Doing Business in UAE

Jay Krishnan, Partner

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UAE is one of the most promising and stable countries in the Arab world that has experienced substantial expansion over the last few years. The current status the UAE enjoys today as a leading commercial and trading hub is the result of years of hard work and dedication and its willingness to adopt innovative technologies.

The government has been implementing various strategies to promote technologies such as artificial intelligence and blockchain, that helps shape the future and society. The massive investments UAE has made in these fields prove the country’s appetite for digital transformation. According to reports, AI is estimated to contribute $9.6 billion to the UAE economy by 2030— nearly 13.6 per cent of its Gross Domestic Product (GDP).

COUNTRY PROFILE

GEOGRAPHY

UAE spreads over an area of 83,000 sq km, along the south-eastern tip of the Arabian Peninsula. Abu Dhabi, the federal capital of UAE, also happens to be the largest emirate, accounting for 87 percent of UAE’s total area.

The contrasting landscapes of UAE is a feast for the eyes, be it the sandy deserts, giant dunes, spectacular oases or the awe-inspiring mountains.

The size of the country might be small, but when it comes to regional and international affairs, UAE’s role is noteworthy.

POPULATION

There has been a notable increase in the population of the country over the past few years; from 4.1 million in 2005 to roughly 9.5 million in 2018.

Out of the 22 countries in the Middle East, UAE has the most diverse population. The country’s rapid growth in various economic sectors and the high standard of living has been luring expatriates from every part of the world to UAE. Expatriate workers form the majority of the population (88.5%) and UAE citizens form the minority (11.5%). The largest group of non-UAE nationals are South Asians, Egyptians and Filipinos.

GOVERNMENT

The operations of the UAE government are distributed between the federal government and the local governments of each emirate. The Cabinet of the United Arab Emirates is the chief executive body of the country and it consists of Prime Minister, two deputy prime ministers, the ministers of the UAE, and an active General Secretariat.

According to convention, the ruler of Abu Dhabi is the President of the UAE and the ruler of Dubai is the Prime Minister of the UAE.

BUSINESS CUSTOMS

The UAE gives great importance to personal relationships and mutual trust, while conducting businesses. Emirati people usually prefer to conduct business with familiar people; hence having someone introduce you will prove to be beneficial in your business relationship.

The working week in UAE starts on Sunday and the official weekend is on Friday and Saturday. Some smaller private companies close only on Friday.

Government offices open at 7.30 a.m. and close at 3.00 p.m. Private offices function for longer duration and either adopt straight shift or split shift.

LAWS

The country has issued a number of laws related to the economy, trade and investment since its formation in 1971. There are many local laws pertaining to alcohol consumption, dressing, public displays of affection, etc. in the UAE. Expats should be aware of these as ignorance of the law will not be considered or accepted as an excuse in court and breaking the law will get you into legal trouble.

Some of the major laws are Commercial Companies Law, bankruptcy law, labor law, Anti-Money Laundering law and tax laws.
UAE is one of the fastest growing economies in the world and the second largest in the Arab world. GDP of the economy which stood at $382.58 Billion in 2017 is projected to trend around $425.00 Billion by the year 2020. The economy of UAE has grown by nearly 231 times, since its independence in 1971.

“UAE is the best example how visionary leaders can transform a country. UAE transformed to a world class investment destination by moving away from its early dependence on natural resources like Oil and Gas. The government’s bold decision to welcome foreign investments in property, tourism and technology lead to an unprecedented growth in UAE economy. HLB HAMT was fortunate to witness and serve the business environment in UAE in the form of consultancy and various other forms of professional services, in line with the vision of the rulers of the UAE’, says Mr. John Varghese, Founder and Managing Partner of HLB HAMT.

The UAE government is continuously adopting forward-looking changes to make the environment even more stable and sustainable for the expat population to thrive in this country.
There are numerous factors that have helped in uplifting UAE’s position as a significant regional and international business player;

Strategic Location

UAE is strategically located at the cross roads of Asia, Europe, Africa and the CIS countries and it offers ready access to clients and customers in the neighboring regions.

Efficient trade policy

The UAE has a liberal trade system as it follows an exports diversification policy, wherein the country exports a wide variety of products and does not rely on a single commodity.

UAE has trade agreements with numerous countries which includes partner countries in the GCC as well. The country has been a member of World Trade Organization since 10 April 1996 and a member of General Agreement on Tariffs and Trade since 8 March 1994.

Favorable government policies

The UAE has a business-friendly environment and world class infrastructure, which is evident from the increase in the number of international companies establishing their base in the country.

Economic Diversification

The UAE pursues a strategy of diversification and sees to it that an optimal balance is maintained between various sectors. Even though oil production is the biggest source of revenue, in 2015, only 30 percent of UAE’s GDP came from oil production, the rest 70 came from non-oil sectors such as media, telecom, tourism, manufacturing and commercial aviation. UAE has bagged the first spot among the Arab countries and 11th globally, in the World Bank’s Ease of Doing Business 2019 report.The country’s reforms related to ease of starting business, getting electricity, registering real estate and gaining access to credit, have helped it climb 10 spots. Overall, the UAE is far ahead of its GCC peers in global ranking.

