- Introduction
- Business Environment
- Economic Environment
- Offshore Environment
- Taxation
- Corporate Legislation
- Banking
Introduction
The United Arab Emirates (UAE) is a Middle Eastern country situated in the southeast of the Arabian Peninsula in Southwest Asia on the Persian Gulf, comprising seven emirates: Abu Dhabi, Ajmān, Dubai, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Qaiwain. Before 1971, they were known as the Trucial States or Trucial Oman, in reference of a nineteenth-century truce between the British and some Arab Sheikhs. It borders Oman and Saudi Arabia.
Prior to forming the federation, each Emirate was a sheikhdom that was governed by a sheikh
from the most influential tribe in the area.
The UAE covers 83,600 square kilometer, and the population is about 4.5 million people. UAE has one of the most diverse populations in the Middle East. 19% of the population is Emirati, and 23% is other Arabs and Iranians. An estimated 73.9 percent of the population is comprised of non-citizens, one of the world’s highest percentages of foreign-born in any nation.
The official language of UAE is Arabic, but English is widely spoken in the commercial sector and by government bodies.
UAE is a federal constitutional monarchy, of which the presidency and premiership is de facto hereditary to the Al Nahyan clan of Abu Dhabi and the Al Maktoum clan of Dubai.
The Supreme Council, consisting of the Rulers of each Emirate, is the country’s highest
authority. It appoints the federal government and ratifies federal legislation.
Each Emirate has its own institutions of local government who pass laws applicable to
that individual Emirate. However, federal law is applicable to the UAE as a whole and
overrides the provisions of local legislation.
In 1971, the UAE became a member of the Arab League. Since then, the country has
also become a member of other international organisations such as the United Nations,
the International Monetary Fund, the International Labour Organisation, Organisation of
Petroleum Exporting Countries (OPEC), the Organisation of Arab Petroleum Exporting
Countries, the World Health Organisation, and International Organisation for Industrial
Development, to name but a few. The UAE is a strong supporter of Arab unity.
The UAE, rich in oil and natural gas, has become highly prosperous after gaining foreign direct investment funding in the 1970s. The country has a relatively high Human Development Index for the Asian continent, ranking 39th globally, and had a GDP purchasing power parity of $164.4 billion in 2007.
Business Environment
Dubai benefits from its geo-strategic position midway between Europe and Far East and a robust regulatory framework that is renowned for its economic and political stability.
Since the early 1980s, two main economic objectives of the UAE Government have been
to reduce reliance on hydrocarbons and boost private sector investment. This strategy
is being followed in a bid to offset the country’s vulnerability to fluctuations in oil prices
and to facilitate economic growth and stability.
The fact that there are no restrictions on current and capital account transactions
helps implement these objectives as does the fact that foreign entities may repatriate
dividends, profits, interest or royalties without restriction, with the exception of foreign
banks which are required to obtain the Central Bank’s approval before repatriating their
profits. The UAE aims to promote free trade with minimum restrictions on foreign trade and
investment.
The UAE has excellent infrastructure in financial services, communications, transport
and other support services.
Work is underway on the world’s largest airport, the Dubai World Central International
Airport in Jebel Ali.
Six international airports are in operation, in Abu Dhabi, Al Ain, Dubai, Sharjah, Ras Al Khaimah and Fujairah. Major foreign airlines operate from the country and connections are available to most parts of the world.The UAE offers excellent shipping infrastructure due to its pre-eminent position as the centre of cargo traffic in the Middle East. Major seaports on the Arabian Gulf are Mina Zayed in Abu Dhabi, Port Rashid and Port Jebel Ali in Dubai, Port Khalid in Sharjah and Port Saqr in Ras Al Khaimah.
These ports are used by the world’s major shipping lines and offer a turnaround time comparable to any developed port in the world. The UAE offers excellent ship repair facilities at Dubai dry-dock, Abu Dhabi Ship Building Yard and Ajman Ship Repair Yard, with Dubai dry-dock being one of the largest dry docks in the world.
