The Government of the United Arab Emirates (UAE) is pursuing economic diversification and regulatory reforms to promote private sector development; reduce dependence on hydrocarbon revenues; and build a knowledge economy buttressed by advanced technology and clean energy.
The UAE serves as a major trade and investment hub for the Middle East and North Africa, as well as increasingly for 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 factors contributing to the UAE’s attractiveness to foreign investors. The UAE seeks to attract foreign direct investment (FDI) by i) not charging taxes or making restrictions on the repatriation of capital; ii) allowing relatively free movement into the country of labor and low barriers to entry (effective tariffs are five percent for most goods); and iii) offering FDI incentives.
In January 2023, the UAE Federal Cabinet set out the five priorities of the UAE for 2023, focusing on strengthening national identity, advocating for the environment and sustainability, strengthening the education sector, boosting Emiratization policies, and expanding economic partnerships across the globe.
The UAE has emerged as an attractive destination for both Russians and Ukrainians following Russia’s further invasion of Ukraine. Russians in particular have been a key customer segment supporting higher sales and rental prices in Dubai’s property market. Russian and Ukrainian firms have also moved to the UAE since the invasion. The UAE prohibited exports of Indian-origin wheat for several months in 2022 to protect against domestic food shortages, but otherwise has not suffered notable adverse economic impacts from Russia’s war on Ukraine. UAE inflation rates have been consistent, if not lower than, global inflation rates.
The UAE and the country’s seven constituent emirates have passed numerous initiatives, laws, and regulations to attract more foreign investment. Recent measures include visa reforms to attract and retain expatriate professionals, a drive to create new international economic partnerships, major investments in critical industries, and policies to encourage Emirati entrepreneurship and labor force participation. These economic development projects offer both challenges and opportunities for foreign investors in the coming years. In January 2022, the UAE changed its work week for government bodies from Sunday to Thursday to Monday to Thursday with a half day on Friday in order to more closely align with world markets. To reinforce the UAE’s position as an attractive destination for expatriate workers, the UAE updated the personal status laws for all non-Muslim foreigners in December 2022 to align regulations relating to civil marriage, divorce, and child custody with Western legal frameworks.
Additionally, the UAE approved a comprehensive reform of the national legal system which, among other aims, developed the legal frameworks around data privacy, investment, regulation and legal protection of industrial property, copyrights, trademarks, and residency. The first-ever federal data protection law regulates how personal data are processed across the UAE, with separate laws on government, financial, and healthcare data to follow. The 2020 Commercial Companies law removes restrictions to facilitate further mergers and acquisition activity. The federal trademark law further expands the scope of legal protection for companies’ trademarks, products, innovations, and trade names by protecting non-traditional patterns of trademarks. The UAE introduced Federal Law No (3) of 2022, on regulating commercial agencies, which reforms a pillar of the UAE economic model by permitting international companies to operate in many sectors without the requirement for a local UAE partner. U.S. companies broadly consider these legal reforms to be positive, but investors will need to carefully consider how these changes might specifically affect their operations.
The UAE issued in December 2022 the Corporate Tax Law on business profits starting from June 1, 2023, as part of its membership in the OECD Inclusive Framework on Base Erosion and Profit Shifting. The new tax regime will impose a standard rate of nine percent on taxable profits exceeding $102,000. The law represents a complete change to the UAE tax landscape, affecting all businesses, including free zone entities. The law will include targeted exemptions for state-owned companies, extractive industries, pension funds, and investment funds. A zero rate will apply to qualifying income made in free trade zones and to tax withholding. Qualifying income has not been defined by the UAE, as of April 12, 2023.
The UAE announced in October 2021 that it would pursue net zero greenhouse gas emissions by 2050, to include an investment of $163 billion in renewable energy.
|TI Corruption Perceptions Index||2022||27 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2022||31 out of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2021||$16.2||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||41,770||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|