Attracting investment There are no specific regulations which govern inbound FDI. Corporate and business licensing laws play a significant role in determining the structuring of FDI into the UAE. A foreign investor has a number of options. It may establish an onshore company or open a branch office in one of the seven Emirates. Companies or branch offices set up onshore in the UAE are governed by the Commercial Companies Law (Federal Law No. 8 of 1984) (as amended). The Companies Law prescribes the forms of entities which may be incorporated onshore in the UAE. These include a limited liability company, a public joint-stock company, a private joint-stock company, a part- nership limited by shares, a general partnership and a simple limited partnership. A limited liabil- ity company is the most common form. Various Emirates of the UAE have also estab-
lished free zones which have their own sets of rules and regulations for the establishment of business entities and the conduct of business operations within the relevant free zone. The key distinction between free zone and
onshore entities is that onshore entities are subject to a majority local shareholding requirement whereas free zone entities may be 100% foreign owned. The 100% foreign ownership flexibility is a key incentive behind free zones. Other incen- tives include the ability to repatriate profits and capital without restrictions. The choice as to whether to set up an on shore or free zone entity and the choice of free zone in which to set up the entity will be determined by the nature and type of products or services to be offered by the busi- ness and the proposed territory of operation of the business. Depending on the business involved, certain types of business activities require addi- tional approvals. For example, banking and finan- cial services in the UAE will require additional approvals from the Central Bank of the UAE and the Emirates Securities and Commodities Authority. Further, entities seeking to establish financial services businesses in the Dubai International Financial Centre (DIFC), which is a financial free zone in the Emirate of Dubai gov- erned by its own independent rules and regula- tions, will require the approval of the DIFC finan- cial services regulator, the Dubai Financial Services Authority. If the products or services are to be offered
onshore in the UAE, then an on shore presence is required (since entities established in a free zone are generally not permitted to conduct business onshore in the UAE). If the products or services are to be offered within a particular free zone or the business is to be conducted overseas from the free zone, a free zone entity would be appropriate. There are no exchange controls and no restric-
tions on the remittance of funds into or out of the UAE (subject to compliance with the customary know-your-customer and anti-money laundering requirements). Foreign investors should note, however, that there are statutory restrictions on dealings with parties or goods and services origi- nating from specified countries, which may affect financial transactions involving such persons or products. The UAE has entered into double tax treaties
with more than 40 countries. In addition, the UAE is party to a number of bilateral investment protection treaties. Tax benefits under the double tax treaties and investment protection assurances under bilateral investment treaties are an addi- tional incentive attracting foreign investors to the UAE. No corporate income tax is imposed at federal
or Emirate level in the UAE, except in relation to certain sectors such as branches of foreign banks and oil and gas concession holders. So, for exam- ple, there is no withholding tax on dividends, interest and royalty payments. In certain cases, individual emirates have passed municipal decrees imposing local levies on different business activi- ties, for example hospitality businesses (such as hotels and serviced apartments). The UAE does not impose personal income tax on expatriates or UAE nationals. There have, however, recently been discussions on the potential introduction of VAT in the GCC countries. If an onshore presence is chosen to conduct
business in the UAE, then a foreign investor should be aware that a branch of a foreign compa- ny must have a local sponsor. While such sponsor has no ownership rights in the branch office, the sponsor must be a UAE national or a company wholly owned by UAE nationals. If an onshore company (such as a limited liability company) is to be incorporated, then a minimum 51% share- holding must be held by a UAE national or a company wholly owned by UAE nationals. It is possible to enter into arrangements whereby man-
agement control and substantial economic benefit of the company is vested in the foreign shareholder. Whether a foreign investor wishes to set up its
business onshore or in one of the free zones, it should be noted that the Companies Law and the rules and regulations governing most of the free zones are not advanced and therefore the enforce- ability of sophisticated shareholder rights and arrangements such as put options and call options is doubtful. This limits the scope of investment structuring arrangements which may be implemented. If a foreign investor does not wish to set up its
own business operation in the UAE but still wishes to sell or distribute its products or services there, then a commercial agent will need to be appointed. The commercial agent must be a UAE national or a company wholly owned by UAE nationals. The UAE Commercial Agencies Law, Federal Law No. 18 of 1981 (as amended) regulates and governs the appointment of commercial agents in the UAE. This law is generally protective of the commercial agent – for example, the termination of a commer- cial agency by the foreign party can be a formida- ble task in view of the stringent requirements of the Commercial Agencies Law.
Getting ready Before entering the UAE market, a prospective investor should be clear about the products or services that will be offered and the location of the target market, since this will influence the deci- sion as to the type and location of the entity to be established as well as the set up costs involved. By law, a free zone entity can only operate within its free zone or conduct overseas business from the free zone. If any goods and services of such an entity are proposed to be offered to the UAE mar- ket, an onshore entity will be required or a local agent will need to be appointed on shore. The licensing regime and category of licensed activities should also be considered as should the applicable immigration (residency visas) requirements. If an onshore establishment is necessary, then
careful consideration must be given to the struc- ture of the arrangements to be entered into with the local sponsor. Getting legal assistance is simplified by the fact
that there is a broad pool of international and local law firms active in the market. There are also
About the author Atiq Anjarwalla is a Solicitor of the Superior Courts of England and Wales and an Advocate of the High Court of Kenya. He has previously practised law at the City of London law firms Slaughter and May and CMS Cameron McKenna, and the Kenyan law firm, Anjarwalla & Khanna Advocates. He is the managing partner of Anjarwalla Collins & Haidermota. Anjarwalla has more than 25 years’ practice experience focusing principally
on mergers and acquisitions, banking and capital markets, infrastructure projects and project finance. He has been involved in projects in various sectors including transport, energy and telecommunications. He has for the last decade been rated as a leading lawyer by various
international legal guides including Chambers Global, Legal 500, IFLR1000, PLC Which Lawyer andBest Lawyers.
Contact information
Atiq Anjarwalla Anjarwalla Collins & Haidermota Emaar Square, Building 4, Level 2 Unit 206, Downtown Burj, P.O. Box 58553, Dubai. United Arab Emirates T: +971 4 3469890 F: +971 4 3469899 E:
info@ach-legal.com W:
www.ach-legal.com
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