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India

Executive Summary

The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms, including new labor codes and landmark agricultural sector reforms, that should help attract private and foreign direct investment. In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing the foreign direct investment (FDI) limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals.

In response to the economic challenges created by COVID-19 and the resulting national lockdown, the Government of India enacted extensive social welfare and economic stimulus programs and increased spending on infrastructure and public health. The government also adopted production linked incentives to promote manufacturing in pharmaceuticals, automobiles, textiles, electronics, and other sectors. These measures helped India recover from an approximately eight percent fall in GDP between April 2020 and March 2021, with positive growth returning by January 2021.

India, however, remains a challenging place to do business. New protectionist measures, including increased tariffs, procurement rules that limit competitive choices, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards, effectively closed off producers from global supply chains and restricted the expansion in bilateral trade.

The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses.

 
Measure Year Index/ Rank Website Address
TI Corruption Perception Index 2020 86 of 180 https://www.transparency.org/en/countries/india
World Bank’s Doing Business Report: “Ease of Doing Business” 2019 63 of 190   https://www.doingbusiness.org/en/rankings?region=south-asia
Innovation Index 2020 48 of 131 https://www.wipo.int/global_innovation_index/en/2020
U.S. FDI in partner country (Million. USD stock positions) 2019 45,883 https://apps.bea.gov/international/factsheet/factsheet.cfm?Area=612&UUID=67171087-ee34-4983-ac05-984cc597f1f4
World Bank GNI per capita (USD) 2019 2120 https://data.worldbank.org/indicator/ny.gnp.pcap.cd

1. Openness To, and Restrictions Upon, Foreign Investment

Policies toward Foreign Direct Investment

Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors, however, require the additional approval of the Home Ministry.

DPIIT, under the Ministry of Commerce and Industry, is India’s chief investment regulator and policy maker. It compiles all policies related to India’s FDI regime into a single document to make it easier for investors to understand, and this consolidated policy is updated every year. The updated policy can be accessed at: http://dipp.nic.in/foreign-directinvestment/foreigndirectinvestment-policy.  DPIIT, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems and disseminates information about the Indian investment climate to promote investments. The Department establishes bilateral economic cooperation agreements in the region and encourages and facilitates foreign technology collaborations with Indian companies and DPIIT oftentimes consults with lead ministries and stakeholders. There however have been multiple incidents where relevant stakeholders reported being left out of consultations.

Limits on Foreign Control and Right to Private Ownership and Establishment

In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. Several sectors of the economy continue to retain equity limits for foreign capital as well as management and control restrictions, which deter investment. For example, the 2015 Insurance Act raised FDI caps from 26 percent to 49 percent, but also mandated that insurance companies retain “Indian management and control.” In the parliament’s 2021 budget session, the Indian government approved increasing the FDI caps in the insurance sector to 74 percent from 49 percent. However, the legislation retained the “Indian management and control” rider. In the August 2020 session of parliament, the government approved reforms that opened the agriculture sector to FDI, as well as allowed direct sales of products and contract farming, though implementation of these changes was temporarily suspended in the wake of widespread protests. In 2016, India allowed up to 100 percent FDI in domestic airlines; however, the issue of substantial ownership and effective control (SOEC) rules that mandate majority control by Indian nationals have not yet been clarified. A list of investment caps is accessible at: http://dipp.nic.in/foreign-directinvestment/foreign-directinvestment-policy .

Screening of FDI

All FDI must be reviewed under either an “Automatic Route” or “Government Route” process. The Automatic Route simply requires a foreign investor to notify the Reserve Bank of India of the investment and applies in most sectors. In contrast, investments requiring review under the Government Route must obtain the approval of the ministry with jurisdiction over the appropriate sector along with the concurrence of DPIIT. The government route includes sectors deemed as strategic including defense, telecommunications, media, pharmaceuticals, and insurance. In August 2019, the government announced a new package of liberalization measures and brought a number of sectors including coal mining and contract manufacturing under the automatic route.

FDI inflows were mostly directed towards the largest metropolitan areas – Delhi, Mumbai, Bangalore, Hyderabad, Chennai – and the state of Gujarat. The services sector garnered the largest percentage of FDI. Further FDI statistics are available at: http://dipp.nic.in/publications/fdistatistics. 

Other Investment Policy Reviews

OECD’s Indian Economic Snapshot: http://www.oecd.org/economy/india-economic-snapshot/ 

WTO Trade Policy Review: https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm 

2015-2020 Government of India Foreign Trade Policy: http://dgft.gov.in/ForeignTradePolicy 

Business Facilitation

DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, keeping in view national priorities and socio- economic objectives. While individual lead ministries look after the production, distribution, development and planning aspects of specific industries allocated to them, DPIIT is responsible for overall industrial policy. It is also responsible for facilitating and increasing the FDI flows to the country.

Invest India  is the official investment promotion and facilitation agency of the Government of India, which is managed in partnership with DPIIT, state governments, and business chambers. Invest India specialists work with investors through their investment lifecycle to provide support with market entry strategies, industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs website: http://www.mca.gov.in/ . After the registration, all new investments require industrial approvals and clearances from relevant authorities, including regulatory bodies and local governments. To fast-track the approval process, especially in the case of major projects, Prime Minister Modi started the Pro-Active Governance and Timely Implementation (PRAGATI initiative) – a digital, multi-modal platform to speed the government’s approval process. As of January 2020, a total of 275 project proposals worth around $173 billion across ten states were cleared through PRAGATI. Prime Minister Modi personally monitors the process to ensure compliance in meeting PRAGATI project deadlines. The government also launched an Inter-Ministerial Committee in late 2014, led by the DPIIT, to help track investment proposals that require inter-ministerial approvals. Business and government sources report this committee meets informally and on an ad hoc basis as they receive reports of stalled projects from business chambers and affected companies.

