HOW TO START A BUSINESS IN UNITED ARAB EMIRATES
Building your own business takes a tremendous amount of preparation and careful planning. From choosing the type of product or services that you want to offer, studying your target market and to even doing your homework about the industry that you are planning to venture into are essential in the early stages of your research.
The United Arab Emirates can be rightfully termed a global phenomenon. In less than 50 years, the country has emerged from a sandy desert into a futuristic center. It is an oasis, rich in history and traditions, but also embracing modernity. United Arab Emirates is known for its fascinating architecture, luxury resorts, golden beaches, expensive cars and desert safaris. However, these are not the only factors that allure hundreds of thousands of international investors each year.
In this issue, you can find about everything you need to know about UAE’s business environment.
• What to consider?
• Investment Aids
• Government Measures to Motivate or Restrict the FDI
• Islamic Economy
• UAE Foreign Direct Investment Law
• Negative and Positive List
• Top Industries to Invest in India
• General Information
What to consider?
The United Arab Emirates has a good quality business climate with a long-term political stability. In addition to its dynamic and diversified and very rich hydrocarbons resources, UAE also has a strategical geographical location. The
United Arab Emirates has solid and profitable banking sector with a powerful sovereign fund and favorable regulations for foreign investments. The investors can also benefit from low cost foreign labor force and low-cost energy.
But like many others, United Arab Emirates has its upsides and downs. The country heavily depends on hydrocarbons, which leads to importing a lot of manufactured goods from neighboring countries. This dependence on hydrocarbons also makes United Arab Emirates vulnerable to speculative bubbles. The government suffers from a lack of flexibility in monetary policies, which causes inadequacy of the national statistical system.
In United Arab Emirates, as in some of Asian countries, there were not any regulations specific for foreign investments. Instead, the government preferred to have regulations that can be applied for both local and non-local investors. Well, as of 2020, UAE is going to have a program called Global Promotional
Investment Program, announced by Dubai FDI. This program aims to attract more foreign investors to country and, although the program mentions only some of big countries, it aims to attract investors from all around the country. The specific steps and measures that are going to be taken is unclear now, mainly because even though it looks like this program goes back to 2018, the announced program is actually an altered version of what is used to be. You can contact us to reach out our Dubai Office for further information or to sign up for theirs monthly newsletter to learn about latest developments of the program.
Government Measures to Motivate or Restrict FDI
All seven Emirates have adopted measures to create a more favorable environment for foreign investors. Dubai, Sharjah and Abu Dhabi have very flexible rules concerning the acquisition of real estate property by foreigners. The Government of the UAE has also recently passed a new Companies Law. The strategic plan Vision 2021 promoted by the government intends to favor FDI.
Despite these projects, the regulatory and legal framework still favors national investors. Foreign ownership of land is restricted, non-tariff barriers to
investment exist (outside the free zones, 51% of the shares of a company must be held by Emirates citizens). Foreign investors underline the weakness of the arbitration proceedings, the weakness of intellectual property rights and the lack of transparency.
In 2015, the Federal Commercial Companies Law was published. It gives an improved regulatory framework for enterprises, facilitating business creation. The possibility to suppress the obligation for a company to be hold at 51% by a national was not approved. A new law on investment is still under review.
Finally, the regulatory framework for enterprises varies depending on the Emirate. The government of Abu Dhabi is particularly willing to improve the
business climate in its emirate and is deploying Abu Dhabi Economic Vision 2030 to attract FDI in the non-oil sectors (industry, tourism, transport and
logistics, financial services, real estate and telecommunications).
The UAE Government has recognized the importance of the Islamic economic sector, driven by the increase in the global Muslim population that numbers approximately 1.6 billion. Dubai was the first to establish Islamic banks worldwide with the opening of Dubai Islamic Bank (DIB) back in the 1970s, in addition to having the Dubai Financial Market (DFM), which is the first global Shari’s compliant exchange. According to the third edition of the Global Islamic Economy Indicator (GIEI), which measures the strength of the Islamic
economy for 73 countries, across supply and demand drivers, governance, awareness and social considerations, the UAE was ranked second after Malaysia and took the first position in 5 sectors.