Road transport is well organised and readily available for transhipments over land to
other Middle East locations.
Business regulation
Intellectual Property
As a member of the Gulf Cooperation Council (GCC), the UAE participates in the wide range of GCC activities that focus on economic issues. These include regular consultations and development of common policies covering trade, investment, banking and finance, transportation, telecommunications, and other technical areas, including protection of intellectual property rights.
In 1992, the Emirates voted three laws for the protection of intellectual Property : one law regarding the copyright of authors, another law regarding trade marks and the third law pertaining to patents.
The UAE have been members of the WIPO (World Organisation of Intellectual Property) since 1975. The UAE are members of the WTO (World Trade Organisation). They are looking forward to the creation of a legal framework in conformity with the requirements of TRIPS Agreement (Trade Related Intellectual Property Rights) within three years from now. They have not signed the Berne Convention (concerning the copyright of authors) and the Madrid Convention (concerning trade- marks). They are signatories to the Paris Convention ( patents and industrial drawings and designs). If the federal laws respect almost all the clauses of these conventions, in practice a certain number of risks still exists.
Foreign ownership
Except in the free trade zone, the UAE requires at least 51% local citizen ownership in all businesses operating in the country as part of its attempt to place Emiratis into leadership positions. However, this law is under review and the majority ownership clause will very likely be scrapped, to bring the country into line with World Trade Organisation regulations
Free Trade Zones
The development of the Free Trade Zones provides many locations within which a foreign
investor can set up a 100 percent owned business with each Free Zone focussing on
certain types of investment. An easily available skilled workforce, modern communication,
sea/air transport network, excellent infrastructure and the geographical location of the
United Arab Emirates all serve to provide the foreign investor with a stable and reliable
investment climate.
Over the past years many multinational businesses have chosen to locate their regional
headquarters in the UAE, which has led to Dubai gaining a reputation as a regional
distribution centre, with Abu Dhabi retaining the more traditional oil and gas industries.
The establishment of Free Trade Zones (FTZs) in the UAE has been one of the most
significant and promising initiatives taken to attract foreign investment. Dubai was the
first Emirate to establish a FTZ in Jebel Ali. The general benefits of being located in a FTZ
are set out below:
> 100 percent foreign ownership;
> no restrictions on profit repatriation;
• no exchange controls;
• a guarantee of no corporate and personal income taxes for 15 – 50 years from set
up;
• availability of offices, factory premises and warehouses;
• excellent port, airport and road transport infrastructure;
• efficient utilities and modes of communication;
• no import or export duties, (except for sales made from FTZs into the UAE and the
rest of the GCC);
• No recruitment restrictions, and special assistance in obtaining work permits for
expatriate staff.
Dubai has seen a dramatic rise in the number of free trade zones. Each zone has a focus
on a particular type of industry. The names and industry focus of the many free zones
within Dubai are listed below:
• Jebel Ali Free Zone – manufacturing, heavy industry and distribution. It also
encompasses:
o Dubai Cars and Automotive Zone: re-export of automobiles
o Dubai Gold and Diamond Park: dealing in precious metals and stones
• Dubai Airport Free Zone – light industry, assembly, distribution, service industries
such as insurance
• Dubai Technology and Media Free Zone – this zone includes:
o Dubai Internet City: information and communications
o Dubai Media City: media related business
o Knowledge Village: education and learning establishments
• Dubai Metals and Commodities Centre – aims to attract the world’s leading precious
metals, jewels and commodities traders. This zone also includes a manufacturing
facility and a diamond-trading bourse.
• Dubai International Financial Centre (DIFC) – This free zone focuses on financial
institutions and financial service firms and aims to establish the UAE as a leading
financial centre. The zone is subject to a comprehensive regulatory regime that
follows international standards. The regulatory authority in the DIFC is the Dubai
Financial Services Authority.
