 |
 |
 |
 |
 |
 |
 |
 |
|
|||||||||||
|
|
|
|
||||||||
|
|
|
|
||||||||
|
Office | Introduction | Information BUSINESS ENVIRONMENT IN THE UAE
The United Arab Emirates is a federation of seven sovereign Emirates; Abu Dhabi, Dubai, Sharjah, Ajman, Umm al Qaiwain, Ras al Khaimah and Fujairah. The Emirates are located in the south-east of the Arabian peninsula.   Each Emirate has its own royal family which is an hereditary monarchy with a senior member acting as ruler, or Emir. However, the political system is two-tiered, comprising of a federal government structure together with a local government structure in each Emirate. Federal authorities have responsibility for foreign affairs, security and defence, immigration, education, public health, currency, communications services, banking and commercial laws. The individual Emirates have jurisdiction in all matters not assigned to the exclusive jurisdiction of the federation.The most senior federal governing body is the Supreme Council of Rulers, which consists of the rulers of each of the Emirates. According to the agreement among the rulers, the Supreme Council is headed by a President and a Vice President elected internally to serve a five year term. In practice, since the formation of the Federation in 1971 the President has been the ruler of Abu Dhabi and the Vice President the ruler of Dubai. ECONOMY AND INVESTMENT POLICY Oil and gas is the single most important sector of the economy. However, local governments in the individual Emirates have been keen to encourage diversification by promoting manufacturing and service industries. This is being sought through the creation of an infrastructure conducive to free trade and free enterprise. In general, federal and local governments welcome foreign investors. General incentives for investment stem from the inherent features of the UAE economy, such as its strategic location and relatively low labour costs. However, the federal and local governments are keen to enhance the UAE’s attractiveness by maintaining the country’s limited taxation and low import duty status and allowing for unrestricted repatriation of funds. The government has invested heavily in infrastructure development and has created excellent air and seaport facilities as well as good road and telecommunications networks. In addition, there are several free-zone areas designed specifically to encourage the development of industry and commerce. The UAE is a signatory of the general Agreement on Tariffs and Trade (GATT). TAXATION Direct Taxes Taxation is not a federal matter; instead, each of the Emirates has implemented tax regulations that potentially tax all businesses operating in the respective Emirates. In practice, however, only oil and gas producing companies and branches of foreign banks pay taxes. Most businesses operating in the UAE do not therefore pay tax and are not subject to associated tax filing requirements. There are no withholding taxes. It is not considered likely that income tax regulations will be enforced in the short to medium term, since many Emirates view their beneficial tax environment as one of the major attractions for foreign investors. Additionally, enterprises established in the free-zone areas (see below) are granted tax exemptions of up to 50 years in the event that general taxation is introduced. The UAE government has signed double taxation agreements with over thirty partner states including many with Western European countries such as Germany, France and Italy, and many with Asia including India, Pakistan, Singapore and Malaysia. There are currently no treaties with the USA or UK. The UAE’s tax treaty network, under the provisions of the respective treaties, means that there may be wider international tax advantages to businesses established in the UAE at parent company level (possible tax exemptions) and at source/target market level (e.g. discounted withholding taxes from target markets). There is no personal taxation. There is a social security system for UAE nationals only. Indirect Taxes Customs Duties Customs duties are levied on goods entering the UAE market place and the rate of customs duty which applies to most product imports is 4 per cent. There are no export duties. Goods entering the free zones (see below) are not subject to import duty, unless the goods subsequently enter the UAE market. The UAE is a founding member of the Gulf Cooperation Council (GCC) along with Bahrain, Kuwait, Oman, Qatar and Saudi Arabia. The GCC was established to foster closer economic ties and trade relations between member states with the eventual aim of forging a single market. With effect from 2003 member states agreed to implement a unified customs duty of 5 per cent. Goods that have a minimum of 40 per cent of added value in the UAE may qualify for a UAE certificate of origin, which means they can be exported to other GCC states free of import duties on arrival. Sales Taxes There is a limited sales tax regime in place. Sales taxes, at a rate of 5 per cent apply only to hotels and to most sales made by them – rooms, dining and other leisure services. The scope of sales tax may be extended to other supplies by 2010. COMMERCIAL LAWS In general, commercial laws are the responsibility of the Federal Government. The UAE Commercial Companies Law places limitations on foreign investors wishing to establish operations within the UAE. Foreign companies and individuals are not permitted to own real estate in Dubai. All property for the purpose of running a business must be rented or leased. The most common vehicles used by, particularly foreign, investors wishing to invest in the UAE are:
