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2012 Investment Climate Statement - United Arab Emirates


2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report
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Openness to, and Restrictions Upon, Foreign Investment

Investment laws and regulations are evolving in the United Arab Emirates (UAE) and are expected to become more conducive to foreign investment. At present, the regulatory and legal framework favors local over foreign investors. There is no national treatment for investors in the UAE, and foreign ownership of land and stocks is restricted. The UAE maintains non-tariff barriers to investment in the form of restrictive agency, sponsorship, and distributorship requirements. In order to do business in the UAE outside one of the free zones, a foreign business in most cases must have a UAE national sponsor, agent or distributor. However, the UAE Government (UAEG) is opening up its trade sectors in line with its WTO obligations. The UAEG has publicly declared its commitment to cut red tape for foreign investors. In September 2011, the Ministry of Economy announced that 19 federal laws were in draft status and these laws would address a number of issues that have discouraged investment in the UAE. In December 2011, the UAE Cabinet approved a draft version of one of those laws, the Companies Law, though the law had not been promulgated as of yearend.

There is no personal income tax in the UAE. Foreign banks pay 20 percent tax on their profits. Foreign oil companies with equity in concessions pay taxes and royalties on their proceeds. There are no consumption taxes, and the GCC states formally implemented a single import tariff of five percent on most goods January 1, 2003. Companies located in the numerous "free zones" across the UAE are exempt from the tariff on imports and re-exports that do not leave the zones. The exceptions to the five percent tariff in the UAE are a 50 percent tariff for alcohol, a 100 percent tariff for tobacco, and duty exemptions for 53 food and agricultural items. Import tariffs are collected and retained by each emirate. Dubai imposes a rental housing tax on expatriates equaling five percent of the rental charges. While the UAE has previously said that it is considering passing a VAT, officials from the UAE Ministry of Finance stated in November 2011 that no new taxation would be introduced in 2011 or 2012. Hotels and some restaurants/coffee shops charge 10 to 15 percent service charges.

Currently, there are four major laws affecting foreign investment in the UAE: the Federal Companies Law, the Commercial Agencies Law, the Federal Industry Law, and the Government Tenders Law. These laws, especially the Federal Companies Law, are seen as the largest obstacles to foreign direct investment in the UAE.

Regulation of the establishment and conduct of business in the UAE is shared at the federal and emirate levels. For example, the draft federal Companies Law reportedly maintains the specific ownership requirements but will allow individual emirates more autonomy to permit majority foreign ownership in certain sectors.

The federal Companies Law applies to all commercial companies established in the UAE and to branch offices of foreign companies operating in the UAE. Companies established in the UAE are required to have a minimum of 51 percent UAE national ownership. Regardless, profits may be apportioned differently and often are negotiated at fixed amounts. Branch offices of foreign companies are required to have a national agent unless the foreign company has established its office pursuant to an agreement with the federal or an emirate government. All general partnership interest must be owned by UAE nationals. The UAE is in the process of finalizing the federal Companies Law, and Dubai is expected to be one of the first emirates to exercise new emirate-level authorities in its effort to facilitate foreign direct investment (FDI) and improve transparency for investors. The proposed law may allow 100 percent foreign ownership in some sectors and projects, but changes to the approval process for ownership and to shareholder’s rights are not yet defined. Some of the sectors which may be liberalized are those with high added value, including education, health, professional services, tourism, computer-related services, and technology transfer. Foreign shareholders may hold up to a 49 percent interest in limited liability companies.

Foreign investors may purchase 108 of the 135 issues on the UAE stock markets, Abu Dhabi Securities Market (ADX) and Dubai Financial Market (DFM). Under UAE law, foreign investors are allowed to own up to 49 percent of a company. However, company by-laws in many cases prohibit foreign ownership. The international financial crisis and foreign speculation contributed to significant declines in the values of local shares since 2008. As a result, some UAE public shareholding companies have decided to reduce the percentage of shares available for foreign ownership. The Emirates Securities and Commodities Authority (SCA), the UAE’s regulator, is considering raising the minimum level of capital for brokerages. Analysts continue to speculate about the possibility of an Abu Dhabi stock exchange and Dubai Financial Market merger, which could allow the UAE to rival the much larger stock market in Saudi Arabia.