• Dubai Healthcare City – aims to attract providers of healthcare, medical education
and research.
• Dubai Maritime City-in the process of being created and aims to attract companies
engaged in vessel design, manufacture, repair and maintenance and marine
management and related services.
Other free trade zones in Dubai include Dubai Aid and Humanitarian City, Dubai Techno
Park, Dubai Auto Parts City, Dubai Textile City, Heavy Equipment and Trucks Free Zone,
Dubai Flower Centre Free Zone, Dubai Carpet Free Zone, and Dubai Outsource Zone.
RAK(Ras al Khaimah)
Another important Free Trade Zone is located in the emirate Ras al Khaimah.
Set up on May 1, 2000 on Al Hulayla Island, this free trade zone aims to attract all types
of investment with an aggressive marketing plan that aims to turn this zone into the
leading free trade zone of the northern Emirates.
The Free Trade Zone in RAK is famous to be more accessible for entrepreneurs, and to be lower in fees and faster in incorporation then in Dubai.
Economic Environment
Although the United Arab Emirates is becoming less dependent on natural resources as a source of revenue, petroleum and natural gas exports still play an important role in the economy, especially in Abu Dhabi. A massive construction boom, an expanding manufacturing base, and a thriving services sector are helping the UAE diversify its economy. Nationwide, there is currently $350 billion worth of active construction projects.
The United Arab Emirates has a rapidly growing economy with a high GDP per capita and energy consumption per capita.
The GDP per capita is currently the 14th in the world and 3rd in the Middle East after Qatar and Kuwait or the 17th in the world as measured by the International Monetary Fund; while at $168 billion in 2006, with a small population of 4 million, the GDP of the UAE ranks second in the CCASG (after Saudi Arabia), third in the Middle East — North Africa (MENA) region (after Saudi Arabia and Iran), and 38th in the world (ahead of Malaysia)
All available statistics indicate that the UAE currently has one of the fastest growing economies in the world. According to a recent report by the Ministry of Finance and Industry, real GDP rose by 35 percent in 2006 to $175 billion, compared with $130 billion in 2005.
These figures would suggest that the UAE had the fastest growing real GDP in the world, between 2005 and 2006 helping the UAE diversify its economy, Emirate of Dubai has started to look for other sources of revenue. High-class tourism and international finance are the new sectors starting to be developed. In line with this initiative, the Dubai International Financial Centre was announced, offering 55.5% foreign ownership, no withholding tax, freehold land and office space and a tailor-made financial regulatory system with laws taken from best practice in other leading financial centres like New York, London, Zürich and Singapore. A new stock market for regional companies and other initiatives were announced in DIFC. Dubai has also developed Internet and Media free zones, offering 100% foreign ownership, no tax office space for the worlds leading ICT and media companies, with the latest communications infrastructure to service them.
Major increases in imports occurred in manufactured goods, machinery, and transportation equipment, which together accounted for 80% of total imports. Another important foreign exchange earner, the Abu Dhabi Investment Authority–which controls the investments of Abu Dhabi, the wealthiest emirate–manages an estimated $360 billion in overseas investments & an estimated $900 billion in assets.
Offshore Environment
During 2002, Dubai developed plans for the Dubai International Financial Centre (DIFC), which is proving to be a major financial entrepot. The DIFC fills what was once a significant gap in the market for international Shariah banking, fund management and life assurance. One of its biggest selling points is that it appeals to both Arab money looking for a local centre of excellence and Western cash seeking sophistication and safety.
Philip Thorpe, chief executive of the DIFC Regulatory Authority, explained at the time that: ‘We have…made good use of our freedom to create a single, logical framework – in contrast to older-established jurisdictions, who often have to make (do) and mend within existing frameworks which may gradually become more complex and less relevant.’
