United Arab Emirates
The Government of the United Arab Emirates (UAE) is pursuing economic diversification to promote the development of the private sector as a complement to the historical economic dominance of the state. The country’s seven emirates have implemented numerous initiatives, laws, and regulations to develop a more conducive environment for foreign investment. The UAE maintains a position as a major trade and investment hub for a large geographic region which includes not only the Middle East and North Africa, but also South Asia, Central Asia, and Sub-Saharan Africa. Multinational companies cite the UAE’s political and economic stability, population and Gross Domestic Product (GDP) growth, fast-growing capital markets, and a perceived absence of systemic corruption as positive factors contributing to the UAE’s attractiveness to foreign investors.
While the UAE implemented an excise tax on certain products in October 2017 and a five percent Value-Added Tax (VAT) on all products and services beginning in January 2018, many investors continue to cite the absence of corporate and personal income taxes as a strength of the local investment climate, relative to other regional options.
While foreign investment continues to grow, the regulatory and legal framework in the UAE continues to favor local over foreign investors. There is no national treatment for investors in the UAE, and foreign ownership of land and stocks remains restricted. In September 2018, the UAE issued Decree-Law No. 19 on Foreign Direct Investment (FDI), which grants licensed foreign investment companies the same treatment as national companies, within the limits permitted by the legislation in force. A negative list of economic sectors restricted from 100 percent foreign ownership includes 14 major industries. On March 3, 2020, the Cabinet approved a positive list of economic sectors eligible for 100 percent foreign ownership. This list covers activities in 13 sectors, including renewable energy, space, agriculture, manufacturing, transport and logistics, hospitality & food services, information and communications services, professional and scientific and technical activities, administrative and support services, education, health care, arts and entertainment, and construction. The Cabinet confirmed that it will allow individual emirates to set foreign investor ownership limits in each activity.
Foreign investors expressed concern over spotty intellectual property rights protection, a lack of regulatory transparency, and weak dispute resolution mechanisms and insolvency laws. In 2020 the Cabinet approved a resolution concerning combating commercial fraud. This resolution established a unified federal mechanism to deal with commercial fraud across the UAE and outlined a process for removal and destruction of counterfeit products. Labor rights and conditions, although improving, continue to be an area of concern as the UAE prohibits both labor unions and worker strikes.
Free trade zones form a vital component of the local economy and serve as major re-export centers to other markets in the Gulf, South Asia, and Africa. U.S. and multinational companies indicate that these zones tend to have stronger and more equitable frameworks than the onshore economy. For example, in free trade zones foreigners may own up to 100 percent of the equity in an enterprise, have 100 percent import and export tax exemptions, have 100 percent exemption from commercial levies, and may repatriate 100 percent of capital and profits. Goods and services delivered onshore by free zone companies are subject to the five percent VAT.
|TI Corruption Perceptions Index||2019||21 of 180||http://www.transparency.org/
|World Bank “Ease of Doing Business” Report||2019||16 of 190||www.doingbusiness.org/rankings|
|Global Innovation Index||2019||36 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($B USD, stock positions)||2018||$17.3||https://apps.bea.gov/
|World Bank GNI per capita||2018||$40,880||http://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The UAE is generally open to FDI, citing it as a key part of its long-term economic plans. The UAE Vision 2021 strategic plan aims to achieve FDI flows of five percent of Gross National Product (GNP), a number one ranking for the UAE in the Global Index for Ease of Doing Business, and a place among the top 25 countries worldwide and second regionally in the Global Competitiveness Index. A letter issued by Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum (MBR) on January 4, 2020 outlined the ruler’s vision for 2020 and beyond, pledging increased government accountability and a push for greater government efficiency. The letter called for the formation of the Dubai Council, chaired by MBR and his sons, overseeing six sectors in Dubai: the economy, services for citizens, governmental development, infrastructure, justice and security, and health and knowledge sectors. UAE investment laws and regulations specific to Dubai are evolving to support the Council’s initiatives in these sectors.
While laws allow foreign-owned free zone companies to operate onshore in some instances, and permit majority-Gulf Cooperation Council (GCC) ownership of public joint stock companies, there is no national treatment for foreign investors, and foreign ownership of land and stocks is restricted. Non-tariff barriers to investment persist in the form of restrictive agency, sponsorship, and distributorship requirements, although several emirates have recently introduced new long-term residency visas and land ownership rights in an attempt to keep expatriates with sought-after skills in the UAE. Each emirate has its own investment promotion agency.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign companies and individuals are limited to 49 percent ownership/control in any part of the UAE not in a free trade zone, except in specific economic sectors eligible for 100 percent foreign ownership. These restrictions have been waived on a case-by-case basis. The 2015 Commercial Companies Law allows for full company ownership by GCC nationals. Neither Embassy Abu Dhabi nor Consulate General Dubai (collectively referred to as Mission UAE) has received any complaints from U.S. investors that they have been disadvantaged relative to other non-GCC investors.
Other Investment Policy Reviews
UAE officials emphasize the importance of facilitating business and tout the broad network of free trade zones as attractive to foreign investors. The UAE’s business registration process varies by emirate, but generally happens through an emirate’s Department of Economic Development. Business registrations are not available online. Links to information portals from each of the emirates are available at . At a minimum, a company must generally register with the Department of Economic Development, the Ministry of Human Resources and Emiratization, and the General Authority for Pension and Social Security, with a notary required in the process. In October 2019, Dubai introduced a ‘Virtual Business License’ for non-resident entrepreneurs and freelancers in 101 countries.
