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Thu 7 Jun 2018 10:12 AM

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The benefits of having a local sponsorship in the UAE

The CBRE's Nicholas Maclean on the costs and benefits of having a local partner - and the future tax implications

The benefits of having a local sponsorship in the UAE

While the prospect of full foreign ownership of businesses in the UAE will give greater flexibility to the economy, retail brands should not rule out the benefits of having a local partner, according to Nicholas Maclean, managing director of CBRE, Middle East North Africa & Turkey.

“The concept of stabling - one organisation that has a number of brands – has facilitated many brands who otherwise might have been timid coming to market because there’s a shared risk,” Maclean explained.

“They get many benefits including the much greater buying power of local retailers with landlords because they take a significant number of units within a mall.”

Maclean, who is also the Scotland Trade Envoy to the UAE said there are other mutual benefits that have yet to be fully explored.

“As the big local retail players evolve they will increasingly offer big data analytics and integrated logistics solutions. They’ll be a holistic facilitator to incoming brands rather than a cost, and in recent years some of them have begun to explore newer markets, such as Eastern Europe and Africa.

“These are markets that the individual brands would never have thought to go without the protection of their sponsor. And for that reason we aren’t predicting an end to the power of local retailers,” he said.

Exceptions to the rule

As reported in Arabian Business, Apple and Tesla are two global brands that have already been given exemption from the foreign ownership rules.

Maclean revealed that the CBRE helped the Dubai Chamber of Commerce and Industry to compile a list of “globally important brands” who warrant special arrangements.

“We've had conversations with some of the global brands that definitely should be in Dubai but currently are not. And in some instances - very few - but in some instances the sponsorship model doesn't work for them. And there's some flexibility at a governmental level to allow those people to come into the market without a sponsor. I suspect we'll see more of this going forward - but they have to be of global significance to fall outside of the structures that have worked so well for Dubai.”

Full ownership, future taxes?

Sponsoring foreign companies has long been a lucrative option for nationals. With the prospect of that source of income waning in future, Maclean thinks more structural changes could follow.

“The government has clearly weighed up the cost to some of the sponsors here with the benefit to the overall economy. And I wonder whether there has to be other tweaks to the economy to facilitate that lack of 51 percent ownership. And by that I mean the potential for future taxation.”

Benefits of flexibility

Maclean says he is in favour of the recently announced changes to allow 100 percent foreign ownership of a broader category of companies outside of free zones.

“Choosing a local partner is almost the most important decision that anyone makes when they create a business in this country. And sometimes even if that decision is correct at the time of formation there's a desire for the sponsor and operator of the business to go in different directions at some point in the future. So the ability to have 100 percent ownership negates that potential worry.”

The key, he says, is for increased flexibility for all parties.

“Bringing fresh ideas to the country is clearly very important to the government and clearing away some of the potential barriers to entry for any organisation is important to that process. I’m a fan of having a laissez-faire economy. Some people will succeed, some people won’t, but everyone gets stronger as a result of the people who try.”