Deutsche Bank, HSBC and Standard Chartered Bank were among the many international financial sector firms which signed up to be among the first residents of DIFC. By November 2007, the number of firms licenced by the Dubai Financial Services Authority (DFSA) to operate in the DIFC had reached the 200 mark, comprising 158 Authorised Firms, 37 Ancillary Service Providers and 5 Registered Auditors.
RAK FTZ chief executive officer Osama Al Omari said “thousands of companies” have expressed interest in joining the offshore zone. “We are expecting to register 5,000 companies within three years,” Al Omari told Gulf News. The offshore benefits being offered by Ras Al Khaimah allow a company to operate with a single director. Offshore entities are not required to have their accounts audited.
Over the past 12 years, Dubai Airport Free Zone has grown into one of the most successful economic ventures in the Gulf region. The Free Zone is now home to more than 1,500 multinational companies with flexible operations processes that meet client’s demand,” Mr. Ghafan said.
To meet growing demand and broaden its base, Dubai Airport Free Zone has embarked on an expansion plan, which began early last year.
“Our expansion plans consists of six new buildings which stretches over a total built up area of 228,000 Square Meters and leasable area of 100,000 Square Meters. The project started in early 2007 and is to be completed this year which has taken us 22 months to complete,” Mr. Ghafan observed.
Taxation
General
The UAE does not have any all-encompassing tax legislation at the federal level. Some
of the Emirates have issued their own income tax decrees and these are quite similar
in nature and text.
There are currently legislations in force in the Emirates of Abu Dhabi(the Abu Dhabi income tax decree of 1965), Ajman, Dubai(Dubai income tax decree of 1969), Ras al Khaima and Sharjah (Sharjah Income Tax Decree of 1968 ) establishing a general corporate taxation regime.
The UAE does not impose corporate income tax(except for oil and gas companies and branches of foreign banks). None of the individual emirates charges these taxes either.
Residence
A company that is incorporated in the UAE u resident provided he company can proof that:
• All of the shares of the company are beneficially owned by residents of the UAE, or
• All or substantially all of the company’s income is derived by the company from the active conduct of a trade or business, other than an investment business in the UAE, and all or substantially all of the value of the company’s property is attributable to property used in that trade or business.
Filing Requirement
The Companies Law requires locally registered companies and branches of foreign
companies to appoint auditors to audit their annual financial statements. In practice,
audited financial statements are generally required to be submitted at the time of
renewing the trade licence.
For Free Trade Zone companies
As FTZs have their own laws and regulations, the accounting and audit requirements can
differ between free zones. For example, Jebel Ali Free Zone and Dubai Airport Free Zone
require limited liability entities to lodge annual accounts, together with an audit report,
within three months of the end of the entity’s financial year. However, limited liability
entities in the Dubai Technology and Media Free Zone are not subject to this requirement.
Branches are not required to lodge audited accounts with free zone authorities.
Tax Treaties
The UAE has concluded more than 30 income tax treaties and approximately 5 shipping and air transport agreements. The tax treaties also apply to the individual emirates. The tax treaties are agreed with the following countries:
Algeria, Armenia, Austria, Belarus, Belgium, Canada, China , Czech Republic, Egypt , Finland , France, Germany, India, Indonesia , Italy , Korea , Lebanon , Malaysia , Mongolia , Mozambique , Morocco, New Zealand , Pakistan , Poland, Philippines, Romania, Singapore , Sri Lanka , Sudan , Syria , Thailand , Tajikistan , Tunisia, Turkey, Turkmenistan, Ukraine, and Yemen. Singapore, Switzerland, the Netherlands, Turkey, the U.S., the Maldives,
Syria, the UK, Australia, Azerbaijan, Sri Lanka, India and the Czech republic.
Anti-avoidance rules
The UAE does not have any anti avoidance rules.
VAT
VAT is currently not imposed, but an implementation of a VAT-rate of approximatly3-5% has been proposed. The VAT will not be imposed to Free Trade Zone companies.