In 2017, Dubai’s Department of Economic Development introduced an “Instant License” valid for one year, under which investors can obtain a license in minutes without a registered lease agreement. In 2019, the Dubai Free Zone Council allowed companies to operate out of multiple free zones in Dubai through a single license under the “one free zone passport” scheme. In 2018, Abu Dhabi announced the issuance of dual licenses enabling free zone companies to operate outside the free zones and to participate in government tenders. In 2018, Sharjah Emirate also announced that foreigners may purchase property in the emirate without a UAE residency visa on a 100-year renewable land lease basis.
The UAE is an important participant in global capital markets, primarily through its sovereign wealth funds, as well as through several emirate-level, government-related investment corporations.
2. Bilateral Investment Agreements and Taxation Treaties
The United Nations Conference on Trade and Development (UNCTAD) lists the UAE as having 88 bilateral investment treaties, of which 51 are in force, and 37 signed agreements. There is no bilateral investment treaty between the United States and the UAE. In 2019, the UAE signed bilateral investment treaties with Hong Kong and Brazil.
In June 2018, the UAE signed the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting to reinforce its position as a cooperative and transparent jurisdiction in combating avoidance of double taxation. The UAE was added in March 2019 to an EU list of non-cooperative tax jurisdictions, but was removed from the list in October 2019, after tightening rules for establishing offshore corporations in the country.
In March 2004, the United States signed a Trade and Investment Framework Agreement (TIFA) with the UAE to provide a formal framework for dialogue on economic reform and trade liberalization: . As a member of the GCC, the UAE is also party to the U.S.-GCC Framework Agreement on Trade, Economic, Investment, and Technical Cooperation, signed in 2012. The Department of State negotiated and signed a Memorandum of Understanding creating an Economic Policy Dialogue (EPD) with the UAE Ministry of Foreign Affairs in 2012, to address a variety of topics including trade, investment, sector-specific cooperation, competitiveness, and entrepreneurship. A CEO Summit process for the EPD was established in 2013, bringing recommendations from the private sector into the EPD discussions. In 2019, the sixth U.S.-UAE Economic Policy Dialogue was held in Washington, D.C., at which the two sides reaffirmed their commitment to deeper ties and the importance of the U.S.-UAE economic relationship in promoting regional prosperity and stability.
3. Legal Regime
Transparency of the Regulatory System
As indicated elsewhere in this report, the regulatory and legal framework in the UAE is generally more favorable for local rather than foreign investors.
The Trade Companies Law requires all companies to apply international accounting standards and practices, generally the International Financial Reporting Standards (IFRS). The UAE does not have local generally-accepted accounting principles.
Legislation is only published after it has been enacted into law and is not formally available for public comment beforehand, although the press will occasionally report details of high-profile legislation. Final versions of federal laws are published in an official register “The Official Gazette,” usually only in Arabic, though there are private companies that translate laws into English. The UAE Ministry of Justice (MoJ) maintains translated laws on its website, but it is not kept current. Other ministries and departments sometimes offer official English translations of laws on their websites. The official gazettes of the emirates of Abu Dhabi, Dubai and Sharjah are available online in Arabic. Regulators are not required to publish proposed regulations before enactment, but may share them either publicly or with stakeholders on a case-by-case basis.
International Regulatory Considerations
The UAE is a member of the GCC, along with Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. It maintains regulatory autonomy, but coordinates efforts with other GCC members through the GCC Standardization Organization (GSO). In 2018, the UAE submitted 51 notifications to the WTO committee, including notifications on antidumping, countervailing and safeguard measures.
Legal System and Judicial Independence
In the UAE constitution, Islam is identified as the state religion, as well as the principal source of domestic law. The legal system of the country is generally divided between the British-based system of common law used in offshore free trade zones, and domestic law. Domestic law is a dual legal system of civil and Sharia laws – the majority of which has been codified. Most codified legislation in the UAE is a mixture of Islamic law and other civil laws such as the Egyptian and French civil laws.
The mechanism for enforcing ownership of property through offshore or domestic courts is generally considered to be predictable and fair. As is the case with civil law systems, common law principles, such as adopting previous court judgments as legal precedents, are generally not recognized in the UAE, although lower courts typically follow higher court judgments. Judgments of foreign civil courts are typically recognized and enforceable under the local courts. The United States District Court for the Southern District of New York signed a memorandum with Dubai International Financial Center (DIFC) courts that provides companies operating in Dubai and New York with procedures for the mutual enforcement of financial judgments.
UAE-based financial free zones, such as Abu Dhabi Global Market (ADGM), DIFC, and Ras Al Khaimah International Corporate Centre maintain wills and probate registries, allowing non-Muslims to register a will under internationally-recognized common law principles. In 2019, the DIFC Registry issued new Registry Rules (New Rules), which expand the geographic scope of the DIFC Registry and the applicable number of witnesses. The New Rules allow testators to include movable and immovable assets located in any part of the world into a DIFC will.
The UAE constitution stipulates that each emirate can decide whether to set up its own judicial system (local courts) to adjudicate local cases or rely exclusively on federal courts. The Federal Judicial Authority has jurisdiction over all cases involving a “federal entity” with the Federal Supreme Court in Abu Dhabi, the highest court at the federal level, having exclusive jurisdiction in seven types of cases: disputes between emirates, disputes between an emirate and the federal government, cases involving national security, interpretation of the constitution, questions over the constitutionality of a law, and cases involving the actions of appointed ministers and senior officials while performing their official duties. Although the federal constitution permits each emirate to have its own judicial authority, the federal government administers the courts in Ajman, Fujairah, Umm al Quwain, and Sharjah, including the vetting and hiring of judges, and payment of salaries. Judges in these courts apply both local and federal law, as warranted. Dubai, Ras Al Khaimah, and Abu Dhabi administer their own local courts, hiring, vetting, and paying their own judges and attorneys. The local courts in Dubai, Ras al Khaimah, and Abu Dhabi have jurisdiction over all matters that the constitution does not specifically reserve for the federal system. Abu Dhabi is the only emirate that operates both local (the Abu Dhabi Judicial Department) and federal courts in parallel.
