On-demand seminar: Going International - Dubai

Scott Jolliffe: I wanted to take you to a very different part of the world, to the Middle East and in particular to Tim Casben in our Dubai office, where it's now, I believe it's after 7:00 in the evening. So, Tim, thanks for joining us at this hour. Let me introduce Tim to you. First of all he is the head of our Dubai office which serves not only the UAE but the Middle East region and also Africa. Tim's own practice covers all aspects of corporate work, M&A, private equity and joint ventures. So, Tim, over to you.

Tim Casben: Thank you Scott. I had a slide, it's changed Scott. I had a slide which showed our office and actually a new building which is being built by Brookfield and it was just an example of the …

Scott Jolliffe: There were gremlins in the system.

Tim Casben: Yeah. So, this photo I was going to talk about, and I'll talk about it anyway, because it's a very significant investment by Brookfield in the UAE. It's joint venture between Brookfield and an investment corporation in Dubai and it's a billion dollar real estate project. 50 stories and very significant. In fact I also had that slide because I built a caption of the view from my office which directly looks down on the building site, which at the moment is about a hole, goodness knows how deep. This slide has another picture on it of DP World joint venture which was announced this week, that was with CDBQ. That's a 3.7 billion joint venture for sort of international ports business between DP World and Canadian Pension Fund. As I say, that was just announced this week. I think Canadian stock is riding high at the moment. I think as Scott mentioned at the start of these presentations, I think Canada itself is viewed well. Canadians are viewed well. You clearly came out of the economic crisis, financial crisis, where your banks managed to avoid a lot of the issues that a lot of the international banks had. And there's clearly creativity to take advantage of that and frankly, your North American friends next door and some of Trump's rhetoric, hasn't really helped the US cause here.

So, to why would you look at doing business in Dubai, Dubai genuinely is an international hub. I came here eight years ago and I wouldn't have said that then. I was touring somebody quite recently who came out here 25 years ago to fly for Emirates and they had seven planes at the time. They've now got some 350 planes. He said he looked at a map to see where Dubai was and he said, "It's just in the middle of nowhere." And he said, "What's incredible now is Dubai is in the middle of everywhere." I think that's a really apt description of where Dubai finds itself in today's context, and context world-wide. This year it will become officially the largest airport by international passenger numbers. It's projected 85,000,000 passengers in 2016. They're looking to grow that to over 160,000,000 by 2027 and they're building a brand new airport to take that capacity. Some other statistics, just to put a bit of context around this, there are 10 daily flights to London and all A380's. There are two fluctuating flights confirming and two daily flights to Manchester, one to New Castle, one to Glasgow. That's an extraordinary number of flights just coming out of the UK and it really has become this incredible hub, internationally.

The next part is as important because it is becoming a logistics and infrastructure hub so the Jebel Ali Port is the largest in the Middle East. It's expanding to 22.1 million containers by 2018 and that services over 140 ports world-wide. Dubai, itself, really benefited from the Arab Spring when I first came out here in 2009. In the years coming up to that we had talked about possibly opening in Bahrain to do something a bit different, that had a stronger nexus with Saudi, we thought that was a great market. Happily we didn't go down that route. Bahrain has really trodden water and gone back during the period that Dubai has grown and expanded. Tourist numbers has doubled 30 million by 2022. There've been a whole raft of things coming on line this year and will continue to come on line over the next few years. There is IMG Worlds of Adventure which is the biggest indoor theme park, opened in October, and the Opera House opened here in August. There's a massive Legoland that's opened. There's a massive Hollywood Studios so rather than going to Hollywood they've gone to attract the Indian market and created a Bollywood Studios. There is some good thoughts around what they are doing here as well. The significant population growth, the current population of Dubai is about 2.6 million and they're expecting that to grow to four in the next six years. It really is becoming the New Silk Road as well, primarily built up by Emirates which is now flying to something like 150 destinations across 81 different countries and that's coming in from Asia, Europe, Middle East and into the Americas and North America, and particularly down into Africa. Where we're seeing a lot of business opportunities is through China, South East Asia, through here into Africa.