The provisions relating to commercial agencies are collectively set out in Federal Law No. 18 of 1981 on the Organization of Commercial Agencies as amended by Federal Law No. 14 of 1988 (the Agency Law) and applies to all registered commercial agents. Federal Law No. 18 of 1993 (Commercial) and Federal Law No. 5 of 1985 (Civil Code) govern unregistered commercial agencies. The Commercial Agencies Law requires that foreign principals distribute their products in the UAE only through exclusive commercial agents that are either UAE nationals or companies wholly owned by UAE nationals. The foreign principal can appoint one agent for the entire UAE or for a particular emirate or group of emirates. The Ministry of Economy handles registration of commercial agents. It remains difficult, if not impossible, to sell in UAE markets without a local agent. Only UAE nationals or companies wholly owned by UAE nationals can register with the Ministry of Economy as local agents.

The federal Industry Law stipulates that industrial projects must have 51 percent UAE national ownership. The law also requires that projects either be managed by a UAE national or have a board of directors with a majority of UAE nationals. Exemptions from the law are provided for projects related to extraction and refining of oil, natural gas, and other raw materials. Additionally, projects with a small capital investment or projects governed by special laws or agreements are exempt from the industry law.

The UAE restricts foreign ownership of land, with rules varying from emirate to emirate. Individual emirate policies allow non-GCC nationals to freehold or leasehold rights in designated areas, but do not give property owners permanent residence visas or an automatic right to work in the emirate. However, because specific laws regarding "freehold" ownership remain to be codified and procedures for title documentation and conveyance remain to be established, potential buyers are unsure whether they will have an absolute "freehold" title that means the same as it does in Europe or the U.S.

In February 2009, the Higher Corporation for Specialized Economic Zones (ZonesCorp), an industrial zone based in Abu Dhabi, signed Memorandums of Understanding with the Ministry of Economy (MoE) and the Abu Dhabi Chamber of Commerce and Industry (ADCCI) to develop an ideal industrial environment in Abu Dhabi and facilities, transactions and services for local, regional, and international investors. Through the electronic exchange of data and information, the MoU gives ZonesCorp the authority to issue, amend and renew Chamber of Commerce Certificates for industrial businesses operating in the industrial cities, as well as collect fees on the Chamber's behalf, streamlining the process and saving time for investors. ZonesCorp has also established a one-stop-shop for investors.

In 2006, the UAE Cabinet amended the law regarding ownership of insurance companies to state that insurance companies must be 75 percent owned by a UAE national or 100 percent by UAE legal persons, i.e., a UAE corporation. No new insurance companies or new branches have been authorized since 2008. Any new companies entering the market are required to meet high level international rating criteria and must complete a viability study to prove that it will be offering new products to the market. About half of the insurance companies in the UAE are foreign.

In 2008, Abu Dhabi Chamber of Commerce and Industry also created a one-stop shop for investors, with the exception of Investors dealing in Israeli currency and the currencies of those countries subject to United Nations sanctions.


Measure

Year

Ranking

TI Corruption Index

2011

28th

Heritage Economic Freedom

2011

47th

World Bank Doing Business

2012

33rd

MCC Government Effectiveness

NA

 

MCC Rule of Law

NA

 

MCC Control of Corruption

NA

 

MCC Fiscal Policy

NA

 

MCC Trade Policy

NA

 

MCC Regulatory Quality

NA

 

MCC Business Start Up

NA

 

MCC Land Rights Access

NA

 

MCC Natural Resource Mgmt

NA

 

Conversion and Transfer Policies

The UAE’s exchange system is generally free of restrictions on payments and transfers from international transactions. The UAEG passed comprehensive anti-money laundering legislation following the attacks of September 11, 2001, that imposes strict documentary requirements on large wire transfers.

Travelers entering the UAE must declare currency amounts of more than 40,000 Dirhams (approximately USD 10,800) as part of these measures.

Since February 2002, the Dirham has been officially fixed to the U.S. Dollar. The exchange rate is 3.67 UAE Dirhams per one U.S. Dollar. Every bank transaction in U.S. dollars is subject to a one percent fee. In 2009, UAE withdrew from the planned GCC monetary union.

