The Changing Business Landscape in the UAE
The past 30 days has seen the announcement of some significant reforms to the UAE economy, and while the announcements have been welcomed both here and internationally, businesses are now eagerly awaiting the details.
The string of reforms ranged from relaxation of FDI rules and major economic stimulus packages, to more low key changes, such as the reduction in market fees and municipality taxes.
In this article, we will look at each of these major announcements, and discuss some of the potential impacts on business here in the UAE.
100% Foreign Ownership
Towards the end of May, new regulations allowing for the 100% Foreign Ownership of onshore companies, as well as new 10 year visas for investors and professionals, was revealed by HH Sheikh Mohammed Bin Rashid Al Maktoum.
The reformation of ownership regulations is intended to attract higher levels of foreign direct investment, which have been on the rise since they last dropped in 2015, but they are still short of the levels seen pre-2008.
The new rules will help increase the UAE’s competitiveness with its’ GCC neighbours, with similar rules implemented in Saudi Arabia, Kuwait, Bahrain and Qatar in recent years, albeit with some restrictions and caveats.
Restrictions are now the key focus of the business community in the UAE, as companies await the details of the law, expected to be implemented by the end of 2018. A new committee was established in May that will decide which sectors will be eligible for the 100% ownership rule.
The main focus will be on the ability to create jobs, as well as technology, as the UAE aims to attract human rather than financial capital.
Many established companies, both onshore and based in the numerous Free Zones are now eagerly awaiting further details of the new law. Foremost in their thoughts will be how such changes will effect the bottom line, and will 100% foreign ownership come with additional costs, such as some form of corporation tax?
Without knowing the full details, it can be difficult for businesses to plan for the immediate future, unsure if they will be eligible for what could be a potentially huge change in their corporate structure and finances, however, the general consensus from advisory firms such as Synergy is that for the time being things are business as usual.
Reduction in Fees in Dubai
As any mainland business in Dubai knows, when it comes to issuing your trade license, you pay a fee to Dubai Municipality calculated on the total cost of your licensed office lease. This fee was calculated at 5%, which for many SMEs operating from small offices or lower cost locations, was a relatively small surcharge.
For larger companies, requiring bigger office space, or operating from desireable locations, this charge could amount to a significant fee. Retailers and restaurants located in some of the tourist hot spots and popular malls, paying some of the higher rents in the country would’ve been paying a considerable fee annually.
The announcement by Dubai Municipality to cut this fee by 50% is further welcome news to businesses operating in the city. While companies would have budgeted for this fee in their operating costs, adjusting for increased rental rates when applied, a reduction of 50% frees up finances and will be a potentially huge impact for operators.
Coupled with the drop in fines for late license renewals, this change is seen as a further effort by the Dubai Government to assist businesses in the Emirate, and help facilitate growth.
Reductions in the tourism fees levied on the hospitality and leisure industries, in Dubai from 10% to 7%, and followed closely in Abu Dhabi with tourism fees reduced to 3.5% and municipality fees to 2% will further benefit operators in both Emirates, hopefully attracting further consumer spending.
The Abu Dhabi Stimulus Package
Early in June the Abu Dhabi government announced a major economic stimulus package worth AED 50bn over the next three years as it looks to increase tourism and investment in non oil sectors.
There were a number of components to the announcement, including plans to increase job creation for Emiratis, as well as a range of reforms aiming at facilitating growth for SMEs and Free Zone entities.
HH Sheikh Mohammed Bin Zayed Al Nahyan ordered a working plan to be drafted within 90 days, indicating that these reforms are to come quickly.
Free Zone companies, which traditionally cannot apply for government tenders, could stand to be a major benefactor of the changes, as they announced dual licensing for Free Zone companies, allowing them to work onshore. In what is a primarily government led economy, this is a potentially big win for the Free Zones operating in the Emirate.
Further changes include allowing companies to operate without an office for up to two years, the use of permanent home offices, and the granting of instant licenses, all of which will greatly benefit SMEs and start ups who can find the cost of market entry prohibitive.
The Abu Dhabi Government will also be targeting growth in the tourism and technology sectors, looking particularly at eco-tourism as well as the accelerator programs for tech companies.
The announcement of major changes to the UAE was further welcome news to businesses in the UAE. Of particular note was the removal of the bank guarantee, typically AED 3,000, that is required for each employee.
The government is proposing a new lower cost scheme, that will be paid annually per employee, and is also said to be planning on returning the bank guarantees held for current employees, which would release a potential AED 14bn to businesses in the UAE.
Further changes to the regulations include allowances for 48hr transit visas, allowing increased tourism opportunities for the hundreds of thousands of passengers transiting through the UAE’s airports each year.
There are also proposed changes for over staying, as well as for status changing on residency visas, which will also add extra cost savings to businesses in the UAE.
The Near Future
As is often the case with new laws in the UAE, the finer details are yet to be decided, but the response so far to the announcements has been very positive.
As further news is released, Synergy will be advising our clients on how the changes will affect their day to day operations, and how they can prepare themselves to take full advantage of any changes that will apply.
We will take closer looks at each of the topics in this article over the coming weeks, and share our insights as the business landscape in the UAE changes.
In the meantime, if you have any questions on how the changes may affect your business, or for general setup and restructuring advice, contact our team on email@example.com