Outward Investment

The Ministry of Commerce’s India Brand Equity Foundation (IBEF) claimed in March 2020 that outbound investment from India had undergone a considerable change in recent years in terms of magnitude, geographical spread, and sectorial composition. Indian firms invest in foreign markets primarily through mergers and acquisition (M&A). According to a Care Ratings study, corporate India invested around $12.25 billion in overseas markets between April and December 2020. The investment was mostly into wholly owned subsidiaries of companies. In terms of country distribution, the dominant destinations were the Unites States ($2.36 billion), Singapore ($2.07 billion), Netherlands ($1.50 billion), British Virgin Islands ($1.37 billion), and Mauritius ($1.30 million).

2. Bilateral Investment Agreements and Taxation Treaties

India adopted a new model Bilateral Investment Treaty (BIT) in December 2015, following several adverse rulings in international arbitration proceedings. The new model BIT does not allow foreign investors to use investor-state dispute settlement methods, and instead requires foreign investors first to exhaust all local judicial and administrative remedies before entering international arbitration. The Indian government also served termination notices for existing BITs with 73 countries.

In September 2018, Belarus became the first country to execute a new BIT with India, based on the new model BIT, followed by the Taipei Cultural & Economic Centre (TECC) in December 2019, and Brazil in January 2020. India has also entered into a BIT negotiation with the Philippines and joint interpretative statements are under discussion with Iran, Switzerland, Morocco, Kuwait, Ukraine, UAE, San Marino, Hong Kong, Israel, Mauritius, and Oman.

Currently 14 BITs are in force. The Ministry of Finance said the revised model BIT will be used for the renegotiation of existing and any future BITs and will form the investment chapter in any Comprehensive Economic Cooperation Agreements (CECAs)/Comprehensive Economic Partnership Agreements (CEPAs)/Free Trade Agreements (FTAs).

The complete list of agreements can be found at: https://investmentpolicy.unctad.org/international-investment-agreements/countries/96/india 

Bilateral Taxation Treaties

India has a bilateral taxation treaty with the United States, available at: https://www.irs.gov/pub/irstrty/india.pdf

https://www.irs.gov/pub/irstrty/india.pdf

3. Legal Regime

Transparency of the Regulatory System

Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, approval in 2021 for higher FDI thresholds in the insurance sector came with a requirement of “Indian management and control.” On most occasions the rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. Policies pertaining to foreign investments are framed by DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. However, in some instances the rules have been framed without following any consultative process.

In 2017, India began assessing a six percent “equalization levy,” or withholding tax, on foreign online advertising platforms with the ostensible goal of “equalizing the playing field” between resident service suppliers and non-resident service suppliers. However, its provisions did not provide credit for taxes paid in other countries for services supplied in India. In February 2020, the FY 2020-21 budget included an expansion of the “equalization levy,” adding a two percent tax to the equalization levy on foreign e-commerce and digital services provider companies. Neither the original 2017 levy, nor the additional 2020 two percent tax applied to Indian firms. In February 2021, the FY 2021-22 budget included three amendments “clarifying” the 2020 equalization levy expansion that will significantly extend the scope and potential liability for U.S. digital and e-commerce firms. The changes to the levy announced in 2021 will be implemented retroactively from April 2020. The 2020 and 2021 changes were enacted without prior notification or an opportunity for public comment.

The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the Ministry of Corporate Affairs, which all listed companies must then adopt. These can be accessed at: http://www.mca.gov.in/MinistryV2/Stand.html 

International Regulatory Considerations

India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices.

Legal System and Judicial Independence

India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to make adaptations for Indian Law and the Indian business culture when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas.

Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches.

4. Industrial Policies

The regulatory environment in terms of foreign investment has been eased to make it investor friendly. The measures taken by the Government are directed to open new sectors for foreign direct investment, increase the sectoral limit of existing sectors, and simplifying other conditions of the FDI policy. The Indian government has issued guarantees to investments but only in cases of strategic industries.

Foreign Trade Zones/Free Ports/Trade Facilitation

The government established several foreign trade zone initiatives to encourage export-oriented production. These include Special Economic Zones (SEZs), Export Processing Zones (EPZs), Software Technology Parks (STPs), and Export Oriented Units (EOUs). EPZs are industrial parks with incentives for foreign investors in export-oriented businesses. STPs are special zones with similar incentives for software exports. EOUs are industrial companies, established anywhere in India, that export their entire production and are granted the following: duty-free import of intermediate goods, income tax holidays, exemption from excise tax on capital goods, components, and raw materials, and a waiver on sales taxes. According to the Ministry of Commerce and Industry, as of October 2020, 426 SEZ’s have been approved and 262 SEZs were operational. SEZs are treated as foreign territory — businesses operating within SEZs are not subject to customs regulations nor have FDI equity caps. They also receive exemptions from industrial licensing requirements and enjoy tax holidays and other tax breaks. In 2018, the Indian government announced guidelines for the establishment of the National Industrial and Manufacturing Zones (NIMZs), envisaged as integrated industrial townships to be managed by a special purpose vehicle and headed by a government official. So far, three NIMZs have been accorded final approval and 13 have been accorded in-principal approval. In addition, eight investment regions along the Delhi-Mumbai Industrial Corridor (DIMC) have also been established as NIMZs. These initiatives are governed by separate rules and granted different benefits, details of which can be found at: http://www.sezindia.nic.in,   https://www.stpi.in/   http://www.fisme.org.in/export_schemes/DOCS/B

1/EXPORT%20ORIENTED%20UNIT%20SCHEME.pdf and http://www.makeinindia.com/home. 

The GOI’s revised Foreign Trade Policy, which will be effective for five years starting April 1, 2021, is expected to include a new regionally focused District Export Hubs initiative in addition to existing SEZs and NIMZs

Performance and Data Localization Requirements

Preferential Market Access (PMA) for government procurement has created substantial challenges for foreign firms operating in India. State-owned “Public Sector Undertakings” and the government accord a 20 percent price preference to vendors utilizing more than 50 percent local content. However, PMA for government procurement limits access to the most cost effective and advanced ICT products available. In December 2014, PMA guidelines were revised and reflect the following updates:

1. Current guidelines emphasize that the promotion of domestic manufacturing is the objective of PMA, while the original premise focused on the linkages between equipment procurement and national security.

2. Current guidelines on PMA implementation are limited to hardware procurement only. Former guidelines were applicable to both products and services.

