WORK IT OUT

Ras Al Khaimah 2018 | EXECUTIVE GUIDE | REVIEW

Across the Emirates, government leaders have stated their openness to outside investment and expressed their goal of streamlining regulatory and bureaucratic practices in order to build a more diversified economy

The UAE's Vision 2021 strategic plan sets the goals of having FDI flows equal 5% of GDP and the top ranking in the World Bank's global Ease of Doing Business report. At present, however, there are still barriers to the UAE's ambitions of becoming a global leader in foreign investment. The Emirates do not allow for full foreign ownership except in certain free zones, and several legal frameworks privilege local investors and business operators over foreigners in business disputes. Aware of these issues, the UAE is working on legislation to bring its regulatory environment up to par with the best in the world.

The UAE came in at 21st globally in the 2018 edition of the World Bank's Ease of Doing Business rankings, which measures how conducive a country's regulatory environment is to starting and operating a firm. This ranking was top in the Arab world for the fifth straight year and an increase of 13 places from the previous year. The UAE was first in the world in the ease of getting electricity and paying taxes and among the top 10 in managing construction permits, registering property, and protecting minority investors. The World Bank singled out the UAE's efforts in reducing the time needed to obtain building permits and install electric infrastructure as exemplary reforms that significantly reduced bureaucratic hang-ups.
Where the Emirates continue to lag behind, however, is in obtaining credit and trading across borders. The latter is somewhat linked to the regional disputes that are part of life in the Middle East; though the UAE's stability and welcoming business climate makes it an attractive place to start a business, relationships with key neighbors have fluctuated throughout the years and, as a result, movement of goods between countries in the region is less than guaranteed.
Commercial activity across the UAE is governed by the federal Commercial Companies Law (CCL). Most recently updated in 2015, the CCL requires that all LLCs in the UAE have a local shareholder own at least 51%, meaning that foreign investors cannot own controlling stakes in any business. However, full ownership is permitted within the UAE's free trade zones, each of which has its own regulatory policies. In 2017, the Ras Al Khaimah Economic Zone (RAKEZ) was formed from a merger between RAK Free Trade Zone (RAK FTZ) and RAK Investment Authority (RAKIA). Along with full foreign ownership, RAKEZ offers tax and customs duty exemptions, streamlined visa and customs regulations, and alternate dispute settlement policies.
As with the rest of the UAE, there is a strict division between RAKEZ and the rest of the Emirate—goods produced within the free zone cannot be traded within the Emirates but can be exported or traded freely within the zone. In 2017 Ras Al Khaimah came to an agreement with the Dubai International Financial Centre (DIFC) to bring businesses within Ras Al Khaimah under the jurisdiction of the DIFC courts. As a result of this agreement, the RAK Courts Department will recognize decisions set by the DIFC courts, and vice versa, and the two parties will form a joint panel in cases where their laws are in conflict. As the DIFC courts are in English and draw heavily upon the English common law system, the hope is that this will give investors confidence that they can go to a respected international court for dispute mediation.
The UAE has no federal corporate tax; while some Emirates levy their own taxes, Ras Al Khaimah has none. In late 2017, the UAE announced the creation of a new 5% value-added tax (VAT), to go into effect in 2018. Registration for the VAT was still ongoing as of March 2018; the UAE's Federal Tax Authority extended the registration period through the end of April to help firms cope with the change. Ras Al Khaimah does not levy any capital gains, income, or withholding taxes. ✖