Expropriation and Compensation

Foreign investors have not been involved in any expropriations in the UAE in recent years. There are no set rules governing compensation if expropriations were to occur, and individual emirates probably would treat this differently. In practice, authorities in the UAE would not expropriate unless there was a compelling development or public interest need to do so, and in such cases compensation would likely be generous.

Dispute Settlement

The Embassy is aware of a few substantial investment disputes during the past few years involving U.S. or other foreign investors and government and/or local businesses. There have also been several contractor/payment disputes, with the government as well as local businesses. Disputes generally are resolved by arbitration, by the parties themselves, or by recourse to the legal system. Dispute resolution can be difficult and uncertain, however. Arbitration may commence by petition to the UAE federal courts on the basis of mutual consent (a written arbitration agreement), independently (by nomination of arbitrators), or through a referral to an appointing authority without recourse to judicial proceedings. Enforcing arbitration judgments rendered in the UAE can be difficult as they require court certification, and judicial proceedings may continue for several years. Some companies are reportedly unwilling to resort to arbitration out of concern that it would affect their future business opportunities in the UAE.

The UAEG's accession to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards became effective in November 2006. An arbitration award issued in the UAE is now enforceable in all 138 states that have acceded to the Convention, and any award issued in another member state is directly enforceable in the UAE. The Convention supersedes all incompatible legislation and rulings in the UAE, and should be welcomed by many businesses that consider arbitration the most advantageous form of dispute resolution. The Embassy does not yet have any experience with U.S. firms attempting to use arbitration under the UN convention.

The UAE constitution established a federal court system while acknowledging the right of the individual emirates to opt out, which Abu Dhabi, Dubai, and Ras Al Khaimah have. However, some issues must be heard in the federal court system such as security matters, conflicts between the emirates, constitutionality of a federal law, trial of ministers and senior officials and jurisdictional issues.

There is no independent judiciary in the UAE. The Ministry of Justice appoints judges to the federal courts, while judges in Abu Dhabi, Dubai and Ras Al Khaimah are appointed by the respective rulers of those emirates. The majority of judges are non-Emirati. Each emirate applies federal law in its own court system that consists of courts of first instance, courts of appeal and a Supreme Court. The court of first instance consists of civil, criminal, and Sharia (Islamic law) courts. Sharia law is applicable to both Muslims and non-Muslims, but is focused primarily on family, inheritance and personal status matters. Courts will interpret statutory law and Sharia law in deciding cases.

Commercial disputes involving foreign parties tend to come before the civil courts in the federal system; a panel of three judges ordinarily hears commercial disputes. Commercial disputes might also come before the criminal courts, if one of the parties alleges criminal fraud or theft arising from a contractual dispute. The Embassy is aware of a number of such cases, which also may include travel bans against parties to the dispute until the case is resolved in court. All cases involving banks and financial institutions are required to be heard by civil courts. In Abu Dhabi, all non-arbitration commercial disputes are first brought to the Abu Dhabi Conciliation Department. If the parties are unable to reach a settlement, they can begin legal proceedings in the court of first instance.

The Code of Civil Procedure contains comprehensive rules regarding the various types of preventive and provisional remedies prior to litigation and the issuance of judgments, including the attachment of property, confiscation of the defendant's passport and prohibitions on travel, as well as the detention of the defendant in certain instances. However, the courts must certify all arbitration decisions, and though they do not review substantive claims, they can invalidate decisions based on procedural considerations. Parties can also appeal certification decisions thus prolonging enforcement indefinitely. In June 2009, the Abu Dhabi Judicial Department (ADJD) established commercial directories, including directories for bonds and shares, banks, construction, and real estate disputes, insurance, and financial papers.

In 1993 the Abu Dhabi Chamber of Commerce and Industry formed the Abu Dhabi Commercial Conciliation and Arbitration Center in an effort to accelerate commercial dispute resolution. The Center has jurisdiction to conciliate or arbitrate commercial disputes. The Center's executive regulations govern the conciliation and arbitration procedure. Though referral by the parties to the Dispute Center ostensibly requires them to accept the finality of the Center's decision, the courts must still certify the decision and enforcement can be delayed. The Center conducts proceedings in Arabic or any other agreed upon language.