Dubai Islamic Economy Development Centre (DIEDC) was established in December 2013. In 2017, DIEDC launched its refreshed Islamic economy strategy (2017-2021) that focuses on identifying new key performance indicators (KPIs) for monitoring the growth of three core Islamic economy sectors – Islamic finance, halal products, and Islamic lifestyle encompassing culture, art, fashion and family tourism – in addition to measuring their contribution to the UAE’s national economy. Knowledge, standards and digital Islamic economy serve as cornerstones that support these key sectors in achieving the leadership’s Islamic economy vision
UAE Foreign Direct Investment Law
On 23 September 2018, The UAE issued Federal Decree-Law No. 19/2018 on Foreign Direct Investment. The FDI Law establishes a framework and pathway towards enabling 100% foreign ownership of UAE Limited Liability Companies (LLC) outside of the various UAE designated free zones. Up until the promulgation of the FDI, all onshore LLCs in the UAE were subject to foreign ownership restrictions meaning a foreign investor could only hold a maximum of 49% of the share capital with a UAE national or company holding as a minimum 51% of the LLC’s shares. As explained below, the FDI Law has removed the foreign ownership ceiling in certain sectors. However, as with most new legislation, further guidance and clarity is expected as to how the FDI Law will be interpreted and implemented in practice.
For the purposes of conducting business in the UAE, a foreign company/investor is required to establish a legal presence in the UAE by means (typically) of any of the following:
• Incorporating an onshore local entity (e.g., an LLC);
• Registering an onshore branch or representative office of a foreign company;
• Establishing a freezone entity (by way of a limited liability company, a branch or representative office); or
• Entering into a commercial agency relationship (i.e., having no corporate presence in the UAE, but instead trading in the UAE via a commercial agent).
Article 10 of Federal Law No. 2/2015 (Commercial Companies Law) provides that, 51% or more of the shares in any corporate entity established onshore in the UAE (i.e., outside an economic freezone) must be owned by a UAE national(s). Consequently, any foreign investor who wishes to establish a corporate entity in the UAE is either restricted to:
• Conducting business in an economic freezone allowing 100% of foreign ownership; or
• Establishing an onshore LLC and holding a maximum of 49%.
The Negative List shows areas of economic activity where foreign ownership in whole or part will continue to be prohibited-which simply reflects existing arrangements. However, if a foreign investor want to undertake FDI activities in the Negative List, they are encouraged to liaise with the FDI Committee to determine whether some form of dispensation can be given and this will be assessed by the FDI Committee on a case-by-case basis based on individual
circumstances and the merit of the application. Some of the sectors included are:
• Oil exploration and production
• Investigation, security, military
• Banking and financing activities
• Pilgrimage and umrah services
• Certain recruitment activities
• Water and electricity provision
• Post, telecommunication and other audio-visual services
• Road and air transport
• Printing and publishing
• Commercial agency
• Medical retail (including pharmacies)
• Blood banks, quarantines and venom/poison banks
The Positive List of United Arab Emirates defines 122 economic activities that can be owned %100 by foreign investors. The FDI Committee takes into accounts some criteria like while compiling to the Positive List when a foreign investor applies for setting up a shop in United Arab Emirates. The law says that the proposal should be integration with the strategic plans of the UAE, adds value to the local economy and should impact other national companies engaged in similar activity. Part of the sectors included are:
• Administrative services;
• Art and entertainment;
• Educational services;
• Healthcare services;
• Hospitality and food services;
• Information and communication;
• Manufacturing industry;
• Professional, scientific and technical activities;
• Renewable energy;
• Space; and
• Transport and storage
Top Industries to Invest in United Arab Emirates
Dubai is regarded as a home of business industries. Regardless of the size and nature of the business idea that an investor holds, the region tops the list. Sheikh Rashid bin Al Maktoum has left no stone unturned to convert the city of the desert to a landscape of business, giving equal opportunities to different kinds of business. Multiple steps have been taken by the government to provoke business investors to come forward and start a business in Dubai. However, there might be confusion regarding which industries to choose for and how to begin. This guide gives you complete information regarding the top business industries prevailing in Dubai, which will help you to select an industry to invest in, understand the current scenario and future growth perspective.
Automotive and Aerospace
Dubai is known as a business podium which has a space for every type of business. The automotive industry stands as no exception and becomes one of the key drivers to boost the economy. Even, police cars prevailing in Dubai
turns out to be luxury-vehicles dealing with high performance. The region has got a mass market for the automotive sector, and it is expected to grow even more by the end of 2020. The number of passengers is expected to increase at a compound annual growth rate (CAGR) of 5%, holding 13.2 million counts by 2020.