UAE has been luring investors from across the globe with its attractive features, that are:

Flexibility to do business in any part of the country

Less restrictions on the number of visas

More business activities available for licensing

No business or personal taxes

In UAE, a company can be formed in any of the following three jurisdictions:

Mainland

Free Zone

Offshore

A mainland company is an onshore company licensed by the Department of Economic Development (DED) of the related emirate. The companies registered in the UAE mainland can do business in the local market as well as outside UAE without any restriction.

Free zones are areas that have a special tax, customs and imports regime and are governed by their own framework of regulations.

An offshore company is a legal business entity that operates outside its registered jurisdiction for the purpose of legally minimizing tax payment.

COMPLETE FOREIGN OWNERSHIP

Non-UAE nationals seeking to establish an entity in UAE mainland need to team up with a UAE national:

In case of a Limited Liability Company (L.L.C) with commercial activities, the UAE national will own 51 percent of shares and the non-UAE national will own the remaining 49 percent shares.

But of late, the UAE government has announced a new law that will permit complete foreign ownership in certain sectors selected by the government. Foreign investors can get complete control over 122 economic activities across 13 sectors.

The sectors include renewable energy, space, agriculture, manufacturing, transport, storage and many more. The production of solar panels, power transformers, green technology, and hybrid power plant, e-commerce transport, supply chain, logistics, and cold storage for pharmaceutical products are some of the activities included in the project.

Other areas of ownership by foreign investors include hospitality and food services, information and communications, professional, scientific and technical activities, administrative services, support services, educational activities, healthcare, art and entertainment, and construction.

The new law does not apply to free zones and offshores where 100% foreign ownership is already permitted.

In case of any other entity (primarily meant for all Companies with professional category licenses), the UAE nationals will be acting as a Local Service Agent (LSA), wherein the shares of the company will be fully owned by the ex-patriate shareholder and the UAE national will act as an agent for local contact purpose. However, all the business responsibilities and risks will be vested with the expatriate shareholder.

TRADE LICENSE

To conduct any form of business in the UAE, one must acquire a trade license. The UAE economic department is the liaising authority that issues trade licenses and the procedures of licensing vary from one emirate to another. Licenses in UAE can be divided into three;

Commercial licenses covering all kinds of trading activity

Professional licenses covering professions, services, craftsmen and artisans

Industrial licenses for establishing industrial or manufacturing activity

Carrying out business without a trade license is illegal in UAE and is subject to penalties. In addition, the license needs to be renewed every year.
The Dubai Economy had come up with an instant license service that aims to facilitate the issuance of trade licenses in Dubai in 5 minutes! You don’t have to register a trade name, legal contract or even a rent contract; businesses can be started instantly.

There is no standard price for setting up business in UAE as it depends on many factors such as;

Business activity of the firm

The jurisdiction where the company is established

Approvals and certifications

Office space and visa requirements

SETTING UP BUSINESS IN MAINLAND


Selecting the type of business/commercial activity is the primary step while setting up business. Business types are categorized into-

Commercial (trading)

Professional (vocational)

Industrial

COMPANY TYPES

Limited Liability Company (LLC)

A limited liability company (LLC) can be formed by a minimum of two and a maxi¬mum of 50 persons whose liability is limited to their shares in the company’s capital. Such companies are recognized as offering a suitable structure for organizations interested in developing a long-term relationship in the local market.
LLCs can engage in any industrial, commercial, professional and tourism business.

Joint venture company

A joint venture is a contractual agreement between a foreign party and a local party licensed to engage in the desired activity. The local equity participation in the joint venture must be at least 51%, but the profit and loss distribution can be prescribed. There is no need to license the joint venture or publish the agreement. The foreign partner deals with third parties under the name of the local partner who – unless the agreement is publicized – bears all liability. In practice, joint ventures are seen as offering a suitable structure for companies working together on specific projects.

Public and Private Joint Stock Company

In a joint stock company, the capital is divided into negotiable shares of equal value, wherein each shareholder is only liable for the company’s financial obligations to the extent of their share in the capital.
A Private joint stock company can conduct only commercial and industrial activities whereas public joint stock companies can practice industrial, commercial and professional business activities.

Civil company

Qualified professionals in specialist sectors, that include doctors, accountants, lawyers, consultants, engineers, etc can form a civil company in UAE. These companies should be established as partnerships with the business owners who have professional qualifications in their field of expertise. A local agent is mandatory to start a civil company in the UAE.

Branch of a local or GCC company

A branch of a local or GCC company can be involved in activities that are included in the license of the parent company.

Branch of a Foreign and free zone Company

A branch office, legally regarded as part of its parent company, is a full-fledged business, permitted to conduct activities as specified in its license. A branch office can engage in activities similar to those of its parent company, but it is not permitted to carry on the business of importing the products of its parent company. The name and activity of the branch office will be same as that of the parent company. A branch office can conduct commercial, industrial and professional activities that are authorized on the mainland. Branch offices need to register through the Ministry of Economy.

Sole Establishment

A sole establishment is a legal entity exclusively owned by one individual. He/she will be responsible for all financial responsibilities and liabilities.
In the case of expats, sole establishments are allowed only for practicing professional services, such as management, medical, engineering and IT consultancies (under a civil company).

Benefits of setting up business on Mainland

Can trade with other businesses on the mainland

Greater scope of business activities

Can work with UAE governmental bodies

Can open an office anywhere in the UAE

FREE ZONES IN UAE

The UAE has been excelling economically over the last few decades and the lion’s share of the credit goes to free zones! Free zones in the country are undoubtedly, the strongest pillars of UAE’s robust economy. They have been fruitful in attracting remarkable amount of foreign investment, generating thousands of jobs and facilitating technology transfer into the country. More than half of UAE’s non-oil exports can be attributed to the 50 plus free zones in the country.