Laws and Regulations on Foreign Direct Investment
There are four major federal laws affecting investment in the UAE: the Federal Commercial Companies Law, the Trade Agencies Law, the Federal Industry Law, and the Government Tenders Law.
The Federal Commercial Companies Law (Law No. 2, 2015) applies to commercial companies operating in the UAE. Federal Law No. 19 of 2018 eased restrictions on foreign ownership of companies incorporated onshore. The new law allows foreigners to own up to 100 per cent of the share capital in UAE companies operating in certain sectors, subject to licensing requirements. The Cabinet approved a list of economic sectors eligible for 100 percent foreign ownership including 122 economic activities in 13 sectors, including industrial, agricultural, and service industries. The Cabinet confirmed that each emirate may decide on the percentage of foreign ownership it will allow in each sector. The Cabinet also issued a “ Negative List” which enumerates sectors closed to foreigners, including oil exploration and production; investigation, security, military (including manufacturing of military weapons, explosives, dress and equipment); banking and financial activities; insurance; pilgrimage and umrah services; certain recruitment activities; water and electricity provision; fishing and related services; post, telecommunication and other audio-visual services; road and air transport; printing and publishing; commercial agency; medical retail (including pharmacies); blood banks and venom/poison banks.
Branch offices of foreign companies outside free zones are required to have a local agent with 100 percent UAE ownership, unless the foreign company has established its office pursuant to an agreement with the federal or emirate-level government. Apple and Tesla have opened stores outside free zones without local partners, having secured permission on an exceptional basis via a decree from the Ministry of Economy. Existing commercial law allows companies to offer between 30 and 70 percent of their shares in an initial public offering (IPO), and eliminates the requirement to issue new shares at the time of the IPO. The law also streamlines the process for forming a limited liability company by requiring between 1 to 75 shareholders (the prior requirement was between 2 to 50 shareholders). Public joint stock companies are required to have 51 percent GCC ownership at the time of listing, and UAE nationals must chair and comprise the majority of board members of any public joint stock company.
In 2019, the emirates of Abu Dhabi and Dubai introduced economic incentives to stimulate the economy and attract foreign investments, including cutting and freezing fees on certain government services, waiving fines, offering fee payment on an installment basis, and licensing businesses without physical locations for up to two years. The Ministry of Economy has also formed a new FDI committee to unify licensing investment procedures in all emirates.
The Trade Agencies Law requires that foreign principals distribute their products in the UAE only through exclusive trade agents who are either UAE nationals or companies wholly owned by UAE nationals. The Ministry of Economy handles registration of trade agents. A foreign principal can appoint one agent for the entire UAE, or for a particular emirate or group of emirates. It remains difficult, if not impossible, to sell in the UAE without a local agent. The Trade Agencies Law’s provisions apply to all registered commercial agents are collectively set out in Federal Law No. 18 of 1981 on the Organization of Trade Agencies, as amended by Federal Law No. 14 of 1988 (the Agency Law). Federal Law No. 18 of 1993 (Commercial) and Federal Law No. 5 of 1985 (Civil Code) govern unregistered commercial agencies.
On January 18, 2020, the UAE Cabinet announced a draft law for amending certain provisions in the Trade Agencies Law. The main amendments would allow family-owned companies to convert to public joint stock companies, and establish rules of governance and protection against default. The changes are intended to encourage UAE nationals to engage in business activities, and invest in public companies and their commercial agencies with the “least possible risk”. The changes offer protections for small shareholders and owners of SMEs, granting them statutory protection in cases of termination or non-renewal of agreements without “material reasons.”
According to the Central Bank Law, a bank incorporated in the United Arab Emirates must be 60 percent owned by UAE nationals. The limit on foreign ownership of local banks is subject to approval by regulators on a case-by-case basis. Some major banks have been allowed to reach the maximum foreign ownership of 40 percent in recent years. Foreign banks are only allowed to be licensed in the UAE as branches of foreign banks, with no more than eight local branches allowed per bank.
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 the extraction and refining of oil and natural gas, and select hydrocarbon projects governed by special laws or agreements.
Competition and Anti-Trust Laws
The Competition Regulation Committee under the Ministry of Economy reviews transactions for competition-related concerns.
Expropriation and Compensation
Mission UAE is not aware of foreign investors subjected to any expropriation in the UAE in the recent past. There are no federal rules governing compensation if expropriations were to occur, and individual emirates would likely treat expropriations differently. In practice, authorities would be unlikely to expropriate unless there were a compelling development or public interest need to do so. In such cases, compensation would likely be generous to maintain foreign investor confidence.
ICSID Convention and New York Convention
The UAE is a contracting state to the International Center for the Settlement of Investment Disputes (ICSID convention) and a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral awards (1958 New York Convention).
