Week of March 28-April 3, 2008 Attorneys tell business owners how to catch ride on UAE train 28 Houston Business Journal houston.bizjournals.com Week of March 28–April 3, 2008 DATELINE: DUBAI by Camille Tarics Special to Houston Business Journal As “plastics” was the watchword for Dustin Hoffman’s character in “The Graduate,” the watchword for the coming years could still be “Dubai.” Business opportunities abound in the tiny emirate, according to Bracewell & Giuliani LLP attorneys David Stockwell, Ron Erlichman and John Couch, who recently conducted a seminar in the firm’s Houston offices on doing business in the UAE. Stockwell calls Dubai the most prominent of the emirates, “a huge catchbasin for wealth for the world . . . If you can’t make money in the Gulf right now, you can’t make money anywhere,” he says. Businesses can readily set up separate limited-liability entities in free trade zones and enjoy complete freedom to run their businesses without a foreign agent or foreign ownership, the attorneys explained. “Think of it as like being offshore” says Erlichman. Each free zone has its own rules and regulations, but on the whole they are less bureaucratic and more business-friendly than the rest of Dubai, making it quicker and simpler to set up a business there. However, free zone businesses have a significant territorial limitation. “You can do business in the free zone and from the free zone everywhere else, but not in the rest of the emirates”, explains Couch. To operate in the rest of Dubai, businesses may conduct indirect operations via a representative office or a commercial agency agreement, or they may elect to establish a permanent legal presence by forming a UAE entity. Due to a change in the law, opening a branch office is no longer feasible. A commercial agency agreement means that a local UAE-owned company sells for the company it represents. These agreements are exclusive and are territorially based. One emirate is the minimum area. A company can be subject to a suit for infringement if it brings in goods through someone else. Commercial agency arrangements are easy to get into but can be difficult to get out of. If problems arise, they can end up being expensive. For example, if a company has a dispute with its agent, the agent can block import of the company’s goods until the dispute is resolved. Liability can also be a problem. Couch cautions that “your agent is no more than yourself in a foreign zone, and you will be liable” for acts the agent commits. Previously, agency agreements were required to be evergreen. Now a term can be specified. But if a company doesn’t renew, it may still face claims from a disgruntled former agent who demands compensation. Canceling an agency agreement during the term is virtually impossible. Conducting direct operations by means of a UAE entity requires 51 percent equity ownership by a UAE national. Although the foreign partner Ras Laffan LNG Operations Company Shareholders Stake RasGasI Qatar Petroleum Exxon Mobil Itochu Iwai Corp. Korea Gas Corp. Nissho Iwai Corp. 63 25 3 5 4 Trains 1 & 2 6.6 mtpa RasGas II Qatar Petroleum Exxon Mobil 70 30 Trains 3, 4 & 5 31.1 mtpa RasGas III* Qatar Petroleum Exxon Mobil 70 30 Trains 6 & 7 15.6 mtpa Qatargas I Qatar Petroleum Total SA Exxon Mobil Mitsui Marubeni Trains 1, 2 & 3 9.7 mtpa Qatargas II Qatar Petroleum Exxon Mobil 70 30 Train 4 15.6 mtpa (combined) Qatar Petroleum Exxon Mobil Total SA 65 18.3 16.7 Train 5 Qatargas III* Qatar Petroleum Conoco Phillips Mitsui 68.5 30 1.5 Train 6 7.8 mtpa Qatargas IV* Qatar Petroleum Shell 70 30 Train 7 7.8 mtpa Facilities in green are under construction * LNG bound for U.S. (Golden Pass) Trains Capacity (million tonnes/yr) Source: Qatar Petroleum Attorneys tell business owners how to catch ride on UAE train may be required to put up the money, the UAE national must receive 51 percent of the profits. “We’re not talking about straw men,” says Couch. If the structure is ruled a TARICS sham, the company can lose 51 percent of its investment. A commercial agency agreement BY CAMILLE means that a localagreements UAE-owned company SPECIAL TO HOUSTON BUSINESS JOURNAL Both agency agreements and direct operations require sells for the company it represents. These careful structuring as to dispute resolution. As “plastics” was the watchword for agreements are exclusive and are territori“WeHoffman’s do not recommend litigation the courts Dubai,” emphasized based. Oneofemirate is the minimum Dustin character in “The Grad- inally Couch, ifthe dealing area. national.” A company can be subject to a suit for uate,” the“especially watchword for comingwith yearsa UAE infringement if it brings in goods through could still be “Dubai.” Business opportunities abound in the someone else. Commercial agency arrangements are tiny emirate, according to Bracewell & Camille Tarics is David a Houston-based freelance writer. to get into but can be difficult to get Giuliani LLP attorneys Stockwell, easy Ron Ehrlichman and John Couch, who re- out of. If problems arise, they can end up cently conducted a seminar in the firm’s being expensive. For example, if a compaHouston offices on doing business in the ny has a dispute with its agent, the agent can block import of the company’s goods United Arab Republics. Stockwell calls Dubai the most promi- until the dispute is resolved. Reprinted for web use with permission from the Houston Journal. all rights reserved. Liability can also be a problem. Couch nentBusiness of the emirates, “a ©2008, huge catchbasin Reprinted by Scoop ReprintSource 1-800-767-3263. for wealth for the world . . . If you can’t cautions that “your agent is no more than make money in the Gulf right now, you yourself in a foreign zone, and you will be liable” for acts the agent commits. can’t make money anywhere,” he says. Previously, agency agreements were reBusinesses can readily set up separate limited-liability entities in free trade zones quired to be evergreen. Now a term can be and enjoy complete freedom to run their specified. But if a company doesn’t renew,