Dubai alone is home to more than 30 free zones, contributing significantly to the economy of the city.
Companies operating in the free zones are treated as being outside the UAE for legal purposes. The free zones are suitable for companies intending to use UAE as a regional manufacturing or distribution base, with the bulk of their business outside the UAE.

Legal entities in free zones

In a free zone, you can set up two types of companies; Free Zone Establishment (FZE) and Free Zone Limited Liability Company (FZ LLC). FZE is a single shareholder limited liability company, whereas FZC allows multiple shareholding (maximum 5). Companies can also establish a branch, a representative office or a subsidiary company of their existing or parent company.

An independent free zone authority governs each free zone and is the agency responsible for issuing free zone operating licenses and assisting companies with establishing their business in the zones. A free zone firm is governed by the rules and regulations of the free zone in which it is established.

Free Zone Advantages

The major benefits of establishing your company in a free zone are,

100% foreign ownership

100% direct tax free

100% repatriation of profit and capital

No corporate, withholding and inheritance taxes

No personal income taxes

No currency restrictions

Availability of skilled and experienced workforce

Efficient recruitment procedures

Highly developed infrastructure

High level of administrative support

Modern and efficient communication system

NOTABLE FREE ZONES

Jebel Ali Free Zone (JAFZA)

The oldest free zone in UAE, JAFZA, acts as a hub for the world’s biggest shipping companies. JAFZA’s total trade volume stood at a whopping amount of $83 billion in the year 2017.

Dubai Multi Commodities Centre (DMCC)

DMCC, which is home to a vibrant community, innovative infrastructure and world-class services, provides easy access to the world’s key commodities markets.

Dubai Airport Free Zone (DAFZA)

Located adjacent to Dubai International Airport, DAFZA is one of the fastest growing airports in the world. Rapid clearance and processing of paperwork at DAFZA maximizes business activity and efficiency.

Ajman Free Zone

Ajman Free Zone, located at the entrance to the Persian Gulf, is well positioned to serve eastern and western markets. Ajman is only a few minutes’ drive away from Sharjah and Dubai and it provides easy accessibility to the two international airports and four ports.

RAK Free Zone

RAK free zone is home to more than 13,000 multinational companies from over 100 countries, representing above 50 sectors.

Abu Dhabi Airport Free Zone

The strategic location of the free zone coupled with excellent infrastructure and multiple facilities makes ADAFZ one of the most preferred locations to start an enterprise.

SAIF Zone

SAIF Zone is the world’s first ISO certified Airport Free zone and the only Emirate with seaports on the East and West coasts. It showers immense benefits on companies involved in aviation business, airport and related infrastructure and companies that carry out trading of perishable products.

Dubai International Financial Centre (DIFC)

A leading financial centre in the Middle East, Africa and South Asia region, DIFC houses more than 2000 active registered companies with a combined workforce of almost 30,000 people. The areas of business within the centre include banking, professional services, global corporations, insurance and wealth management.

Abu Dhabi Global Market (ADGM)

ADGM is an international financial centre that acts as a key pillar of Abu Dhabi’s Economic Vision. The free zone provides a wide spectrum of services such as banking, insurance, wealth management, asset management and capital market activities.
Certain free zones in the UAE offer dual licenses, that allows free zone companies to expand their operations and have a wider outreach in the UAE market.

The business-accommodating laws, easier labour and immigration procedures and tax structures make these free zones one of the most sought-after business locations in UAE.

OFFSHORE COMPANIES

There are numerous reasons that encourage people to set up their business offshore and tax advantages, confidentiality and minimal bureaucracy, are just a few. Going offshore has become a trend in many countries, and UAE is no exception. According to sources, the UAE is among the top 10 countries in the world that hold the highest offshore wealth.

An offshore company is a business entity that is formulated in a low-tax or no-tax jurisdiction for the purpose of legally minimizing the tax payment and improving the investor ‘s wealth management. Primarily one would open an offshore company to gain confidentiality over one’s financial affairs and grow wealth without intrusion.

Offshore companies can eliminate or minimize many types of tax payments such as on capital gains, profits on business earnings and property sales. An offshore company legitimately assists in gaining confidentiality over the investors’ financial affairs.

Offshore Benefits

An offshore company set-up offers numerous benefits to its investors; the major ones are-

Tax saving or deferral

Asset protection

Stronger privacy

Risk management

A more favorable business climate

Less bureaucracy

Exchange convertibility

No restrictions on the remittance of profits and capital

Security of property rights

Confidentiality

Notable Offshore Jurisdictions

JAFZA Offshore, Dubai

RAK Offshore

Ajman Offshore

Other features

These offshore entities may act as an individual and have all the capabilities and privileges of a natural person

A Registered Agent (legal firms, auditors, consultants) is required to be appointed by the Company from the approved list of Registered Agents

There is a general prohibition on offshore companies from conducting business within UAE

Financial activities like business in banking, insurance or reinsurance are restricted. The Company name must end with the word ‘ Limited’ or ‘ Incorporated’

An offshore company can hold shares in both offshore and onshore companies in UAE

An offshore company can hold a bank account in the UAE for conduct¬ing routine operational transactions

An offshore company cannot hire office space and cannot apply for residential visas.