The Dubai Chamber of Commerce and Industry has promulgated similar commercial conciliation and arbitration rules that permit parties to have conciliation or arbitration proceedings under the auspices of the Chamber.

In 2004, the Dubai International Arbitration Center was made independent of the Chamber. The Arbitration Center aims to bring international standards of arbitration to business in Dubai. The UAE is a member of the International Center for the Settlement of Investment Disputes. In May 2009, Sharjah issued an Emiri Decree (No. 6 of 2009) concerning the formation of the Sharjah International Commercial Arbitration Center, under the umbrella of the Sharjah Chamber of Commerce.

Several companies have sought dispute resolution at the Court of Dubai International Financial Center (DIFC), a financial free zone. The DIFC Court operates independently of the UAE legal system on commercial disputes as part of the DIFC free zone. According an official protocol signed in December 2009, the Dubai Courts and DIFC Courts agreed that the DIFC Courts have exclusive jurisdiction over civil or commercial cases and disputes involving the DIFC or any company licensed to operate from the DIFC and over any dispute arising from business activities performed in whole or in part within the DIFC. Then in October 2011, Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, signed a law allowing any Dubai-based business to use the English language DIFC Courts to resolve commercial disputes. Regional businesses are expected to take advantage of this new capability since litigants can avoid the time and the cost of translating documents into Arabic by using the DIFC Court. The DIFC Court does not preside over cases involving financial crimes or other crimes connected to individuals operating within the DIFC.

In a few instances over the last few years and especially during the 2008-09 debt crisis, expatriate investors, property owners, and business partners involved in commercial disputes in the UAE have found themselves the object of criminal legal proceedings. Recognizing the merit of keeping these cases out of criminal courts, the UAE government has demonstrated efforts, which are not well publicized or understood, to address these shortcomings during 2011 in a number of relevant areas. For example, there are reports that in some of these cases the UAEG is now using a quasi-system of alternative dispute resolution which refers certain matters to a committee prior to possible criminal prosecution and works with the parties to reach a mutually acceptable solution. Furthermore, in unconfirmed reports of reforms to criminal check bouncing regulations and in the draft insolvency law, both currently under review by the UAE government, there appears to be a sustained effort in the near term to reform the regulatory and legal climate in substantial and positive ways.

In the Dubai real estate sector, contractors, trade creditors, and investors in Dubai’s pre-2009 real estate boom have gradually been settling their accounts through 2011. Numerous investors reported losing their entire investment in escrow accounts. Project contractors were forced to negotiate settlements for 30 to 50 cents on the dollar in many cases, several months after their services were completed. While one well-known dispute with a master developer was brought to DIFC courts, investors have largely chosen direct settlements with developers. Many contracts in the real estate sector now include options for investors to use DIFC Courts for dispute settlement. In the aftermath, the Dubai Land Department’s Real Estate Regulatory Authority has reviewed nearly 500 development projects and cancelled at least 237 of them that were less than 60 percent complete. Reforms in the real estate sector are expected to include a much more robust dispute resolution mechanism. Furthermore, these reforms will utilize internet technologies and public databases to track projects, rate real estate developers on project delivery and payment, record transaction prices (like the Multiple Listing Service used in the United States), provide open access to contracts, and publicize certification and training of real estate agents. While these reforms could take several years to be fully implemented, the scope of the proposed reforms is intended to offer future investors and service providers a better dispute settlement process, greater transparency and ultimately lower risk.

Performance Requirements and Incentives

As listed elsewhere in this report, the regulatory and legal framework in the UAE favors local over foreign investors.

Government tendering is not conducted according to generally accepted international standards, and re-tendering is the norm. To bid on federal projects, a supplier or contractor must be either a UAE national or a company in which UAE nationals own at least 51 percent of the capital or have a local agent or distributor. Federal tenders must be accompanied by a bid bond in the form of an unconditional bank guarantee for five percent of the value of the bid. UAE federal government entities can tender internationally since foreign companies sometimes are the only suppliers of specialized goods or services that are not widely available.

Incentives are given to foreign investors in the free zones (details in section A.15). Outside the free zones, no incentives are given, although the ability to purchase property as freehold in certain favored projects in Dubai would appear to be incentives aimed at attracting foreign investment.

