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Doing business in Dubai

Doing business in Dubai

Are there opportunities for New Zealand technology companies in Dubai following the downturn?

You seldom come across a person in Dubai who can’t associate something with New Zealand – whether it’s our sports teams, our premium-quality beef and lamb or the stunning landscape. But in Dubai and the Middle East, not much is known about our successful and innovative technology industry. Are there opportunities for New Zealand technology companies in Dubai, the country of superlatives and infinite possibilities, following a downturn that has knocked Dubai considerably hard? Yes. Economic outlook

Many people living in Dubai believed the impact of the global financial crisis would not be severe. However, Dubai was not immune to what was happening around the world – the high levels of private sector debt became apparent, the once-buoyant property market slumped, construction projects were put on hold, redundancies were in full swing with business expenditure slowing markededly.

Expenditure on domestic and business IT products also fell in the United Arab Emirates (Dubai is one of the seven Emirates that form the UAE). While the situation in Dubai will probably remain subdued for some time, reports estimate that IT spending in the UAE will nevertheless reach US$3.1 billion in 2010, with prospects for exponential growth.

In the rest of the Middle East, IDC predicts that IT expenditure could increase by as much as 11 percent this year, with much of this growth likely to be seen in Qatar and Saudi Arabia.

Opportunities

Dubai is still an important regional hub for New Zealand technology companies wishing to export its products and services to the Middle East and Africa.

As an emerging market, the Middle East and Africa are full of opportunities for technology companies to plug the many gaps that exist. In particular, Dubai has shown it is keen to invest in Western technology and ideas. The most advanced technology solutions are often seen in public infrastructure and private sector projects. For example the Dubai Metro, Dubai International Airport and the world’s tallest tower, Burj Khalifa. At a consumer level, locals and expatriates love to embrace new technology. So, there are still plenty of opportunities if you have right product or service.

Doing business in Dubai

Doing business in Dubai is not as easy as setting up a company and selling products and services. Generally, you cannot do business in Dubai unless you are licensed to do so by the UAE Ministry of Economy. A licence permits you to carry out the trading activities specified in that licence. For example, if you are granted a trade licence to sell software, you will not be able to sell hardware or provide IT consultancy services unless you are also licensed to do so.

If you’re a New Zealand technology company, how can you do business in Dubai? Some of the common ways are discussed below:

One-off transaction

If you only provide products to a customer in Dubai on a one-off basis and have no intention of doing business there, you could simply export the products to the customer without the need for a licence. Once delivered to a point of entry in Dubai, the customer is responsible for clearing the goods through customs.

Where services are being provided (such as software implementation), it is common for businesses to fly staff over to Dubai to carry out those services. This is technically illegal because a licence is required to provide these services, and is not worth the risk of doing this without the necessary licences. However, if the services can be provided remotely from New Zealand, it is less likely that this might be seen as doing business in Dubai for which a licence is required.

Appointing a distributor

If you do not wish to establish a business in Dubai, you can appoint a distributor who is licensed to distribute your products in Dubai. Be aware that in certain circumstances, a distributor may register itself as a commercial agent for your products under the agency law, which gives certain protection to the agent including the right for the agent to claim compensation from you upon termination of the relevant agreement, and the ability for the agent to block your products from entering the UAE if a dispute arises in relation to the termination of the agreement. To minimise this risk, distribution agreements can be drafted in a way so they fall outside the scope of the agency law.

On-shore Dubai

Previously, if you wanted to do business in Dubai, you would need to set up a Limited Liability Company (LLC), 51 percent of which would be owned by a local sponsor. This was a barrier for foreign investment so the Government introduced Free Zones (discussed later), where you could establish and wholly own a company in a Free Zone.

An LLC has far more flexibility to do business anywhere in Dubai – in Free Zones and areas in Dubai outside the Free Zones (commonly referred to as doing business “on-shore” Dubai). Free Zone companies, on the other hand, can only do business with other companies incorporated in that Free Zone.

Free zones

A Free Zone is a defined geographical area in Dubai where entities established in that Free Zone operate within the same industry. Free Zone entities rent office space and obtain trading licences from the relevant Free Zone authority. The most popular Free Zone for technology companies is Dubai Internet City where all of the big technology companies can be found alongside many smaller companies. The main advantages of establishing an entity in a Free Zone are 100 percent foreign ownership; the absence of any tax on profits or gains, for a fixed period; the absence of any import and export duties on goods imported to and exported from a Free Zone; and the unrestricted repatriation of profits and gains.

Generally, if you are established in a Free Zone you cannot sell products or provide services to customers in “on-shore” Dubai. You can only do business with customers in the same Free Zone in which you are established. Sales of products to customers in Dubai may only be made by an agent or distributor registered “on-shore” and licensed to carry on a business that encompasses the sale of those products.

As part of the Beachheads programme, New Zealand Trade and Enterprise has serviced offices at Dubai Internet City for use by participating New Zealand technology companies requiring a presence in Dubai to develop business in the region.

Business culture

The working week in Dubai is Saturday to Thursday, although many Western businesses have a two-day weekend and are open from Sunday to Thursday.

English is widely spoken in business circles. Knowing a few Arabic greetings and familiarising yourself with Arabic culture before a meeting will go a long way in establishing a good business relationship.

Mixing business with pleasure is common and local people are very hospitable hosts. Respect your hosts by not drinking alcohol in their presence, or eating and drinking in front of them during the religious period of Ramadan.

Finally, be patient. There can be a lot of paperwork and red-tape no matter what the issue and processes can be slow. But remember, this is a small sacrifice if the right opportunity presents itself.

Edwin Lim is a Senior Associate at Hudson Gavin Martin, a boutique technology and intellectual property law firm in Auckland. He spent four years in the technology, media and telecommunications team at an international law firm in Dubai.

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