Local Partner or Local Agency: Know the difference
Local Partner or Local Agency: What are your options in the Middle East?
Thinking of starting a business in Qatar, Dubai or Abu Dhabi? If you have spent any time at all researching what’s required, you will no doubt have found plenty of information on the subject, although it may not be all that clear and you’ll be left wondering: what is best for me?
Before you get too far into it, it’s a good idea to make sure you have a sound understanding of the differences between the role of a Local Partner and a Local Agency. These are two terms that are easily mistaken, however are vastly different in what they offer. Choosing the wrong option may have a profound impact on the long-term costs of running your business: a mistake you undoubtedly want to avoid.
In this post, we’re going to look specifically at Local Partners and Local Agencies, so that you understand the key differences between them, and can make the best decisions for your new business in Qatar or the UAE.
What is a Local Partner?
Okay, so what is a Local Partner? If you choose the most common company structure for your new setup (a Limited Liability Company or LLC), you will likely need a Local Partner to hold at least a 51% share in your business.
Qatari law states that for a foreign investor to start a business in Qatar using the LLC structure, there must be a Qatari business partner as 51% shareholder – although that percentage doesn’t need to reflect their share of the profits. These same rules apply in Emirati law: in the UAE you’ll also need to secure a local business partner, who will become a 51% shareholder, unless you are operating within a Free Zone.
A local partner can help you by managing the end-to-end company formation process, and ensure that your investment is protected. Under your chosen company structure, you can maintain complete control over running your business.
How do you find business partners? While there are several local business partners you could choose, it’s absolutely essential you find a business partner that you can trust, and that offers all the services you require.
At Fusion Middle East, we can act as a local partner to a variety of foreign-owned businesses. Not only do we provide a trustworthy and transparent service, we also use our expertise to guide you through the complicated procedure of starting a business in Qatar or the UAE. You can find out more about our company formation services here.
That can mean providing you with support and advice, ensuring you abide by local rules and regulations. It can also mean you benefit from essential PRO Services and Corporate Services, such as visa and permit applications.
Basically, as your business partner, we make the process of starting a business in the Middle East that much easier. Remember how tricky it was finding the right information online? We take the tricky out of that situation!
What is a Local Agency?
Not to be confused with a Local Partner, a Local Agency does something quite different. A Local Agency is usually an established entity, based in Qatar, with 100% Qatari ownership.
A Local Agent’s job is to sell a product or brand in Qatar on behalf of a foreign partner, offering services such as sales, business development, and marketing, for which, the Local Agency will usually charge a percentage.
You can therefore do business in the Middle East without having a formal company setup by engaging the services of a Local Agent, however you will be limited to using this contact only to develop your business. While this option can work on a short-term basis, if you’re looking to develop and expand your business, finding a Local Partner and setting up your own local company is the better option.
What are the types of local agents?
There are various types of local agents, for the various regions within the Middle East. Agency structures that are available in Qatar aren’t always available in the UAE, and vice versa. Each type of agency offering a different service to foreign companies looking to do business in the Middle East:
National Service Agent
First up, there’s the national service agent. It’s important to note that this type of agent is only available to business setups in the UAE; it’s not available in Qatar. When using this type of local agent, the foreign company maintains 100% foreign ownership, but appoints a National Service Agent to manage onshore immigration activities.
Again, this is another type of agency that is only available to companies in the UAE. Across The Emirates, you’ll find that there are a number of free zones where foreign companies can set up businesses, free from the red tape, restrictions and some of the costs associated with setting up in the main economic zones. Each free zone has its own jurisdiction, with its own set of rules and procedures, and these free zones are usually grouped by industry.
But, while there may be certain advantages to setting up a business in a free zone, there are still restrictions to doing business. For example, companies within a free zone can only trade with other companies within that same free zone.
So, if a company within a free zone wants to approach a client outside of that particular free zone, the company would have to appoint an Agent Partner to trade with the client. In this case, the Agent Partner needs to have “general trading activities” as part of its Commercial Registration: something else to watch out for.
The only agency arrangement available in Qatar is the Commercial Agency option. This is where a legal document is drawn up that states that the 100% Qatari owned entity has the rights to promote and distribute on behalf of the foreign company.
The biggest risk with this however, is that the contracts are often exclusive and exist in perpetuity. Therefore if the Commercial Agent is underperforming and not meeting the foreign company’s requirements, it is hard for the foreign company to get out of the arrangement.
In these situations, what tends to happen most often is that the foreign company either finds another distributor, or chooses to set up their own company in order to regain some control over the local operations.
However neither of these alternative options means that the original agreement ceases to exist, and therefore the foreign company – or the newly formed local company – will still have to pay the original agent a percentage of revenue, even if they don’t do anything. Needless to say, this is an expensive, and less than desirable outcome for the foreign company.
Therefore, whatever option you choose for you company, it is extremely important that the company seeks legal assistance with drafting and negotiating the Commercial Agency agreement to ensure that your business is as protected as possible.
However, if you do seek the assistance of a commercial agency, it’s worthwhile checking with the potential agent that they have the network, capability and resources to provide all the distribution, sales and after sales servicing that your company needs, prior to proceeding with any agreements.
Getting Set Up
Hopefully that has made things somewhat clearer for you! But if not, we’re here to help. Contact us today, and we can walk you through all of the options that are available to you when setting up your business in the Middle East.
Fusion Middle East is the local partner of choice for more than 90 clients from around the world. We are equipped to discuss secure business establishment solutions that will work for your business, which work to protect you and your investment. Our business consultations are free of charge; so to save you some hassle and get in touch with us today.