Middle East 'Digital Gold Rush': Essential Success Strategies for Korean IT & Fintech Companies [BKL Future Finance]

The Middle East: A New Blue Ocean for Korean Companies

Opportunities Expanding Amid Digital Transformation and Capital Investment

Compliance Amidst Legal, Religious, and Employment Norms Is Key to Success

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The Middle East is rapidly emerging as a new blue ocean for global IT and fintech companies. Saudi Arabia's ambitious 'Vision 2030' project and the United Arab Emirates (UAE)'s ongoing expansion of digital infrastructure are offering Korean IT and fintech firms unprecedented opportunities. However, entering the Middle Eastern market is more than simply expanding one's business reach. Success in this demanding market requires a deep understanding of its complex legal structures, religious norms, and unique business culture.

A Changing Middle East: A New Window of Opportunity

Saudi Arabia is driving a shift from an oil-dependent economy to a diversified digital economy through 'Vision 2030.' In particular, the NEOM smart city and 'The Line' project aim to build a future city integrating advanced technologies such as artificial intelligence (AI), big data, and blockchain. To broaden foreign corporate participation, the government is relaxing regulations and expanding foreign ownership, pursuing a bold policy of opening up. This means significant market opportunities for IT and fintech companies. Naver established its Arabian regional headquarters in Riyadh this February, seeking to enter the Middle East IT infrastructure market based in Saudi Arabia.

Similarly, since the 2021 Dubai Expo, the UAE has been continuously expanding its digital infrastructure, energy projects, and smart cities. By activating free trade zones, it is strengthening its position as a global hub, with recent partnerships with Korea becoming increasingly prominent. Notable examples include the $30 billion investment memorandum of understanding (MOU) between Mubadala and the Ministry of Economy and Finance in 2024, Hanwha Group’s MOU with the UAE’s defense management agency (TQC), and Hashed’s push to establish an asset management firm within the Abu Dhabi Global Market (ADGM).

UAE Market Entry Strategy: Between Opportunities and Pitfalls

Companies considering entry into the UAE should first take note of the Korea-UAE Comprehensive Economic Partnership Agreement (CEPA) that came into effect in May 2024. Over the next 10 years, tariffs on more than 90% of goods traded between the two countries will be eliminated, significantly enhancing Korean companies’ competitiveness.

Choosing the appropriate company establishment method is the first gateway to success. Following the 2018 revision of the Foreign Direct Investment Law, 100% foreign ownership is possible in certain industries on the mainland. However, for strategic sectors such as defense, oil, aviation, or for specific local real estate investments, a local sponsor is still required. While companies established in free trade zones (FTZs) can achieve 100% foreign ownership, operations are limited to within the FTZ; direct business with the mainland requires an agent.

Since 2023, a 9% corporate tax rate has been applied, but certain conditions allow tax exemptions within FTZs, providing potential tax-saving benefits. That said, there is an obligation to disclose ultimate beneficial owners to UAE authorities upon company establishment, so transparency is required.

The Commercial Agency Law is another essential consideration. To conduct business targeting the UAE mainland, foreign companies or FTZ companies must operate through an agent. Fortunately, a legal amendment in June 2023 relaxed agent qualification requirements and allows parties to determine contract termination reasons, making it easier for Korean firms to establish local partnerships.

Exchange rate risks should not be overlooked. The UAE’s currency, the dirham, has been pegged at 3.67 dirhams per US dollar since November 1997, but there is potential for depegging in the future. Especially for long-term projects, exchange rate fluctuations can significantly impact profitability, so it is important to consider including clauses addressing exchange rate fluctuations when drafting contracts.

Saudi Arabia: Greater Opportunities, Greater Challenges

Saudi Arabia is a more complex yet attractive market than the UAE. Its most distinctive feature is the strict application of Sharia Law. Under Islamic law, interest and uncertainty are prohibited; especially for fintech companies, developing financial products compliant with Sharia is essential. Violating these principles can result in contract nullification, so extra caution is required.