3. Current guidelines widen the pool of eligible PMA bidders, to include authorized distributors, sole selling agents, authorized dealers or authorized supply houses of the domestic manufacturers of electronic products, in addition to OEMs, provided they comply with the following terms:

a. The bidder shall furnish the authorization certificate by the domestic manufacturer for selling domestically manufactured electronic products.

b. The bidder shall furnish the affidavit of self-certification issued by the domestic manufacturer to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed.

c. It shall be the responsibility of the bidder to furnish other requisite documents required to be issued by the domestic manufacturer to the procuring agency as per the policy.

4. The current guidelines establish a ceiling on fees linked with the complaint procedure. There would be a complaint fee of INR 200,000 ($3,000) or one percent of the value of the Domestically Manufactured Electronic Product being procured, subject to a maximum of INR 500,000 ($7,500), whichever is higher.

In January 2017, the Ministry of Electronics & Information Technology (MeitY) issued a draft notification under the PMA policy, stating a preference for domestically manufactured servers in government procurement. A current list of PMA guidelines, notified products, and tendering templates can be found on MeitY’s website: http://meity.gov.in/esdm/pma. 

Research and Development

The Government of India allows for 100 percent FDI in research and development through the automatic route.

Data Storage & Localization

In April 2018, the RBI, announced, without prior stakeholder consultation, that all payment system providers must store their Indian transaction data only in India. The RBI mandate went into effect on October 15, 2018, despite repeated requests by industry and U.S. officials for a delay to allow for more consultations. In July 2019, the RBI, again without prior stakeholder consultation, retroactively expanded the scope of its 2018 data localization requirement to include banks, creating potential liabilities going back to late 2018. RBI policy overwhelmingly and disproportionately has affected U.S. banks and investors, who depend on the free flow of data to both achieve economies of scale and to protect customers by providing global real-time monitoring and analysis of fraud trends and cybersecurity. U.S. payments companies have been able to implement the mandate for the most part, though at great cost and potential damage to the long-term security of their Indian customer base, which will receive fewer services and no longer benefit from global fraud detection and anti-money-laundering/combatting the financing of terrorism (AML/CFT) protocols. Similarly, U.S. banks have been able to comply with RBI’s expanded mandate, though incurring significant compliance costs and increased risk of cybersecurity vulnerabilities.

In addition to the RBI data localization directive for payments companies and banks, the government formally introduced its draft Personal Data Protection Bill (PDPB) in December 2019 which has remained pending in Parliament. The PDPB would require “explicit consent” as a condition for the cross-border transfer of sensitive personal data, requiring users to fill out separate forms for each company that held their data. Additionally, Section 33 of the bill would require a copy of all “sensitive personal data” and “critical personal data” to be stored in India, potentially creating redundant local data storage. The localization of all “sensitive personal data” being processed in India could directly impact IT exports. In the current draft no clear criteria for the classification of “critical personal data” has been included. The PDPB also would grant wide authority for a newly created Data Protection Authority to define terms, develop regulations, or otherwise provide specifics on key aspects of the bill after it becomes a law. Reports on Non-Personal Data and the implementation of a New Information Technology Rule 2021 with Intermediary Guidelines and Digital Media Ethics Code added further uncertainty to how existing rules will interact with the PDPB and how non-personal data will be handled. 5.Protection of Property Rights

United Arab Emirates

Executive Summary

The Government of the United Arab Emirates (UAE) is urgently pursuing economic diversification to promote private sector development as a complement to the historical economic dominance of the state, to lessen its reliance on an unsustainable hydrocarbon industry, and to strengthen the country’s economic resilience amid the COVID-19 pandemic.

The UAE serves as a major trade and investment hub for the Middle East and North Africa, and increasingly South Asia, Central Asia, and Sub-Saharan Africa.  Multinational companies cite the UAE’s political and economic stability, excellent infrastructure, developed capital markets, and a perceived absence of systemic corruption as positive factors contributing to the UAE’s attractiveness to foreign investors.

The UAE and the country’s seven constituent emirates have passed numerous initiatives, laws, and regulations to attract more foreign investment.  Notable reforms introduced since 2020 include amendments to the UAE’s citizenship law, which allow foreign investors, members of certain professions, those with special talents, and their families to acquire long-term residency, Emirati passports, and citizenship.  The UAE issued Federal Decree-Law Number 26 in 2020, relaxing restrictions on foreign ownership of commercial companies.  The decree also annulled the requirement that commercial companies must be majority-owned by Emirati nationals, must have a majority-Emirati board, or must maintain an Emirati agent.  This effectively allowed majority or full foreign ownership of onshore companies in many sectors.  The decree granted licensed foreign investments the same treatment as national companies within the limits permitted by the legislation in force and provided better protection for minority shareholders. The new decree is unlikely to apply to state-owned entities and companies operating in strategically important sectors, such as oil and gas, defense, utilities, and transport.

While the UAE implemented an excise tax on certain products in October 2017 and a five percent Value-Added Tax (VAT) on most 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.

Foreign investors expressed concern over a lack of regulatory transparency, as well as weak dispute resolution mechanisms and insolvency laws.  In 2020, the federal Cabinet approved a resolution aimed at 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 (FTZs) 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.  While the new decree allowing 100 percent foreign business ownership neutralizes one of the most important advantages FTZs offer foreign investors, U.S. and multinational companies indicate that these zones tend to have stronger and more equitable legal and regulatory frameworks for foreign investors than onshore jurisdictions.  FTZ-based firms also enjoy 100 percent import and export tax exemptions, 100 percent exemptions from commercial levies, and may repatriate 100 percent of capital and profits.  Goods and services delivered onshore by FTZ companies are subject to the five percent VAT.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 21 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 16 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 34 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $17.2 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $43,470 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment (FDI) 

The UAE actively seeks FDI, citing it as a key part of its long-term economic development plans.  The COVID-19 pandemic accelerated government efforts to attract foreign investment to promote economic growth.  A letter issued by Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum (MbR) on January 4, 2020 outlined the ruler’s vision for the next 50 years, pledging increased government accountability and a push for greater government efficiency.  In 2015, Dubai’s Department of Economic Development launched the Dubai Investment Development Agency (Dubai FDI), an agency that provides essential information and invaluable support to foreign businesses looking to invest in Dubai’s thriving economy and take advantage of its global strategic importance.  The government of Abu Dhabi continues implementing its Economic Vision 2030, which aims at building an open, efficient, effective, and globally integrated economy.  In 2018, Abu Dhabi’s Department of Economic Development launched the Abu Dhabi Investment Office to attract foreign investments in the local economy by providing investors with clear data and information regarding the investment environment and the competitive edge of the emirate.

