The United Arab Emirates is the Middle East’s second largest economy, after Saudi Arabia, and one of the wealthiest countries in the region on a per capita basis. Its GDP in 2019 was estimated at US$ 427.9 billion.
On 18 July 1971, the Rulers of six emirates (of the seven today) that made up the Trucial States, decided to form a union with the following historical declaration: “The Supreme Council felicitates the people of the United Arab Emirates, as well as the Arab people, and our friends around the world, and declares the United Arab Emirates as an independent sovereign state being a part of the Arab World”. The federation today is formed of the seven Emirates Abu Dhabi (the Capital), Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, and Fujairah.
Before oil was discovered in the 1950s the UAE's economy was mostly dependent on fishing and a declining pearl industry. With the beginning of oil exports in the early 1960s, the country's society and economy have been transformed. Today, the UAE's economy is the most diversified in the Gulf Cooperation Council, while its most populous city of Dubai has become an important global city, international aviation and maritime trade hub. With the diversification efforts from the government, the country is nowadays much less reliant on oil and gas and is economically focusing on tourism and business. According to the World Bank report which measures the performance of 190 countries in “ease doing business”, the UAE was ranked first in the Arab world and 16th globally (Doing Business 2020, World Bank Report) making it a hotspot for foreign investors.
There is no income tax in the United Arab Emirates, while corporate taxes are only levied on oil companies and foreign banks. Government revenue is mostly generated from nontax incomes, largely from the sale of petroleum products. In 2018 the United Arab Emirates, in coordination with other gulf countries (GCC), however (also in line with IMF recommendation) implemented a value-added tax for most goods and services of a flat rate of 5%.
Why consider the UAE when doing business?
• Zero tax regime
• Extensive network of tax treaties with over 80 countries
• Full repatriation of capital and profit
• Recognized financial hub with its two financial centres DIFC and ADGM
• World-class infrastructure facilities and connectivity
• High quality of life
• Political stability and liberal business environment.
There are two types of investment options in the UAE:
• Mainland UAE, where three main different types of entities are available (i.e. limited liability companies, branches, civil company); and
• Free zones, allowing 100% foreign ownership however restricted in the geographic scope of operations.
To penetrate the UAE mainland market and accommodate to locally-based customers and/or governmental bodies, UAE mainland establishments are the only option. As a general rule, foreign investment into UAE mainland LLCs is limited to 49%, versus 51% for the mandatory UAE shareholder (either Emirati individual or fully Emirati owned legal entity).
There are currently around 40 Free Zones operating in the UAE. Some Free Zone are “themed” and designed around one or more commercial categories (catering a specific industry), e.g. Dubai Health Care City, Dubai International Finance Centre (the Dubai financial centre) or the Dubai Gold and Diamond Park only offering licenses to companies within those categories while other free zones are rather general, e.g. Dubai Multi Commodity Centre offering a wide range of commercial activities.
An investors can either register a (i) new limited liability company in the form of a Free Zone Establishment (FZE) with one shareholder or a Free Zone Company (FZC) with two or more shareholders, or establish a (ii) branch or (ii) representative office of an existing or parent company based within the UAE or abroad.
The main advantages of setting up in one of the Free Zones are:
• 100% foreign ownership possible
• No corporate taxation
• Freedom to repatriate capital and profits
• Full exemption from import duties (outside the Free Zone it is 5%)
• Reduced bureaucratic red tape
• State of the art infrastructure
• Most procedures are in English