United Arab Emirates: UK Triggers Brexit: Will EU's Loss Be Dubai's Gain?

Last Updated: 20 July 2017
Article by Crowe Horwath

Emerging markets are becoming increasingly attractive to 63 per cent of UK businesses, with 75 per cent eyeing Dubai as an overseas business location to expand into as the UK will no more be an attractive option after the Brexit, according to a latest study.

New research by Dubai Multi Commodities Centre (DMCC) said 42 per cent of UK businesses are more inclined to expand operations overseas since the Brexit vote and US election results.

"As the nation awaits the triggering of 'Article 50' on March 29, the uncertainty over Brexit is making UK businesses more open to overseas expansion, with 42 per cent of UK businesses confessing to having more appetite now than previously to expand their business presence overseas," according to the study released on Monday by a Dubai government entity on trade and enterprise.

Amongst the top reasons for eyeing overseas expansion include emerging markets becoming increasingly attractive (63 per cent), business need for global presence (47 per cent), availability and wealth of overseas talent (44 per cent), too much uncertainty in the markets and the UK no longer being an attractive option (36 per cent), it added.

Gautam Sashittal, chief executive officer, DMCC, said his centre can help UK businesses to establish their global footprint.

"While research reveals that the full impact of the UK's exit from the European Union is unlikely to be felt for another two years, British businesses are clearly identifying international opportunities to expand their operations and complement current business activities in new markets. DMCC can help these businesses establish their global footprint, trade with confidence and access new markets, in the same way that we have welcomed over 13,000 thriving companies since 2002," he said.

Out of the UK businesses open to expanding into overseas markets, a staggering 75 per cent say they are eyeing Dubai as a possible overseas location to expand into, the research said. And out of the UK businesses that are still undecided, it indicated that 40 per cent of the businesses say they would consider the Middle East as a territory to have presence in if they are open to overseas business expansion.

"The newly released research by DMCC showing that most UK businesses are eyeing Dubai for their overseas expansion post Brexit is, by a long shot, not surprising," Saad Maniar, senior partner at Crowe Horwath UAE, told Khaleej Times.

As the UK Prime Minister Theresa May prepares to trigger Article 50 at the end of March 2017, he said respondents in the study cited availability of tax free incentives and ease of paperwork formalities as some of the reasons that would make it more attractive for them to expand into overseas markets, factors which technically qualify Dubai as the best bet for foreign startup entities.

"Despite Brexit concerns weighing heavily on commerce, its business as usual for Dubai and the UK," Maniar said.

Referring to Dubai Customs statistics, he said Dubai-UK trade totalled Dh6.7 billion ($1.82 billion) in the first quarter of 2016, imports accounted for Dh4.6 billion in, exports reached at Dh393 million and re-exports hit Dh1.66 billion.

"Total trade for 2015 was Dh29.7 billion. We predict that the trade figure for this year would be higher," he said.

The UAE and UK have set a bilateral trade target of around £25 billion (Dh120 billion) by 2020 after successfully achieving £12 billion trade target in 2013 due to active role played by the UAE-UK Business Council.

"We are definitely seeing more interest in exporting and opening in Dubai. The UAE is the fourth-largest export market for the UK outside of Europe, so it is a natural next step for many companies looking to expand internationally," Emma Kirkman of the British Centres for Business in Dubai.

"Given the strong existing ties between the UAE and the UK, and the fact that many people are aware of Dubai as a tourism destination, it is often at the forefront of people's minds when looking at new markets," Kirkman said.

Uncertain future

Jeremy Cape, partner at international law firm Squire Patton Boggs, said the future of the UK when it leaves the European Union at the end of March 2019 is unclear.

"It's imperative that the UK government starts to provide some indication of the direction that the UK is likely to take. At the moment, it has not communicated that certain compromises will need to be made, or given any indication as to what those compromises might be. It would not be surprising if businesses were considering expanding their operations outside the UK when, for example, they do not know to what extent they will be able to hire non-British employees," he said.

And amongst the UK businesses that are still hesitant about overseas expansion, the DMCC research said 34 businesses say it is because their business is not applicable for an overseas market, however certain features could make it more attractive for them to consider overseas business expansion.

For 43 per cent of UK businesses, tax free incentives would make it more attractive to expand into overseas markets, and for 29 per cent, the ease at which they can arrange paperwork (trade licence, visas, office space) would help them consider an overseas expansion, according to the research.

"Although a favourable tax regime will never be a good reason in itself to invest in a particular jurisdiction, it would be naïve to conclude that a low-tax regime for both corporates and individuals has no effect on investment decisions. For that reason, it is no surprise to hear that more UK businesses are considering expanding operations in the UAE. Furthermore, the UAE's aggressive tax treaty programme is enabling it to position itself attractively as a holding company jurisdiction," Cape told Khaleej Times.

Some 80,000 plus international companies including 5,000 British firms have already been working in major free zones of the UAE and these numbers might go further up after the value-added tax (VAT) introduction. Moreover, the UAE has signed more than 103 agreements on the avoidance of double taxation, and more than 66 agreements to protect and promote investment with various countries. These deals provide a legal framework allowing tax authorities to cooperate without violating the sovereignty of other countries or the rights of tax payers.

"There are no direct taxes on corporate profits or personal income in the UAE, but the country will start implementing VAT in 2018," Maniar said.

Even with the looming introduction of VAT, the UAE continues to enjoy its place as the top-ranking country in the Middle East and North African region and is also ranked as one of the top 10 global improvers, according to the 'Doing Business 2017' global rankings released recently by the World Bank.

"The country has been implementing reforms to make doing business easier, and it continues to lead the region in terms of numbers of reforms implemented, with five reforms implemented over the past year," Maniar concluded.

Source: Khaleej Times > Business > Muzzafar Rizvi

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