DOING BUSINESS IN UAE

&

UAE FREE TRADE ZONES Sudhir Kumar, Partner & Head – Corporate Communications

Chief Executive Officer-Morison (UAE) Consulting

• Busiest trading hub of the Middle East

• High Per Capita Income

• No foreign exchange control, quotas, or trade barriers

• Competitive import duty (5%) with exemptions

• State policies permit full repatriation of profit and capital

• No income tax, no corporate tax and no withholding tax

• Most modern infrastructure

• Presence of major multinational corporations

• Mixed population from all over the world

• Stable currency

• Proximity to the Indian Subcontinent and Europe

• Largest Airports and Sea Ports

UAE (Dubai) – UNIQUENESS

• The UAE is the 17th exporter of the world

merchandise trade

• FDI into UAE – 2013 – USD 12 billion

• UAE Non oil foreign trade :USD 409 billion (2012)

• GDP per capita USD 65,600

• UNO’s world happiness report 2013 - Ranked 14

• Ease of doing business 2014 - Ranked 23

• Global Competitiveness Index 2013 - Ranked 19

• IRENA Headquarters is based in Abu Dhabi

UAE – ECONOMIC & COMMERCIAL ADVANTAGES

UAE (Dubai) – UNIQUENESS

Macro view of the surrounding regions

Levant (including Turkey & Iraq)

• Population: 145.8m • GDP: $ 1,172 Billion • Economic Growth:

4.95%

India Sub-continent • Population: 1,575m • GDP: $1,981 Billion • Economic Growth:

6.84%

GCC (& Yemen) • Population: 66.5 m • GDP: $ 1,122 Billion • Economic Growth:

6.23%

Iran & Central Asia • Population: 171m • GDP: $646 Billion • Economic Growth:

5.99%

North & Eastern Africa • Population: 318.6 m • GDP: $ 474 Billion • Economic Growth:

4.86%

GDP=$ 5,395B Population=2.28 B Avg. Growth= 5.77%

UAE Economic Profile

UAE Population

8.3 Million

GDP/Capita in USD

65,600 (#8)

UAE Trade

USD 409 Billion

Source: International Monetary Fund (IMF)2010 and Economist Intelligence Unit (EIU) 2010

GDP USD

358 Billion

GDP CAGR (05-09)

16%

35 UAE global rank by GDP

8 UAE global rank by Per Capita Income

21 UAE rank on Global Trade

7 Oil Reserves

Global Total Population of Young in

2013 (in millions)

Dubai – Trade, Logistics, Finance and Tourism Hub Dubai Economic Profile

$205 Billion Trade Value

2010 (17.8% growth)

1,868 Logistics

companies

130 Airlines

150 Shipping Lines

2 M Population

1 Quality of living in

MEA

52 Banks

12.5 Million Hotel

Guests

UAE –Singapore Trade Relations

• UAE-2nd largest Trading Partner of Singapore in the Middle East.

• The Trade value in 2013 is estimated at USD 20.8 billion

• More than 350 Singaporean Companies in UAE

• Singapore is the first non-Middle East country to sign a Free Trade Agreement with the GCC nations

• JAFZA hosts more than 70 and DAFZ has 30 plus Singaporean companies

• UAE ranked 11th in FDI inflow and Singapore 9

10

Setting up a Business

Mainland

Free Zones

11

Licensing Mainland

AUTHORITY • Department of Economic

Development.

• Ministry of Industry

• Ministry of Economy

• UAE Central Bank

TYPE

ACTIVITIES •Manufacturing

•Trading

•Services

•Professional Activities

REGULATIONS

Common form of legal entity:

UAE national : 51%

Foreign Investor: 49%

Capitalization : AED 150,000 (In Dubai AED 300,000)

12

Limited Liability Company

Ownership Pattern:

for

•Manufacturing

•Trading

•Services

13

Civil Company [Professional Firm]

Ownership Pattern:

for Common form of legal entity: •Consulting

•Professional activities

•Foreign Investor : 100%

•UAE national – Service Agent

•No Physical Capital

14

Branch of Foreign Company

Back-home taxation

for Preferred legal entity:

•Architecture/Engineering Firm

•Specialized Constructions

•Distribution of own products

(branded)

Specialized Consultancy

•Appointment of Service Agent

15

Free Trade Zones

• Free Trade Zones play a key role in attracting FDI

• Designated by the Govt. for duty free entry of non-prohibited goods

• Re-export can be done without payment of duties

• Duties are imposed, if merchandise pass outside the Free Zone

• Free Zone resolves the ownership issue of 51:49

(100% foreign ownership)

16

Licensing - Free Zones

TYPE

ACTIVITIES •Manufacturing/Assembling

•Trading

•Services

•Professional Activities

SELECTION

OF THE ZONE REGULATIONS

17

Major Advantages

• 100% foreign ownership of the enterprise.

• 100% import and export tax exemptions.

• 100% repatriation of capital and profits.

• No corporate taxes for 50 years, renewable

for an additional 50 years.

• No personal income taxes.

• Freedom to recruit employees

Role of Free Zones

• Drive economic and industrial development

• Offering world–class infrastructure, value added

services and incentives.