Directors are mandatory for any type of business setup and their numbers vary from one jurisdiction to another. Moreover, every free zone and offshore authority will have their set of rules and regulations which will affect the role and number of directors.

Recently, the UAE government has come up with various new initiatives that aim to make the country an investor-friendly destination. The Golden card, which gives you the permission to stay in the country for a period of 10 years, is one among them.

Eligibility for a long term (10-year) visa without a sponsor

Investors who have public investments of at least AED 10 million are eligible for the long-term residency visa, provided that the investment falls in any of the below forms;

A deposit of minimum AED 10 million in an investment fund inside UAE.

Investing a capital of not less than AED 10 million in establishing a company in the country.

Partnership with an existing or a new company with minimum share value of AED10 million.

A total investment of minimum AED 10 million in all areas stated, provided that the investment in sectors except real estate is more than 60 per cent of the total investment.

The second category of individuals who can apply for long term residency visa are the ones with specialized talents, which include talents and researchers in the fields of science and knowledge such as doctors, specialists, scientists, inventors, as well as creative individuals in the field of culture and art.

Executives with a salary of Dh30,000 or more can also apply for the visa, on the condition that the applicant should have at least a bachelor’s degree or its equivalent and five years of work experience. A valid employment contract is also mandatory.

Eligibility for a 5-year visa without a sponsor

Individuals who have invested in a property in the UAE, entrepreneurs and outstanding students can apply for a 5-year visa without a sponsor. The gross value of the property in which the person has invested should not be less than AED 5 million and it must be retained for a minimum three years.

Long-term residency visa will not only benefit investors and specialized talents, it will also add value to the economy of the country.

The UAE Cabinet has also amended provisions related to the resolution on family sponsorship of foreign workers. Contrary to the previous rule that allowed only workers doing certain jobs to sponsor their families, the new rule keeps income as a criterion. This means expats can live with their families in the UAE irrespective of their profession.

The UAE cabinet’s recent decision to abolish mandatory bank guarantee for labour recruitment and replace it with a low-cost insurance system, has also been welcomed whole-heartedly by companies and individuals alike.

Latest amendments by the government doesn’t end here; it extends to widows, divorcees and their kids as well, who has the option to apply for a one-year residency visa without a sponsor.

Another change in policy comes with respect to transit passengers. They can stay in the country for 48 hours with a free visa and they can extend their stay for another 48 hours, by paying 50 Dirhams.

UAE has been witnessing high growth in the number of foreign companies being registered here. The expat-friendly initiatives by the government are one of the primary reasons behind the growth. Along with this, initiatives such as Expo 2020, that has the potential to connect companies across the globe, has also helped elevate UAE’s position as a top-notch investment hub.

“The UAE is one among the most competitive nations in the world. The aim of the country is to remain a top destination for ease of doing business, through an agile economy based on flexibility and openness”, says Mr. Jay Krishnan, Partner at HLB HAMT.

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Why you should be vigilant while selecting your payroll provider?

Sajin Rasheed, Director

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The role of payroll system is not limited to calculating wages of employees; it includes talent management capabilities that simplifies HR processes. An integrated talent management solution will have the tools and reports required to maintain compliance, including employee verification, tax compliance, minimum wage and overtime compliance and equal employment opportunity compliance.

Out of the diverse payroll services available, choosing the best one that suits your business is essential.

You need to ask the right questions while evaluating the efficacy of your payroll system.

  • Money spent on payroll system

Enterprises need to analyse the size of their business and allocate a fixed budget for payroll processing. It is advisable to go for a system which offers a transparent cost per employee per month structure.

  • Flexibility of payroll system

The payroll system must be flexible and compatible enough to grow with your business, to add or modify any number of salary components and to quickly adapt to new regulatory changes.

  • Security of payroll system

Payroll systems store sensitive employee data including their contact details that makes it vulnerable to hacking. While evaluating payroll management systems utmost importance should be given to data protection and security and password protection of the payroll system must be ensured.

Managing a company’s payroll might seem like a simple and straightforward process. But it may not be as easy as you believe. A small mistake is all it takes to cause reputational and financial damage.

If handling the payroll of a company with a single office is this crucial and risk worthy, have you thought about companies with multiple branches spread across the globe? Multi-country payroll (MCP) comes into play here. It enables employers to manage their regional payroll operations efficiently, mitigate operational risks and overcome other challenges faced.

International payroll outsourcing enables consolidated reporting and analytics, thus providing better control and visibility of payroll operations across diverse nations. Compliance with different countries’ laws, currencies and time zones are some of the many benefits of MCP.

Why to opt for multi-country payroll

  • Unified Service

Provides with a common reporting and governance framework across all geographies that allows unified service levels.

  • Standardise Process

Standardizes processes within an enterprise, ensuring a productive and efficient workforce.

  • Single point of contact

Helps in maintaining a single point of contact for employees across the globe, saving a lot of time and effort.

Out of the global human resource outsourcing markets, international payroll services outsourcing is the fastest-growing. According to a study by Everest Group Research, the MCPO market has grown rapidly at a CAGR of 19-23% from 2014-2016 to cross US$1.5 billion.

Payroll Fraud

There has been a significant rise in the number of businesses falling victim to fraud and turning a blind eye on the issue can only worsen the situation. Fraud by itself can be dangerous to the overall functioning of an enterprise, and if it happens to be related to payroll, the problem escalates.

