Newsflash: Key considerations for UAE companies expanding Internationally
Whether it is to establish new customers and revenue streams or to gain a competitive advantage, for example, through economies of scale, the UAE’s small and medium-sized entities (SMEs) are increasingly looking to expand internationally to achieve their business goals.
Of course, there are a multitude of strategic, marketing, operational and cultural considerations to be taken into account, but the financial, regulatory and tax considerations are amongst the most crucial and are, arguably, the most complex.
Yet many UAE SMEs don’t have the financial expertise in-house to develop the financial projections, raise the required funds and deal with the many, highly technical, tax and regulatory issues. For this reason, many companies hire a vCFO – an interim or part-time Chief Financial Officer – who provides the expertise to oversee the preparation for and initial stages of the international expansion from a financial perspective.
Deciding on the optimal legal set-up is crucial. A company needs to evaluate whether a physical presence in-country is desirable or whether the expansion is best-served by a local partner who knows the market, regulatory environment and the culture. Indeed, in some countries it is a legal requirement to have a local partner or sponsor.
If it is concluded, however, that an in-country presence is the way forward then a decision needs to be made whether that should that be by creating a branch or subsidiary or indeed whether an acquisition of a local business make sense. In making the decision about an in-country presence, a thorough due diligence of the financial, tax and regulatory aspects of the country into which the company is entering needs to take place.
From a tax perspective, a full understanding of the local tax laws with regard to corporate taxes, withholding taxes, employee income taxes and social charges, as well as VAT and customs duties, is essential. Some specific issues that may be pertinent are the regulations on what constitutes a Permanent Establishment (PE), whether tax relief can be obtained for a share of corporate headquarter costs or other out-of-country expenses, transfer pricing regulations for goods or services to be supplied from other companies in the group and double taxation treaties that can be leveraged. In matters of tax, the devil truly is in the detail.
Local regulatory issues that are likely to be of paramount importance are such matters as exchange controls (how easy is it to move cash in and out of the country and to pay dividends), the process of setting up bank accounts, government approval requirements for setting up a subsidiary, a branch or making an acquisition and the legal requirements for keeping accounting records (e.g.in local language with local chart of accounts).
Who we are?
Re/think is a boutique outsource and advisory company providing client-focused services in tax advisory, accounting, human resources, and business advisory.
We specialize in assisting clients with cost-effective, high-quality services and solutions.We create value by investing in highly qualified and motivated people and working closely with leading industry partners to provide our clients with a one-stop-shop for all their business support needs which is tailored to suit your individual requirements.
Neil Guthrie Director of CFO and Advisory Services