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In international parlance, the term “joint venture” (JV) is not always used consistently. A JV is generally understood as “the legal relationship of legal entities and/or individuals running a business or company jointly with the intention of generating an income.”
In the UAE, a JV may be defined as a contract agreement between a UAE party and a foreign party to engage in a desired business. The local party in the JV must own at least 51 percent of the company, while the profit and loss distribution can be prescribed. So the foreign partner can hold 49 percent equity and yet be eligible for a higher share of profits. There is no need to license the JV or publish the agreement. The foreign partner deals with third parties under the name of the local partner who (unless the agreement is publicized) bears all liability. JVs are present in all areas of economy, trade, manufacturing and industrial production in the UAE.
As with several other business structures, JVs may be eligible for an array of benefits such as exemption from personal and corporate taxation, competitive import duties and 100 percent repatriation of capital and profits. However, entering into a JV is a significant undertaking which, if not correctly structured, can expose an investor to significant risks.
There are several professional firms that have local knowledge and offer guidance in establishing JVs. Services include initiating a dialogue with potential partners, working on the business plan, and handling paperwork and documentation formalities. Through the help of professional advice, investors can minimize risks and safeguard their investments.
• Joint Venture is an agreement between local, foreign parties
• JVs can avail of benefits such as tax exemption
• Profit and loss distribution in JVs may be different
Source: Dipshikha Mitra, Special to Classifieds
The writer is a freelancer