Emirati partners in demand despite easing of company laws

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• UAE allows 100% ownership but companies still seek regional partners
• Emirati partnership seen as beneficial for local business issues
• Saudi development as international market creates new opportunities

The UAE’s move to introduce 100 percent company ownership has not dented demand among international companies for local Emirati partners.

Before the publication of UAE Federal Decree-Law No. 26 of 2020, foreign companies could only own up to 49 percent of a UAE business, with the majority 51 percent held by a local Emirati partner.

From June 1 2021 this rule was relaxed, with full 100 percent ownership allowed for most companies.

The Abu Dhabi Department of Economic Development and the Dubai Economic Department released a list of over 1,000 business activities allowed 100 percent ownership.

Despite this, a large number of international companies are still seeking out a local Emirati partner, industry experts said.

“Despite businesses having the choice of full foreign ownership, many companies still choose to retain or opt for a local business partner or sponsor to get someone on board that has deep insight into the local market,” said Wayne Merrick, managing director of Dubai-based CBD Corporate Services.

“The business partner able to provide first-hand market intelligence and assist with statutory filings, which can be challenging to navigate as a new or foreign business.”

This sentiment was echoed by PRO Partner Group (PPG), a Dubai-based firm that helps businesses set up operations in the UAE, Saudi Arabia, Oman and Qatar.

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PPG works with five Emirati partners to sponsor entities who still opt to have a local partner when setting up in the UAE.

Nazar Musa, its CEO, said: “Some companies chose to operate 100 percent, but a lot still choose to have local partners.

“That business hasn’t disappeared. It might not be 51 percent, but a lot of people are retaining local sponsors. So, whether it be as small as 1 percent, or 10-20 percent, it affects them monetarily very little. Spending $60-70,000 to have a local partner, in the scale of the businesses that we operate, is not a lot of money,” Musa said.

“When you have an Emirati on your paperwork, it means that labour, immigration and visa work is a lot easier. 

“And if you ever need an introduction to somebody or wasta, or whatever it might be, it’s always good to have those relationships.”

PPG was bought in May last year by The Sovereign Group, a Gibraltar-based corporate services company with about 500 staff across a network of 17 global offices.

PPG itself has around 42 staff located around the GCC and while the coronavirus pandemic did impact general business activity, the company formation sector was still very active.

In fact Musa said that PPG had “an incredible 2021”.

“We expected 2021 to be a disaster but it wasn’t. The UAE government quickly enacted a number of initiatives around visas, 100 percent ownership, incentives for people to come and operate in the UAE. 

“It was the second-best year in the history of this business, which is bizarre considering we worked at home for eight months of it. And 2022 kept growing, we ended up about 23 percent year-on-year.”

In terms of the source markets, new companies setting up in the Gulf come from the UK, US and France in the main, said Musa, followed by Germany, Japan, Singapore and South Africa, and a small but growing number from South America.

In June last year, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai and chairman of the Dubai Council, announced plans to open a network of 50 representative offices across five continents over the next few years, in order to encourage companies to set up in the emirate.

Musa said this plan is likely to see the geographical spread of companies coming to the UAE expand, and he pointed to the Singapore model as a prime example.

“The government body of Singapore is tasked with growing Singaporean businesses internationally,” he said. “They have an office in Dubai of seven people in Business Bay that’s focused on supporting Singaporean companies coming to the GCC.

“This is what Dubai needs to happen – an office in wherever it may be in the world to speak to businesses and to promote Dubai. And then we will work with those different offices to do the groundwork here”.

Setting up in Saudi

The biggest market in the Gulf is Saudi Arabia, and in October 2021 the kingdom announced that from January 2024 the Saudi government and state-backed institutions will stop signing contracts with foreign firms that base their Middle East headquarters outside the kingdom.

Saudi Arabia’s Ministry of Investment reported in October 2022 that a total of 70 international companies had so far been issued licences to relocate their regional headquarters to the Saudi capital Riyadh as part of the Regional Headquarter Programme (RHQ), up from about 24 the year before.

It was announced on Sunday that the rules would be eased slightly, and companies with foreign operations less than SAR 1 million ($266,667) would be exempt from the headquarters rule.

However, Musa said the 2021 ruling had not had an major impact, with companies looking to the kingdom because of the business opportunities, rather than the RHQ rule.

“It’s one of these things that still needs some clarity,” he said. “For example, what is a regional head office? Does that just mean you have to put a C-suite person there or your whole board there? 

“What’s driving people to open offices is the opportunity there. If the country or the state makes it relatively easy to set up a business, then people will make that decision. 

“Three, four, five years ago, opening a business in Saudi wasn’t easy and it wasn’t the most desirable place. What Saudi has done in the last few years is what the UAE did 15 to 20 years ago, which is focus itself on becoming an international market and try and attract talent and businesses,” said Musa.

“And now Saudi Arabia has become one of the biggest opportunities in the region”.