The State Department web site below is a permanent electronic archive of information released prior to January 20, 2001.  Please see www.state.gov for material released since President George W. Bush took office on that date.  This site is not updated so external links may no longer function.  Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.

Country Commercial Guides FY 1999: United Arab Emirates

CHAPTER VII.  INVESTMENT CLIMATE

Openness to Foreign Investment

The laws and regulations governing foreign investment in the UAE
are evolving but are expected to remain conducive to foreign
investment. The regulatory and legal framework favors local over
foreign investors.  There is no national treatment for investors
in the UAE. Foreign ownership of land and stocks is extremely
restricted.  Therefore, it is recommended that potential
investors consult a local attorney to obtain the most current
investment information at an early stage of planning.

Regulation of the establishment and conduct of business in the
UAE is shared at the federal and emirate levels.  In general,
foreign companies which undertake business activities in the UAE
or make their products available in the UAE have either entered
into a joint venture with UAE nationals for the establishment of
limited liability companies, appointed commercial agents, or set
up branch offices. Except for companies located in the free
zones, at least 51 percent of a business establishment must be
owned by a UAE national.  A business engaged in importing and
distributing a product must be either a 100 percent UAE owned
agency/distributorship or a 51 percent (UAE) - 49 percent
(foreign) limited liability company (LLC).  Subsidies for
manufacturing firms are only available to those with at least a
51 percent local ownership. 

In 1995, the government offered 40 percent of the equity of the
Emirates General Petroleum Company for sale to the private
sector.  No new upstream investment in the oil and gas sector is
being accepted by Abu Dhabi authorities, although this is the
sector in which there is the most interest on the part of
potential foreign investors.  Ninety percent of residential and
commercial construction in Abu Dhabi is funded by the emirate
government.  Severe restrictions on land ownership and transfer
of land exist in Abu Dhabi and Dubai.  

U.A.E. federal government steps toward privatization have been
tentative.  Abu Dhabi Emirate, however, has recently announced
an ambitious initiative to begin privatization in the emirate's
power and water sector.  As of March 1998 the Abu Dhabi Water and
Electricity Authority (ADWEA), a new entity tasked with operating
and managing the power and water sectors in Abu Dhabi, was
established.  The former power/water monopoly (the Water and
Electricity Department will disappear.  The Abu Dhabi government
will divide the industry into three sectors: generation (includes
power and desalinated water production); transmission; and
distribution.  Generation and transmission will be privatized,
while transmission will remain under the control of Abu Dhabi
authorities.  The estimated commercial value of planned power and
water sector development projects in Abu Dhabi is $8.4 billion.

The U.A.E. federal government is considering a draft bill to
establish an official U.A.E. stock market.  The law is expected
to receive final UAEG approval by the end of 1998.  Currently,
shares in the U.A.E. are traded informally.  The primary issue of
contention surrounding creation of a U.A.E. stock market has been
disagreement over foreign participation.  A few mutual funds now
permit limited foreign ownership of shares, providing the first
opportunity for foreigners to invest in the U.A.E. equities
market.

The Abu Dhabi authorities in the late 1980's instituted an offset
program.  Under it, defense sales contractors are required to
invest an amount which will generate a profit equal to a agreed
upon portion of their contract in the UAE.  The amount is subject
to negotiation with the UAE offset committee, which must approve
each investment project.  The projects generally must show the
required profit after seven years.  The contractor may not own
more than 49 percent of the project.  The remaining 51 percent
must be held by UAE nationals.  As of June 1998 there are 24 
offset ventures, including the trailblazing Abu Dhabi
Shipbuilding Co., with significant Newport News Shipbuilding
shareholding.  The largest offset ventures are a $135 million Air
condition company (Tabreed) , a GIAT offsets project, and the
$135 million Oasis International Leasing Company, a British
Aerospace offsets venture which recently, announced plans to
purchase six Airbus aircraft and re-lease them to Gulf Air.   A
backlog of offset obligations has accumulated, as the UAE armed
forces continues to make purchases.  Principal problems
associated with the program are a dearth of investment
opportunities, difficulty in finding UAE national partners for
the majority 51 percent, and difficulty in obtaining cooperation
from emirate and federal bureaucracies for required permits,
licenses, and other documentation needed to establish any new
project.