Right to Private Ownership and Establishment

Except as detailed elsewhere in this report, there are no restrictions on the right of private entities to establish and own business enterprises and engage in all forms of remunerative activity.

Protection of Property Rights

In 2005, the emirate of Abu Dhabi passed a law allowing Emiratis to hold title on properties in the Emirate and opened up some foreign leasehold rights to surface property in certain designated areas. Most construction, both commercial and residential, is financed by a specialized agency of the government of Abu Dhabi, and commercial banks finance the remainder. Their collateral traditionally has been access to the rent stream of the building or the personal guarantee of the developer. A domestic mortgage industry is also developing.

In December 2010, Abu Dhabi Executive Council (ADEC) issued Resolution No. 64 of 2010 on Regulations of Property Ownership that defines the general framework and rules for property registration in lieu of the property ownership law in the emirate of Abu Dhabi. The new resolution encourages real estate developers and investors to register their properties and associated rights as well as to streamline conversion of real estate rights easily and swiftly. According to the resolution, non-UAE natural or juristic persons enjoy the right to own, buy, sell, rent, mortgage, and invest in investment areas. Non-UAE nationals may hold usufruct or “Musataha” right for up to 50 years (subject for renewal to a similar duration) and usufruct contract for up to 99 years and long-term tenancy contract in properties located inside investment. The UAEG continues to lead the region in protecting intellectual property rights (IPR). Anecdotal and statistical evidence confirms that the UAEG is enforcing copyright, trademark, and patent laws passed in 2002 to protect U.S. intellectual property, and continues to demonstrate its commitment to the 2002 agreement providing TRIPS-plus levels of protection to U.S. pharmaceuticals. Although the UAE is the leader in the region at enforcing intellectual property rights and the Emirate of Dubai is very pro-active in enforcement, many stakeholders believe that the UAEG could do more to fight piracy in the other emirates and to deal with the problems of transshipping of counterfeit goods.

In December 2011, UAE Minister of Justice issued a ministerial decision to establish two IPR courts: a court of first instance and a court of appeal. The UAE has been sending judges for IPR training in Europe and United States.

Transparency of the Regulatory System

The fundamental instrument by which all of the emirates regulate business activity is the requirement that any place of business must acquire and maintain a proper license. The procedures for obtaining a license, which are publicly available, vary from emirate to emirate.

A license is not required unless a place of business is set up in the UAE. In other words, foreign businesses exporting to the UAE but without a regular or continuing business presence in the UAE do not need a license. Licenses available include trade licenses, industrial licenses, service licenses, professional licenses, and construction licenses.

Several federal regulations govern business activities in the UAE outside free trade zones. Activities within the free zones are governed by special by laws.

Efficient Capital Markets and Portfolio Investment

The UAE federal commercial code, promulgated in 1993, devotes an entire chapter to bankruptcy: the first comprehensive legislation in the UAE on the subject. Monetary judgments in bankruptcy cases are made in the local currency, and UAE courts enforce the judgments of foreign courts if there is reciprocity based on bilateral or international treaties. In the judgment of western legal experts, the commercial code chapter on bankruptcy governs the procedures, and effects of bankruptcy in the UAE, but does not provide a mechanism for the orderly evaluation and distribution of assets of a bankrupt entity. The government is revising insolvency laws in the wake of the global financial crisis.

Following a banking crisis caused by accumulating bad debts after the oil boom in the mid-1980s, the Central Bank stopped giving licenses to new foreign banks. However, in September 2003, the UAE Central Bank announced that it would allow the operation of more banks from other countries on a reciprocal basis. The Central Bank has since granted licenses to some GCC banks. In 2008, the Central Bank allowed several foreign banks operating in the UAE to set up new branches. According to Central Bank statistics, there have been no new foreign bank branches licensed since 2009.

Citibank is the only U.S. bank in the UAE that offers full banking services. There are a number of U.S. financial institutions with either representative offices in the UAE or that have established a presence in the DIFC. The largest banks in terms of assets include the Emirates NBD, National Bank of Abu Dhabi, Mashreq Bank, and Abu Dhabi Commercial Bank. The Central Bank prohibits lending an amount greater than seven percent of a bank's capital base to any single customer. Foreign banks with branches in the UAE are not permitted to calculate loans as a percentage of their global capital, which may however be used to calculate the capital adequacy ratio. In a revision to the rule, the Central Bank in 1993 said it would exclude from the requirement non-funded exposures, such as letters of credit and guarantees. The Central Bank also announced implementation of internationally recognized and accepted accounting principles.