Federal Decree Law No. 26 of 2020 repealed the FDI Law (Federal Law No. 19 of 2018) effective January 2, 2021 and amended significant provisions of the Commercial Companies Law (Federal Law No. 2 of 2015).  As a result, onshore UAE companies are no longer required to have a UAE national or a GCC national as a majority shareholder.  UAE joint stock companies no longer must be chaired by an Emirati citizen or have the majority of its board be comprised of Emirati citizens.  Local branches of foreign companies are no longer required to have a UAE national or a UAE-owned company act as an agent.  An intra-emirate committee will recommend to the Cabinet a list of strategically important sectors requiring additional licensing restrictions, and companies operating in these sectors, likely including oil and gas, defense, utilities, and transportation, will remain subject to the above-described restrictions.  Analysts expect this list will be similar to the list of economic sectors in which foreign investment is barred under the recently abolished FDI Law.  The decree also grants emirate-level authorities powers to establish additional licensing restrictions.  These amendments will become effective six months after the publication of the law in the official gazette and require the publication of the Strategic Impact List to be implementable.  Until this happens, existing requirements for UAE or GCC majority shareholding still apply.

Federal Decree Law No. 26 of 2020 introduced provisions to protect the rights of minority shareholders.  It lowered the ownership threshold required to call for a general assembly and introduce agenda items.  It expedited the process for shareholders to assist a company in financial distress.  It extended mandates of external auditors.  It added additional flexibility in the IPO process to allow new investors to participate.  It also calls for additional regulations from the Ministry of Economy to address governance and related-party transactions.

Federal Law No. 11 of 2020 amended the Commercial Agencies Law (Federal Law No. 18 of 1981), which allowed UAE companies not fully owned by Emirati citizens to act as commercial agents.  These companies must still be majority-owned by Emirati citizens.

Non-tariff barriers to investment persist in the form of visa sponsorship and distributorship requirements.  Several constituent emirates, including Dubai, have recently introduced new long-term residency visas and land ownership rights to attract and retain expatriates with sought-after skills in the UAE.  In October 2020, Ras Al Khaimah Real estate developer Al Hamra, in partnership with Ras Al Khaimah Economic Zone, began offering investors a 12-year residence visa and a business license when they purchased a residential property in Al Hamra Village or Bab Al Bahr.

 Limits on Foreign Control and Right to Private Ownership and Establishment  

As documented above, Federal Decree-Law Number 26 annulled the requirement commercial companies be majority-owned by Emirati citizens, have a majority-Emirati board, or maintain an Emirati agent effectively allowing majority or full foreign ownership of onshore companies in many sectors.  The annulment will not apply to companies operating in strategically important sectors.

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

The UAE government underwent a World Trade Organization (WTO) Trade Policy Review in 2016.  The full WTO Review is available at:  https://www.wto.org/english/tratop_e/tpr_e/s338_e.pdf

Business Facilitation  

UAE officials emphasize the importance of facilitating business investment 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.  Links to information portals from each of the emirates are available at https://ger.co/economy/197.  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 response to the pandemic, UAE authorities temporarily reduced fees, permits, and licenses to stimulate business formation in the onshore and free zone sectors.

In February 2021, Dubai launched the Invest in Dubai platform, a “single-window” service enabling investors to obtain trade licenses and launch their business quickly.  In August 2020, the Dubai International Financial Centre (DIFC) introduced a new license for startups, entrepreneurs, and technology firms, starting at $1,500 per year.  In October 2019, Dubai introduced a ‘Virtual Business License’ for non-resident entrepreneurs and freelancers in 101 countries.  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 2017, Dubai’s Department of Economic Development introduced an “Instant License” program, under which investors can obtain a license valid for one year in minutes without a registered lease agreement.   In November 2020, the Abu Dhabi Department of Economic Development issued a resolution permitting non-citizens to obtain freelancer licenses allowing them to engage in 48 economic activities.  The licenses were previously limited to UAE nationals only.  In 2018, Abu Dhabi announced the issuance of dual licenses enabling free zone companies to operate onshore and to compete for government tenders.  In 2018, Sharjah announced that foreigners may purchase property in the emirate without a UAE residency visa on a 100-year renewable land lease basis.

Outward Investment  

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.

3. Legal Regime

Transparency of the Regulatory System  

The onshore regulatory and legal framework in the UAE generally favors local Emirati investors over 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.

Generally, legislation is only published after it has been enacted into law and is not formally available for public comment beforehand.  Government-friendly press occasionally reports details of high-profile legislation.  The government may consult with large private sector stakeholders on draft legislation on an ad hoc basis.  Final versions of federal laws are published in Arabic in an official register “The Official Gazette,” though there are private companies that translate laws into English.  The UAE Ministry of Justice (MoJ) maintains a partial library of translated laws on its website.  Other ministries and departments inconsistently offer official English translations via their websites.  The emirates of Abu Dhabi, Dubai, and Sharjah publish official gazettes 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 2020, the UAE submitted 72 notifications to the WTO committee, including notifications of emergency measures and issues relating to Intellectual Property Rights.

Legal System and Judicial Independence  

Islam is identified as the state religion in the UAE constitution, and serves as the principal source of domestic law.  The legal system of the country is generally divided between a British-based system of common law used in offshore FTZs and onshore 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 Egyptian and French civil laws.