Foreign banks are required to pay a 20 percent income tax,
although there is room to negotiate the actual payment of the
tax.  Domestic banks pay no income tax.  No other foreign
companies pay income taxes to the UAE government.  Neither
foreign nor UAE nationals pay individual income or property taxes
in the UAE.  

There are no significant government financed and/or subsidized
research and development programs in the UAE.  

Visas, residence permits, and work permits are required of all
foreigners in the UAE.  U.S. citizens are eligible to receive ten
year, multiple entry visas, authorizing stay up to six months per
entry, with the possibility of a six-month extension.

Conversion and Transfer Policies
There are no restrictions on the transfer of funds into or out of
the UAE, except that the currency of Israel may not be bought or
sold in the UAE.  All other currencies are traded freely at
market determined rates.  No license is required to change money. 
The UAE dirham has been pegged to the dollar at 3.671 dirhams per
dollar since 1980.  At present, there is a divergence of about
2.0 percentage points or more in U.S. and UAE inflation rates. 
Despite this, the authorities are under no pressure to adjust the
peg.    

Expropriation and Compensation
There have not been any expropriations in the UAE involving
foreigners.  There are no set rules governing compensation were
expropriations to occur, and individual emirates would treat this
differently.  In practice, authorities in the UAE would not
expropriate unless there were a compelling developmental or
public interest need to do so, and in such cases compensation
would be generous.   

Dispute Settlement
There have been no significant investment disputes over the past
few years involving U.S. or other foreign investors, but there
have been several contractor disputes in the UAE.  Most disputes
have eventually been satisfactorily handled through arbitration. 
However, dispute resolution can be difficult and uncertain. 
Arbitration may commence by petition to the 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 judgments has not always been easy.  The
UAE is a member of the International Center for the Settlement of
Investment Disputes.

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
is chaired by the president of the chamber, and the president of
the chamber's customs and arbitration committee acts as the
center's general secretary.  The center has jurisdiction to
conciliate or arbitrate commercial disputes.  The center's
executive regulations govern its conciliation and arbitration
procedure.  Referral by two adverse parties of a dispute to the
center entails the parties acceptance of the finality of the
centers decision.  The proceedings of the center may be in Arabic
or in any other language selected by the parties. The efficacy of
the center depends in part on the willingness of local courts to
grant rapid enforcement to the center's awards.

The Dubai Chamber of Commerce and Industry promulgated commercial
conciliation and arbitration rules which appear to be quite
flexible, in the judgment of western legal experts.  The rules
permit parties to agree to have conciliation or arbitration under
the auspices of the chamber, but under other rules.  

The UAE federal supreme court has held that a foreign arbitration
clause in a registered commercial agency agreement is
unenforceable as a matter of public policy.  The decision was
based on the commercial agencies law of 1981, which states that
the courts of the UAE shall have jurisdiction over commercial
agency disputes.  The federal supreme court did not comment on
the wisdom of registration of commercial agency agreements that
contain clauses, such as foreign arbitration clauses, that could
later be held unenforceable.

The provisional constitution of the UAE established a federal
court system while acknowledging the right of the individual
emirates to maintain a court system of their own.  The federal
court system consists of federal courts of first instance, two
federal courts of appeal and a federal supreme court.  The court
of first instance consists of civil, criminal, and shariah
(Islamic religious) courts.  The shariah and civil legal systems
exist concurrently for the most part.  Commercial disputes
involving foreign parties tend to come before the civil courts
and major commercial disputes are ordinarily heard by a panel of
three judges.  All cases involving banks and financial
institutions are required to be heard by civil courts and not by
shariah courts.