Investor-State Dispute Settlement
Mission UAE is aware of several substantial investment and commercial disputes over 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 with local businesses. Some observers have characterized dispute resolution as difficult and uncertain, and payment following settlements tend to be slow. Disputes are generally resolved by direct negotiation and settlement between the parties themselves, arbitration, or recourse within the legal system. Small, medium, and some larger enterprises fear being frozen out of the UAE market for escalating payment disputes through civil or arbitral courts, particularly disputes involving politically-connected local parties. Some firms might feel compelled to exit the UAE market as they are unable to sustain the pursuit of legal or dispute-resolution mechanisms that can take months or even years to reach resolution. 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 referral to an appointing authority without recourse to judicial proceedings. There have been no confirmed reports of government interference in the court system that could affect foreign investors, but there is a widespread perception that domestic courts are likely to find in the favor of Emirati nationals over foreigners.
International Commercial Arbitration and Foreign Courts
The UAE government’s accession to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) became effective in November 2006. An arbitration award issued in the UAE is now enforceable in all 138 member states, 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. Mission UAE is not aware of any U.S. firm attempting to use arbitration under the UN convention on the recognition and enforcement of foreign arbitral awards. While recognizing progress in compliance with this convention, some market watchers have raised concerns about delays and procedural obstacles encountered by firms seeking to enforce their arbitration awards in the UAE.
In June 2018, Federal Law No. 6 of 2018 on Arbitration came into force. The Federal Law on Arbitration is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. The new law is expected to bolster confidence in the UAE’s arbitration regime.
A new bankruptcy law, the Federal Decree Law No. 9 of 2016, came into effect in December 2016 and was applied for the first time in February 2019. The law covers companies governed by the Commercial Companies Law, most free trade zone companies, sole proprietorships, and civil companies conducting professional business. It allows creditors that are owed USD 27,225 or more, to file insolvency proceedings against a debtor 30 business days after notification in writing to the debtor. The law decriminalized “bankruptcy by default,” requiring companies and their owners in default for more than 30 days to initiate insolvency procedures rather than face fines and potential imprisonment. The Ministry of Finance initiated a review of the law in 2019.
A new bankruptcy law for individuals, Insolvency Law No. 19 of 2019, came into effect on November 29, 2019. The Law applies only to natural persons and estates of the deceased. The law allows a debtor to reach a settlement with his creditors without compromising the rights of the creditors by allowing an individual to seek court assistance for debt settlement or to enter into liquidation proceedings as a result of the inability to pay for an extended period of time. Under this law, a debtor facing financial difficulties may apply to the court for assistance and guidance in the settlement of his financial commitments through one or more court-appointed experts, or through a court-supervised binding settlement plan. If a debtor fails to pay any of his due debts for a period exceeding 50 consecutive business days, he shall apply to the court to commence liquidation proceedings for liquidation of his assets. However, observers allege that the law does not offer adequate protection to individuals, and non-payment of debt generally remains a criminal offense.
Dubai International Financial Centre (DIFC) enacted a New Insolvency Law on May 30, 2019. The law, which applies only to DIFC companies, introduces methods to deal with insolvency situations, including a new debtor in possession regime, appointment of an administrator in cases of mismanagement, and adoption of UNCITRAL Model Law, consistent with globally recognized best practices.
The UAE Federal Government’s Al Etihad Credit Bureau (AECB) has partnered with local institutions to assist in assessing credit risk. In December 2019, Dubai Real Estate Centre (DREC), a prominent real estate and development firm in Dubai, announced it would use credit reports and scores from AECB to help assess the risk of tenants failing to fulfil their payment obligations on renewals of existing tenancy contracts.
4. Industrial Policies
All free trade zones provide incentives to foreign investors. Outside the free trade zones, the UAE provides no incentives, although the ability to purchase property as freehold in certain prime developments could be considered an incentive to attract foreign investment.
Foreign Trade Zones/Free Ports/Trade Facilitation
There are numerous free trade zones throughout the UAE. Foreign companies generally enjoy the same investment opportunities within those zones as Emirati citizens. The chief attraction of free trade zones is that foreigners may own up to 100 percent of the equity in a free trade zone enterprise. All free trade 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 ports and airports, buildings for lease, energy connections (often at subsidized rates), and assistance in labor recruitment. In addition, free trade zone authorities provide extensive support services, such as sponsorship, worker housing, dining facilities, and physical security.
Free trade zones have their own independent authority with responsibility for licensing and helping companies establish their businesses. Investors can register new companies in a free trade zone, or license branch or representative offices. In 2018, the Abu Dhabi Department of Economic Development (ADED) introduced dual onshore licenses for all Abu Dhabi free zone companies as part of stimulus package to attract foreign direct investments. However, free trade zones still have limited liability and are governed by special laws and regulations. Companies in free trade zones seeking to operate within the UAE may be governed by the new Federal Commercial Companies Law, if the laws of the relevant free trade zone permit them to operate outside of the free zones.
Performance and Data Localization Requirements
The Emiratization Initiative is a federal incentive program that aims to increase the number of Emirati citizens employed within the private sector. Exact requirements vary by industry, but the Vision 2021 national strategic plan aims to increase the percentage of Emiratis working in the private sector from five percent in 2014 to eight percent by 2021. Most Emirati citizens are employed by the government or one of its many government-related entities (GREs).
All foreign defense contractors with over USD 10 million in contract value over a five-year period must participate in the Tawazun Economic Program, previously known as the UAE Offset Program. This program also requires defense contractors that are awarded contracts valued at more than USD 10 million to establish commercially-viable joint ventures with local business partners, which would be projected to yield profits equivalent to 60 percent of the contract value within a specified period, usually seven years.
