Business applauds low tax regime

Sunday Business Post - Dubai Special - Aug 19 2007

Tax-free zones and other enterprising initiatives make Dubai an attractive place for business.

Dubai’s location, between east and west, and its open and pro-business economy, ensures its place as an increasingly popular Middle Eastern base for Irish businesses.

More than 30 Irish companies operating across different sectors have operations in the United Arab Emirates (UAE), and Enterprise Ireland has a permanent office in Dubai. CR2, a banking software firm with headquarters in Dublin, has 22 permanent staff in its Dubai office.

Two of the firm’s four executive directors, chief executive Martin Dolan and director of sales and marketing Kieran Kilcullen, are based in Dubai full time.

"We acquired a British company called Interlink in 2000,” said Kilcullen. “They had a large population of banks in the Middle East that were now customers of ours so it made sense to have a base here.” On a recent Enterprise Ireland trade mission to the region, CR2 announced a deal to provide software and services to the Bank of Sharjah in the UAE.

AdaptiveMobile, another Dublin firm which makes security solutions for mobile phones, set up a sales operation in Dubai in 2005.

"There were three aspects behind picking Dubai,” said Graeme Baker, AdaptiveMobile’s general manager for the Middle East. “One is that it is a very good hub, central to the region. It is also important that customers see that you are committing to the region. Then from a tax perspective locating here is very efficient.” Tax is an important consideration for companies operating in Dubai.

Although there are some stringent regulations regarding foreign ownership of businesses in the United Arab Emirates, companies operating in designated so-called ‘free-zones’ in Dubai pay no direct taxes on corporate profits and staff pay no direct personal income taxes.

There is also 100 per cent repatriation of capital and profit within the ‘free-zones’. Businesses that wish to set up in a ‘free-zone’ pay a registration fee and are then granted a set number of work and residency permits, and also provided with office space.

“We have a wholly owned subsidiary of AdaptiveMobile registered in the UAE. It depends on the type of registration you do. If you have a lot of people on the ground you might take an office in the free-zone and get so many desks and so many visas,” Baker said.

“A lot of people here are in Dubai Internet City or Dubai Media City and the average for a small company to register can be about $50,000. With the type of office that we are running, we went for one of the outer zones and our set up was much less," he said.

While CR@ is not based in a free-zone, Kilcullen said that the firm had a local sponsor. "As a representative office of CR2 UK, our British subsidiary, there is no corporate tax on the business that we do in the Middle East,” he said. “So it is still a tax efficient base."

Kilcullen said that Dubai’s location was ideal for CR2. "We have customers in 77 countries and Dubai is the logical base for us,” he said. “We ourselves tend to host our annual user conference in Dubai, as it is a very useful location for customers based in Russia, Central Asia, Eastern Europe, Africa as well as the Middle East to get visas for and to fly to.”

Kilcullen said that CR2, who have about ten Indian, seven Irish and a few British and South African staff working in Dubai, had no problem persuading people to relocate to the UAE.

“When I first came to Dubai ten years ago it was impossible for foreigners to put down roots here or buy property,” he said. “These days Dubai is much more like an international base like Dublin or London or Paris. We no longer feel the need to offer people big packages to re-locate to Dubai, we find people coming to us asking to be based here."

The company has no difficulties securing work permits for anyone it wants to employ, according to Kilcullen.

"It is very easy for us to bring employees into Dubai from any part of the world. There are no restrictions on the kind of staff that we can employ, which is obviously very important for us.”

Baker, who gave a presentation to other interested Irish companies during an official visit to the UAE by Taoiseach Bertie Ahern earlier this year, said that Irish businesspeople had to get used to different ways of doing business in the region.

"One of the things we highlighted was that the rules of Europe really do not apply here," said Baker. "In any business it is always relationships that are important but here it is even more so. In some environments you can be very successful by using a local partner, whose introduction can carry a lot of weight. This is not a place where things happen quickly. You tend to go back for another meeting and another meeting. By European standards you might think that you are wasting your time here, this is the fourth meeting and nothing has happened yet, but it is all part of the process. Ultimately they will say yes.”

Kilcullen said that CR2 had run into no major problems doing business in Dubai.

"There is probably a little bit more bureaucracy than Ireland, but it all works quite smoothly and efficiently and does not impact on the running of the business," he said.

"There is a big drive towards e-government. We have generally found it to be a very pro-business environment."

He said that many of CR2’s potential customers were actually setting up operations in Dubai themselves, which was a bonus.

"More and more international businesses are basing their assets there, or increasing their presence there. We have some large corporate customers who have strong regional centres in Dubai, such as Standard Chartered Bank and Barclays."

AdaptiveMobile recently raised $14 million in funding, which included investment from Noor Financial Investment Company, a Kuwaiti investment firm.

The firm uses its Dubai operation to service customers in markets ranging from South Africa, through Saudi and Kuwait, to Bangladesh and Indonesia. Lorcan Burke, co-founder and chief executive of AdaptiveMobile said that Middle Eastern customers were prepared to pay a premium to secure the best products.

"If they are buying they want to buy the best technology," said Burke. "They do not buy second rate stuff. They can afford the best, but they do not spend money in a ridiculous manner. They are hard negotiators, but they will pay good money."

Barker said that he had experienced no cultural or social problems either living or doing business in the UAE, which is among the more liberal of the Muslim states in the region.

"You have to respect the fact that they have pride in their country and pride in their religion," said Barker. "As long as you show them respect you are fine."

The Irish businesses operating in Dubai cover a broad range for sectors, from AIB in financial services to OpenMind Networks, Valista and Cellusys in telecoms and Clearstream Technologies, Crannog and Medentech in healthcare. Mercury Engineering, McNally Design, Zutec, ICDS Recruitment, and Sturdy Products are active in the construction sector.

CR2’s Kilcullen said: "My advice to people would be to look at the type and volume of resource that you want to base here," he said. "Dubai is not the cheapest location internationally to base resources.”

He said that Dubai was neither a low cost nor a low wage economy. “We have put core resources in Dubai and satellite locations in Bangalore (in India) and Amman (in Jordan) where manpower costs and the costs of living are not so high."