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United Arab Emirates: Market Profile

Picture: UAE factsheet
Picture: UAE factsheet

1. Overview

The United Arab Emirates (UAE) has well-established infrastructure, a stable political system, and one of the most liberal trade regimes in the Gulf region. It continues to be increasingly important, relevant and attractive to businesses from around the world as a place to do business and as a hub for the region and beyond. While the oil sector continues to make up a significant proportion of Gulf Cooperation Council (GCC) economies, the UAE has successfully diversified its economic base from over-reliance on the energy sector. In the medium term, firmer oil prices, a rebound in global trade and easing of fiscal consolidation are expected to promote economic activity, especially as investments ramp up ahead of Dubai's Expo 2020. This rebound is faced with several potential downside risks, including commodity price shocks and tighter global financial conditions.

Source: Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

February 2017
The UAE signed an agreement with the breakaway republic of Somaliland to station a military base there.

June 2017
Diplomatic tie with Qatar and the GCC deteriorated.

July 2018
The UAE accepted setting up a comprehensive strategic partnership with China.

September 2018
Crown Prince Mohammed bin Zayed of Abu Dhabi announced the approval of a three-year, AED50 billion fiscal stimulus package for the emirate. The package – titled 'Tomorrow 2021' – will focus on four key objectives: stimulating investment, creating jobs, spurring innovation and improving quality of life.

Sources: BBC country profile – Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: UAE real GDP and inflation
Date last reviewed: October 17, 2018
Graph: UAE real GDP and inflation
Date last reviewed: October 17, 2018
Graph: UAE GDP by sector (2017)
Date last reviewed: October 18, 2018
Graph: UAE GDP by sector (2017)
Date last reviewed: October 18, 2018
Graph: UAE unemployment rate
Date last reviewed: October 16, 2018
Graph: UAE unemployment rate
Date last reviewed: October 16, 2018
Graph: UAE current account balance
Date last reviewed: October 17, 2018
Graph: UAE current account balance
Date last reviewed: October 17, 2018

e = estimate, f= forecast
Sources: International Monetary Fund, World Bank, Fitch Solutions

4. External Trade

4.1 Merchandise Trade

Graph: UAE merchandise trade, UAE goods exports, UAE goods imports
Graph: UAE merchandise trade, UAE goods exports, UAE goods imports

e = estimate
Source: WTO
Date last reviewed: October 17, 2018

Graph: UAE major export commodities (2017)
Note: 'Unclassified Products' fall under HS Code 99
Graph: UAE major export commodities (2017)
Note: 'Unclassified Products' fall under HS Code 99
Graph: UAE major export markets (2017)
Graph: UAE major export markets (2017)
Graph: UAE major import commodities (2017)
Graph: UAE major import commodities (2017)
Graph: UAE major import markets (2017)
Graph: UAE major import markets (2017)

Area NES = The partner "Area NES (not elsewhere specified)" is used (a) for low value trade and (b) if the partner designation was unknown to the reporting country or if an error was made in the partner assignment. So, one could say that "Area nes" is a group of partner countries, but the components of the group vary by reporter, by trade flow, by year and by commodity.

Area NES in 2017 for exports = 28.8%; Asia NES = 17.2%

Sources: Trade Map, Fitch Solutions
Date last reviewed: October 22, 2018

4.2 Trade in Services

Graph: UAE trade in services
Graph: UAE trade in services

Source: WTO
Date last reviewed: October 17, 2018

5. Trade Policies

  • The UAE has been a member of WTO since April 10, 1996.

  • The UAE is a member of the GCC alongside Kuwait, Oman, Saudi Arabia and Qatar. Many goods from the region enter tariff-free.

  • Generally, a customs duty of 5% is imposed on the cost, insurance and freight (CIF) value of imports.

  • A 5% value-added tax (VAT) was introduced in the UAE as of January 1, 2018. The tax will apply to almost all goods and services except basic food items, education and healthcare. The 0% VAT rate also applies to goods and services exported outside the VAT-implementing GCC member states, international transportation, crude oil/natural gas, the first sale of residential buildings, and some specific areas.

  • On October 1, 2017, the UAE implemented an excise tax on tobacco products, carbonated drinks and energy drinks. The tax applies to both locally manufactured and imported goods. The applicable tax rates are 50% for carbonated drinks and 100% for tobacco products and energy drinks.

  • Prohibited products include live swine and other products prohibited on security, health and safety grounds. Restricted products include pig meat products and alcoholic beverages, which require import licences and, in most cases, the tariff on these products is 200%.