The UAE does not force foreign investors to use domestic content in goods or technology or compel foreign IT providers to turn over source code, but it strongly encourages companies to utilize local content. In February 2018, the Abu Dhabi National Oil Company (ADNOC) piloted a new In-Country Value (ICV) strategy, which gives preference in awarding contracts to foreign companies that use local content and employ Emirati citizens. In February 2020, the Abu Dhabi Department of Economic Development and ADNOC signed an agreement to drive ICV strategy and to standardize ADNOC’s ICV certification program across the Abu Dhabi Government’s procurement process. Following this agreement, businesses can make a one-time application for a unified ICV certificate that will now be applicable for the Abu Dhabi Government’s commercial evaluation process of goods and services procurement. UAE government officials have indicated plans to expand the ICV program to other sectors of the economy, and to other emirates, in the coming years. In 2019, Abu Dhabi Department of Economic Development introduced the Abu Dhabi Local Content (ADLC) initiative as part of Ghadan 21, an accelerator program to encourage private sector participation in Abu Dhabi government tenders.
5. Protection of Property Rights
The UAE government allows individual emirates to decide on the mechanisms through which ownership of land may be transferred within their borders. Abu Dhabi has generally limited ownership to Emirati or other GCC citizens, who may then lease the land to foreigners. The property reverts to the owner at the conclusion of the lease. However, in 2019, the Abu Dhabi Government issued Law No. 13 of 2019 amending the rules on foreign ownership of real estate in the Emirate of Abu Dhabi. Effective April 16, 2019 foreign individuals and companies wholly or partially-owned by foreigners are allowed to own freehold interests in land located within certain investment areas of the Abu Dhabi Emirate for an unrestricted time period. The law also extends the right for public joint stock companies to own a freehold interest in land and property anywhere in the Abu Dhabi Emirate provided that at least 51 percent of the company is owned by UAE nationals. Prior to the issuance of this law, foreign owners’ interest in land was limited to a “Musataha,” a long-term lease of up to 99 years, renewable upon the agreement of both parties.
Although Dubai has identified restricted areas within its borders mostly in the older, more established neighborhoods, traditional freeholds, also known as outright ownership, are also widely available, particularly in newer developments. Subject to very few regulations, freehold owners own the land and may sell it on the open market. The contract rights of lienholders, as well as ownership rights of freeholders, are generally respected and enforced throughout the UAE, which in some cases has employed specialized courts for this purpose.
Mortgages and liens are permitted with restrictions, and each emirate has its own system of recordkeeping. In Dubai, for example, the system is centralized within the Dubai Land Department, and is considered extremely reliable. In September 2019, Dubai’s ruler issued a law, in which the Real Estate Regulatory Agency (RERA) came under the Dubai Land Department (DLD). According to the new law, DLD will replace RERA in the registration of real estate rental contracts.
The World Bank Ease of Doing Business Report notes that not all privately-held land plots in the economy are formally registered in an immovable property registry. Much of the country is unregistered desert; such land is generally owned by emirate-specific governments. Land not otherwise allocated or owned is the property of the emirate, and may be disposed of at the will of its ruler who generally consults with his advisors prior to disposition. The UAE does not have a securitization process for lending purposes.
Intellectual Property Rights
Intellectual property rights (IPR) holders face three main challenges in the UAE: the trade and transshipment of counterfeit goods, unpredictable pharmaceutical patent protection, and the absence of a collective management organization (CMO) for royalty payments for copyrighted music. While some UAE enforcement authorities periodically seize and destroy counterfeit goods, concerns related to the re-export of seized goods, significant copyright piracy, and trademark infringement persist. UAE police forces and investigators have generally been responsive when policing against pirated CDs, DVDs, and software, however, the failure to grant the necessary operating license to establish a CMO, which is allowed under the UAE’s 2002 Copyright Law and Ministerial Decision No. 133 of 2004, is a major obstacle to adequate enforcement of IPR.
The 2019-2020 Global Competitiveness Report issued by the World Economic Forum ranked the UAE 19th globally on IPR protection, up from 26th in 2018-2019. The UAE’s legal framework for IPR is generally considered compliant with international obligations. Emirate-level authorities such as economic development authorities, police forces, and customs authorities enforce IPR-related issues, while federal authorities manage IPR policy. However, many of these laws are inconsistently implemented or enforced at federal and emirate-levels, criminal sentences are often non-deterrent, and enforcement actions require specific written complaints from right holders.
In April 2017, UAE officials allowed domestic manufacture of generic versions of a pharmaceutical product still under patent protection in the United States. The UAE claimed that Decree No. 404, a measure providing reliable protection for pharmaceutical products with valid country of origin patents, is no longer valid. It is also unclear whether the UAE courts will consistently recognize patents granted by the Gulf Cooperation Council (GCC) Patent Office.
Dubai Police announced a total of 297 counterfeit cases in 2019, compared to 264 in 2018. Enforcement authorities in the UAE’s northern emirates also conducted inspection campaigns during 2019. Many counterfeit products in the UAE are promoted via social media, and the UAE Telecommunication Regulatory Authority (TRA) has been active in tracking and blocking these accounts. In 2019, TRA banned 134 websites for IPR violations, compared to 152 in 2018. In addition to enforcement efforts, the UAE continued to hold IPR-related public awareness events and reginal conferences.
The UAE did not enact any new laws related to IP protection in 2019. The UAE was included in both the U.S. Trade Representative (USTR) 2020 Special 301 Report (https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf) and the 2019 Notorious Markets List. ( Counterfeiting_and_Piracy.pdf) The latter mentions two physical marketplaces in the UAE that are gateways for distribution of Chinese-sourced counterfeit goods to other markets in the region, including North Africa and Europe.
