United Arab Emirates: An oasis for businessDecember 20, 2010
Business-friendly policies on taxes, foreign investment and trade make the United Arab Emirates (UAE) an attractive destination for international companies seeking a headquarters location. The UAE already hosts global or regional headquarter sites for a large number of multinational corporations, including Halliburton, Mitsubishi and Hitachi Data Systems.
The number of multinationals choosing the UAE, particularly for their regional headquarters, continues to grow. The country benefits from a stable political environment, along with an emerging reputation as a central hub for trade, financial services, the media and tourism in the Gulf region. High per capita wealth levels offer an attractive local consumer market, while an abundance of foreign workers – almost 80% of the workforce – reinforces the country’s openness and diversity.
As home to approximately 8% of the world’s proven oil reserves, the UAE enjoys prosperity as an oil-rich nation, while plans to diversify the economy and encourage growth of its non-oil revenues should cushion the country from commodity price volatility and expand investment opportunities in other areas, such as infrastructure. Despite its wealth, the UAE’s economy was hit hard by the recent global downturn, with the economy contracting by 2.7% in 2009.
In particular, the property crash in Dubai led to the postponement or cancellation of a large range of construction and infrastructure projects. Since then, the situation has improved. New legislation limiting the amount of debt that government bodies can borrow has helped alleviate the situation. Furthermore, the macroeconomic environment looks set to improve, thanks largely to higher oil revenues. The Economist Intelligence Unit forecasts that the UAE will grow by an average of 5.2% between 2011 and 2014.
The tax regime remains a key factor behind the country’s attractiveness. For both the EIU and World Bank global rankings for tax environments, the UAE scored in the top five, earning the second and fourth spots respectively. Estimated at 1.7% of GDP, the UAE has one of the lowest tax burdens in the world.
There is no personal income tax and most companies, with the exception of foreign banks and foreign energy companies, do not pay any corporate income tax. While the Government may implement new indirect taxes and a value added tax to seek additional revenue for financing infrastructure projects, the UAE’s overall tax structure is highly competitive.
Elements of the investment climate in the UAE are not completely liberalized, however. Caps on foreign ownership are one example and are often viewed as an added cost to doing business. However there are approximately 40 free zones in the UAE which permit 100% foreign investment, among other incentives, which combine to make the UAE an attractive hub location, particularly for expansion into the rest of the Middle East. In the years ahead, the UAE is likely to remain an attractive destination for foreign investors.
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