• Catalysts for country’s inward FDI

• Employment generation

• Backbone of diversification of economic activities

Free Zones in the UAE

Total 42 in number, having over 35,000 companies

Dubai – 24

Abu Dhabi – 6

Sharjah – 3

Ajman – 2

Ras Al Khaimah – 4

Um Al Quwain – 1

Fujairah – 2

Types of Free Zones

• Cluster Zones

– Jebel Ali Free Zone (8)

– Kizad (7)

• Specialized Zones

– Media, IT, Printing & Publishing

– Finance

– Outsourcing

– Film & Broadcasting

– Renewable Energy

– Commodities Trading & Exchange

– Bio-Technology, Healthcare and others

• Industrial Zones

– Kizad

– RAKIA

Free Trade Zones & FDI

• UAE ranked 11th Globally in terms of new FDI

Projects – 1.7% of global share

• UAE Foreign Trade currently at US $ 405 billion

outshines UAE’s GDP of US $ 358 billion.

• Formulating Government Strategies and Vision

• Catalysts for country’s growth and development

Regulations

• Recent regulatory changes allow Free Zone

companies to operate from Mainland

• Mainland companies can operate in certain Free

Zones in designated buildings

• Annual Audited Financials

• Yearly Licenses

• Leased Land

• Employee Visa – 3 years

Licensing Process - Single Window Clearance

Decision on the Free Zone

Prepare Business Plan

Submission of Project Profile / Business Plan

Preliminary Approval

Application Approval Office Space /

Land / Warehouse

Capital

Final Documentation

License Visas Overall Time Frame Trading: 10 – 30 Days Industries: 30 – 60 Days

Costs at a Glance

Jurisdiction Formation Fee - One Time (US $)

License Fee – Recurring (US $)

Land Cost Office Space Cost

Warehouse

JAFZA FZE – 2725 FZCO - 4100 Branch - 1365

US $ 1500 – Normally US $ 8180 – General Trading

US $ 9 / sqm / year

US $ 500 to US $ 700 / sqm / year (Min size – 30 sqm)

US $ 140 per sqm / year (Min Size – 313 sqm)

DAFZA Same as above Branch - NIL

US $ 2725 Not Available US $ 600 / sqm / year (Min size – 50 sqm)

US $ 300 per sqm (Min Size – 350 sqm)

KIZAD 2050 1365 US $ 4 / sqm / year

Yet to be fixed Not Available

RAKIA 1365 2725 US $ 2.7 / sqm / year

US $ 20 / sqm / year (Min size – 30 sqm)

US $ 55 per sqm (Min Size – 311 sqm)

Type of Entities

Type of Entities

Ownership Structure

Capital

JAFZA / DAFZA RAKIA Kizad

Free Zone Establishment (FZE)

Corporate – Wholly owned subsidiary Individual ownership

US $ 272,480 US $ 40,875 From US $ 40,875

Free Zone Company (FZC / FZCO / FZLLC)

Multiple ownership structure - corporate & individual

US $ 136,240 US $ 54,500

Branch License

Foreign Company or UAE Mainland Company

NA NA

Restrictions

• Local / Mainland Retailing

• Contracting and Installation in the mainland

• Logistics & Freight Forwarding allowed only

as branch of Dubai Company

• National Industrial License

Offshore Jurisdictions

• Mainly for SPVs

– if there is no need for local physical presence

– call account given by bank

– Registered Agent Needed

– Real Estate can be purchased in Dubai (only by

JAFZA Offshore Companies)

• Three Jurisdictions in UAE

– JAFZA Offshore

– RAK International Company (part of RAK FTZ)

– RAK Offshore (part of RAKIA)

DUBAI INTERNATIONAL FINANCIAL CENTRE (DIFC)

• Onshore Capital Market

• Financial Free Zone

• Independent legal system

• DFSA – independent regulatory authority

• NASDAQ Dubai

• 6 Indian Banks (SBI, BOB, PNB, Axis, IDBI,

ICICI)

• More than 1000 companies registered

• Freehold property

UAE VISION -2021

• The Vision charts next stage of journey

• Want to be among the ‘best countries’ in the

world

• GDP to be increased by 65%

• Confident and socially responsible citizens

• Enhanced international standing

• Sustainable and diversified economy

HIGHLIGHTS OF EXPO 2020

• Extra USD 23 billion of GDP in next 7 years

• 25 million visitors, 70% from outside UAE

• 300,000 new job opportunities

• 840,000 sq.meters gross retail space by 2016

• 6000 new hotel rooms by next year

• 200,000 hotel rooms by 2020

• AED 2 billion for Arabian Canal

• Construction, Tourism and Hospitality, Aviation

• Engineering, Transportation and Logistics

Visionary Projects…..

• Arabian Canal

Project cost USD545

million

Visionary Projects…..

• Blue Waters Island &

• Dubai Eye

Project cost USD 1.7 billion

Visionary Projects…..

Dubai Frame

Project cost

USD $32.3 million

Things to do...

• Conduct feasibility study

• Have preliminary meetings with Free Zone

authorities to finalize on the options

• Understand documentation requirements and other

formalities

• Submit on-time error-free documentation

• Choose the right advisor, if you are new to the

market

How an Advisor can help you...

• Understanding the business model

• Information on legal framework

• Initial awareness of the markets

• Understanding on cultural sensitivities

• First hand experience of the place; arranging preliminary visits

to all appropriate places – Free Zones and Mainland

• Correlating available options with investor needs – Mainland /

Free Zone / Offshore / Free Hold

• Assist in Market Research, Corporate Finance, Property & Real

Estate, HR, Replicating same business model to other GCC

countries