Out-Law / Your Daily Need-To-Know

The government's recent commitment to relaxing restrictions on foreign direct investment should present opportunities for non-oil revenue growth.

The population of the UAE has tripled since 2000 to nearly 11 million, 90% of whom are foreign-born workers employed in a wide range of industries.

It is an oil-rich country producing around 3 million barrels per day but has diversified its economy, becoming a regional and global centre for business, trade and finance. The UAE has also, arguably, been a beneficiary of regional instability by providing a ‘safe haven’ for investors. The UAE’s economy has been steadily expanding and the IMG had predicted real GDP growth for 2020 to be 2.5% on the back of Expo 2020 and added fiscal stimulus. Covid-19 affected that growth but predictions by the IMF suggest the UAE may not be as affected as some of the more developed economies.

The UAE is a federation of seven Emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al-Khaimah, Sharjah and Umm AlQuwain.  Abu Dhabi and Dubai are of most interest to foreign investors due to their established infrastructure and business environments. The Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) are amongst the top financial centres in the region. They have an English common law-based legislative framework and court system which makes them appealing to foreign businesses which are comfortable operating in such a legal environment. The other Emirates offer opportunities and all Emirates have established economic free zones allowing 100% foreign ownership of local business entities.

In a report on doing business in 2020 (2MB/137-page PDF) the World Bank rated the UAE as the most business-friendly jurisdiction in the region and said successful reforms in the country had "served as an inspiration" to neighbouring nations.

Dubai has the largest population in the UAE and is the main driver of economic diversity. Although Dubai's economy was initially built on oil and gas revenue, such revenue now accounts for less than 5% of the Emirate's GDP. With high growth between 2000 and 2008, Dubai established itself as the Gulf's exhibition, financial, trade and tourism hub. Dubai hosts the majority of the UAE’s economic free zones and boasts excellent connectivity to the wider region through two international airports and the largest cargo port in the Middle East.

Abu Dhabi, the capital of the UAE, has around 6% of the world’s proven oil reserves and 3% of the natural gas. The Emirate has an investment portfolio derived from the oil revenues. As the world looks ever more urgently to renewable energy, the Abu Dhabi government is seeking ways to support the development of alternative energy sources and diversify its economy with the development of new industrial cities, real estate developments and other major projects including ports, airport expansion and new hotels.

Investment

Foreign investors are free to invest in the UAE and profits can be repatriated, together with the proceeds of sale and capital on liquidation.

With some exceptions, a foreign entity will be required to establish an entity in the UAE if they wish to carry on business. Investors generally have two options: establishment in mainland UAE or establishment in one of the many economic free zones.

There is a general restriction on UAE companies being 100% owned by foreigners but there are ways around this: the new FDI law allows up to 100% ownership in certain sectors; the economic free zones allow 100% ownership, or the shareholders may use side agreements.

Foreigners can own residential and commercial property in certain designated areas, including free zones.

Legal and Regulatory Framework

The UAE is growing and developing at a fast pace, which means that there is often rapid change in the regulatory regime that underpins business.

The sources of law within the UAE

The legal system in the UAE is based both on civil code principles and on the Islamic Shari'ah. The sources of law for civil matters in the UAE are:

• The Constitution;
• Federal laws and regulations;
• Emirate laws and regulations;
• Free zone laws and regulations;
• Islamic Shari'ah; and
• Custom and practice.

The separation of power between the Federation and Emirates

The main sources of law governing day to day commercial matters in the UAE are the federal and local Emirates laws and regulations.

Certain legislative and executive authority is reserved exclusively to the Federal Union. These include matters of substantive legislation related to civil, commercial, corporate and penal matters.

The Constitution reserves to the individual Emirates sovereignty over matters within their respective territorial borders, which are not exclusively reserved to the jurisdiction of the federal government. One such example relates to the issuance of rules and regulations governing the real estate sector.

The Civil Code framework

The UAE is governed by a civil law system that relies on codified laws rather than precedent created by past legal decisions, as is the case with common law jurisdictions.

The significance of the Islamic Shari'ah

Although the main sources of law governing day to day commercial matters in the UAE will arise from the Federal and individual Emirate laws, Shari'ah Law plays an important role in the lives of UAE citizens and residents alike.

The Islamic Shari'ah is the divine set of rules and regulations regarding life as conveyed to man through the holy Prophet Mohammed (peace be upon him). It is a collection of legal tenets, laws and regulations that are intended as a way of life for Muslims.

The Shari'ah is extremely important in relation to matters of a personal nature, such as marriage, domestic relations, inheritance and lineage, but in relation to day-to-day commercial matters it is less so.

Islamic culture and customs

Although the local business environment has become very westernised, researching the Islamic culture and customs is a must for any business seeking to operate in the UAE. Things to consider include:

• Face time is very important;
• Westerners should try to dress conservatively, although within hotels and restaurants a more relaxed approach can be taken;
• Working hours are different, and limited, during Ramadan and public festivals such as Eid;
• Alcohol is widely available in hotels in the UAE, but purchasing alcohol for consumption at home generally requires a licence;
• Handshakes are a common form of greeting in the Middle East and shaking hands at the beginning and end of a meeting is usual. However, some Arab men and women will have reservations about shaking hands with people of the opposite gender, as contact between men and women who are not married or related is forbidden by Islam. Non-Muslims should not be offended by this, and should simply wait until a handshake is offered by a member of the opposite gender; and
• Hospitality is very important in Islamic culture and it can be considered impolite to decline offers of refreshments when they are made. It is also customary to treat strangers with the same level of respect as one would treat a friend, as kindness is considered a virtue in Islam.