UAE banks adopted more conservative lending policies and raised interest rates on time deposits during 2009 and 2010, closing the gap between loans and deposits to an estimated USD 6.64 billion (24.4 billion Dirhams) in November 2009. And as a result of the continued conservative lending policies, in October 2010, bank deposits exceeded loans by USD 4.38 billion (16.1 billion Dirhams). In 2010, the Central Bank issued Regulations for Classification of Loans and Determining Provision, furthering its oversight of lending policies. In June 2011, the Central Bank announced that deposits of banks operating in the UAE increased by 7.4 percent during the first four months of 2011 compared to 2010 end of year levels, reaching USD 307.18 billion (1,128.3 billion Dirhams). Total bank loans and advances (net of provisions and interest suspense) increased by 0.6 percent reaching USD 287 billion (1054.1 billion Dirhams), while total bank assets decreased slightly by 0.04 percent, USD 4627 billion (16995.3 billion Dirhams) at the end of April 2011.

Competition from State Owned Enterprises

Many fully or partially state-owned companies have grown large and efficient enough to compete effectively for business and financing in local and regional markets.

Corporate Social Responsibility

Many companies in the UAE, including local and foreign companies, maintain their own corporate social responsibility departments or offices and participate in corporate social responsibility initiatives, undertaking such activities as mentorship, and employment training, providing humanitarian and social assistance, and addressing environmental concerns.

Political Violence

There have been no instances in recent memory involving politically motivated damage to projects, or insurgencies that have impacted the investment environment.

Corruption

Transparency International’s 2011 report ranks the UAE 28th globally at combating corruption, unchanged from 2010’s global ranking and second among Arab countries, after Qatar. There is no evidence that corruption of public officials is a systemic problem; however, during 2008-2010, UAE authorities investigated several high-profile embezzlement cases, including three cases involving two former ministers and the former governor of the DIFC. Several senior Emirati and foreign nationals were dismissed and detained. Numerous bribery cases at the junior level were also reported in 2010. Dubai Police referred 36 alleged bribery cases for prosecution in 2009. The law stipulates that a public servant convicted of embezzlement shall be subject to imprisonment for a minimum of five years if the crime is connected to counterfeiting.

Article 237 imposes a minimum term of one year for accepting a bribe, while anyone convicted of attempting to bribe a public servant may be imprisoned for up to five years. In August 2005, the UAE signed the UN Anticorruption Convention and ratified it in February 2006.

Bilateral Investment Agreements

The UAE has signed a variety of bilateral and multilateral trade and investment agreements, including six free trade agreements (FTAs), 45 related to bilateral trade and economic cooperation, 33 to promote investment, and 49 prohibiting double taxation on income. The UAE is involved in GCC negotiations with Australia, China, and other countries on free trade agreements. In June 2009, the GCC concluded a Free Trade Agreement with Iceland, Liechtenstein, Norway and Switzerland (the European Free Trade Association). In March 2004, the United States signed a Trade and Investment Framework Agreement (TIFA) with the United Arab Emirates to provide a formal framework for dialogue on economic reform and trade liberalization. TIFAs promote the establishment of legal protection for investors, improvements in intellectual property right protection, more transparent and efficient customs procedures, and greater transparency in government and commercial regulations.

The United States began negotiating an FTA with the UAE in March 2005. In early 2007, the United States and the UAE announced that despite considerable progress in a number of areas under negotiation, they would not be able to complete FTA negotiations under the existing time frame for trade promotion authority. The United States and the UAE have since initiated a "TIFA Plus" consultative process under the existing bilateral TIFA; this process will be used to advance trade liberalization in as many areas as possible - building where appropriate on progress made during the FTA negotiations. Incorporating a broader range of issues, the State Department negotiated and signed a Memorandum of Understanding, creating an Economic Policy Dialogue (EPD) with the UAE Ministry of Foreign Affairs on January 15, 2012. The EPD establishes annual high-level meetings to address a variety of topics, including but not limited to trade, investment, sector-specific cooperation, competitiveness, and entrepreneurship.