Common law principles, such as following legal precedents, are generally not recognized in the UAE, although lower courts commonly follow higher court judgments.  Judgments of foreign civil courts are typically recognized and enforceable under local courts.  The United States District Court for the Southern District of New York signed a memorandum with Dubai International Financial Center (DIFC) courts providing companies operating in Dubai and New York with procedures for the mutual enforcement of financial judgments.  The Abu Dhabi-based financial free zone hub Abu Dhabi Global Financial Market (ADGM) signed a Memorandum of Understanding (MoU) with the Abu Dhabi Judicial Department in February 2018 allowing reciprocal enforcement of judgments, decisions, orders, and arbitral awards between ADGM and Abu Dhabi courts.

The UAE constitution stipulates each emirate can set up a local emirate-level judicial system (local courts) 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.  Federal courts have exclusive jurisdiction in seven categories 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.  The federal government administers the courts in Ajman, Fujairah, Umm al Quwain, and Sharjah, including vetting, appointing, and paying judges.  Judges in these courts apply both local and federal law, as appropriate.  Dubai, Ras Al Khaimah, and Abu Dhabi administer their own local courts, hiring, vetting, and paying local judges and attorneys.  Local courts in Dubai, Ras al Khaimah, and Abu Dhabi have jurisdiction over all matters not specifically reserved for federal courts in the constitution.  Abu Dhabi operates both local (the Abu Dhabi Judicial Department) and federal courts in parallel.

Family Law:  In November 2020, the UAE government issued Federal Law Number 8 (2019), amending to the UAE Family Law.  The reforms liberalized laws related to cohabitation by unmarried couples, divorce and separation, custody, execution of wills and asset distribution, use of alcohol, suicide, and the protection of women.  The amendments stipulated that in a divorce taking place in the UAE by a couple married abroad, the legal proceedings would be governed by the laws of their home country.  The reforms also decriminalized alcohol consumption and removed the licensing requirement to purchase alcohol.

Probate:  The UAE Government announced in November 2020 that in the absence of a will, probate laws of the deceased’s country of citizenship would prevail.  Prior to this reform, Sharia law inheritance provisions determined the disposal of a UAE non-national resident’s assets on his or her death in most cases.  The new Federal decree-law no. 29 of 2020 allows each emirate to maintain a registry for non-UAE national wills.

Employment Law:  Employment in the private sector outside of financial free zones is regulated by Federal Law No. 8 of 1980.  The Labor Law defines working hours, leave entitlements, safety, and healthcare regulations.  There is no minimum wage defined by the law and trade unions, strikes, and collective bargaining is prohibited.  Expatriates’ legal residence in the UAE is tied to their employer (kafala system), but skilled labor usually has more flexibility in transferring their residency visa.  In 2009, the UAE Ministry of Human Resources and Emiratization (MOHRE) introduced a Wages Protection System (WPS) to ensure unbanked workers were paid according to the terms of their employment agreement.  Most domestic workers remain uncovered by the WPS.  In 2019, the UAE government launched a WPS pilot program for domestic workers and announced plans to extend WPS protection to include domestic workers in the future.

The constitution prohibits discrimination based on religion, race, and national origin.  Labor Law gives national preference in employment to Emirati citizens.  Federal Law No. 06 of 2020 stipulates equal wages for women and men in the private sector.  The decree came into force in September 2020.

The DIFC Employment Law No. 2 of 2019, which took effect in August 2019, addressed key issues such as paternity leave, sick pay, and end-of-service settlements.  ADGM also issued new employment regulations with effect in January 2020, which allowed employers and employees more flexibility in negotiating notice periods and introduced protective provisions for employees age 15-18.

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.

Federal Commercial Companies Law:  As noted above, Federal Decree-Law Number 26 annulled the default requirement for commercial companies to be majority-owned by Emirati citizens, have a majority-Emirati board, or maintain an Emirati agent effectively allowing majority or full foreign ownership of onshore companies in most sectors.

Trade Agencies Law:  The Trade Agencies Law currently requires that foreign firms without a local UAE subsidiary to distribute their products in the UAE through trade agents who are either UAE nationals or through companies majority-owned by UAE nationals.  Federal Law No. 11 of 2020 amended the Trade Agencies Law, removing the requirement that UAE companies be fully owned by Emirati citizens to act as commercial agents.  However, those companies still need to be majority-owned by Emirati citizens. 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 is difficult and expensive to sever a commercial agency agreement.  Federal Law No. 5 of 1985 (Civil Code) governs unregistered distribution agreements.

Federal Law No. 11 of 2020 will also allow family-owned companies to convert to public joint stock companies; to open shareholding to foreign investors; and to establish rules of governance and protection against default.  The changes also encourage UAE nationals to engage in business activities and invest in public companies and their commercial agents.  The changes offer protections for small shareholders and owners of SMEs acting as agents, granting them statutory protection in cases of termination or non-renewal of agreements without “material reasons.”

In August 2020, the Dubai ruler issued Law No. 9 (2020) regulating family-owned businesses in Dubai.  The Law enables family members with a common interest to jointly own moveable or immoveable property (other than shares in public joint-stock companies) on the tailored terms of a Family Property Contract that ensures the continuity, development, and smooth transition of family property from one generation to another.

Federal Industry Law:  Federal Law No. 1 (1979) regulates industrial projects in the UAE. Under this law, an industry advisory committee shall be established to examine issues pertaining to most industrial projects.  The law excludes projects which meet specific requirements, including projects related to petroleum exploration and mining industry; projects with fixed capital, not exceeding $68,064 or that do not have more than ten people, or that use a motor power of no more than five horses; concession projects; and projects implemented by the federal government.

Other Relevant Legislation:  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 reached the maximum foreign ownership of 40 percent in recent years.  Foreign banks are licensed in the UAE as branches of foreign banks, with a maximum of eight local branches allowed per bank.

The Federal Industry Law stipulates 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.

To register with the Abu Dhabi Securities Exchange, go to: https://www.adx.ae/English/Pages/Members/BecomeAMember/default.aspx

To obtain an investor number for trading on Dubai Exchanges, go to:  http://www.nasdaqdubai.com/assets/docs/NIN-Form.pdf

Competition and Anti-Trust Laws  

The Ministry of Economy’s Competition Regulation Committee 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.   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.