The aerospace sector stands as one of the top six focused areas in Dubai Industrial strategy 2030, with an expected contribution of 2.3% towards
the GDP of the country. The industry prevailing in the region currently contributes $80 billion to the region’s economy, paving out a way of
employment for more than 2, 50,000 direct and 2,25,000 indirect jobs. The major players in the industry include Emirates Airlines and Etihad
Airlines. By the year 2020, the sector is expected to contribute Dh 200 billion, which will hold 7,50,000 job opportunities. DuCamz serves to be a dedicated free zone to the car and automotive industry, and there exists an enormous
opportunity for the business investors to come forward and invest in the aerospace industry.
Oil and Gas
The next industry that attracts the attention of investors is the oil and gas industry. The UAE stands as a member of the Organization of Petroleum Exporting Countries (OPEC) and Gas Exporting Countries Forum (GECF) and has been a prominent player in the international market. The UAE stands as the world’s seventh largest providers of oil reserves and stands as one of the key drivers contributing to the growth of the economy. Abu Dhabi, the capital of the UAE, attracts business investors to come forward and set up oil and gas business in the region.
The UAE is the world’s seventh largest crude oil producer and the fourth largest producer of petroleum liquids in the OPEC. In addition, the UAE holds the seventh largest natural gas reserves globally. Hydrocarbon production remains critical to the UAE economy, amounting to $65 billion or approximately 20 percent of all export revenue, according to the U.S. Energy Information Administration (EIA). According to the UAE Central Bank’s latest statistics, UAE’s petroleum exports (hydrocarbons) grew by 13.9 percent to $66.2 billion (AED 243.1 billion) in 2019 compared with $58.1 billion (AED 213.5 billion) in 2017.
Food and Beverages
The food and beverage industry fall under the booming business industries of the UAE. In the international level, the F&B industry stands as the second largest industry of the world. The UAE F&B has extended its arms in the national as well as the global level and is expected to hold a higher value by the year 2020, as the demand will grow during Expo 2020. By the end of 2021, the fresh food count would increase in the region by 8.3%.
A strategy that the UAE adopts to bring more players in the market is by conducting different trade show events like Gulfood, a world food fest that takes place every year in the UAE, attracting more than 5000 exhibitors to showcase their food items. Parallelly, it also provokes entrepreneurs to come forward and start their business in the food industry. To start a restaurant, a restaurant license is required to be held by the business owner. Similarly, cafeteria license and food truck license need to be held by the owners who are
planning to start a cafeteria or food truck business in the UAE.
The manufacturing industry in the UAE is a growing one as it contributes to a great extent to the economy. According to a report, 7% of Abu Dhabi’s GDP is expected to generate from the manufacturing sector, exceeding the output by 22.8%, and building an employment pipeline for more than 21.7 billion. The manufacturing industry has got different sections in its umbrella that covers the manufacturing of:
Petrochemicals and Chemicals
Food, Beverage and Consumer Goods
Aerospace and Defense Equipment
The UAE is a small country in the Middle East, spanning 83,600 km. The abbreviation ‘UAE’ stands for United Arab Emirates. The term ‘Emirate’ refers to a principality. It comes from the term Emir and specifically references principalities that are ruled by a dynastic Islamic monarch. There are seven emirates in the UAE – Abu Dhabi (which serves as the capital), Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al- Quwain. Each emirate has its own monarch, but Abu Dhabi serves as the capital and the Emir of Abu Dhabi serves as President of the UAE.
The UAE is an absolute monarchy. The various emirates all have their own emirs, but the Emir of Abu Dhabi serves as President and the Emir of Dubai serves as Prime Minister. These titles of President and Prime Minister are hereditary.
The UAE has a population of almost 9.5 million people. The native Emirati population only makes up about 11% of the population- the other 89% is made up expatriates who live and work in the country without obtaining Emirati citizenship. Some of the most common foreign nationalities found among UAE residents are Indians (27%), Pakistanis (12%), Bangladeshis (7%), Filipinos (5%), Iranians (5%) and Egyptians (4%).
The International Monetary Fund (IMF) has recently revised its growth projections for the Emirati economy for 2020. In their Regional Economic outlook on 28 October, they had initially given a provisional growth rate for
the country’s gross domestic product (GDP) of 2.5 per cent in 2020. However, following an Article IV consultation with authorities from the Emirati government, they have revised the provisional 2020 GDP growth rate to 3 per cent. This is an increase from 1.6 per cent in 2019, proving that the future looks bright for the Emirati economy going into the new decade.