Payroll fraud is theft of funds using a company’s payroll system, which is the number one source of accounting fraud and employee theft according to the Association of Certified Fraud Examiners. Employees who have access to the systems through which workers are paid can misuse their access to issue false payments.

Fraudsters misuse payroll data in a number of ways, common ones being timesheet fraud, falsifying wages, commission fraud, bonus fraud, expense reimbursement fraud, ghost employees and misclassification.

Timecard falsification and ghost employees are the two common types of payroll fraud. In timecard falsification, an employee provides inaccurate data about hours worked, leading to a miscalculation of wages. Even though it may not look as serious as stealing cash from an organization, it is equally punishable. A ghost employee is someone who is not part of an organization but is recorded on the payroll system. In such cases, the person who has ‘created’ the ghost employee collects their salary.

27 percent of all businesses fall prey to payroll fraud and it is interesting to note that smaller organizations that has an employee strength of less than 100 employees get affected more when compared to larger organizations. The occurrence is nearly double!

A sad truth about payroll fraud is that it is often long-term and many of the times it is the trusted employees of an organization who get involved in payroll fraud. By the time you realize what is going on inside your own firm, the damage would have been done.

Prior to hiring an employee who will be responsible for payroll management or who can access the bank accounts of a company, a background check on the person is mandatory. An individual with history in deceiving a company financially will tend to do so even if they switch companies. Also, reviewing payroll reports regularly to check for errors in calculations and to figure out whether any ‘ghost employee’ has been listed, is equally important.

Preventing payroll fraud is indeed a challenging task but given the massive loss it can cause to a business, employers need to be extra vigilant.

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UAE, The most innovative nation in Arab world

Jaya krishnan, Partner

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A series of initiatives that the government has implemented over these years has helped the country maintain its status. The initiatives include;

Mohammed bin Rashid Centre for Government Innovation

The Centre established in the year 2014, was a move by the government to make the country one of the most innovative across the globe and it has been successful so far. The centre has been fruitful in fulfilling many initiatives;

  • Innovation diploma

Conducted in collaboration with the University of Cambridge in the UK, the programme intends to prepare a generation of innovative CEOs, who can be of boon to the government industries.

  • Government innovation labs

Labs that use innovative methods to inspire creative ideas and come up with strategies for the various challenges faced by government entities, is also a part of the programme. All stakeholders come together and discuss various government challenges through solution-focused perspectives.

  • Ibtikar talks

These talks aim to enhance the efficacy of processes and keep updated with the latest technological developments. It also stimulates innovation in significant sectors and increases the cooperation between various government organizations.

  • ‘CEO of Innovation’, a new post in government entities

A new post was added in every government department, titled CEO of innovation. This shows how seriously the UAE government has taken the concept of innovation.

Emirates Science, Technology and Innovation Higher Policy

The policy was announced in the year 2015. 100 national initiatives are covered under the strategy and the estimated budget is more than AED300 billion. Special fields such as aviation industries, global pharmaceutical industries, solar power, civilian nuclear energy programme and robotics are given special prominence.
A sustainable economy that will rely on science, knowledge and technology is intended out of this policy.

Dubai Future Accelerators

The accelerators are programmes and integrated systems that will enable entrepreneurs and innovators to convert their ideas into successful companies. As a part of the initiative, renowned global companies and entrepreneurs collaborate and address certain key opportunity that include;

  • The application of artificial intelligence and robotics
  • Genomics
  • 3D printing
  • Biotechnology
  • New business models and best practices

Dubai – hub for innovation and technology

His Highness Sheikh Mohammed bin Rashid Al Maktoum has been coming up with constant strategies to enhance Dubai’s position as a hub for innovation and technology. Some of the efforts include Museum of the Future, World’s first 3D-printed building and the various free zones that promote innovation in the city.

According to Sultan bin Saeed Al Mansouri, UAE Minister of Economy, on the country coming first in Arab nations with respect to innovation, “Newer initiatives will be rolled out with the chief goal of further expanding fundamental and applied research conducted in the country and linking it to robust financing mechanisms. In addition, the country is looking to enhance the knowledge economy by amplifying the number of intellectual property applications and registrations made inside the UAE through the attraction of foreign companies and the introduction of licences for IP holding companies.”
UAE will hopefully retain its position in the coming years as well and with numerous strategies in place, it won’t be tough.

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Complete ownership for 122 economic activities on UAE Mainland

Lavin Nalinbabu, Senior Manager Business Consultancy

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The much-awaited announcement regarding the activities and sectors eligible for 100 percent foreign ownership in the UAE has finally been made. Foreign investors can get complete control over 122 economic activities across 13 sectors.

Complete ownership for 122 economic

The sectors include renewable energy, space, agriculture, manufacturing, transport, storage and many more. The production of solar panels, power transformers, green technology, and hybrid power plant, e-commerce transport, supply chain, logistics, and cold storage for pharmaceutical products are some of the activities included in the project.

Other areas of ownership by foreign investors include hospitality and food services, information and communications, professional, scientific and technical activities, administrative services, support services, educational activities, healthcare, art and entertainment, and construction.

According to His Highness Shaikh Mohammad Bin Rashid Al Maktoum, “Local governments will identify the percentage of ownership in each activity according to their circumstances. Our goal is to stimulate, activate and facilitate businesses. We want to open and expand new economic sectors. We want to attract new investors and new talents and enhance the global competitiveness of our national economy”.