OPIC and Other Investment Insurance Programs

The UAE has been suspended from U.S. OPIC insurance programs since 1995 because of the UAEG's lack of compliance with internationally recognized worker rights standards, particularly laborers' rights to association and collective bargaining. The International Labor Organization (ILO) reported in April 2003, however, that the UAE had started to address these concerns. Exim Bank has maintained an active presence in the UAE with frequent visits including the Chairman, Board Members, and staff representatives looking to expand long term and short term lending options.

Labor

The population of the UAE was approximately 8.26 Million in 2010, according to the UAE National Bureau of Statistics. More than 85 percent of residents are foreigners, and approximately 98 percent of private sector workers in the UAE are non-UAE nationals. Increasing UAE nationals’ participation in the workforce, dubbed ‘Emiratization’, remains a national objective. As of December 2010, all private corporations were required to reserve at least 15 percent of positions for UAE nationals. The UAE National Human Resource Development and Employment Authority (Tanmia), is the federal body tasked to boost Emiratization. In May 2009, the Cabinet approved the establishment of the UAE Emiratization Council (UEC), which is responsible for formulating policies and standards to promote Emiratization and for supporting the development of skills and competitiveness among nationals. In the Emirate of Abu Dhabi, the Tawteen Council, a government body, leads local efforts in Emiratization. Despite these efforts, the percentage of UAE nationals to total employees in the private sector decreased from 1.79 percent in the end of 2007 to 1.63 percent in the first half of 2008. No current data is available on that statistic but according to media reports from the UAE Ministry of Economy in July 2011, only 7 percent of Emiratis are employed in the private sector. According to a 2009 Ministry of Labor study, non-Arab Asians constitute 88 percent of the total workforce in the private sector, while Arab nationals, including Emiratis, add up to a mere 10 percent, and other nationalities comprise just two percent.

The UAEG has committed itself to strictly regulating and enforcing labor laws, as witnessed by a series of regulatory and legislative initiatives. In February 2007, the Ministry of Labor published the proposed new labor law for public comment. The proposed law, which still not finalized, does not contain any provisions for labor unions or for collective bargaining, but the UAE Ministry of Labor continues to press businesses and work with countries from which the labor pool originates to improve and streamline contracts, ensure timely salary payment and maintain adequate living accommodations. A committee constituted from several UAE governmental bodies and experts has been established to discuss standards and a mechanism for labor representation.

In 2009, the Ministry of Labor introduced a new electronic Wages Protection System (WPS) designed to combat non-payment of wages. This direct deposit system creates an electronic record of payment for the employer and employee. Use of the WPS became mandatory in 2011 for all companies, except those operating in free zones. Businesses in free trade zones must comply with federal labor laws; however, the Ministry of Labor does not regulate them. Instead, each free trade zone maintains its own labor department to address workers' concerns.

There are a considerable number of skilled foreign nationals in the country who are employed under favorable working conditions. However, the country is also a destination for a large number of unskilled workers, including approximately 268,000 domestic servants, most of them women from South and East Asia, and an even larger number of unskilled male workers, mostly from South Asia. These unskilled laborers actively compete for jobs in the UAE, and many are subject to poor working conditions. UAE employers often tie a foreign employee's residency permit or visa to his employment and sponsorship. If the employee terminates his employment and is unable to secure new employment and a new sponsor, the employee loses residency and could be required to leave the country.

Visas, residence permits, and work permits are required of all foreigners in the UAE except nationals from Gulf Cooperation Council (GCC) countries. Americans are eligible to receive 10-year, multiple entry visas, which authorize stays of up to six months per entry, with the possibility of a six-month extension. U.S. citizens may obtain visit visas for business and tourism at the airport upon arrival. These visas do not permit employment in the UAE. However, Americans are eligible for residence permits in connection with employment or approved familial reunification.

Foreign Trade Zones/Free Ports

Free zones in the UAE are home to more than 17,000 companies. By one government report in November 2010, total foreign direct investment is estimated at USD 73 billion in the 36 free trade zones currently operating in the UAE. These free zones form a vital component of the local economy, and serve as major re-export centers to the Gulf region.

