Konstantin Tserazov: The Regulatory Environment Of Fintech In The Gulf Countries

(MENAFN- Mid-East) By Konstantin Tserazov

The Case of the UAE, Saudi Arabia, Qatar, and Oman

“Venturing into the fintech sector in the Gulf countries requires a deep understanding of their diverse regulatory landscapes,” explains Konstantin Tserazov, a renowned economist and former Senior Vice President of Otkritie Bank. As the region becomes a burgeoning hub for financial technology, entrepreneurs must navigate the specifics of business setup, tax conditions, and the varying degrees of governmental support. This article delves into the essential aspects of establishing a fintech operation in the Gulf, highlighting the importance of staying abreast of the swiftly changing regulations and leveraging local opportunities to ensure success.

When a company or an entrepreneur starts considering initiating fintech activities in Gulf countries, the first step should be to understand the regulatory environment. This primarily involves understanding how to establish a business entity, obtain registration, and navigate the best tax conditions.

Additionally, the willingness of local government and non-governmental bodies to support fintech startups in gaining a solid foothold is crucial. Each Gulf country has its unique specifics in this regard. Another important aspect is the swiftly changing regulatory landscape in Gulf countries, making it essential to be regularly updated in laws and regulations issues.

UAE

The United Arab Emirates is establishing itself as a leading destination for fintech activities, recognized as one of the top global hotspots for high net worth individuals from India, the UK, and Russia in 2023. This influx of affluent individuals is catalyzing significant investments in fintech, bolstering the local economy. Contributing to the UAE's appeal are its favorable visa policies, including the Golden Visa and Nomad Visa programs, which offer long-term residency to investors and internet-based workers, respectively, thereby attracting international talent and capital.

Tax regulations in the UAE also support fintech growth, with all businesses required to register for corporate tax but with possible exemptions for small companies and individuals that could result in zero taxable income. Fintech startups enjoy additional benefits like tax relief exemptions until 2026 and the possibility of qualifying for a 0% corporate tax rate in Free Zones, although this rate only applies to qualifying income, with other income taxed at 9%. Once selected, this tax structure cannot be altered, necessitating careful financial planning for growing companies.

Moreover, the UAE's permissive capital movement regulations simplify financial operations, allowing residents to open bank accounts with just a local ID and a mobile app. Fintech firms, particularly neobanks, can conduct international transfers following KYC/AML compliance. This regulatory environment makes the UAE a highly attractive hub for fintech innovation globally.

Saudi Arabia

In Saudi Arabia, fintech startups can choose from three legal structures: a Limited Liability Company (LLC), which requires a local sponsor holding at least 30% and limits foreign ownership; a Sole Proprietorship, available only to Saudi citizens; and a Foreign Investment Company (FIC), which allows 100% foreign ownership but restricts activities to certain economic sectors and regions. While there's no statutory minimum capital requirement, in practice, LLCs may need at least 500,000 SAR, with higher thresholds for certain sectors depending on the mix of local and foreign investment.

Saudi Arabia imposes no personal income tax but levies a 2.5% zakat on net assets and applies a corporate tax (CT) ranging from 20% for most businesses to 50-85% for those extracting oil and gas. The tax regime includes potential holidays for fintech activities like investment management. As part of ongoing reforms, the government is also exploring a digital tax on online financial transactions, reflecting its adaptive approach to fintech regulation.

Qatar

In Qatar, setting up a fintech business typically requires a local partner who holds at least 51% of the entity, although individuals can now establish a business without a Qatari sponsor if they secure at least 50 million Qatari riyals in financing. The minimum investment for a fully Qatari-owned company is 200,000 Qatari riyals. Fintech startups can also benefit from various support mechanisms such as grant programs, incubation by banks allowing 100% foreign ownership, and possibly free office space for a year. Qatar offers significant fiscal incentives to foster the growth of innovative enterprises, including a 10% corporate tax rate and a decade-long tax exemption. Entities like the Qatar Business Incubation Center, Qatar Science & Technology Park, Qatar Free Zones, and Qatar Financial Centre play crucial roles in helping startups navigate the local legal landscape, making Qatar an attractive location for fintech investments.

Oman

When establishing a fintech startup in Oman, adopting a multifaceted strategy is crucial. Leveraging government programs that promote innovation and entrepreneurship is key, as well as networking with peers for potential collaborations and insights into Oman's fintech scene. Involvement with both private and public incubators can provide financial support and expert guidance. Given Oman's limited fintech coverage, actively participating in the community is vital for staying informed and connecting with key players. Fintech firms in Oman benefit from attractive tax incentives, with a base corporate tax rate of 15% and reduced rates of 3% for SMEs with a turnover under 100,000 OMR, making it an appealing environment for new fintech ventures.

Religious Tradition as the Foundation

For fintech companies entering the Gulf region, grasping the legal framework rooted in religious tradition is crucial for successful operations. The region welcomes Sharia-compliant financial solutions like Sukuk, which resemble bonds but adhere to Islamic laws against interest. Additionally, the Mudharabah model offers a profit-sharing setup where financial institutions provide capital, and fintech startups manage operations with shared profits. Takaful, or Islamic insurance, based on mutual assistance, allows participants to pool resources for financial support during tough times.

Fintech ventures using blockchain must navigate regulations that might limit activities resembling gambling. Embracing local traditions is vital, as these deeply influence the adoption of digital financial services and guide legislative developments. Understanding this unique cultural and regulatory landscape is essential for any fintech looking to thrive in the Gulf.

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