The move has been highly appreciated by foreign investors, as it gives them the opportunity and freedom to establish their business wherever they like. Till day, foreign investors had to restrict their activities within the specific free zone. If they had to open a business on mainland, then they had to partner with a local sponsor. The new policy is a saviour for them, as it gives them complete ownership on businesses in mainland.

The new policy will not only benefit overseas investors looking to do business in the Emirates, but the overall economy of the country as well. It will provide higher levels of security to investors and eventually lead to a rise in businesses on mainland.

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Dubai’s non-oil trade reaches Dh339 billion

Jay Krishnan, Partner

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Dubai non-oil foreign trade witnessed a growth of 7 percent in the first quarter of 2019. The figure that stood at Dh316 billion in the first quarter of 2018 has increased to Dh339 billion in the current year’s first quarter.

The maximum growth happened in the exports sector, which reached Dh42 billion with a rise of 30 percent. While re-exports grew by 7 percent to Dh106 billion and imports are worth Dh190 billion (an increase of 4 percent).

The non-oil trade volume of Dubai increased by 32 per cent to reach 28 million tons. There has been a surge in the exports and it reached 6 million tons. Re-exports increased by 41 per cent to 4 million tons and imports rose 16 per cent to reach 17 million tons.

Surge in UAE non-oil trade market

Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of The Executive Council of Dubai, said: “This robust performance and marked growth of Dubai’s non-oil foreign trade is an indication that we are on the right path of revenue diversification in alignment with the values and standards outlined in the 50-Year Charter. The Dubai Silk Road Strategy supports decades of successful investment in developing the emirate’s infrastructure. In line with the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, we are committed to developing our government services so that we can become a world-class model for future governments based on knowledge, innovation and advanced AI applications.”

Free zones contributed AED 147 billion via trade. Direct trade was the major contributor to total trade at AED 189 billion and customs warehousing accounted for AED 2.3 billion. Air and sea trade also have a major share of contribution and accounted for 85 percent of the total trade. AED 158 billion is the outcome of air trade and sea trade accounted for AED 129 billion. Trade by land reached AED 52 billion.

Dubai’s trade with Asia reached AED 208 billion (7 percent increase), with Europe AED 58 billion and with Africa AED 42 billion. Among these, the trade with Africa witnessed the biggest growth, which rose to 36 percent. Americas and Oceania also contributed to the trade sector.

AED 90 billion was the total value of gold, diamonds and jewellery traded through Dubai. Phones market was also a major contributor and accounted for AED 42 billion.

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A glimpse into UAE laws

Jay Krishnan, Partner

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Before you plan a visit to any country, be it for a short trip or to start a company, basic knowledge about the laws and regulations governing that place is a must.

UAE has issued several laws related to the economy, trade, trade license and investment since its formation in 1971. There are many local laws pertaining to alcohol consumption, dressing and public displays of affection as well. Expats should be aware of these as ignorance of the law will not be considered or accepted as an excuse in court and breaking the law will get you into legal trouble.

Labor law

Federal Decree Law No. 11 for the year 2008 governs the labor rights of employees in the public sector and in the private sector, the Federal Law No. 8 of 1980 is applicable. These laws oversee issues associated with working hours, vacation and public holidays, sick and maternity leave, employing juveniles, employee records, safety standards, termination of employment and end of service gratuity payments.

Generally, free zones are not governed by the UAE Labor Law as each free zone has its own employment law.

Commercial Companies Law

The law specifies that UAE should be the nationality of every company established in the country. All mainland companies are subject to Commercial Companies Law, whereas free zone companies are exempt from the provisions of this law. The new UAE Commercial Companies Law (Federal Law No. 2 of 2015) (“CCL”) came into force on 1st July 2015.

As per the new CCL, all companies with public accountability are required to use full IFRS as issued by the IASB. IFRS standards play a pivotal role in global financial reporting as they are being embraced by countries across the globe. Companies listed on NASDAQ Dubai, Dubai Financial Services Authority (DFSA), and Abu Dhabi Securities Exchange need to comply with IFRS standards.

Anti-Money Laundering law

Money launder­ing, illegal transfers of money and criminal activity are well monitored in UAE and the country maintains a strong Anti-Money Laundering (AML) system. To better scrutinize cash flows and combat terrorist financing, the government has taken various steps.  This includes the enactment of Anti-Money Laundering law and the counterterrorism law. Two laws serve as the basis for the country’s Anti Money Laundering (AML) and counterterrorist financing (CTF) efforts: Law No 4/2002, the Anti Money Laundering law, and Law No. 1/2004, the counterterrorism law.

Bankruptcy Law

The Federal Bankruptcy Law (under the federal decree No. (9) for 2016) identifies various techniques to avoid bankruptcy cases and the liquidation of debtors’ assets, that include consensual out-of-court financial restructuring, composition procedures, financial restructuring and the potential to secure new loans with respect to the rules and regulations.

Tax laws

The landmark Federal Law No. 7 of 2017 (Law No. 7) issued by The United Arab Emirates (UAE) Ministry of Finance (MoF) “sets the foundations for the planned UAE tax system, regulating the administration and collection of taxes and clearly defining the role of the Federal Tax Authority (FTA).” The law deals with tax procedures, tax implementation, tax rates, tax obligations, cases of tax exemption, as well as procedures and rules of tax registration and cancellation.