An LLC can be formed by a minimum of two and a maximum of fifty persons. The minimum capital required in Dubai is AED 300,000 (GBP 40,000; USD 80,000) (Sharjah and Abu Dhabi require AED 150,000). In general, the foreign ownership of an LLC may not exceed 49 per cent, with the balance held by a UAE national partner. The foreign minority shareholder may, however be able to exercise control of an LLC through powers vested to him in the Memorandum and Articles of Association. It is also possible to attribute profit entitlements in favour of the foreign partner in a ratio other than the respective shareholdings would otherwise suggest; in practice up to 80 per cent. It takes 8-12 weeks to incorporate an LLC – there are a number of steps and supporting legalised documentation to complete in the incorporation process. Branch A branch has no separate legal personality and is an extension of the branch parent company. Branch registrations are available only to certain businesses (in broad terms professional service providers and contractors) and the trade licence limits the activities of branches to specified permitted activities. For example, a branch is not permitted to trade in goods. A branch is wholly owned by its parent company and there is no requirement for UAE nationals to take an equity interest in the business of the branch. A UAE national service agent (sponsor) must be appointed to represent the branch in all dealings with government departments such as immigration formalities. The remuneration of the sponsor is normally agreed on an annual fixed fee basis which varies depending on the prominence of the sponsor and the contribution he makes to the business. It takes 8-12 weeks to establish a branch. Representative Office The procedure for establishing a representative office is broadly similar to that for establishing a branch. However, a representative office is, in UAE law, legally distinct from a branch of a foreign company in that the representative office is only permitted to promote its parent company’s activities. For example, if a parent company deals in the sale and/or production of certain products, its representative office in the UAE is only able to promote the sale or production and facilitate contracts in the UAE, as distinct from conducting the sale or production itself. A representative office is required to recruit the services of a UAE national services agent. FREE ZONES The first free-zone, Jebel Ali in Dubai, was established by Emiri Decree in 1980. The development of the industrial park took place in conjunction with the development of a world-class port: the Jebel Ali free-zone (JAFZA) now hosts in excess of 6,000 businesses. The principal motivation behind the establishment of the zone was to encourage regional foreign investment into Dubai. The advantages to foreign investors include:
The investment incentives are broadly similar in all the free-zones, the differences being costs of establishing and maintaining entities within the respective free-zones and the quality of port facilities. Each free-zone is governed by its own regulatory authority and they are not subject to the provisions of Federal UAE commercial laws. The procedures for establishing and operating a business in the zones are less rigorous and time consuming than those which apply outside the free zones. Investors have the choice of establishing a branch, a single shareholding company (Free Zone Establishment FZE)) or multi-shareholding company (Free Zone Company (FZCO)). Branches established in a free-zone do not require initial capital: generally the minimum capital requirement for a company is approximately US$272,000, although capital requirements vary according to type of company and free-zone selected. Here is a summary of the largest Free Zones:
A free-zone entity is not permitted to contract with customers located in the UAE outside the zone. If it wishes to do this it must either appoint an onshore agent/distributor to contract for the work or set up an onshore UAE entity to hold the contracts. JEBEL ALI OFFSHORE COMPANIES A Jebel Ali Offshore Company has similar characteristics to offshore companies located in other jurisdictions such as the British Virgin Islands, the Isle of Man and others. The Offshore Company regime in the Jebel Ali Free Zone is similar to the regime that applies to free-zone companies, but provides additional benefits including:
Offshore Companies’ licences enable them to carry on most forms of business activity except banking and insurance which are specifically excluded. Also, an Offshore Company cannot carry on business with UAE residents. However, an Offshore Company is permitted to maintain professional contacts, hold meetings of its directors and hold UAE bank accounts for routine operational transactions within the UAE. LABOUR Immigration policy is relatively liberal, reflecting the need for an expatriate workforce to operate and develop a fast-growing economy. The vast majority of the resident UAE population is expatriate; in general employers, particularly those located in a free-zone, have little difficulty in sourcing labour from the resident population or in recruiting and obtaining work permits from staff located overseas. VISAS Visit Visas Nationals visiting the UAE from developed countries (typically western Europe and North America) are able to obtain a visit visa valid for 30 days on arrival at ports and airports. The visit visa may be extended for a further sixty days. Nationals from other countries can obtain either a transit visa for stays of up to fourteen days or a visit visa for stays of thirty days. The former is not extendable, but the latter may be extended twice to provide a maximum of a three month stay. Both visas require a UAE business sponsor: the transit visa sponsor can be a hotel or business registered to operate in the UAE, whilst a visit visa sponsor can be as per the transit visa or an individual holding a residence visa, provided the person is sponsoring an immediate blood relative and earns a salary above a specified amount. Work/residence permits Foreign nationals intending to take up employment must obtain work permits, issued by the Ministry of Labour and residence permits, issued by the Department of Immigration. Work permits, valid for 3 years, are issued with respect to a specific employer. The application should be completed by the employee’s prospective employer – the sponsoring company. The sponsor is required to submit:
A residence visa is required in order to:
The unit of currency is the UAE Dirham (denoted AED internationally and Dh locally), which is divided into 100 fils. Pegged to the US dollar at AED 3.671 = USD 1 since 1980 the AED is fully convertible. There are no exchange controls in place; businesses are free to transfer currency in and out of the UAE. Banks Local banks and the many branches of international banks provide a full range of banking services. Commercial transactions are normally effected by letter of credit. Banking hours are generally from 08.00-13.30 and 14.30-18.30 Saturday to Wednesday; Thursday 08.00-11.00.
 |