By TBY | UAE | Sep 14, 2017
Moving up five spots since the previous year in the World Bank’s 2017 ranking of economies for ease of doing business, the UAE has implemented several reforms to streamline business […]
Moving up five spots since the previous year in the World Bank’s 2017 ranking of economies for ease of doing business, the UAE has implemented several reforms to streamline business processes. In addition to simplifying national procedures for doing business, the UAE is coordinating with other GCC countries to implement a new VAT. Abu Dhabi has remarkable global reach, increasingly attracting and interacting with international businesses. Statistics Center Abu Dhabi (SCAD) estimates the Emirate’s population at 2.9 million in mid-2016, representing a 4.4% increase since 2015. Looking ahead to 2018, the IMF forecasts 4.4% economic growth in the UAE.
While many aspects of doing business in the UAE vary from Emirate to Emirate, the new VAT will be implemented across the country. The VAT is coordinated with other GCC states and will be introduced on January 1, 2018. Replacing the custom duty, the VAT will likely be kept at a moderate 5%. Businesses that meet the minimum annual turnover requirements, as evidenced by their financial records, will be required to register online for the VAT. All businesses in the UAE will need to record their financial transactions and ensure that their records are accurate and updated. Foreign-owned companies, which must operate in free zones, are eligible for tax breaks for an agreed upon number of years, usually ranging from 15-50 depending on the free zone and can be renewed.
While the new tax landscape may add some short-term uncertainty and increase costs, an important long-term advantage is the improvement in transparency and need for businesses to have well-kept accounts. The new tax will hopefully increase confidence for investors. Because the VAT applies across the UAE, the Ministry of Finance is overseeing its implementation. There are also fees applied by the local governments, varying between expats and nationals due to subsidies.
Free Zone Business Model
The changing tax policies will make the free zone business model—already very common in Abu Dhabi, the UAE, and the region—even more attractive. Companies based outside of free zones are required to be 51% majority owned by a UAE national, though there are some technicalities where GCC citizen ownership impacts this percentage. For companies within free zones, they are subject to specific laws from the free zone authority (FZA) of the free zone in which they are established. First, free zone entities obtain approval from their specific FZA then apply for a trade license and registration. Free zone registration allows companies to remain 100% foreign owned and operate with exemption from import, export, corporate, and personal taxes. Additional support is provided through one-stop shop services, which help companies expedite the necessary process of obtaining permits, licenses, approvals, and clearances.
Abu Dhabi has seven free zones, including Khalifa Industrial Zone Abu Dhabi, offering world-class transportation infrastructure to local, regional, and international markets with more than 2 billion consumers; Masdar City, focused on technology and renewable energy; Abu Dhabi Airports Company, built over seven sqkm within Abu Dhabi International Airport; and twofour54, the media free zone to position the Emirate as a leading player in the Arabic media content creation industry.
As an Emirate that hosts over 150 nationalities, Abu Dhabi is incredibly diverse. Also considering the significant role of FDI—the Emirate welcomed AED95.1 billion (USD25.9 billion) in 2016, according to SCAD—the global reach of the Emirate makes business etiquette quite standard by Western conventions. Generally, be smart, punctual, and respectful in professional environments. However, you should not initiate a hand shake with a female Emirati and should wait to have a hand extended to you first, as some women may not wish to shake hands with men.