6. Financial Sector
Capital Markets and Portfolio Investment
UAE government efforts to create an environment that fosters economic growth and attracts foreign investment has resulted in: i) no taxes or restrictions on the repatriation of capital; ii) free movement of labor and low barriers to entry (effective tariffs are five percent for most goods); and iii) an emphasis on diversifying the economy away from oil, which offers a broad array of investment options for FDI. Key drivers of the economy include real estate, energy, tourism, logistics, manufacturing, and financial services.
The UAE has three stock markets: Abu Dhabi Securities Exchange, Dubai Financial Market, and NASDAQ Dubai. The regulatory body, the Securities and Commodities Authority (SCA), classifies brokerages into two groups: those which engage in trading only while the clearance and settlement operations are conducted through clearance members, and those which engage in trading clearance and settlement operations for their clients. Under the regulations, trading brokerages require paid-up capital of USD 820,000, whereas trading and clearance brokerages need USD 2.7 million. USD 367,000 in bank guarantees is required for brokerages to trade on the bourses.
The UAE issued investment funds regulations in September 2012, known as the “twin peak” regulatory framework designed to govern the marketing of investment funds established outside the UAE to domestic investors, and the establishment of local funds domiciled inside the UAE. This regulation gave the SCA, rather than the Central Bank, authority over the licensing, regulation and oversight of the marketing of investment funds. The marketing of foreign funds, including offshore UAE-based funds, such as those domiciled in the DIFC, requires the appointment of a locally-licensed placement agent. The UAE government has also encouraged certain high-profile projects to be undertaken via a public joint stock company to allow the issuance of shares to the public. Further, the UAE government requires any company carrying out banking, insurance, or investment services for a third party to be a public joint stock company.
In 2019, SCA issued a number of capital-related decisions. In May 2019, SCA issued a decision concerning the Capital Adequacy Criteria of Investment Manager and Management Company, which stipulates that the investment manager and the management company must allocate capital to constitute a buffer for credit risk, market risk, or operational risk, even if it does not appear as a line item in the balance sheet.
In 2019, SCA also issued a decision concerning Real Estate Investment Fund control, which stipulates that a public or private real estate investment fund shall invest at least 75 percent of its assets in real estate assets. According to this decision, a real estate investment fund may establish or own one or more real estate services companies provided that its investment in the ownership of each company and its subsidiaries shall not be more than 20 percent of the fund’s total assets.
Credit is generally allocated on market terms, and foreign investors can access local credit markets. Interest rates are usually very close to those in the United States considering the local currency is pegged to the dollar. There have been complaints that GREs crowd out private sector borrowers.
Money and Banking System
The UAE has a robust banking sector with 49 banks, 27 of which are foreign institutions. The number of national bank branches declined to 656 at the end of 2019, compared to 743 at the end of December 2018, due to bank mergers and an ongoing transition to online banking.
Non-performing loans (NPL) comprised 6.2 percent of outstanding loans in 2019, compared with 5.7 percent in 2018, according to figures from the Central Bank of the UAE (CBUAE). Under a new reporting standard, the NPL ratio of the UAE banking system for the year-end 2018 stood at 5.6 percent, compared to 7.1 percent under the previous methodology. The CBUAE recorded total sector assets of USD 839 billion as of January 2020.
There are some restrictions on foreigners’ ability to establish a current bank account, and legal residents and Emiratis can access loans under more favorable terms than non-residents.
Foreign Exchange and Remittances
Foreign Exchange Policies
According to the IMF, the UAE has no restrictions on making payments and transfers for international transactions, except security-related restrictions. Currencies are traded freely at market-determined prices. The UAE dirham has been pegged to the dollar since 2002. The mid-point between the official buying and selling rate for the dirham (AED or Dhs) is fixed at AED 3.6725 per USD.
The Central Bank of the UAE initiated the creation of the Foreign Exchange & Remittance Group (FERG), made up of various exchange companies, which is registered with the Dubai Chamber of Commerce & Industry. Unlike their counterparts across the world that deal mainly in money exchange, exchange companies in the UAE are the primary conduits for transferring large volumes of remittances through official channels. According to migration and remittance data from the World Bank, in 2018 the UAE had migrant remittance outflows of USD 42.2 billion. The Central Bank reported migrant remittances totaling USD 44.9 billion in 2019. Exchange companies are important partners in the UAE government’s electronic salary transfer system, called the Wage Protection System, designed to ensure workers are paid according to the terms of their employment. They also handle various ancillary services ranging from credit card payments, to national bonds, and traveler’s checks.
Sovereign Wealth Funds
Abu Dhabi is home to two sovereign wealth funds—the Abu Dhabi Investment Authority (ADIA), and Mubadala Investment Company—with estimated total assets of approximately USD $1 trillion as of June 2019. Each fund has a chair and board members appointed by the Ruler of Abu Dhabi. President Khalifa Bin Zayed Al Nahyan is the chair of ADIA and Abu Dhabi Crown Prince Mohammed Bin Zayed Al Nahyan is the chair of Mubadala. Emirates Investment Authority, the UAE’s federal sovereign wealth fund, is modest by comparison, with estimated assets of about USD 15 billion. The Investment Corporation of Dubai (ICD) is Dubai’s primary sovereign wealth fund, with an estimated USD 264 billion in assets according to ICD’s June 2019 financial report.
UAE funds vary in their approaches to managing investments. ADIA generally does not actively seek to manage or take an operational role in the public companies in which it invests, while Mubadala tends to take a more active role in particular sectors, including oil and gas, aerospace, infrastructure, and early-stage venture capital. ADIA exercises its voting rights as a shareholder in certain circumstances to protect its interests, or to oppose motions that may be detrimental to shareholders as a body. According to ADIA, the fund carries out its investment program independently and without reference to the government of Abu Dhabi.