In 1992,  President Zayed issued a new code of civil procedure.
The code contains new rules on arbitration, conciliation and
amicable settlement of disputes.  According to an analysis
prepared by Western-trained attorneys, the new arbitration rules
are similar to those recommended by the federation of the UAE
Chambers of Commerce and Industry.  The agreement of the parties
to a dispute to refer it to arbitration is recognized and made
enforceable.  No party is now permitted to file a claim with a
court if such party has already agreed to refer such claim to
arbitration.  Reference to arbitration may be made at any stage
during litigation.  The new code sets out in detail rules
governing the qualification and disqualification of arbitrators
and many other aspects of the arbitration process.  The venue of
arbitration is required to be within the UAE, and if not, the
resultant award is to be treated like a foreign judgment.  There
are also rules to ensure the prompt enforcement of awards.  The
new code also introduced procedures to expedite certain business
claims.  Comprehensive rules were provided in connection with the
various types of preventive and provisional remedies prior to the
litigation process and upon the issuance of judgments, including
attachment of property, confiscation of the defendant's passport
and prohibitions on travel, as well as the detention of the
defendant in certain instances.

Political Violence (as it may affect investments)
None


Performance Requirements/Incentives
Incentives are given to foreign investors in the free zones. 
Outside the free zones, no incentives are given.

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
With the exception of intellectual property, private property is
protected and respected in the UAE.

The UAE remains on USTR's special 301 Watch List because of
deficiencies in protection of Intellectual Property Rights (IPR). 
In April 1998, the USTR cited inadequate protection of computer
software and pharmaceutical patents as reasons for maintaining
the UAE on the watch list.

In 1992 the UAE passed three laws pertaining to intellectual
property: a copyright law, a trademark law, and a patent law. 
Enforcement efforts did not begin in earnest until 1994. As a
result of government enforcement efforts, the UAE is largely
clean of pirated sound recordings and films.  While the
government has also undertaken enforcement actions against local
companies selling pirated computer software, U.S. industry
remains concerned about reports of large-scale copying of
business computer software by corporate end-users.  Efforts to
combat computer software piracy in the UAE have been successful;
according to industry estimates the rate of software piracy in
1997 declined 12 percentage points, to 60 percent. The U.A.E. is
recognized as the regional leader in fighting computer software
piracy.

The Ministry of Information is currently amending the copyright
law to bring it up to international standards. UAE patent law
provides process, not product, patent protection for
pharmaceutical products.   In June 1997 the Ministry of Finance
and Industry publicly announced that it was in the process of
amending the patent law, but little progress has been made and a
local pharmaceutical manufacturer continues to produce patent
protected products.  The UAE has joined the Paris Convention for
the Protection of Industrial Property, the first treaty for the
protection of IPR to which the UAE has acceded.  It is also a
member of the World Intellectual Property Organization (WIPO).

Corruption
As in many other countries, corruption is a concern for U.S.
firms seeking to do business in the U.A.E.  American firms are
bound by the Foreign Corrupt Practices Act, a copy of which may
be obtained from the Commercial Section of the U.S. Embassy.

Regulatory System
The federal commercial code, the last building block in the
edifice of federal commercial legislation in the UAE, was
promulgated on September 20, 1993.  The commercial code devotes
an entire chapter to bankruptcy, which is the first comprehensive
legislation in the UAE on the subject of bankruptcy.  Prior to
enactment of the commercial code, creditors of bankrupt persons
were often faced with a race to the courthouse with other
creditors in order to obtain satisfaction of their claims.  In
the judgment of Western legal experts, however, the commercial
code chapter on bankruptcy governs the procedures and effects of
bankruptcy in the UAE and should provide a mechanism for the
orderly evaluation and distribution of assets of a bankrupt
entity.

The concept of a mortgage does not exist.  With few exceptions,
title to all land in Abu Dhabi, the largest emirate, resides in
the ruler.  Most construction, commercial and residential, is
financed by a specialized agency of the government of Abu Dhabi. 
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.  In the past,
developers unable to pay off bank loans simply walked away from
the problem.  The new commercial code's bankruptcy provisions
seek to give lenders access to the assets of persons issuing
personal guarantees.  However, these provisions have not been
tested in court.  