What's the legal background? It's a federation of seven Emirates. There's no reigning Federal law and then there are local laws so both Dubai and Abu Dhabi have their own local laws. It's civil law jurisdiction. That is different from us for coming from common law jurisdictions. There is no real case law, there's no precedent system here and so that has it challenges, particularly in the local courts. There is also Sharia law which has its overarching position within the country. It doesn't particularly affect commercial laws which are really governed by the civil code in commercial laws but it very much does deal with personal laws, so whether that's succession issues or marital issues, etc. And obviously where you do see it in the commercial perspective is around Islamic finance and so Sharia compliant investments is obviously something that people from the region are very interested in and keen on and real estate is an obvious of that. That will affect financing as well around these investments. There are economic free zones as well here. You've got the Dubai International Financial Centre and you've got Jebel Ali and DMCC, and those are three amongst 10 or 11 different free zones that are being created. The free zone means that you can have 100%25 overseas ownership and I'll come on to that in a bit more detail. DMTC, for example, has grown really exponentially. That grew by something like 22%25 last year and now 12,000 registered companies, overseas companies, in DMTC alone. In the DIC there's over a 1,000 registered companies. These are all pretty significant free zones and areas for international commerce. One of the interesting things about the DI of C is that it has its own legal system and has its own court system as well. That's been very interesting for us common law lawyers because it's default position is common law so the Judges that are sitting in the DIC courts are common law Judges. What we're increasingly seeing now is international businesses looking at doing business within this region are choosing to do their business under DI of C law. That's great for us and from a legal perspective we understand that and that works well internationally and avoids the need to go into the local courts, other than through enforcement. The great benefit of DI of C judgments is that they, well they should, and that they normally are automatically enforced on shore. That means otherwise the courts here do have the right to look at the merits of cases before enforcing but they have an automatic fruition which allows it automatic enforcement from the DI of C and our litigators are very excited at the moment because the DI of C is really pushing itself out there as saying it can be a conduit jurisdiction so that if you get enforcement within the DI of C courts then you should automatically be able to take that outside under various treaties around the GCC. That's something that is a very hot topic. It's very recent and the DI of C are pushing that very hard.

The principal options for an ownership structures in the region, you can set up a branch and that does require a local agent, it does depend slightly on the licence you are wanting to get as to how easy that is to do. You can do that in the free zone or you can also do that on shore. If it's in a free zone it won't require a local agent but if you're on shore, which is anywhere other than a free zone, you will require a local agent. Obviously the downside of a branch is, as you may be familiar with this, is that there is a lack of protection from a limited liability perspective in the branch. One of the issues here is that certainly a number of sectors, construction industry particularly, if you want to establish a branch you've got to have demonstrable track record in the company that you're setting the branch up underneath. You can't just have an SPV to try and protect your liability. The alternative then is setting up a free zone entity in one of the free zones. These can be 100%25 foreign owned but they are limited to activities and the activities are limited to within the free zone that you are actually in. You can have a radical … for job for sales support but generally you can only do business within that free zone.

Then you have enteral corporates. They require a minimum 51%25 local ownership. That always sounds pretty scary if you're new to the jurisdiction but that's been around for a long time and the vast majority of international businesses here operate with a 51%25 local partner, who sits really as a silent partner. There are arrangements in place around that, let's call it a joint venture, but around that joint venture where really for an annual fee the local partner gives up all rights in respect of the management of the company and profits, etc. That actually is very much enshrined within the system here that the 49%25 overseas shareholder can have management control and also can have 80/20 profit split. As I say, there tend to be arrangements which deal with the other 20%25. There's a question around that last bit, around the last 20%25, and the legality of that but that's generally accepted as what's happening. The other thing here, and it's something that we do a lot, is working with a couple of businesses that are established here that provide that 51%25 local ownership as part of a business. In fact we act for a client of ours in the summer that acquired the biggest of those which has over 350 international clients that they provide that local partnership service for. As I mentioned there are certain restrictions on term licences and business activities and the examples of those include lawyers and construction engineers, which require professional licences and there are requirements around obtaining those. Commercial considerations to take account of, there's no distinction here between an agency and distribution. If you're distributing goods here you do need a local agent. That means you have to distribute through either an UAE national or a corporate entity that's owned by UAE nationals. There are very protective commercial agency laws and those come in effect for registered commercial agency agreements. You really must take advice before you enter into any form of agency or distribution agreements because they are incredibly protective. For example, we've had clients that have actually given up distributing here when they had over 10 billion dollars of distribution in value and they just stopped because they just wanted to get out of the arrangements they had and there is no other way of doing that. You do have to be extremely careful. There are ways of avoiding the commercial agency laws. Basically if it's a non-exclusive relationship then that can't be registered. That's one of the key ways of doing it. Obviously your commercial agents duty to here is going to try and push for exclusivity but you really do have to try and fight back on that and there are very good commercial reasons why you'd want to do that. There are the odd exceptions where you actually do have to use compulsory, that you have a registered commercial agent to sell goods, and that would around defense, etc.