Dispute Settlement

ICSID Convention and New York Convention  

The UAE is a contracting state to the International Center for the Settlement of Investment Disputes (ICSID) 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 multiple contractor/payment disputes with the government as well as with local businesses.  Onshore dispute resolution can be difficult and uncertain, and payment following settlements is often slow.  Disputes are generally resolved by direct negotiation and settlement between the parties themselves, arbitration, or recourse within the legal system.  Firms avoid escalating payment disputes through civil or arbitral courts, particularly disputes involving politically connected local parties to preserve access to UAE markets.  Legal or dispute-resolution mechanisms that can take months or years to reach resolution, leading some firms to exit the UAE market instead of pursuing claims.  Arbitration may commence by petition to the UAE federal courts based on mutual consent (a written arbitration agreement), independently (by nomination of arbitrators), or through referral to an appointing authority without recourse to judicial proceedings.  Mechanisms for enforcing ownership of property through either offshore or domestic courts are generally effective.  There have been no confirmed reports of government interference in the court system affecting foreign investors.  Domestic courts are generally perceived as favoring Emirati nationals over foreigners.

International Commercial Arbitration and Foreign Courts  

The UAE government acceded to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 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.  Some analysts have raised concerns about delays and procedural obstacles to enforcing arbitration awards in the UAE.

In June 2018, Federal Law No. 6 (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.  In October 2020, DIFC courts set up a new arbitration working group to accommodate the rising number of arbitration-related cases.  On December 23, 2020, ADGM enacted amendments to its arbitration regulations to establish itself as a venue for arbitration; codify international best practices; and accommodate the changing needs of various stakeholders to arbitration.  The amendments also allowed greater flexibility in the way the arbitration process can be conducted, particularly with the introduction of explicit provisions accommodating virtual hearings and electronic submissions.

Bankruptcy Regulations  

The bankruptcy law for companies, Federal Decree Law No. 9 (2016), was first applied in February 2019.  The law covers companies governed by the Commercial Companies Law, most FTZ companies, sole proprietorships, and companies conducting professional business.  It allows creditors owed $27,225 or more to file insolvency proceedings against a debtor 30 business days after written notification to the debtor.  The law decriminalized “bankruptcy by default,” ending a system in which out-of-cash businesspeople faced potential criminal liability, including fines and potential imprisonment, if they did not initiate insolvency procedures within 30 days.  In October 2020, the UAE Cabinet approved amendments to the law and added provisions regarding “Emergency Situations” that impinge on trade or investment, to enable individuals and business to overcome credit challenges during extraordinary circumstances such as pandemics, natural and environmental disasters, and wars.  Under the amendments, a debtor may request a grace period from creditors, or negotiate a debt settlement for a period up to 12 months.

The bankruptcy law for individuals, Insolvency Law No. 19 (2019) came into effect in November 2019.  It applies only to natural persons and estates of the deceased.  The law allows a debtor 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 proceedings for the liquidation of his assets.  The law offers only limited protection to individuals, and non-payment of debt remains a criminal offense.

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.  In July 2020, ADGM also announced amendments to its regulations to provide greater clarity on the prescribed form and content in procedural matters and to better align with the ADGM Courts platform.

In June 2020, the UAE’s federal export credit Company, Etihad Credit Insurance (ECI) reaffirmed its commitment to support companies operating in the UAE to recover from COVID implications.  ECI has recently helped a UAE manufacturer recover payments from a U.S. firm that filed for bankruptcy.

The Federal Government’s Al Etihad Credit Bureau (AECB) is the only credit rating agency that assesses the financial strength of individuals in the UAE.  It also provides risk measures for various entities.  The AECB partnered with local institutions to collect data that assist in assessing credit risk and improve capital market efficiency.  A credit rating allows investors to make better-informed lending decisions and apply appropriate risk premiums to borrowers.  A credit report from AECB can unburden borrowers from scrutiny each time they take a loan.

4. Industrial Policies

Investment Incentives  

All FTZs offer incentives to foreign investors.  In 2020, the UAE introduced economic incentives to stimulate the economy and attract foreign investments, as part of the Covid-19 stimulus package, 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.  Outside the FTZs, 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 FTZs throughout the UAE.  Foreign companies generally enjoy the same investment opportunities within those zones as Emirati citizens.  All FTZs provide 100 percent import and export tax exemptions, 100 percent exemptions 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, FTZ authorities provide extensive support services, such as visa sponsorship, worker housing, dining facilities, and physical security.

FTZs have their own independent authorities with responsibility for licensing and helping companies establish their businesses.  Investors can register new companies in an FTZ, or license branch or representative offices.  All Abu Dhabi FTZs as well as several Dubai FTZs offer dual licensing in cooperation with local Department of Economic Development.  A dual license enables an LLC established in an FTZ to obtain an onshore license allowing the company to conduct onshore business in that emirate without partnering with an Emirati national, recruiting extra staff using the services of an onshore labor office, or to rent extra office space onshore.  FTZs offering dual licenses include ADGM, Abu Dhabi Airports Free Zone (ADAFZ), Khalifa Industrial Zone Abu Dhabi (KIZAD), Twofour54, and Masdar in Abu Dhabi; and Dubai Design District (D3), Dubai Airport Free Zone (DAFZA), DIFC, and Dubai Multi Commodities Centre (DMCC) in Dubai.

Performance and Data Localization Requirements  

The Emiratization Initiative is a federal incentive program to increase Emirati employment in the private sector.  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; in 2019 the UAE reached 3.64 percent.  In August 2020, the Emirates Job Bank (EJB), a government-facilitated job portal for UAE nationals, obliged government and onshore private employers to provide an explanation for interviewed UAE citizens were not hired, before allowing the employer to hire a non-citizen.  Most Emirati citizens are employed government-related entities (GREs).

