February 26, 2016

UAE Market Entry

The Middle East is one of the most fertile grounds for many different types of businesses. With its strategic location that serves as a hub connecting the east and west, and with its business friendly economic and trade policies, the Middle East presents unmatched opportunities whether it is to incubate, incorporate or expand a business.

Various options  to market entry into UAE include:

  • Fly In Fly Out / Trading from Overseas: 

This form of trading allows a foreign company to trade in the UAE from their home country, thereby saving the need to physically establish a presence. However, this particular option is usually only applicable to specialized services and products. Overseas companies can therefore find it difficult to establish the relationships needed in order to grow and expand their business without having a physical presence. It is also not uncommon for UAE based clients to request or indeed require a registered physical presence on the ground. Consideration also needs to be given as to how any issues that may arise, can be solved from abroad.
The UAE Companies Law largely requires foreign investors to be registered and licensed by the relevant authorities in the UAE in order to carry on business. This is a significant restraint on the nature and level of activities which can be provided on a ‘Fly in Fly Out basis.

  • Agent / distributor:

This option again avoids the need for foreign companies to establish a physical presence in the UAE and allows foreign companies to leverage the agents or distributor’s local market connections. From a cost and risk perspective it can also be lower as well because it saves on the costs of physical establishment and utilises the third parties’ existing buyers. However, before entering into any such arrangement with a local party, caution should be exercised and careful due diligence undertaken.

The UAE Commercial Agencies Law (Federal Law No.18 of 1981, as amended) governs the appointment of registered distributors, commercial agents and sales representatives. A commercial agency is de ned as “any arrangement whereby a foreign company is represented by an agent to distribute, sell, offer or provide goods or services within the UAE for a commission or profit.
The Commercial Code (Federal Law No.18 of 1993) builds upon the Commercial Agencies Law and establishes a framework which regulates the different types of commercial agencies.

The contractual agency is the most common type of agency and involves an agent representing the foreign principal in the distribution and sale of products or the provision of services undertaking, on a permanent basis and in relation to a specific activity, to instigate and negotiate deals for the principal in return for a fee.
Under UAE law -, agency and distribution arrangements are largely treated in the same way as each other.

There are many different options and types of agents / distributors to choose from and a distinction needs to be drawn between registered and unregistered agreements. A registered arrangement (agency or distribution) is only possible where the agent or distributor is a UAE National or a company wholly owned by a UAE national(s). Agents also typically benefit from exclusivity whereby products imported must be exclusive to the agent.
Terminating registered agency/distribution agreements can be difficult and costly as there are strict rules and restrictions which apply

  • Setting up your company:  

In general, there are three main options available to a foreign investor as mentioned below and  each of which is explained in detail in the site.

Mainland Business Setup

Free Zone Incorporation

Offshore Company formation

  • Joint Venture 

Foreign companies wanting to enter the UAE market or develop their existing operation beyond an agency or distribution arrangement often favor a joint venture (JV). JV’s enable the foreign investor to take an equity stake and role in the operation and management of their UAE entity whilst still benefitting from the participation of a local partner.

The local partner may contribute financially or by way of technical skills or local connections and reputation.
Whilst the CCL allows for a particular type of entity to be used as a JV vehicle, in practice, most JV’s are set up using either onshore or free zone limited liability companies. In the case of the former, the previously mentioned requirement for 51% ownership of the share capital by a UAE National or a company wholly owned by UAE Nationals applies.
There is no need to license a JV or publish the JV agreement. As in all jurisdictions, choosing the right JV partner (s) is key to ensure that they will be able to contribute to the JV in the way planned.

  • Merger & Acquisition: 

A final market entry strategy for foreign companies is to acquire or invest in an existing UAE company or business. Both share and asset purchases are possible in the UAE.

Particular factors to bear in mind include:

The very limited amount of publicly available information and so the need for thorough due diligence.

The impact of the foreign ownership restrictions and need for onshore entities to be 51% owned by UAE individuals or companies owned by UAE Nationals.

The absence of provisional equivalent to the European transfer of undertaking regulations, and the resulting need to deal with the transfer of employee contracts as part of any asset deal.

The impact of UAE end of service benefits in the case of assets transfers.

The right market entry strategy is key to your business success in the region and Eufrasia Management’s group of expert professionals will help you do take the right step.