Corporate legislation
General
The federal legal system was introduced in 1971 which applies to all the Emirates except Dubai and Ra’s al Khaymah. The main power of authority (particularly that related with business and companies) falls within the jurisdiction of the federal authorities; the national authorities are only authorized to issue decrees related to the local businesses.
Under Federal Law No. Eight of 1984, the Commercial Companies Law, as amended, and Federal Law No. 18 of 1981 on the Organization of Commercial Agencies, foreign businesses can operate in the United Arab Emirates by:
a) A limited liability company
b) A branch or a representative office of a foreign company
c) As part of a private or public joint stock company
d) As partner in a simple limited partnership
e) As part of a joint venture
f) Providing services as a professional or a consultant through a civil company
It is necessary to comply with both federal and local legislation (as applied by the
Ministries of the Federal Government and the Economic Department in each Emirate) to
carry out business in the UAE.
Despite the importance of the role played by the relevant
local authorities, much of the legislation that is applicable, when conducting business
in the UAE is of federal origin, for example, the Commercial Companies Law (Federal
Law No. 8 of 1984, as amended) (“the Companies Law”), the Labour Law and the
Commercial Agencies Law.
In addition to the formation of the appropriate legal entity, all commercial organisations
must obtain a trade licence, renewable annually, from the local Economic Department/
Municipality of the respective Emirate. In the case of a free zone company, this licence
is obtained from the appropriate free zone authority.
An independent free zone authority governs each FTZ. The rules and regulations of each
FTZ do not differ substantially, all being simple yet comprehensive. The UAE Companies
Law is not applicable in the FTZs.
In most FTZs there is a combination of two or all of the following three types of business
vehicles available to the foreign investor:
Free Zone Company (FZCo)
A FZCo has the following characteristics:
• Limited liability
• A minimum of two shareholders
• Minimum share capital is dependant on the FTZ
Free Zone Establishment (FZE)
A FZE has the following characteristics:
• Limited liability
• A maximum of one shareholder
• Minimum share capital is dependant on the FTZ
Types of license
To operate in a FTZ, all businesses need a license. The type of license depends primarily
on the nature of the activity undertaken. Generally, in most FTZs a combination of the
following types of licenses are available to the foreign investor:
Trading license
This enables companies to carry out general trading activities, as specified in the
license.
Industrial license
This license is required for the manufacture of products.
Service license
A service license is necessary where the activities undertaken are of a service nature.
Banking
Many of the world’s largest banks already have significant presence in Dubai, big names such as Abbey National Offshore, HSBC Offshore, ABN Amro, Barclays, Dresdner and Merrill Lynch all have offices in the emirate already and when the DIFC is completed it is expected to house even more offshore branches of the world’s major banks.
The financial institutions in Dubai are regulated by The Cenral Bank of the United Arab Emirates.
The Central Bank of the United Arab Emirates formally commenced operations on
December 11, 1980 with its main objective being to direct monetary, credit and banking
policy and supervise the implementation of these policies in accordance with the State’s
general policy. There are many other domestic and foreign banks operating in the UAE
that extend a full range of facilities to the foreign investor. In addition to banks, there are
many insurance brokers, financial advisors and other financial services providers. With
the advent of the Dubai International Financial Centre, the UAE is set to become a global
financial hub.
United Arab Emirates (UAE) provides offshore financial services for people living and working abroad and people seeking a safe-haven to grow their wealth.
The banks in UAE are noted for its excellent appetite for local and regional corporate banking businesses, including advisory, ancillary, funded and non-funded business development.
As an offshore centre, it can offer customers convenience, security, taxation benefits and Islamic banking options.
The offshore banking sector in Dubai has already seen a boost in bank deposits following the introduction of the EU Savings Tax Directive in July 2005 which made many of the more traditional offshore centre’s unattractive and as soon as the DIFC is completed you can expect to see offshore banking in Dubai take off and the centre become one of the most popular and successful in the world.
