The Middle East remains a focus for many businesses as a growth market with more traditional markets remaining stagnant or slow to recover. Many new entrants or those contemplating expanding their services or products into the Middle East region find the complexities of setting up, carrying on business and the cultural nuances of trading in this emerging market difficult to navigate. Facing unfamiliar systems of law, custom, practice and regulation can become disproportionally outfacing. In this session we seek to guide you through some of the issues and common pitfalls to be avoided and also dispel some of the myths about the difficulties in establishing and doing business in two of the main markets in the Middle East, Saudi Arabia and the United Arab Emirates.

1. Doing Business in the Middle East – focus on
UAE and Saudi Arabia
Faisal Tabbaa, Deputy Managing Partner, Dhabaan and Partners
(in association with Eversheds) and Geraldine Ahern, Principal
Associate (UAE), Eversheds LLP
21 November 2013

2. Today’s speakers
Faisal Tabbaa
Deputy Managing Partner,
Dhabaan and Partners (in
association with
Eversheds)
Geraldine Ahern, Principal
Associate (UAE),
Eversheds LLP

3. Agenda
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The state of the regional economies – plenty of opportunities
Contextual landscape – one region, many jurisdictions
The Regulatory Framework
Your routes to market
Your business structure options
Cultural considerations...reality -v- myth

4. The state of the regional economies – plenty
of opportunities
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GCC growth & forecasts
Projects in design, bid or construction stage valued at US$ 2.54 trillion
The desire of diversification
Impact of the ‘Arab Spring’

5. The state of the regional economies – plenty
of opportunities
UNITED ARAB EMIRATES: One country, separate economies
Dubai
• Traditional & historic trading hub
• Oil reserves depleted
• Preferred regional hub
• Financial sector, tourism, logistics, etc
• Net gain from the ‘Arab Spring’
Abu Dhabi
• By far the wealthiest Emirate...oil rich
• Government driven economy
• 2030 plan...diversification is priority
• Sector driven...aerospace, security, health, education, pharma etc

6. The state of the regional economies – plenty
of opportunities
Saudi Arabia
• A ‘proper’ economy
• Pent up consumer demand
• Investment required in civil and social infrastructure
• Diversification
• Distribution of wealth...the challenges of Saudization
• Micro economies between regions

7. Contextual landscape – one region, many
jurisdictions
Myths
“...we assume the rules, laws, regulations and procedures are the same
across the Middle East...”
“...if we set up in Dubai, this will enable our business to operate freely
throughout the Middle East...”

8. Contextual landscape – one region, many
jurisdictions
United Arab Emirates
• 7 Emirates, all with own laws and procedures
• Federal laws –v- laws of individual Emirates
• Opt in or out of Federal judicial system
• Authorities & regulators...navigating federal and individual Emirate
authorities
• Free Zones –v- Mainland
– special economic zones...sector clusters
– separate jurisdictions
– own laws, regulations, practice & procedures
– each have own separate regulatory body
– more about this later...

9. Contextual landscape – one region, many
jurisdictions
Saudi Arabia
• Is one country...no federation
• No Free Zones
• Economic cities
• Economic centres
– Riyadh – financial/banks
– Jeddah – merchant families and shipping
– Dammam/Khobar – oil and gas/Aramco

10. The Regulatory Framework
United Arab Emirates
• All trading entities located in UAE must have requisite licences
• Licences are personal to the entity
• Some licences are restricted
• Foreign ownership restrictions may apply
• Dangers of ‘fronting’...policy change risk
• Myriad of interested authorities and regulators

11. The Regulatory Framework
Saudi Arabia
• Licences mandatory
• Differing categories of licences
• Restrictions on foreign ownership
• Concerned authorities for FDI (SAGIA and MOCI)
• Restricted sectors – the SAGIA ‘blacklist’
• Political will to stamp out ‘fronting’...it’s happening
• Governing law and application

12. Your routes to market
Essentially there are 3 routes to market for foreign business...
1. Direct sales
from
overseas
2. Through a
licensed
agent /
distributor
3. Through your
own licensed
entity ‘incountry’

13. Your routes to market - Direct sales from
overseas
Abroad
Overseas supplier
UAE/Saudi
order
payment
import
Customer
invoice
supply
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Customer is importer of record
Customer is technically responsible for import duty
Customer is technically required to collect from point of entry to country
Tends to be a limiting business model