The fundamental instrument by which all of the emirates regulate
business activity is the requirement that any place of business
must be properly licensed by the municipal authorities of an
emirate.  A license is not required unless a place of business is
set up in the UAE.  Therefore, 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 bylaws.

1.  The federal companies law: the companies law applies to all
commercial companies established in the UAE and to branch offices
of foreign companies operating in the UAE.  The following
provisions are of particular importance:

A.  Companies established in the UAE are required to have a
minimum of 51 percent UAE national ownership.  However, profits
may be apportioned differently.

B.  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.

C.  All general partnership interest must be owned by UAE
nationals.

D.  Foreign shareholders may hold up to a 49 percent interest in
limited liability companies.

There are seven types of local companies that may be organized
under the companies law:

1.  General partnership
2.  Limited partnership
3.  Share partnership
4.  Joint venture company
5.  Limited liability company
6.  Publicly held company
7.  Private shareholding company.

Among the forms of business activities under the companies law,
the limited liability company is now considered to be the most
suitable form of joint ventures between local and foreign
entities.

2.  The commercial agencies law: 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 law provides that
an agent may be terminated only by mutual agreement of the
foreign principal and the local agent, notwithstanding the
expiration of the term of the agency agreement.

3.  The federal industries law:  the industry law stipulates that
industrial projects must have 51 percent UAE national ownership. 
The law also requires projects either to 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
relating to extraction and refining of oil, natural gas, and
other raw materials.  Additionally, projects with a small capital
investment or special projects governed by special laws or
agreements are exempt from the industry law.

4.  Government tenders law: under the tenders law, a supplier,
contractor, or tenderer with respect to federal projects must
either be a UAE national or a company in which at least 51
percent of the share capital is owned by UAE nationals. 
Therefore, foreign companies wishing to bid for a federal project
must enter into a joint venture or agency arrangement with a UAE
national or company.  Federal tenders are required to be
accompanied by a bid bond in the form of an unconditional bank
guarantee for five percent of the value of the bid.

Bilateral Investment Agreements
The U.A.E. has bilateral investment agreements with a number of
countries, including the UK.  There is no bilateral investment
treaty with the U.S.  

OPIC and Other Investment Insurance Programs
The U.S. and the UAE signed an agreement on investment guarantees
(an OPIC agreement) in September 1991.  In 1995 OPIC removed the
UAE from the list of countries in which it provides coverage for
U.S. companies wishing to invest overseas.  OPIC's decision to go
"off-cover" was based on statutory requirements which bind it to
provide coverage only in countries which are found to taking
steps to adopt or implement internationally-recognized worker
rights.  The U.A.E.'s labor force is roughly 90% expatriate; in
such circumstances, the UAEG is not inclined to permit workers
the right to organize and bargain collectively.

Labor
The labor force includes 1,135,000 males and 155,000 females. 
Statistics from 1995 indicate that the labor force comprises 54.2
percent of the UAE population.  It is estimated that nearly 90
percent of workers in the UAE are non-UAE nationals.  Women
comprise 12 percent of the UAE labor force, up from 9.6 percent
in 1985.  The national unemployment rate is 2.6 percent.
Emiratization of the U.A.E. workforce remains a national
objective.  In May 1998 the U.A.E. cabinet approved plans to
force banks to increase their U.A.E. National workforce to at
least 40% of total staff within 10 years.  This law will go into
effect in January 1999; banks will be required to raise U.A.E.
staffing by 4% for 10 consecutive years.  In June 1998 the
Ministry of Education announced that teachers of grades 1-5 in
the public school system much henceforth be U.A.E. national
women.