  • Trading (importing and/or exporting) in the UAE requires a trading licence and a trader code, which is available from the customs department of each emirate and is valid throughout the UAE. To qualify for a licence, the applicant must be a UAE national or a company established in the UAE that is 51% owned by UAE nationals.

  • Imports of all live animals, animal products (except food products of animal origin) and fodder need an import permit issued by the Ministry of Climate Change and Environment. Additionally, all live animals, animal products, plants and plant products are subject to quarantine requirements and need to be accompanied by health certificates.

Sources: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Multinational Trade Agreements

Active

  1. WTO: The UAE has been a member of the WTO since April 1996.

  2. GCC (effective date: May 1981): The GCC implemented a customs union that allows free movement of local goods among member states. UAE's trade with these countries is tariff-free. Other members are Bahrain, Kuwait, Oman, Qatar and Saudi Arabia. This agreement helps member states to leverage each other's industrial capacity and logistics networks. The geographic proximity of these countries and their general adoption of free-trade economic policies are factors that foster a competitive business environment.

  3. Greater Arab Free Trade Area (GAFTA) (effective date: January 1998): GAFTA activates the Trade Facilitation and Development Agreement and eliminates most tariffs among the GAFTA members. The 17 members of GAFTA are: Algeria, Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates and Yemen. GAFTA was declared within the Social and Economic Council of the Arab League as an executive programme to activate the Trade Facilitation and Development Agreement and the elimination of most tariffs among GAFTA members. The trade agreement adopts the method of a gradual reduction of taxes and customs (10% per annum), eliminating customs and non-tariff barriers on goods traded among the 17 Arab countries.

  4. GCC and European Free Trade Association (EFTA): EFTA, which comprises Iceland, Liechtenstein and Switzerland, signed an free trade agreement (FTA) with the GCC which came into force on July 1, 2015. The agreement covers the progressive elimination of tariffs on trade in services and manufactured goods as well as investment, and other trade-related issues such as protection of intellectual property, and is fully consistent with provisions of the WTO. In addition, bilateral arrangements on agricultural products between three individual EFTA states and the GCC form part of the instruments establishing the free trade area between both sides.

  5. Singapore-GCC FTA (GSFTA): The GSFTA became effective in September 2013. It eliminates most tariffs (99%) on Singapore's exports to the GCC. This is a comprehensive agreement covering trade in goods, rules of origin, customs procedures, trade in services and government procurement, among others. Key sectors benefitting include telecommunications, electrical and electronic equipment, petrochemicals, jewellery, machinery and iron and steel-related industry. The recognition of the halal certification of Singapore's Majlis Ugama Islam Singapura (MUIS) will also pave the way for trade in halal-certified products to gain faster access to the GCC countries.

Under Negotiation

  1. Australia and the GCC share a significant economic relationship, encompassing trade and investment across a broad range of goods and services. The GCC is a key market for agricultural exports such a livestock, meat, dairy products, vegetables, sugar, wheat and other grains. The agreement provides an opportunity to address a range of tariff and non-tariff barriers related to food exports that will benefit the food and drink sectors in UAE.

  2. China and the GCC are also negotiating a trade agreement. Greater trade liberalisation will help develop the industrial and service sectors.

  3. India and GCC are negotiating an FTA. The agreement is expected to remove restrictive duties, push down tariffs on goods and pave the way for more intensive economic engagement between the nations. More than 50% of India's oil and gas comes from the GCC countries.

  4. Japan and the GCC are negotiating an FTA. This agreement will seek to reduce tariffs and the liberalisation of services trade and investment. Japan mainly imports aluminium, natural gas, liquid natural gas and petroleum products from the GCC, while Japan mainly exports electronics, vehicles, machinery, and other industrial products to the GCC.

Source: WTO Regional Trade Agreements database

7. Investment Policy

7.1 Foreign Direct Investment

Graph: UAE FDI stock
Graph: UAE FDI stock
Graph: UAE FDI flow
Graph: UAE FDI flow

Source: UNCTAD
Date last reviewed: October 17, 2018

7.2 Foreign Direct Investment Policy

  1. The UAE is a federation of seven Emirates. Currently, the UAE does not have a federal corporate income tax (CIT) regime; however, most of the emirates introduced income tax decrees in the late 1960s, and taxation is therefore determined on an emirate-by-emirate basis.

  2. Investment promotion agencies exist depending on the Emirate. For example, the Sharjah Investment and Development Authority, or Shurooq, is an independent government agency that assists investors in finding partnerships in the emirate.