IP protection, I guess similar to what Jamie said about China really, registration is key here. Trademark registration, patent registration is very important. You can register copyright and designs here as well. I think that is critical. One of the other things you've got to consider if you're bringing a brand into the region is registering a trademark in Arabic as well as English because what you do find is people will register your trademark in the Arabic language and then you've got a fight on your hands similar to the one that Jamie was describing. I think one of the good things here is that the law is very much on the side of the registered holder and that's also in the case of counterfeiting as well. We've recently been doing work for a client here who was just trying to clean out some of the products that were in the market, the counterfeit products in the market. We've had incredible success because it is a criminal offense and I was talking to a colleague today who within three days got a letter back literally saying, "We're so sorry. We'll remove everything from the store" and that's the sort of response that you do tend to get here because it's a criminal offense. Businesses will be shut down and there is a strong enforcement culture here. If anybody has been to Karama, which is where they have all these fake handbags, you won't believe me when I tell you that, but it is actually true. One of the other key points if you're buying a business is that there's no automatic assignment of rights, so IP is personal. Belong to the individual. That is pretty challenging. You can't just have a generic assignment in an employment contract, for example. You've got to do it by each sort of project, really, and try to assign the rights attaching to each of those projects. That's something that's very important to watch out for if you're looking at acquiring a business here.

Other employment considerations to take account of, actually similar to what Jamie was saying, generally tribunals tend to be pretty employee friendly. Employee rights are quite underdeveloped. I guess examples would be that there is no minimum wage, maternity rights are 45 days fully paid with a very generous 10 days of unpaid, and that's it. So there are areas where it really hasn't caught up with the international norms and standards. The labour law itself is pretty prescriptive so it deals with summary dismissal and lists out for what reasons you can summary dismiss somebody. It talks about repatriation, etc. It's quite prescriptive, the labour law here. There's no real concept of unfair or wrongful dismissal. You do have to be careful in a similar way, I mean it's not as extreme in China, but it's quite challenging to dismiss employees here. You do have to watch that. There's something called arbitrary dismissal but the downside is pretty limited as its three months, there's a cap on three months' pay, so it's quite limited. The concept of end of service gratuity is something that you should look out for if you are acquiring businesses particularly with a significant number of employees End of service gratuity is 21 days' pay for each year of service and that goes up to 30 days' pay after five years. You can find yourself inheriting a pretty significant liability. One of the tragedies, even if you are providing for that liability as you sort of move along, which you would do in normal cases and counts, it's based on the final salary, so it's quite important. If somebody has had significant salary increases in the last couple of years you could've provided along the way and suddenly you've got a much bigger liability at the end of the road.

Tax, unfortunately as I said here, there is no income tax. That's obviously terrible but it's a hardship posting stage. Be aware of that and that's why there is no income tax. For you, the good news is that there's no corporate tax, there are exceptions, branches of foreign banks, oil and gas, Petro-Can companies, etc. but there are very few exceptions. There are discussions at the moment about bringing in corporate tax but I think that seems to have been pushed out a little bit. The focus at the moment is introducing value added tax. That's coming in at a rate of 5%25 from first of January, 2018. We still haven't seen any detailed regulations or information around that. I do think that's going to be a focus over the next 12 months but obviously that's a pretty big change for everybody doing business here. How do the government actually raise any money at all, you might ask. There are import taxes, there are municipal taxes on hotels, restaurants, etc. They also have a number of bridge tolls here and actually living here you're constantly paying government fees for renewals of visas, etc. There a number of ways they do sort of raise taxes. I wouldn't recommend coming in to the UAE thinking it's a tax free jurisdiction because you'll find that there are base level of costs which you wouldn't necessarily expect.