All foreign defense contractors with over $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) launched the In-Country Value (ICV) strategy, which gives preference in awarding contracts to foreign companies that use local content and employ Emiratis.  In February 2020, the Abu Dhabi Department of Economic Development and ADNOC signed an agreement 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 across the Abu Dhabi government’s procurement programs.  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

Real Property  

The UAE federal government allows individual emirates to decide the mechanisms through which ownership of land may be transferred within their borders.  Abu Dhabi has generally limited land ownership to Emiratis 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 (2019) amending the rules on foreign ownership of real estate in the Emirate of Abu Dhabi.  Under the law, foreign individuals and companies wholly or partially owned by foreigners are allowed to own freehold interests in land located within certain investment areas of Abu Dhabi 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 Abu Dhabi 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 restricted ownership to UAE nationals in certain older, more established neighborhoods, traditional freeholds, also known as outright ownership, are widely available, particularly in newer developments.  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 December 2020, Dubai’s ruler issued new legislation on unfinished and cancelled real estate projects in Dubai.  Law No. (19) of 2020 states that if a developer did not initiate construction on a real estate project for reasons beyond his control, or if the project was cancelled due to a decision issued by government regulators, the developer must refund the entire deposit paid by purchasers.

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-level 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 

The UAE has established a legal and regulatory framework for intellectual property rights (IPR) protection.  Moreover, in recent years IPR holders have seen marked improvement in the protection and enforcement of intellectual property.  In April 2021, the UAE was removed from the U.S. Trade Representative’s Special 301 Report “Watch List.”  Recent UAE government changes include enhancing IP protections for the innovative pharma and biotech industry; lowering previously prohibitive trademark fees; increasing transparency in the outcomes of counterfeit seizures; significantly increasing notifications, seizures, and public destructions by Dubai Customs; and creating intergovernmental and quasi-governmental groups responsive to USG and U.S. industry concerns.  While concrete steps are needed to remedy problems with music licensing and IPR enforcement in FTZs, the UAE government has taken the concerns of rights holders seriously.

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.

Before January 2021, inventors could receive patent protection in UAE through either the UAE national patent office or the regional Gulf Cooperation Council (GCC) Patent Office.  On January 5, 2021, the GCC Patent Office stopped accepting new patent applications as the regional patent system undergoes significant reforms.  While GCC patent applications filed before January 5th will continue to be processed, inventors will need to rely on the national UAE patent office to seek patent rights until the new regional GCC system is established.

Resources for Intellectual Property Rights Holders:

Peter Mehravari

Patent Attorney

Intellectual Property Attaché for the Middle East & North Africa

U.S. Embassy Abu Dhabi | U.S. Department of Commerce U.S. Patent & Trademark Office

Tel: +965 2259 1455 Peter.Mehravari@trade.gov

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/

6. Financial Sector

Capital Markets and Portfolio Investment  

UAE government efforts to create an environment that fosters economic growth and attracts foreign investment 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 non-hydrocarbon drivers of the economy include real estate, renewable energy, tourism, logistics, manufacturing, and financial services.

The UAE issued investment fund 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 Securities and Commodities Authority (SCA), rather than the Central Bank, authority over the licensing, regulation, and marketing of investment funds.  The marketing of foreign funds, including offshore UAE-based funds, such as those domiciled in the DIFC, require 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.

The UAE has three stock markets:  Abu Dhabi Securities Exchange, Dubai Financial Market, and NASDAQ Dubai.  SCA, the onshore regulatory body, classifies brokerages into two groups:  those that engage in trading only while the clearance and settlement operations are conducted through clearance members, and those that engage in trading clearance and settlement operations for their clients.  Under the regulations, trading brokerages require paid-up capital of $820,000, whereas trading and clearance brokerages need $ 2.7 million.  Bank guarantees of $367,000 are required for brokerages to trade on the bourses.

In June 2020, the SCA amended the decision on issuing and offering Islamic securities, to ensure SCA legislation is in line with the principles of the International Organization of Securities Commissions (IOSCO).  In July 2020, SCA embarked on a project to restructure the legislative system for broker classification to keep pace with global practices and enhance the confidence of domestic and foreign investors.  According to the restructuring project, the following five licensing categories were introduced:  dealing in securities, dealing in investments, safekeeping, clearing and registration, credit rating, and arrangement and counseling.

The SCA’s decision on Capital Adequacy Criteria of Investment Manager and Management Company 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.

On the issue of Real Estate Investment Fund control, the SCA 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 the SCA, 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 usually closely track those in the United States since the local currency is pegged to the dollar.  However, there have been complaints that GREs crowd out private sector borrowers to the detriment of mostly local SMEs.

Money and Banking System  

The UAE has a robust banking sector with 48 banks, 21 of which are foreign institutions, and six are GCC-based banks.  The number of national bank branches declined to 541 by the end of 2020, compared to 656 at the end of 2019, due to bank mergers and the 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 868 billion as of December 2020.

The banking sector remains well-capitalized but has experienced a decline in lending and a rise in NPL as a result of the pandemic.  These factors have significantly reduced reported profits as banks have made greater provisions for non-performing loans.  On March 15, 2020, the CBUAE announced the USD $ 27.2 billion Targeted Economic Support Scheme (TESS) stimulus package, which included USD $13.6 billion in zero-interest, collateralized loans for UAE-based banks, and USD $13.6 billion in funds freed up from banks’ capital buffers.  In November 2020, The CBUAE extended The TESS to June 2021.

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 trade 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.

Remittance Policies  

The Central Bank of the UAE initiated the creation of the Foreign Exchange & Remittance Group (FERG), comprising 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 primary conduits for transferring large volumes of remittances through official channels.  According to migration and remittance data from the World Bank, in 2019, the UAE had migrant remittance outflows of USD $44.9 billion.  Exchange companies are important partners in the UAE government’s electronic salary transfer system, called the Wage Protection System.  They also handle various ancillary services ranging from credit card payments to national bonds, to traveler’s checks.

As part of its focus on improving Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) systems within the UAE, in September 2020, the CBUAE introduced a mandatory registration framework for Hawala providers or informal money transfer service providers that operate in the UAE.

