The Importance Of Offshore Financial Centres For MENA Entrepreneurs
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Against a backdrop of continued economic development and diversification away from oil, strong international business relationships have arguably never been more important in the Middle East. With a fresh focus on entrepreneurialism in the region, a strong business environment is vital to ensure small businesses and startups thrive.
This is where international offshore jurisdictions, such as the British Virgin Islands, are key to supporting business development in the region. Through a combination of their reputable legal framework, accommodating regulatory environment and encouragement of international investment, international offshore centres play a significant role in supporting entrepreneurship in the Middle East.
Trusted legal framework
Many offshore jurisdictions base their legal systems on English common law, making them trusted destinations for businesses worldwide. The various protections and benefits afforded to companies registered in such jurisdictions create an attractive, and in certain respects ‘neutral’, environment for those operating on an international level.
Though companies operating in the Middle East must still be compliant with local laws and regulations, incorporating such companies in an offshore jurisdiction offers an additional sense of stability given the long standing reputation of the British legal system.
Earlier this year, the British Virgin Islands and Dubai offices of offshore law firm Walkers acted as legal counsel to Amazon.com, Inc. on its acquisition of Souq.com, a leading e-commerce retailer in the Middle East. Adviser Goldman Sachs touted the deal as the “biggest ever technology M&A transaction in the Arab world”.
Transactions such as this illustrate the role of the British Virgin Islands and other international offshore financial centres in facilitating business in growing markets in the Middle East.
Supportive regulatory environment
A key element to maintaining a successful offshore jurisdiction is having a forward thinking attitude with regards to business related laws and regulations. In this regard, the British Virgin Islands has demonstrated its ability to remain at the forefront of regulatory development through the implementation of a number of initiatives over recent years.
The introduction of the Beneficial Ownership Secure Search system (BOSSs) earlier this year is a prime example of the jurisdiction’s dedication to constant development within the region. The innovative platform puts the BVI at the helm of global initiatives to combat trans-border crime and illicit financial activity.
Regulation in international offshore jurisdictions such as the British Virgin Islands provides a stable framework for entrepreneurs, illustrating the ongoing commitment of such jurisdictions to creating a supportive environment for small businesses.
Encouragement of international investment
In addition to their reliable legal frameworks and supportive regulatory environment, the reputation of trusted international offshore financial jurisdictions is a powerful incentive for those considering investment in a Middle East-based business.
For those who are interested in the region as an investment option, but are uncertain about the logistics of the Middle East, offshore jurisdictions offer the perfect compromise. Investors are able to get the best of both worlds by gaining exposure to a new market whilst maintaining comfort and familiarity by investing through a recognised jurisdiction.
Careem Inc., the Dubai-based ride-sharing platform, is a prime example of startup entrepreneurs successfully securing investment via a British Virgin Islands incorporated investment vehicle. Established in 2012 as a website-based service for corporate car bookings, the business was recently valued at $1 billion and is widely recognised as the "Uber of the Arab world."
Establishment of investment funds
Many international offshore jurisdictions offer a selection of investment funds to meet the growing needs of startup entrepreneurs based in the Middle East.
A prime example of this is the British Virgin Islands’ introduction of an incubator fund regime in 2015, aimed at startup managers looking to establish a fund quickly and cost-effectively without having to comply with onerous regulatory obligations. An incubator fund is permitted to operate for two years with no functionaries and no requirement to appoint an auditor, providing it maintains a maximum of 20 investors at any given time, a minimum initial investment of $20,000 by each investor, and a cap of $20 million on the value of the net assets of the fund. Such incubator funds offer a cost-effective alternative for entrepreneurs looking to establish a track record without having to commit significant resources and time to raising capital.
In addition to lower set up fees compared to other types of funds, incubator funds also offer businesses the added flexibility of being able to commence trading within two days of submitting an application for approval with the Financial Services Commission.
Success through partnership
Given the changing demographic of the population, increased digitization and positive noises from respective governments in the region, entrepreneurialism in the Middle East shows no signs of slowing down any time soon.
Small businesses are looking for international partners to provide a stable business environment and support their growth and it is here that offshore financial jurisdictions will prove their worth and show that they are critical to unlocking the entrepreneurial promise of the region.
There is no telling what the next few years will bring to the startup scene in the Arab world, but no doubt international offshore financial jurisdictions, including the British Virgin Islands, will have something to do with it.