Since UAE tariffs are low and not levied against many imports, the chief attraction of the free zones is the waiver of the requirement for majority local ownership. In the free zones, foreigners may own up to 100 percent of the equity in an enterprise. All free zones provide 100 percent import and export tax exemption, 100 percent exemption from commercial levies, 100 percent repatriation of capital and profits, multi-year leases, easy access to sea and airports, buildings for lease, energy connections (often at subsidized prices), and assistance in labor recruitment. In addition, the free zone authorities provide significant support services, such as sponsorship, worker housing, dining facilities, recruitment, and security.

By far the largest and most successful of the free zones is the Jebel Ali Free Zone (JAFZA) in Dubai, located 20km south of Dubai city adjacent to the Jebel Ali Port. Over 6000 companies representing 80 countries have set up shop in the JAFZA, including numerous Fortune 500 firms. The JAFZA managing authority authorizes three types of licenses: a general license, a specific license, and a national industrial license. The licenses are valid while a company holds a current lease from the free zone authority and are renewable annually as long as the lease is in force. The special license is issued to companies incorporated, or otherwise legally established, within the free zone or outside the UAE. In such cases, no other license is required, and ownership of the company may be 100 percent foreign. The license is issued for any activity permitted by the free zone authority, including manufacturing. A company with a special license can only operate in the JAFZA or outside the UAE, but business can be undertaken and sales made in the UAE through or to a company holding a valid Dubai Economic Department license. However, a company with a special license can purchase goods or services from within the UAE.

A variety of innovative free zones have been established in Dubai since 2000, most notably the TECOM (Technology, Electronic Commerce and Media) free zone. TECOM houses both Internet City and Media City, two subdivisions which cater, respectively, to the IT and media sectors. TECOM offers a high bandwidth and state-of-the-art IT infrastructure. Other Dubai free zones include Dubai Health Care City, specializing in medical products and services, the Mohammed Bin Rashid Technology Park, which aims to promote scientific research and development, and to transfer technology throughout the region and the Dubai Humanitarian City, which hosts local, regional and international relief aid donors, suppliers, and organizations. Internet usage in the free zones is not censored as it is elsewhere in the UAE.

The global economic downturn that began in 2008 has reduced the number of foreign companies registered in some of the UAE’s free zones. Of the 973 companies registered in the DIFC since it opened in 2004, almost a fifth have dissolved, become inactive or been struck off by the registrar. The DIFC took steps in 2010 to reduce the costs of doing business in the free zone as it has abolished fees in 61 categories and further slashed fees in another 10 segments. During the first half of 2011, occupancy rates at the DIFC reached their highest levels since the 2008 debt crisis as the Dubai economy improved and a wave of capital arrived, redirected from other Arab countries experiencing political unrest. By most media accounts, the growth at the DIFC reached a plateau in late 2011 as European banks focused their attention on the Eurozone debt crisis.

Foreign Direct Investment Statistics

The United Nations Conferences on Trade and Development (UNCTAD) reports that inward FDI flow for the UAE held steady at USD 3.948 billion in 2010 compared to USD 4.003 billion in 2009. The UNCTAD Inward FDI Performance Index 2005-2007 (141 economies) listed the UAE in 34th place worldwide and 5th place among Arab countries in attracting foreign direct investment.

The stock of U.S. foreign direct investment (FDI) in United Arab Emirates (on historical-cost basis) was USD 3.993 billion in 2009, according to the U.S. Bureau of Economic Analysis. U.S. FDI in the United Arab Emirates is concentrated largely in the mining, finance, and wholesale trade sectors.

The Abu Dhabi Chamber of Commerce and Industry notes that the leading sectors for investment in the UAE are (in order of magnitude of investment): oil and gas field machinery and services, power and water, computer/peripherals, medical equipment and supplies, airport development and ground equipment, telecommunications, and franchising.

There are no restrictions or incentives with regard to the export of capital and outward direct investment, and UAE investment abroad is significant. The Abu Dhabi Investment Authority (ADIA) manages approximately USD 650 billion (estimates range upward) in government assets in overseas markets, mostly in the United States, Europe, and Asia. By its own claims, ADIA is the largest institutional investor in the world after the Bank of Japan.

Other Emirate level investment authorities - primarily from Abu Dhabi and Dubai - are also actively investing overseas.



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