How to Settle Up When Doing Business In Middle Eastern Countries
Jeremy Davis sells about half of the customized Rolex watches that his New York City firm Tempus Machina designs to clients in cities such as Dubai and Abu Dhabi. “They are extraordinarily wealthy and have an extraordinary amount of disposable income,” says Davis. “They can spend $25,000 on a modified Rolex.”
Fortunately, he’s had no trouble getting paid for his wares. The business, founded July 2015, accepts payments from these customers by wire transfer or credit card with no trouble. “It’s a fairly easy process,” he says.
Many companies that want to export their goods or services to the Middle East use a similar approach to Davis’—and discover that it works very well. However, the situation may quickly become more complicated for those that establish a sales office or other presence in Middle Eastern countries and want to open a bank account for purposes such as cutting payroll checks. Strict anti-money-laundering laws force them to shoulder a considerable paperwork burden to open an account.
“It can really slow down the process,” says Rory Adamson, Client Services director at Radius, a U.K. company based in Bristol that provides accounting, HR, compliance and other services to companies that are expanding internationally.
While the process may be slow, it is possible for U.S.-based exporters to open a bank account in the Middle East. Here are some tips.
ASSESS YOUR BANKING NEEDS
“Most exporters from the United States really don’t need a bank account in the region if they are mainly just exporting products there,” says Tim Balconi, co-founder and managing partner at Timarus Group, a Boston-based firm that establishes partnerships between firms in the U.S., Europe and Asia with those in the Middle East. Typically, overseas companies can make payments to U.S. exporters by wire transfer, says Balconi.
The downside of wire transfers is they can be slow. You could call Dan Nainan an exporter of services—he’s a New York City comedian who performs in Middle Eastern countries such as Oman, Qatar and the United Arab Emirates. He had an unfortunate experience when he received the 50 percent deposit for one such show by wire.
“I remember it took almost two weeks for my payment to come in for my first show in Dubai,” recalls Nainan. “For me that’s awful. I have to have a deposit in order to be confirmed for a show.” Fortunately, he received it in time to travel there to make his curtain time.
For more recent shows in Dubai, Nainan has asked clients to instead transfer money to his Thomas Cook Borderless Prepaid MasterCard in U.S. dollars. His manager in India initially set it up for him, and he draws the money from the card by using it to make purchases. “I love it,” he says. “It works like a MasterCard.”
Some business owners find they can bypass wire transfers by using providers such as PayPal. Sarah Baldwin, who provided her marketing communications services to a client in Saudi Arabia last year, received her payments from that customer mainly through PayPal and occasionally via Western Union.
“What I like about PayPal is it keeps track of everything,” says Baldwin, based in Highland Park, Chicago. “If someone becomes behind on payments, you can send a friendly reminder under your logo.”
If you sell a product directly to consumers in the Middle East, another way to bypass banking hassles may be to handle transactions through Amazon. The online retailer has expanded its services in the Middle Eastern region and provides affordable shipping from the U.S., notes Balconi. “More consumers in the region are buying products via Amazon, which can be purchased through credit card, PayPal, etc.,” Balconi says.
If you plan to open a business entity in the Middle East, you will most likely need to open a bank account, unless you are doing business in a free trade zone. In many Middle Eastern countries, companies that want to set up a business entity need to open a bank account first. Unfortunately, opening a bank account may take a couple of months as a company meets the bank’s anti-money-laundering requirements, says Adamson. “The documents they require can be expensive for small companies to provide,” he adds. That is because of costs such as notarization.
On top of this, to open a bank account in many Middle Eastern countries, companies often need to establish a company license in a country first, says Balconi. Some companies require a local sponsor to set up a company license. In other countries, companies may appoint a leader from the U.S. to act as the general manager on that local license. However, this can’t be done entirely from a distance. “They would have to travel there occasionally,” says Balconi.
One way to speed the process somewhat is to research free trade rules in your industry for the country you are entering to find out about specific paperwork requirements, Adamson suggests. Make sure you have a business plan ready and can document whom your directors will be, he advises. Be prepared to address questions if your business is structured in a complicated way. “In my experience, the banks aren’t used to seeing complex corporate structures as much as in Europe and the U.S.,” he says.
CONSIDER YOUR OWN BANK
If you are already doing business through an international bank based in the U.S., there may be some advantages to asking that bank to help you set up a bank account in a distant country where it operates. “In my opinion, if a company is already banking with a bank in the U.S. that is operating in the Middle East, it is much easier to open a bank account because they obviously already have a history,” says Balconi. However, Adamson says that local banks can sometimes bring advantages, too. “Using a local bank can be just as quick, if not quicker,” he says.
FIND A MIDDLEMAN
Another option for opening a bank account in the Middle East is to use an intermediary. Radius, for instance, works with firms ranging from Silicon Valley technology companies to Rust Belt manufacturers to set up their operations in distant countries. The company’s treasury service division will frequently open a trust account for clients in an overseas country, so the clients don’t have to set one up. Through an electronic portal, clients can control transactions, such as cutting payroll checks, issuing payments to vendors and paying government fees, which Radius does on their behalf. “We are trying to be the overseas back office for our clients,” says Adamson. For businesses that don’t want to take the DIY approach, services like this may offer a welcome relief from paperwork.