Over the last few decades, the United Arab Emirates (UAE) has developed into one of the fastest growing business hubs in the world. Its central location makes it an excellent strategic location for international business, connecting the biggest centers in the world including London, Singapore, Hong Kong and Beijing.
A confluence of factors have led to this rise from prosperity, innovation and governance, combined with steady increases in GDP per capita, FDI inflows and foreign investments. This has enabled the UAE to provide a perfect gateway for entering the Middle East, African and Asian markets, with commerce, banking, manufacturing and modern logistics prospering as a result. This article looks at the drivers behind this growing success story and highlights the abundant opportunities the region has to offer.
More to the UAE than just location
Despite the clear benefits of its favorable location, the draw of the UAE to entrepreneurial activity is down to a number of key factors. Political and economic stability focused towards liberalization and modernization plays a significant role. Having an intent to grow further and fight the effects of the global pandemic, the government has recently implemented a number of reforms. The company and commercial regulations were updated to ensure best international practices and keep the UAE at the focus across the globe.
The most appealing of these changes are amendments concerning direct investment regulations. Subject to the policies set by the UAE cabinet, the key feature of this reform focuses on 100% foreign ownership of a company and eliminates the requisite for an Emirati shareholder in the mainland. This enables greater flexibility for foreign investors to establish a company in the UAE. In addition, this law also sets out other favorable rules to make the UAE mainland even more attractive including:
- Joint stock companies are no longer subject to 30% limitation of shares offering at IPO. This threshold is now increased up to 70%.
- The UAE national involvement as the chairman or majority of the board members will be decided on a case by case basis.
- An memorandum of association should now include a method of dispute settlement between the company, managers and / or shareholders;
- An increase of minority shareholders rights by lowering the shareholding percentage from 25% to 10%, required for a general meetings being called;
- Modern technological tools of telepresence are allowed for notices and participation at general meetings, if a company’s memorandum of association allows such communication.
Another crucial draw is that the country has one of the largest number of free zones in the world. These special economic areas target specific type of businesses and foreign investors wishing to have a full ownership. The zones also have their special tax, customs and imports regimes that allow effective costs saving. Legal framework and court system is based on English common law, which makes them appealing to foreign businesses. What is more, zones tend to focus on flexible regimes regarding information disclosure – usually it is not required to publish financial reports or name ultimate beneficial owners.
The UAE taxation system is another crucial element, with more than a hundred double tax agreements that mostly allow the repatriation of profits free of any tax. In addition, the emirates usually do not impose taxes on individuals and companies, which in other countries are considered as important business factors.
Aside from an amenable business environment, the UAE offers high living standards, and quality transport, as well as numerous world-class business centers with modern business spaces and congress halls equipped with state of the art technologies and services. There is a wealth of diversity in the workforce, with only 20% of the working population from the region. This, in combination with a vast array of skilled workers ensures the labor market remains competitive and means businesses do not need to invest heavily in developing employee competency.
The region is not without its challenges, and like any business hub, some can initially deter businesses from setting up in the region. As the UAE is composed of seven emirates, certain legislative and executive authority is reserved exclusively to the federal level. These cover the key areas of legislation related to civil, commercial or corporate affairs. However, emirates have sovereignty over certain matters within their territories and free zones have individual regulations. Another important implication for businesses is in the diversity of regulations which vary from the mainland to different zones, as well as deviations from regulations while they are being implemented. Navigating these different systems and procedures can make it difficult to comply with tight deadlines, so it is essential that a business has a strong knowledge of local requirements and should seek outside counsel if not.
The UAE and free zones are attractive for a variety of businesses across the world and will remain an important hub for years to come, due to its flexibility, tax exemptions, having English as the predominant language, and state of the art infrastructure and technology. Recent changes in the UAE regulations are broad and wide-ranging, modernizing both foreign direct investment and the efficiency of companies’ management, seeking to implement best and most efficient practices to gain greater competitiveness.
Segregation between different law systems despite modernization and harmonization initiatives takes time even in modern and developing environments such as the UAE, and therefore, close monitoring of any changes and timely consultations with professionals is crucial. Any companies that are subject to updated requirements should review their current status in light of the changes and take steps to ensure that they have the necessary information and have implemented appropriate internal procedures to be able to comply. To enjoy the advantages connected with the updated legal framework, existing investors may be required to restructure their companies, while new ones will have an advantageous position, with respect to the ease of setting up of business.
Material collected by Abu Dhabi expert center
By Jurate Kisieliene, Head of Client Services, Mercator by Citco
Citco GSGS Focus – Summer 2021