By Samer Qudah and Omer Khan www.mondaq.com
Dubai , which attracted the world’s attention recently with the inauguration of Burj Khalifa; the world’s tallest skyscraper, has always been a prime destination for foreign investment. The Dubai government has been consistent in reviewing and aligning regulatory framework to cater to new challenges in maintaining its leading position as a major commercial, industrial and trading hub in the region.
An area that has witnessed continued governmental attention is easing setting up of companies in Dubai to attract more foreign investment and this article aims to highlight some of the salient initiatives taken by the Dubai government in the very recent past in this regard.
Formal set ups such as limited liability companies entail legal and commercial benefits such as:
- Separate legal identity on incorporation;
- Incorporated entities outlive their founders;
- Resources can be pooled as multiple shareholders join together to form a company;
- Better access to financial resources;
- Bigger pool of human resource and hence more job creation; and
- Access to special regimes for legal proceedings for instance in case of insolvency.
To ease setting up limited liability companies in Dubai, the Dubai government implemented the amendment in Article 227 of the UAE Commercial Companies Law (“CCL”) which marked a major shift from the earlier legal position in as much as the said Article removed the requirement for minimum share capital (previously AED 300,000) allowing founders of a limited liability company (“founders”) the freedom to determine the company’s share capital which could be less than the earlier prescribed bottom line of AED 300,000.
The above amendment has affected three related conditions. One was the letter required from the bank confirming that the investor did have AED 300,000; a document from the auditor and the last one was the smart chip, which is part of the authenticating the licence. It has led to the removal of three obstacles, encouraging founders to establish businesses with genuine information. This has practically reduced the cost and the turn around time of setting up a limited liability company in Dubai . On top of this the DED has reduced by 10% its fees for registering companies.
No wonder then that in recognition of the Dubai governments efforts to further ease corporate setting up, the International Finance Corporation and World Bank ranked the United Arab Emirates at number 33 in its ‘Doing Business 2010′ report for ease of doing business. Dubai was also in top league in the Middle East Cities of the Future ranking by fDi magazine, scoring highest points for economic potential, business friendliness, infrastructure and quality of life.
As part of His Highness’ continued support for the business community in Dubai, in a very recent development, His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE on 6th January 2010 issued in his capacity as Ruler of Dubai a decree exempting companies operating in Dubai from all fines imposed on them for not renewing their licences on time. The exemption covers companies operating in special development districts and free zones. According to the decree companies that rectify their status before the grace period that ends in June will benefit from this privilege.
This recent move, which has been widely appreciated by the local business community, not just reflects Shaikh Mohammad’s unique approach to encouraging alternatives solutions to spur activities of businesses, but also indicates his support for small and medium enterprises which, according to the Dubai Statistical Centre, account for 98.5% of registered enterprises in Dubai and provide employment for about 61% of the total workforce, and a commitment to reduce the cost of doing business in Dubai
In sync with its e-Government initiatives, the DED has also commenced online services for the following:
- Online payment for license and printing the license directly from the DED website
- Online trade licence renewal;
- Online reservation of name; and
- Online initial approval for company setup.
In tandem with encouraging corporate setups, the Dubai government has established a dedicated office in the DED to further drive foreign direct investment to Dubai and this is likely to increase the rate of corporate set ups in the Emirate: a formal corporate set up would normally act as repository of FDI in form of joint venture company or a special purpose vehicle.
Known as the Foreign Investment Office (“FIO”) its initial success has been to facilitate the opening of the Middle East regional headquarters of Bayer Group, the Fortune 500 global healthcare, nutrition and high-tech materials group with a total initial investment of AED 80 million (US$22 million).
During the concluding week of December 2009 it was widely reported in the local press that a memorandum of understanding has been signed between FIO, A.T. Kearney Ltd and Global Business Policy Council. Reports published in newspapers suggest that all signatories to the agreement would work to position Dubai as the globally preferred foreign direct investment destination by developing advanced FDI policy tools and systems; working with leading global thought leaders in FDI and developing and managing leading FDI practices to further improve the investment environment.
As a starting point AT Kearney has conducted an independent survey of around 1,000 senior officials of foreign firms and a report based on the responses received in this survey has been published very recently. The report suggests that 80% of the respondents, which included CEOs and chairmen of companies, are not just committed to staying in Dubai, but are also gearing up for expansion in the short to medium term: a conclusion that negates the idle pessimism being advanced by a section of Western media.
Dubai free zones have been a success story in attracting foreign direct investment and any discussion on the subject would be incomplete without their reference.
Growth, particularly in industrial sector in Dubai , sheds light on the crucial importance of industrial free zones for economic development in the region. Free zones, such as the Jebel Ali Free Zone – UAE’s first free zone, established in 1980 in Dubai – has encouraged the establishment of more free zones, unleashing an industrial revolution.
Free zones in Dubai have acted, and continue to do so, as a catalyst for foreign investment by offering incentives such as:
- 100% foreign ownership: free zone companies do not need a local partner, as is the case with most international companies in the Middle East.
- No recruitment/sponsorship problems: the free zone authority also acts as the nominal sponsor of the staff whom companies may wish to hire, but companies are free to recruit for themselves if they so wish. However, employees can be provided by the free zone authority according to client requirements. There are no regulations regarding the employment of nationals.
- 100% repatriation of capital and profits: no corporate taxes are imposed and repatriation of both profits and capital is allowed.
- No currency restrictions: Dubai’s trading tradition, established over many years, is based on the free flow of capital and profits and the absence of exchange control. The free zone derives the same benefits.
- No corporate taxes for 50 years: companies operating in a free zone are exempt from corporate taxes for a minimum of 50 years, renewable for a further 50 year period.
- No personal income taxes: there is no personal taxation within the free zone areas.
- Ready made facilities: Each free zone would provide ready- made facilities for investors. These facilities include air- conditioned warehouses, cold stores and a modern container freight station. These are backed up by experienced staff, computer monitoring and control systems, computeriSed inventory control, modern narrow-aisle racking and cargo handling equipment, supported by extensive services which include promotional re-packing and shrink wrapping.
Free zones can offer more incentives as compared to a limited liability company incorporated on mainland Dubai in terms of shareholding and dedicated services for companies involved in particular commercial activities, such as, health ( Dubai Healthcare City ), media ( Dubai Media City ) and textiles ( Dubai Textile City ), to name just a few. In fact presently there are thirty six free zones (existing and proposed).
It has been reported that while the trade volume and monetary value for exports from free zones stood at 5,076,067,064kg and AED 59.8 billion in the first quarter of 2009, the corresponding figures for industries located outside the free zones was 10,508,982,710kg and AED 12bn. Similarly, in the second quarter of 2009, the total monetary value of exports from free zones stood at AED 63bn while it stood at AED 116bn for companies registered under Dubai commercial laws. This indeed reflects Dubai ‘s success story as a prime destination for foreign direct investment.
With the continued commitment of the Dubai government to make Dubai a prime destination for foreign investment as reflected in the practical steps taken by it towards making corporate set ups easier, we firmly believe that Dubai’s attractiveness as a hub for foreign investment will continue to grow in the years to come.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