In 2008, ADIA agreed to act alongside the IMF as co-chair of the International Working Group of sovereign wealth funds, which eventually became the International Forum of Sovereign Wealth Funds (IFSWF). Comprising representatives from 31 countries, the IFSWF was created to demonstrate that sovereign wealth funds had robust internal frameworks and governance practices, and that their investments were made only on an economic and financial basis.
7. State-Owned Enterprises
State-owned enterprises (SOEs) are a key component of the UAE economic model. There is no
published list of SOEs or GREs, at the national or individual emirate level. Some SOEs, such as the influential Abu Dhabi National Oil Company (ADNOC), are strategically important companies and a major source of revenue for the government. Mubadala established Masdar in 2006 to develop renewable energy and sustainable technologies industries. A number of SOEs, such as Emirates Airlines and Etisalat, the largest local telecommunications firm, have in recent years emerged as internationally recognized brands. Some but not all of these companies have competition. In some cases, these firms compete against other state-owned firms (Emirates and Etihad airlines, for example, or telecommunications company Etisalat against du). While they are not granted full autonomy, these firms leverage ties between entities they control to foster national economic development. Perhaps the best example of such an economic ecosystem is Dubai, where SOEs have been used as drivers of diversification in sectors including construction, hospitality, transport, banking, logistics, and telecommunications. Sectoral regulations in some cases address governance structures and practices of state-owned companies. The UAE is not party to the WTO Government Procurement Agreement.
There is no privatization program in the UAE. There have been several listings of portions of SOEs, on local UAE stock exchanges, as well as some “greenfield” IPOs focused on priority projects.
8. Responsible Business Conduct
There is a general expectation that businesses in the UAE adhere to responsible business conduct standards, and the UAE’s Governance Rules and Corporate Discipline Standards (Ministerial Resolution No. 518 of 2009) encourage companies to apply social policy towards supporting local communities. In February 2018, the UAE issued Cabinet Resolution No. 2 regarding Corporate Social Responsibility (CSR), which encourages voluntary contributions to a National Social Responsibility Fund. The Emirate of Ajman has made annual CSR contributions of USD 417 mandatory for all businesses. Many companies maintain CSR offices and participate in CSR initiatives, including mentorship and employment training; philanthropic donations to UAE-licensed humanitarian and charity organizations; and initiatives to promote environmental sustainability. The UAE government actively supports and encourages such efforts through official government partnerships, as well as through private foundations. The 2015 Commercial Companies Law requires managers and directors to act for the benefit of the company and makes any company provisions exempting a directors and managers from personal liability voidable.
In April 2015, the Pearl Initiative and the United Nations Global Compact held their inaugural Forum in Dubai. The Pearl Initiative is an independent, non-profit organization founded by Sharjah-based Crescent Enterprises working across the Gulf region to encourage better business practices. The UAE has not subscribed to the OECD Guidelines for Multinational Enterprises and has not actively encouraged foreign or local enterprises to follow the specific United Nations Guiding Principles on Business and Human Rights. The UAE government has not committed to adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, nor does it participate in the Extractive Industries Transparency Initiative. The Dubai Multi-Commodities Center (DMCC), however, passed the DMCC Rules for Risk-Based Due Diligence in the Gold and Precious Metals Supply Chain, which it claims are fully aligned with the OECD guidance.
The UAE has stiff laws, regulations, and enforcement against corruption and has pursued several high-profile cases. For example, the UAE federal penal code and the federal human resources law criminalize embezzlement and the acceptance of bribes by public and private sector workers. The Dubai financial fraud law criminalizes receipt of illicit monies or public funds. There is no evidence that corruption of public officials is a systemic problem. The State Audit Institution and the Abu Dhabi Accountability Authority investigate corruption in the government. The Companies Law requires board directors to avoid conflicts of interest. In practice, however, given the multiple roles occupied by relatively few senior Emirati government and business officials, myriad conflicts of interest exist. Business success in the UAE also still depends much on personal relationships.
The monitoring organizations GAN Integrity and Transparency International describe the corruption environment in the UAE as low-risk, and rate the UAE highly with regard to anti-corruption efforts both regionally and globally. Some third-party organizations note, however, that the involvement of members of the ruling families and prominent merchant families in certain businesses can create economic disparities in the playing field, and most foreign companies outside the UAE’s free zones must rely on an Emirati national partner, often with strong connections, who retains majority ownership. The UAE has ratified the United Nations Convention against Corruption. There are no civil society organizations or NGOs investigating corruption within the UAE.
Resources to Report Corruption
Contact at government agency or agencies are responsible for combating corruption:
Dr. Harib Al Amimi
State Audit Institution
20th Floor, Tower C2, Aseel Building, Bainuna (34th) Street, Al Bateen, Abu Dhabi, UAE
+971 2 635 9999
10. Political and Security Environment
There have been no reported instances of politically-motivated property damage in recent years.
11. Labor Policies and Practices
Despite an economic slowdown in 2019, unemployment among UAE citizens remains low. Expatriates, who represent over 85 percent of the country’s 9.6 million residents, account for more than 95 percent of private sector workers. As a result, there would be large labor shortages in all sectors of the economy if not for expatriate workers. Most expatriate workers derive their legal residency status from their employment.
A significant portion of the country’s expatriate labor population consists of low-wage workers who are primarily from South Asia and work in labor-intensive industries such as construction, maintenance, and sanitation. In addition, several hundred thousand domestic workers, primarily from South and Southeast Asia and Africa, work in the homes of both Emirati and expatriate families. Federal labor law does not apply to domestic, agricultural, or public sector workers. In 2014, the federal government implemented a law mandating a standard contract for all domestic workers. In 2017, the UAE issued a domestic workers law, which regulates their rights and contracts. Various regulations require businesses in certain sectors such as financial services to employ minimum quotas of Emiratis.
