João Valadas Coriel participates in the IR Global Guide – The Middle East & North Africa: A dynamic region for inward & outward investment
Foreword by Andrew Chilvers
The Middle East and North Africa (MENA) region is a hugely diverse cultural and geographical mix that stretches from Morocco in northwest Africa to Iran in Southwest Asia.
The region is home to a range of economies with vastly different levels of openness to international trade and investment. But with the help of international organisations such as the OECD and IMF, along with local and foreign investment, much of the region has started to make giant strides in economic development in recent years.
Despite the Covid-19 pandemic that resulted in negative growth of 3.8% for 2020, most analysts agree the region continues to offer ideal opportunities for businesses and investors going forward. Indeed, with the pandemic starting to ease, an estimated $4.1 trillion of projects are planned or underway in many countries across the region as they continue to diversify and expand their economies.
Moreover, to ease the stress on local companies while offering incentives to foreign investors, most MENA countries recently announced a series of fiscal stimulus packages including tax payment reductions and loan guarantees for businesses. These moves have been popular inside and outside the region for encouraging investment and many analysts predict growth increasing to as much as 3.1% for the region in 2021.
Nevertheless, this uptick in economic growth depends on several factors including the ongoing success of the Covid-19 vaccine rollout across the region and the stabilising of oil and gas prices. Furthermore, if geopolitical tensions continue to stabilise, many believe oil exports will recover to 1.8% for 2021 and this will be supported by the resumption of large-scale capital investment projects that were largely put on hold during 2020.
Starting a business in/out of MENA: How easy is it for entrepreneurs and businesses in/out of MENA to start a business in your jurisdiction? How can you help smooth the process for your clients and overcome common pitfalls?
Our targets are largely small to medium enterprises, HNWI (high net worth individuals) and their family offices. That’s where we focus our attention so we can be very competitive. In many respects Portugal is not that much different from Germany; we are both in the EU and the rules are established across the board.
There are no limitations on the ownership or directorship of companies by non-residents in the EU and no restrictions on the acquisition of real estate by non-residents either. However, we do have to conduct due diligence and AML checks on foreign clients because we do have a series of European directives on tax evasion, money laundering and support for terrorism that we must comply with. If a company from the MENA region is coming to Portugal, we have to understand that business, who is running it and where the money is coming from. In Portugal these investigations need to be conducted by lawyers, real estate brokers and banks.
If you are a private person and you want to open a bank account, there is no problem. We do it remotely, notarising documents. For a company, it might take more time because there’ll need to be checks on the ownership and purpose. If you’re not willing to disclose the UBO, forget it, because it’s mandatory across Europe, as Urs said. But it’s also important to point out that you don’t need local partners as you do in Germany.
To set up a company in Portugal you need to register in the Registo Comercial, have an accountant, a tax number and a bank account. Problems can arise for businesses from the MENA region depending on their country of origin. People that come from the Emirates have very few problems, while those from Jordan, for example, could have a problem logistically because people from Jordan are represented by our embassy in Cairo – and things take time to come through. If you come from Iran, Libia or Syria you have the sanctions problem.
Another area to highlight is the rise of the digital nomads; people working for foreign companies but based in Portugal. If you came to live and work from Portugal, you might have a 20% flat rate on personal income tax.
What are the key recent developments your clients should be aware of when investing in/out of the MENA region to your jurisdiction? What grants and incentives are available to overseas investors?
Specialised investment funds are popular right now in Portugal; these have lighter regulations than other investment funds. There is no taxation or capital gains within the funds. If you invest in funds, if you are a resident company or resident individual you will pay, respectively, 25% or 28% tax on exit. If you are a non-resident you will pay just 10% tax on exit.
What is so different about these special investment funds?
They create special purpose vehicles to invest in a portfolio of companies, so you’re diversifying your portfolio across a wider area. Sectors include tourism, which is in crisis right now, wine making, solar energy, medicinal cannabis and many more. With one million euros you can open a fund for subscription of up to 150 non-qualified investors. This is a very good vehicle to diversify your portfolio without too much bureaucracy or too much regulation and if it’s properly managed it can be a very successful investment. In Portugal, we do have direct grants for selected sectors like renewable energy, R&D and advanced technology.
We have these kinds of incentives in place, and you do not need that much money to acquire a good business in Portugal. Unlike Germany, we do not have problems with investors from Saudi Arabia or Lebanon or wherever. We are on good terms with everyone so long as you are bringing cash into the country and we can clear the UBOs everyone is welcomed.
What are the latest trends shaping business growth and creating opportunities in MENA for clients in your jurisdiction? What markets offer the most stability and growth and where would you advise your clients to invest?
The agenda for the Portuguese government in terms of grants and incentives for the next few years is really focused on digital transformation and renewable energies and infrastructure. Combined EU grants until 2030 amount to €43 billion.
We have a very good network in terms of broadband. We have a highly educated, multilingual work force. We have a myriad of corporate incentives; I shall give as an example one where you can reinvest up to euros 3 million of your profits in private equity funds that are certified to invest in research and development. And you deduct this investment from corporate tax. This is similar to how it works in Germany and across the EU. Again, for Portugal it is digital transformation, renewable and clean energy, technology, tourism, wine making. We have the best, most affordable wine land in Europe.
On the other hand, real estate is very popular. There are no restrictions in foreign ownership and there is an urgent need for middle class housing. The agrobusiness, ranging from wine to early fruits, intensive olive groves to medicinal cannabis, is thriving. We also see opportunities in the tourism sector – a lot of operators will not survive the pandemic unfortunately.