.  Initial connections can be made through UK Trade and Investment and occasionally through the British consulate.

Altogether, we had a very good afternoon.  I already knew Steve quite well and I was pleased to meet Zayd. I had already worked with a forensic accountant in one of a Horwath's British offices in several cases and got to know several others over the last 20 years.   Should anyone wish to follow up this discussion, he or she can call me on +44 161 850 0080 or fill in my contact form. He or she can also contact me through Facebook, Linkedin, Xing or twitter.

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