The wider region, we do manage transactions for around the regions, so we have clients that will be potentially buying a businesses across the GCC, whether it's in Saudi, Kuwait, Bahrain, etc. Typically they are also civil code based quite similar to the UAE but there are differences so we'll manage laws, lawyers throughout those different jurisdictions to sign off on certain areas of detail. A good example is Saudi Arabia, for example. Doesn't permit 100%25 on shore in certain areas and very recently it's announced retail can be 100%25 foreign owned. Iran is an area that we aren't advising in at the moment. Jon Parker, he leads our IP practice, has been doing work in Iran over the last nine years. He's got significant experience, particularly around counterfeiting work and trademark protection. Again, similar to here, you can't enforce, and again, it's a criminal offence. I know he's had a few cases which he's taken all the way through the criminal courts, to actually putting people in prison for counterfeiting cases. It's a civil jurisdiction. There a number of nuances that you need to be aware of. If you sign agreements outside of Iran you can actually sign them under different laws so you could have an arbitration clause, for example, between the international party and the Iranian party if the document is signed outside of Iran. An arbitration clause so where it's recommended over courts for an enforcement perspective because they are signed up to the New York Convention. One point to notice that there are pretty high import taxes. We really do have wider jurisdictions from here and that includes Africa as well. I have a colleague, he spends a week a month in Nairobi. He's headed there this week and we're doing a significant amount of work across Africa too.

This really sets out our capabilities. We've got six partners here and 14 lawyers supporting the six partners. All of the partners have been here over eight years so we know the region extremely well. I'm very happy to answer any of your questions.

Scott Jolliffe: Thank you very much Tim. Let me ask, anybody have any questions for Tim? Very thorough presentation Tim. Thank you very much. Oh, we do have a question.

Audience: Good afternoon. I have a question relative to the KSA, your neighbour next door. In their history this is the first time that they've ever gone to the market to raise funds and I was wondering how you feel about how this is counterproductive to the Muslim faith, and how this is going to go on, and should anybody investing in this area be concerned about the market and cash flow over there? And finally I look forward to enjoying your city at the end of January.

Tim Casben: Great. Yeah, sure. It's really interesting what's happening in Saudi. There is no doubt that there is a realization, has been a realization, over the last 12 months that they could've stopped doing things differently. The oil price really has hurt them hard. I think what's hurt them even harder, actually, has been the war in Yemen. They've been effectively financially supporting Yemen for the last two years and that war and that's such an enormous massive cash and resources out for them. They've had a double hit in the last 12 to 18 months. I was talking to a savvy gentleman last week. He was saying there really is a genuine sea-change. He was coming here to talk to us about looking for inward investment into Saudi because there was a sea-change. The Saudi's are opening themselves up to international investment. They require it. They recognize the require it. We've got a projects and infrastructure team based here. One of the guys did a very significant amount of work in Saudi, going back 3-5 years ago, it's been very quiet for the last two years but there is a whole raft of projects coming out now, looking for international investment. There's a very significant silo project which is about to come out. There's a number of waste water projects. The gentleman I met from Saudi last week was talking about mining, actually. There's something like, I can't remember what the statistic was, but I think it was they are producing $900,000,000.00 of minerals a year at the moment and in five years' time they will want to increase that to 10 billion which sounds optimistic but I think the point he was making that they've focused on oil and gas and haven't focused on the minerals. There's significant gold, bauxite and phosphate in Saudi. There are a number of opportunities across Saudi. Is it a concern to investors because they've gone out and started raising money internationally? I think there's got to be an element of concern that they've got to realize that there is a whole movement that has to happen within Saudi really to bring itself up to international standards. But there seems to be a will to get there and there seems to be a recognition that they do need international investment now and they are trying to open their eyes to that or open arms to that. There's been a sea-change. It's going to be interesting to see what happens in the next 6-12 months but there are significant opportunities in the projects, mining and oil and gas based, I think.

Scott Jolliffe: Okay. Thanks Tim. If you'd give your card to Luke in front of you he can connect you with Tim and maybe even connect up when you're visiting Dubai.