The Right to Organize and Bargain Collectively
UAE law does not grant workers the right to engage in collective
bargaining, and it is not practiced.  Workers in the industrial
and service sectors are normally employed under contracts that
are subject to review by the Ministry of Labor and Social
Affairs.  The purpose of the review is to ensure that pay will
satisfy the employee's basic needs and secure a means of living.
For the resolution of work-related disputes, workers must rely on
conciliation committees organized by the Ministry of Labor and
Social Affairs or on special labor courts.  Labor laws do not
cover government employees, domestic servants and agricultural
workers.  The latter two groups face great difficulty in
obtaining any assistance in resolving disputes with employers. 
While any worker may seek redress through the courts, this
process puts a heavy financial burden on those in lower income
brackets.  In Dubai's Jebel Ali Free Zone, the same labor laws
apply as in the rest of the country.  


Prohibition of Forced or Compulsory Labor
Forced or compulsory labor is illegal and not practiced. 
However, some unscrupulous employment agents bring foreign
workers to the UAE under conditions approaching indenture.  

Minimum Age for Employment of Children
Labor regulations prohibit employment of persons under age 15 and
have special provisions for employing those aged 15 to 18.  Laws
prohibiting the employment of children are enforced by the
department of labor.  Labor regulations allow contracts only for
adult foreign workers.  Despite tough federal laws prohibiting
child labor, there remain concerns about the importation of
children some as young as two years of age to serve as camel
jockeys.

Acceptable Conditions of Work
There is no legislated or administrative minimum wage.  Supply
and demand determine compensation.  However, according to the
Ministry of Labor and Social Affairs, there is an unofficial,
unwritten minimum wage rate which would afford a worker and
family a minimal standard of living.  The Ministry of Labor and
Social Affairs reviews labor contracts and does not approve any
contract that stipulates a clearly unacceptable wage.  This
requirement is often evaded.  

The standard workday and workweek are set at eight hours per day,
six days per week, but these standards are not strictly enforced. 
Certain types of workers, notably domestic servants, may be
obliged to work longer than the mandated standard hours.  The law
also provides for a minimum of 24 days per year of annual leave
plus 10 national and religious holidays.  In addition, manual
workers are not required to do outdoor work when the temperature
exceeds 45 degrees Celsius (112 f.).

Most foreign workers receive either employer-provided housing or
a housing allowance, medical care, and homeward passage from
their employers.  The vast majority of such workers, however, do
not earn the minimum salary of 5000 dirhams (approximately 1370
U.S. dollars) per month currently required for them to sponsor
their families for a UAE residence visa. Employers have the
option to petition for a ban from the work force of one year for
any foreign employee who leaves his job without fulfilling the
terms of his contract. 

The government sets health and safety standards, which are
enforced by the Ministry of Health, the Ministry of  Labor and
Social Affairs, municipalities, and civil defense units.  Every
large industrial concern is required to employ an occupational
safety officer certified by the Ministry of Labor.  If an
accident occurs, a worker is entitled to fair compensation. 
Health standards are not uniformly observed in the housing camps
provided by employers.  Workers' jobs are not protected if they
remove themselves from what they consider to be unsafe working
conditions. However, the Ministry of Labor may require employers
to reinstate workers following an investigation of the alleged
unsafe working conditions.  All workers have the right to
complain to the labor ministry, whose officials are accessible to
any grievant, and an effort is made to investigate all
complaints.  The ministry, which oversees worker compensation,
is, however, chronically understaffed and underbudgeted so that
complaints and compensation claims are backlogged.

In 1996, the UAE ratified three treaties of the International
Labor Organization (ILO): the 1951 Equal Remuneration Convention,
the 1957 Abolition of Forced Labor Convention, and  the 1973
Minimum Age Convention.  Nevertheless, a number of accounts,
including some in the local press, continue to call attention to
abuses suffered by domestic servants, particularly women,
perpetrated by individual employers.  These have included
allegations of excessive work hours, extremely low wages, verbal
abuse, and, in some cases, physical abuse.

Capital Outflow Policy
There are no restrictions or incentives with regard to the export
of capital and outward direct investment.

Major Foreign Investors
Principal foreign investors are the U.S., UK, France, India,
Japan and Germany.

 
Next Chapter | Table of Contents
Country Commercial Guides Index