Under UAE labor law, employers must pay severance to workers who complete one year or more of service except in cases of termination under certain conditions described in Article 120 of the federal labor law, which relate to misconduct by workers. Expatriate workers do not receive UAE government unemployment insurance. Termination of UAE nationals in most situations requires prior approval from the Ministry of Human Resources and Emiratization.
A guest worker system generally guarantees transportation back to country of origin at the conclusion of employment. There have been no reports of excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of employees. In June 2018, the UAE cabinet approved a revamped repatriation scheme to replace the USD 817 guarantee employers had to deposit per worker. Under the new system, repatriation insurance costs USD 16 per year per employee. In November 2018, the UAE cabinet approved five-year residence visas for investors who purchase property worth USD 1.4 million or more, and 10-year residence visas for individuals who invest USD 2.8 million in a business. The government also introduced new visas for entrepreneurs, and specialized talent in science, medicine and specialized technical fields. In 2018, the Ministry of Human Resources and Emiratization introduced a part-time work permit, allowing employees who live in the UAE on a work visa to undertake part-time jobs and to work for multiple employers simultaneously.
Although UAE federal law prohibits the payment of recruitment fees, many prospective workers continue to make such payments in their home countries. In 2018, the UAE government launched Tadbeer Centers, publicly regulated but privately operated agencies that are meant to replace recruitment agencies by 2020. There is no minimum wage legally mandated by the UAE; however, some labor-sending countries require their citizens to receive certain minimum wage levels as a condition for allowing them to work in the UAE. In January 2020, the UAE government introduced a salary requirement for residents seeking to directly sponsor a domestic worker, raising the minimum monthly salary from USD 1,630 to 6,810.
Federal Law No. 8 of 1980 prohibits labor unions. The law also prohibits public sector employees, security guards, and migrant workers from striking, and allows employers to suspend private sector workers for doing so. In addition, employers have the ability to cancel the contracts of striking workers, which can lead to deportation. According to government statistics, there were approximately 30 to 60 strikes per year between 2012 and 2015, the last year for which data is available. In December 2019, construction workers in Abu Dhabi engaged in an hours-long strike, claiming they had not been paid in months and that each was owed over USD 3,400. The police intervened to defuse the protests and arrested some of the workers for resisting. Mediation plays a central role in resolving labor disputes. The federal Ministry of Human Resources and Emiratization (MHRE) and local police forces maintain telephone hotlines for labor dispute and complaint submissions. The MHRE manages 11 centers around the UAE that provide mediation services between employers and employees. Disputes not resolved by the Ministry of Human Resources and Emiratization move to the labor court system.
The MHRE inspects company workplaces and company-provided worker accommodations to ensure compliance with UAE law. Emirate-level government bodies, including the Dubai Municipality, also carry out regular inspections. The MHRE also enforces a mid-day break from 12:30 p.m. – 3:00 p.m. during the extremely hot summer months. The federally-mandated Wage Protection System (WPS) monitors and requires electronic transfer of wages to approximately 4.5 million private sector workers (about 95 percent of the total private sector workforce). There are reports that small private construction and transport companies work around the WPS to pay workers less than their contractual salaries. Domestic workers are not paid through the WPS, although the UAE governments hopes to incorporate them into the system beginning in the third quarter of 2020.
Following the promulgation of similar legislation in Abu Dhabi, Dubai’s government fully implemented Law No. 11 in May 2017, which mandates employers provide basic health insurance coverage to their employees or face fines. Dubai’s mandatory health insurance law covers 4.3 million people, and applies to employees residing in other emirates but working in Dubai.
The multi-agency National Committee to Combat Human Trafficking is the federal body tasked with monitoring and preventing human trafficking, including forced labor. Child labor is illegal and rare in the UAE. The UAE continues to participate in the Abu Dhabi Dialogue, engage in the Colombo Process, and partner with other multilateral organizations such as the International Organization for Migration and International Labor Organization in regard to labor exploitation and human trafficking.
Section 7 of the Department of State’s Human Rights Report (http://www.state.gov/j/drl/rls/hrrpt) provides more information on worker rights, working conditions, and labor laws in the UAE. The Department of State’s Trafficking in Persons Report (https://www.state.gov/j/tip/rls/tiprpt/2018/index.htm) details the UAE government’s efforts to combat human trafficking.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
The UAE does not have a bilateral agreement with DFC after its agreement with OPIC was suspended in 1995 for not meeting statutory “taking steps” standards on worker rights. The UAE is a Very High Income country as defined by OPIC’s statutes, and as a development finance agency, DFC gives priority to financing projects in middle and low income countries.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
* Economic Report: Ministry of Economy
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||Amount||100%||Total Outward||Amount||100%|
|“0” reflects amounts rounded to +/- USD $500,000.|
Data from the Annual Report of the Ministry of Economy (2019) indicates that the GDP for 2018 in real prices (base year 2010) were approximately USD $392.7 billion, while the estimated GDP at current prices was about USD $414.1 billion in 2018.
According to the UAE Ministry of Economy’s Annual Economic Report 2019, the net annual FDI inflows to the UAE in 2018 were $10.4 billion, similar to 2017. The largest investors in the UAE were: India, United States, UK, Japan, China, Saudi Arabia, Germany, Kuwait, France and the Netherlands.
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
First Street, Umm Hurair -1, Dubai UAE
+971 (0)4 309 4918