There are many more laws in UAE and these are just some of the major laws that primarily concerns businesses.  It’s the responsibility of every one of us to follow and respect the laws of a country, if we wish to live and work there.

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Taxation in UAE

Jay Krishnan, Partner

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UAE is basically known to be tax-free country, and this was true to a great extent, until the introduction of Value added tax. VAT was introduced in UAE on 1st January 2018 at a standard rate of 5 percent.

Apart from VAT in UAE, there are certain other forms of tax that one should be aware of.

Property tax/ fee

The property registration fee in UAE is 4 percent on the purchase price. For commercial sector, this has to be paid by the buyer and an additional 5 percent VAT is also applicable. In the case of residential sectors that are ready for occupation, as a general practice, the fee of 4 percentage will be split 2 per cent each between the buyer and seller.

However, the transfer of properties between close relatives are charged at a nominal value which ranges from 0.5 – 0.75 percentage.

Excise tax

Excise tax is levied on specific goods that are harmful to human health or the environment. The excise goods that will be charged tax in the UAE include;

  • Carbonated drinks

This includes any aerated beverage and any concentrations, powder, gel, or extracts intended to be made into an aerated beverage. Unflavoured aerated water is exempted.

  • Energy drinks

Any beverages which are marketed, or sold as an energy drink, and contains stimulant substances that provide mental and physical stimulation or includes caffeine, taurine, ginseng and guarana, will fall in this category. Substances that have similar effects as the ones mentioned above and any concentrations, powder, gel or extracts intended to be made into an energy enhancing drink will also be levied tax.

Tobacco and tobacco products are also categorized as excise goods.

Rate of excise tax

The rates of excise tax in the UAE are;

  • 50 per cent for carbonated drinks
  • 100 per cent for tobacco products
  • 100 per cent for energy drinks.

Excise tax intends to reduce the consumption of unhealthy and harmful commodities. Businesses that are engaged in any of the below activities must register for excise tax;

  • the import of excise goods into the UAE
  • the production of excise goods, wherein the goods are released for consumption in the UAE
  • the stockpiling of excise goods in the UAE in certain cases

Also, anyone who is responsible for overseeing an excise warehouse or designated zone i.e. a warehouse keeper should register for excise tax.

If you are on a vacation and planning to stay in any of the hotels in UAE, do not forget to check the tax charges. Certain restaurants, hotels, hotel apartments, resorts etc. in the UAE charge tax. Hotels charge ‘Tourism Dirham Fee’ per room per night of occupancy in Dubai and the price range from AED 7 to 20 depending on the category/grade of the hotel.

Whereas in Abu Dhabi, a fee of 4 percent of hotel stay bill and AED 15 per night per room will be levied.

In Ras Al Khaimah, hotels charge AED 15 tourism fee per room per night.

The UAE charges corporate tax on oil companies and foreign banks and rest of the industries are exempted. Companies functioning in UAE free zones doesn’t have to pay corporate tax for a specific period.

Unlike many other countries, UAE individuals are exempted from paying income tax.

If you are someone planning to start a business in UAE or going on a vacation to the country, basic knowledge on taxation is a must

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A guide for foreigners who aspire to set-up business in Dubai

Jay Krishnan, Partner

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The city of Dubai doesn’t require any special introduction as it is one of the most popular places in the world. We all know the position Dubai enjoys as a tourist destination; but its much more than that. A fertile ground for new businesses, Dubai, is any investor’s dream. Establishing your business in Dubai is not just easy, but highly profitable as well.
There are a couple of things that you should be aware of before you kick-start your business in Dubai.

Economic zone and ownership

Once you decide to setup your business in Dubai, the first step is to figure out the business zone that suits your company. One can choose from mainland, free zone or offshore, to establish their entity, all of which offer diverse advantages.

Free zone
Free zones are the strongest pillars of UAE’s robust economy. They have been fruitful in attracting remarkable amount of foreign investment, generating thousands of jobs and facilitating technology transfer into the country. The business-accommodating laws, easier labour and immigration procedures and tax structures make these free zones the most sought-after business locations in UAE.

Dubai alone is home to more than 30 free zones, contributing significantly to the economy of the city. The free zones accounted for 32 per cent of Dubai’s total direct trade in the year 2015, driving about 500 billion AED of commerce. As per 2015 data, there were 20,000 free zone firms operating in Dubai, with 100 ‘Global Fortune 500’ companies having established their base in JAFZA.

Mainland
A mainland company is an onshore company licensed by the Department of Economic Development (DED) of the related emirate. The companies registered in the UAE mainland can do business in the local market as well as outside UAE without any restriction.

Offshore
An offshore company is a legal business entity that operates outside its registered jurisdiction for the purpose of legally minimizing tax payment.

Types of License

To conduct any form of business in the UAE, one must acquire a trade license. Licenses in Dubai can be divided into three;

  • Commercial licenses covering all kinds of trading activity
  • Professional licenses covering professions, services, craftsmen and artisans
  •  Industrial licenses for establishing industrial or manufacturing activity
    Carrying out business without a trade license is illegal in UAE and is subject to penalties. In addition, the license needs to be renewed every year.

Starting a business in Dubai begins with selecting the category of business. There are more than 2,100 industrial, commercial, professional and tourism activities available in Dubai.