Foreign investors can acquire 100% ownership in certain industries by obtaining a license from the Saudi Ministry of Investment (MISA). However, foreign ownership is restricted and joint ventures with local partners may be required for specific industries such as oil exploration, military and security services, real estate investment in Mecca and Medina, Hajj-related tourism, and marine resource fishing.

The Saudization policy is another key factor. Depending on a company’s industry and size, a certain proportion of Saudi nationals must be employed, so this must be reflected in workforce planning.

Financing and Dispute Resolution: Practical Considerations

Funding methods for Middle East entry must be scrutinized. In both the UAE and Saudi Arabia, local financial institutions commonly only deal in Islamic finance products (Ijara, Murabaha, Sukuk, etc.) that do not involve interest, in line with Sharia principles. For foreign banks seeking to lend to local companies, pre-approval or various restrictions may apply, so careful advance planning is necessary.

In Saudi Arabia, under 'Vision 2030,' the Public Investment Fund (PIF) aims to invest $1 trillion (approximately ₩1,440 trillion) in infrastructure by 2030. The National Development Fund (NDF) and similar entities are also actively establishing industry-specific funds. Leveraging these local funds can allow companies to secure financing and simultaneously build local networks.

Dispute resolution mechanisms are essential. In the UAE, the Dubai International Financial Centre (DIFC) or Abu Dhabi Global Market (ADGM) courts provide judgments based on English common law, and enforcement of international arbitration awards is guaranteed. In Saudi Arabia, the Board of Grievances arbitrates commercial disputes; as a signatory to the New York Convention, Saudi Arabia enforces international arbitral awards, though enforcement can be restricted if Sharia Law is violated.

Key Strategies for Success

Several core strategies are vital for successful entry into the Middle Eastern market. First, building local partnerships is absolutely crucial. Trustworthy local partners who understand the legal and cultural complexities can help lower market entry barriers. In particular, local partners are essential for government project participation.

Second, develop Sharia-compliant services. For fintech companies, developing products and services that adhere to Islamic financial principles is vital to securing a competitive edge in the local market. Close cooperation with Islamic finance law experts is critical for this.

Third, make long-term investments. The Middle East is not a market where results are achieved overnight. Sufficient capital and patience are required, as understanding local culture, business customs, and building trust relationships demands significant time and effort.

Finally, align with government policies. Developing business models in line with Saudi 'Vision 2030' or the UAE’s digital transformation strategies increases the possibility of receiving government support—a decisive factor in market entry and business expansion.

The Land of Opportunity Rewards the Prepared

Without a doubt, the Middle East is a compelling new market for Korean IT and fintech firms, combining massive capital, ambitious digital transformation plans, and strong trust in Korea. Yet, only companies with thorough preparation and localization strategies will succeed. Develop business models tailored to legal, religious, and cultural specifics—only the best-prepared can achieve genuine success in this land of opportunity. Now is the time to embark on systematic and professional preparations for expanding into the Middle East.

Attorney Park Young-joo, Bae, Kim & Lee LLC | Graduate of Korea University School of Law, completed the 41st Judicial Research and Training Institute course in 2012. Worked for approximately two years at E*TRADE Securities, handling securities litigation and internal control. Then, worked for about eight years at the Financial Supervisory Service (FSS), overseeing financial institutions, inspections, legal advisory (sanctions against financial companies, designation of large investment banks, etc.), and provided legal advice on the Banking Act and Electronic Financial Transactions Act. Participated in the real estate trust company licensing task force (TF), Electronic Financial Transactions Act amendment TF, among others. Currently advises on prepaid operator and PG operator registration and various aspects of the Electronic Financial Transactions Act.

Bae, Kim & Lee's Future Finance Strategy Center (Director: Han Jun-sung) was established in May 2024 and is building a team of top-tier financial and IT experts for virtual assets, electronic finance, regulatory response, and information security, in line with accelerating digital innovation and advancements in finance.