Sovereign Wealth Funds  

Abu Dhabi is home to four sovereign wealth funds—the Abu Dhabi Investment Authority (ADIA) and Mubadala Investment Company are the largest—with estimated total assets of approximately USD $814.6 billion as of February 2020.  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.  Other rapidly expanding Abu Dhabi sovereign funds include: ADQ, with investment portfolios in food and agriculture, aviation, financial services, healthcare, industries, logistics, media, real estate, tourism and hospitality, transport and utilities; and EDGE, which covers  weapons, cyber defense and electronic warfare and intelligence, among others.  Emirates Investment Authority, the UAE’s federal sovereign wealth fund, is modest by comparison, with estimated assets of about USD 44 billion.  The Investment Corporation of Dubai (ICD) is Dubai’s primary sovereign wealth fund, with an estimated USD $301 billion in assets according to ICD’s June 2020 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.  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 provide a major source of revenue for the government.  Mubadala established Masdar in 2006 to develop renewable energy and sustainable technologies industries.  Some 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.

Privatization Programs  

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.  However, several state-owned enterprises have allowed partial foreign ownership in their shares.  For example, Abu Dhabi National Oil Company for Distribution, many national banks, some utility operators and the telecom operators, Etisalat and du, now allow minority foreign ownership.

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.  In January 2021, the CSR UAE Fund announced that it will launch an Index as an annual performance measurement tool for CSR & Sustainability practices in the UAE.  The Emirate of Ajman 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 voids any company provisions exempting directors and managers from personal liability.

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.

Additional Resources

Department of State

Country Reports on Human Rights Practices

Trafficking in Persons Report

Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;

North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

Findings on the Worst forms of Child Labor Report

List of Goods Produced by Child Labor or Forced Labor

Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World  and;

Comply Chain

9. Corruption 

The UAE has strict 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, 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 on 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 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
President
State Audit Institution
20th Floor, Tower C2, Aseel Building, Bainuna (34th) Street,
Al Bateen, Abu Dhabi, UAE
+971 2 635 9999
info@saiuae.gov.ae , reportfraud@saiuae.gov.ae

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 a pandemic-induced economic slowdown in 2020, unemployment among UAE citizens remains low.  Labor force participation was only 47.6% among UAE citizens in 2019.  Despite significant departures of foreign workers during the pandemic, expatriates represent over 88.5 percent of the country’s 9.6 million residents, accounting 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, manufacturing, 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.

The guest worker system generally guarantees transportation back to country of origin at the conclusion of employment.  Repatriation insurance costs USD 16 per year per employee.  Most employees are not subject to excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility.  Recent legislation increased an employee’s ability to voluntarily leave a job and switch employers thereby making it harder for employers to pressure workers to remain in a job by using their sponsorship of the employee to limit his or her options.

Five-year residence visas are available for investors who purchase property worth USD 1.4 million or more, and 10-year residence visas are available for individuals who invest USD 2.8 million in a business.  The government also provides visas for entrepreneurs and specialized talent in science, medicine, and specialized technical fields.  Employees who live in the UAE on a sponsored work visa can undertake part-time jobs and to work for multiple employers simultaneously to earn additional income.

In September 2020, Dubai Tourism in collaboration with the General Directorate of Residency and Foreigners Affairs (GDRFA-Dubai), introduced “Retire in Dubai,” a global retirement program that offers resident expatriates and foreigners aged 55 and above the opportunity to live in Dubai.  Eligible applicants receive a Retirement Visa, renewable every five years.  The retiree can choose between one of three financial requirements for eligibility:  a monthly income of approximately USD $5,500; savings of USD $275,000; or property in Dubai worth USD $550,000.

In October 2020, Dubai launched a visa that enables remote working professionals to live in Dubai, while serving their employers in their home country. The visa is valid for one year, costs $287 plus medical insurance and processing fees per person.  Eligibility requirements include a one-year employment contract, and a minimum salary of USD $5,000 per month.

In January 2021, the UAE Cabinet approved a measure permitting foreign university students in the UAE to sponsor their families, provided they have the financial means to do so and can afford suitable housing.

In February 2021, Abu Dhabi Department of Culture and Tourism launched the Creative Visa for individuals working in cultural and creative industries, including heritage, performing arts, visual arts, design and crafts, gaming and e-sports, media, and publishing.

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 to improve recruitment regulation and standards.  Tadbeer Centers are meant to replace recruitment agencies by 2020.

There is no minimum wage in the UAE; however, article 63 of the federal labor law allows the minister of labor to suggest an overall minimum wage level or to a specific area or profession.  MHRE unofficially mandates an AED 5,000 (USD $1,360) minimum wage for locals at job fairs and requires job titles offered for Emiratis to be socially acceptable.  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 income for the individual or entire family from USD $1,630 to $6,810, inclusive of all allowances.

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 can 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 and local police forces maintain telephone hotlines for labor dispute and complaint submissions.  MOHRE 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 MOHRE 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 MOHRE also enforces a mid-day break from 12:30 p.m. – 3:00 p.m. during the extremely hot summer months.  The federally-mandated Wages 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.  In 2020 the UAE began a pilot program to begin integrating domestic workers into the WPS.  Currently, less than one percent of domestic workers are enrolled in WPS.

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 the United Nations Office on Drugs and Crime regarding 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.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

 

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($B USD) 2019 $421.1 2019 $421.1 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($B USD, stock positions) N/A N/A 2019 $17.2 BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($B USD, stock positions) N/A N/A 2019 $5.1 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP N/A N/A 2019 3.4% UNCTAD data available at

https://unctad.org/topic/investment/world-investment-report 

* Source for Host Country Data: Economic Report, Ministry of Economy

Table 3: Sources and Destination of FDI  

Data from the Federal Competitiveness and Statistics Center indicates that the real GDP for 2019 in constant prices (base year 2010) were approximately USD $404.6 billion, while the nominal GDP at current prices was about USD $421.1 billion in 2019.

The UAE Ministry of Economy’s Annual Economic Report 2019, cited UNCTAD statistics that net annual FDI inflows to the UAE in 2018 were $10.385 billion, compared to USD $10.354 billion in 2017.  The Emirates Centre for Strategic Studies and Research (ECSSR)  reported that according to the CBUAE statistics, the net annual FDI inflows to the UAE in 2019 were approximately USD $13.78 billion.  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

Paul Prokop
Economic Officer
First Street, Umm Hurair -1
Dubai UAE
+971 (0)4 309 4918
prokoppg@state.gov

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