This is followed by finding the right legal form, which will depend on the business activity, location, the number and the nationality of owners and the ownership options. One will have to check the legal forms that match specific business activities.
A trade name that matches the kind of services the company offers, must be selected. The next step involves applying for an initial approval certificate, stating that Dubai DED has no objection in you starting a business.

Depending on the legal form of the company, a Memorandum of Association (MOA) will have to be signed by the partners and owner and in some cases, a Local Service Agent (LSA) / Corporate Agent agreement between the company owner and the UAE national who is in charge of representing your business.

All businesses in Dubai should have a physical address. For this, tenancy contract must be signed with the landlord and registered with Ejari.
Certain business activities demand special licensing approvals, apart from the one from DED. If your business activity requires additional approvals, the relevant government departments need to be contacted.
Non-UAE nationals seeking to establish an entity in Dubai mainland need to team up with a UAE national. The UAE national will own 51 percent of shares and the non-UAE national will own the remaining 49 percent. But of late, the UAE government has announced a new law that will permit complete foreign ownership in certain sectors selected by the government. This will come into force by the end of 2019.
The new law does not apply to free zones and offshores where 100% foreign ownership is already permitted.

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UAE and its expat-friendly initiatives

Six-month Multiple Entry Visa and Permanent Residency

Jaya Krishnan

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The UAE government has recently announced a six-month multiple entry visa for certain categories of individuals. Investors, talented individuals and outstanding students will be granted the visa and this gives them the opportunity to prolong their stay in the country.

The Federal Authority for Identity and Citizenship has activated 3 new services on its portal. All the services grant visa for a period of 6 months, with variations in the number of visits. Investors can make multiple visits to complete residency procedures with the help of a 6-month visa. In the case of entrepreneurs and outstanding students, several trips can be made with their 6-month visa to complete long-term residency procedures. Talented individuals will also be granted a 6-month visa, but the number of visits will be restricted to just one.

The new visa scheme will help individuals in identifying opportunities of their interest. An Emirates ID card will be issued by the ICA to the six-month visa holders that will help them complete procedures such as opening bank accounts, property registration and other transactions, easily.
People who fulfil the conditions for long-term residency can apply through e-channels and through their accounts on the system, without a six-month entry visa.
It’s been just a week since the scheme launched and ICA has already received 6000 applications from investors and entrepreneurs.
The government has also come up with a permanent resident system named ‘Golden Card’, for investors and for exceptional workers in the fields of health, engineering, science and art.

According to Sheikh Mohammed bin Rashid, “Gold Card permanent residence will be awarded to exceptional and talented individuals, and to whoever contributes positively to the UAE’s success story. We want those people to be permanent partners in our journey. All of the residents of the UAE are our brothers and part of our large family.”
The permanent residency scheme will be highly beneficial to the country and its property market. It will change people’s perception about UAE; they will start seeing the country as a home and not just a temporary plan.

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Business Setup In UAE: What makes UAE the best location for your business

Lavin T K

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Investing your time and money in something worthwhile, that can promise you higher ROI is really crucial. When it comes to investing for your dream business, the risk level increases. There are quite a few points that you must consider before you go ahead with establishing your business.

And, yes, location is a primary concern.

So, where do you plan to set up your company?  If you are looking for a place that is progressive, has excellent infrastructure and favorable business regulations, then, UAE is the place for you.

We all are aware of the country’s evolution from an impoverished desert village to a sustainable city with excellent standards of living. The strategic location, world-class infrastructure, political and economic stability are some of the factors that attract people to UAE.

All these years UAE enjoyed a tax-free living and its only a year back that VAT got implemented. But, the rate of VAT is on one of the lowest in the world and it doesn’t affect normal life and businesses to greater extend.

So, after the initial confusion regarding in which country to establish your business, now it’s time to select the type of business structure. You are at the liberty to select from various structures like free zone, mainland and offshore.

While all these business forms offer numerous advantages, the one that best suits your nature of work, should be taken into consideration. If you like to reach out to local market without the help of any distributor, then I/we would suggest Mainland.

UAE mainland opens door to a wider market by letting you trade with other mainland companies. Unlike free zones, you don’t have to go through the task of finding a local distribution agent and pay customs duty.

A mainland business license lets you work on government projects that are extremely profitable. Competition will also be less, as free zone companies are not provided with the opportunity to work for government entities.

Moreover, mainland companies don’t demand for a minimum capital requirement, which makes the establishment even easier and affordable.

Selecting the type of license is the first step in starting a business in UAE. You can choose from commercial, professional and industrial license.

Companies engaged in buying or selling of goods can opt for a commercial license. Entities involved in industrial and manufacturing activities, should apply for industrial license. And, professional license will be granted to service providers, professionals, artisans, and craftsmen.

Mainland Companies are of various types and their activities differ.

LLCs can conduct any industrial, commercial, professional and tourism business. In the case of public joint stock companies, any industrial, commercial or professional business activities can be practiced. But, a Private joint stock company can perform only commercial and industrial activities.

A branch of a local or GCC company can conduct activities included on the main company license and a branch of a foreign company can conduct only selected commercial and professional activities. When it comes to branches of free zone companies, commercial, industrial and professional businesses are permitted as long as the activity of the main company is authorized on the mainland.

The UAE government is on a constant lookout to ease the process of doing business in UAE. The recent amendments in policies prove the same

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