14. Your routes to market – through a licensed
agent/distributor
Abroad
UAE/Saudi
agency agreement
Overseas
supplier
payment
Agent
supply
payment for product
payment of commission
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Registered –v- unregistered agency
Termination and compensation
Reliance...business risk
Quality control
onward
supply
order
Customer

15. Your routes to market – through your own
licensed entity ‘in-country’
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Tends to create best opportunity to expand into market
Number of options dictated by many dynamics
– type of sector
– how many employees on the ground
– who are your customers going to be
– services –v- product
– appetite for minority ownership risk
– tax?...not usually decisive factor

16. Your business structure options - UAE
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Typical options favoured for FDI
– Limited Liability Company
– representative office
– branch of foreign company
Free Zone options

17. Your business structure options - UAE
Entity
Type
Limited Liability
Company
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Most free to trade product and services
Most sectors covered by licences
Ring fence liability for Middle East
business
‘Unlimited’ visa quota for employees
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Foreign ownership restrictions
Minority ownership for foreigners
Need for Emirati ‘sponsor’
Dangers of ‘side agreements’
Branch of
Foreign
Company
• Full foreign ownership
• No requirement for Emirati interest or
management participation
• Minimal ‘capital commitment’
• Fully controlled by you
• ‘Unlimited’ visa quota for employees
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Restricted in some sectors
Cannot trade product – services only
Need/cost of National Service Agent
Representative
Office
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Relatively easy way to set up ‘shop
window’
Full foreign ownership
No requirement for Emirati interest or
management participation
Fully controlled by you
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Restricted in some sectors
Limitations on via quota for employees
(usually only 2 or 3)
Is limited to marketing and facilitating
customer supply lines
No trade services
Need/cost of National Service Agent
As costly to set up as branch
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18. Your business structure options - UAE
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Free Zone options
LLC, branch and representative office all available
Advantages
– 100% foreign ownership
– duty and tax free
– relatively quick and easy to set up
Disadvantage
– relatively high real estate cost
– cannot ‘trade’ outside the Free Zone
Usually a work around the last major disadvantage

19. Your business structure options – Saudi Arabia
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Typical options favoured for FDI
– Limited Liability Company
– branch of foreign company
– representatives / sales office
Different licences
– services
– trading
– manufacturing
No Free Zone options

20. Your business structure options – Saudi Arabia
Entity
Type
LLC
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100% foreign ownership possible on
manufacturing and services
Ring fence liability for Middle East
business
Flexible governance rules
Non-Saudi GM
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Minimum two shareholders
Taxable
Statutory reserve
Shareholder liability with losses
• Full foreign ownership
• No requirement for Saudi interest or
management participation
• Single shareholder
• Fully controlled by you
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Restricted in some sectors
No limited liability – extension of
mother company
Taxable
Must stick to activities of mother
company
Relatively easy way to set up ‘shop
window’
Full foreign ownership
No requirement for Saudi interest or
management participation
Fully controlled by you
Not taxed
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Branch of
Foreign
Company
Technical
Scientific Office
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Cannot conduct business – no revenues
Limitations on visa quota for employees
(usually only 2 or 3)
Is limited to marketing and facilitating
customer supply lines
As costly to set up as branch

21. Cultural considerations...reality -v- myth
“...this seems all too bureaucratic - we will never be able to
navigate our way through this...!”
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Yes and no. It is a different style of ‘up front’ regulation
It takes time but there is generally a solution to fit your business
Factor in ‘lead-in’ time

22. Cultural considerations – reality -v- myth
“...cracking Middle East markets is too difficult for new entrants...”
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With the right strategy, opportunities are huge
Personal relationships are key...be persistent
Demonstrate commitment to the region
Plans for the long term

23. Cultural considerations – reality -v- myth
“...the cultural, language and business practices are so unfamiliar to
us, we are not sure we can make inroads into these markets...”
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Emirati’s and Saudi’s have had years of experience dealing with
international investors
They have adopted, or at least understand, international business
practices
Most business is conducted in the English language
Emirate and Saudi business leaders are often Western educated and very
business savvy

24. Cultural considerations - general
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Some dos and don'ts in Saudi Arabia
– appropriate greeting
– using your right hand
– addressing your counterpart
– appropriate behaviour/conduct
– appropriate dress
– nature of meetings
– how to conduct negotiations
– keeping notes!

25. Any questions

26. Contact us
Faisal Tabbaa
DD: +966 11 48 44448
faisaltabbaa@eversheds.com
Geraldine Ahern
DD: +971 2494 3632
geraldineahern@eversheds.com