Practical challenges of doing business in the Middle East – Focus on customs

Cargo Containers in Stacks

For many of us, our only experience of customs is a personal one. We hurry past them in the airport, furtively averting our gaze, and hoping that they will not pick on us. Usually, though, as travelers, we might not be too concerned if we know what the duty-free limits are, and what products are prohibited or restricted. However, for businesses engaged in importing and exporting, they can find compliance with customs and other global trade procedures to be a complex maze through which they must navigate.

Many of our clients are multi-nationals that are attempting to get a foothold in the Middle East market. They undertake planning in relation to market entry, such as set-up, licensing, taxation, and so forth, but sometimes they forget about the impact of customs’ duties on their business and financial plans. This might be because the responsibility has fallen into a ‘crack’ or perhaps because the business thinks that customs’ procedures and issues might not be so different to those in their home jurisdiction; or perhaps they usually outsource the entire function to a custom broker; or maybe the customs’ rules just changed.

A recurring theme in the region is a lack of the detailed, consistent, published material that would be needed to provide the level of certainty one might expect to find in some other regions. In the middle eastern countries the legislation is sometimes quite minimal, leading to divergence in its interpretation and inconsistency in local practice. Often our clients are from jurisdictions where governmental websites publish detailed proposals, laws, regulations, policy, guidance, practice notes, examples, case law, and so forth, and where they engage in debate with trade bodies and engage in well published consultation exercises. This mismatch can lead to misunderstandings and uncertainty.

When it all goes wrong

Sometimes things go wrong. This results, typically, in a series of frantic calls to establish what is happening:

  • Goods may be detained in a Middle Eastern port
  • No one seems to understand exactly what is at the root of the problem
  • Costs can start mounting up, such as port storage, container hire charges
  • Late delivery penalties might be incurred
  • Perhaps additional customs charges and penalties are being demanded by customs
  • Customers are upset and complaining.

    What can be done?

    Clients are generally looking for a trusted contact that will be able to help them make sense of it all, and guide them in dealing with their customs’ broker to resolve the issues in the best way they can.

    We, and no doubt other advisors, receive a number of approaches from Middle East-based clients or local establishments of foreign companies, along with referrals from our global network, requesting support. We are often able to help the client identify the cause of the problem and recommend remedial action.

    But there is more that can be done! As with some many other aspects of business, we find that when we are able to work with clients at an earlier stage, before shipments are dispatched, we may be able to guide them to a more efficient outcome, for example through advising on temporary importation rules, use of free zones, availability of exemptions, valuation aspects, document requirements, licensing issues, preferential tariff rates, intra-GCC movements (the Gulf Co-Operation Council customs union comprises Oman, UAE, Saudi Arabia, Qatar, Bahrain, and Kuwait) and other procedural matters.

    We are seeing an increasing number of such contacts from clients, which tends to suggest that more of them are recognizing the need to plan in this area.

    by: Paul McConville, Customs and Global Trade leader, International Tax Services, Deloitte Middle East

     

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