  3. Under the emirate-based tax decrees, CIT may be imposed on all companies (including branches and permanent establishments) at rates of up to 55%. However, in practice, CIT is currently only enforced with corporate entities engaged in the production of oil and gas or extraction of other natural resources in the UAE.

  4. Foreign companies or individuals are limited to 49% ownership/control in any part of the UAE (with the exception of some free trade zones), pursuant to law. A foreign business in most cases must have a UAE national sponsor, agent or distributor, with at least a 51% ownership interest of the business.

  5. Free trade zones (FTZs) have their own rules and regulations and generally offer tax holidays to businesses (and their employees) set up in the FTZ for a period of between 15 and 50 years (which are mostly renewable).

  6. Branch offices of foreign companies are required to have a national agent with 100% UAE national ownership, unless the foreign company has established its office pursuant to an agreement with the federal or an emirate-level government.

  7. Certain transactions in goods between companies established in FTZs have special treatment under the UAE VAT law and may not be subject to VAT. The supply of services within FTZs is subject to VAT in accordance with the UAE VAT legislation.

  8. VAT exemption applies to certain financial services, as well as to the residential real estate sector. Further, transactions in bare land and domestic passenger transport are also exempt.

  9. Most emirates impose a municipality tax on properties, mostly by reference to the annual rental value. It is generally the tenants' obligation to pay the tax. In some cases, separate fees are payable by both tenants and property owners. For example, in Dubai, the municipality tax on property is currently imposed at 5% of the annual rental value for tenants or at 5% of the specified rental index for property owners.

  10. When a public joint stock company lists in the UAE, there is a 51% GCC ownership requirement. UAE nationals must chair and be the majority of board members of any public joint stock company.

  11. Law requires that foreign principals distribute their products in the UAE only through exclusive commercial agents who are either UAE nationals or companies wholly owned by UAE nationals.

  12. A registration fee may be levied on transfer of ownership of land or real property. For example, a land registration fee is levied in the emirate of Dubai at a rate of 4% of the sale value of the property (a cost generally shared between the buyer and seller), payable to the Dubai Land Department. In Dubai, the registration fee may also apply on the direct or indirect transfer of shares in an entity that owns real property. These levies are imposed and administered differently by each emirate.

  13. Currently, there are over 45 FTZs (and business parks) in the UAE, each having its own regulations. Businesses (and their employees) established in FTZs are generally eligible for (renewable) 15-50-year tax holidays. Certain FTZs also offer exemption from customs duties. The laws and regulations granting these tax holidays and exemptions are not consistent across the various FTZs. Each FTZ therefore needs to be considered separately.

Sources: WTO – Trade Policy Review, ITA, US Department of Commerce, PwC

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
FTZs are located throughout the country, with some open to all sectors and some catering for specific industries. FTZs include, but are not limited to, the Dubai Airport Free Zone (DAFZ), Dubai International Financial Centre (DIFC) (typically for financial services), Dubai Internet City (DIC), Dubai Media City (DMC), Dubai Multi Commodities Centre (DMCC), Dubai South (DS), Jebel Ali Free Zone (JAFZ), and Abu Dhabi General Markets (ADGM) (typically for financial services).- FTZs have their own rules and regulations and generally offer tax holidays to businesses (and their employees) set up in the FTZ for a period between 15 and 50 years (which are mostly renewable)

- 100% foreign ownership permitted

- Exemption from import and export taxes

- Exemption from customs duties

- Exemption from CIT

- Exemption from personal income tax

- Freedom to repatriate capital

- Subsidised utilities costs

- Strong logistics connections

- Support services for completing bureaucracy

Sources: US Department of Commerce, Fitch Solutions

8. Taxation – 2018

NIL

9. Foreign Worker Requirements

9.1 Localisation Requirements

The UAE government has launched a policy of 'Emiratisation' similar to that of 'Saudisation' in neighbouring Saudi Arabia, which is intended to boost the employment of Emirati nationals in the private sector and reduce reliance on expatriate labour. There are specific local hiring quotas which must be fulfilled for companies with over 50 employees or more, the banking sector, the insurance sector, and the retail sector. Specific jobs are reserved for Emirati citizens through legislation such as HR managers, secretaries and government liaison personnel. These local hiring requirements are not applicable to companies with their operations based in the UAE's FTZs.

9.2 Obtaining Foreign Worker Permits for Skilled Workers

Non-GCC citizens need to be sponsored by their employer, and therefore need to have a job offer in order to be able to apply for a work permit. Various documents such as educational and professional qualifications, results of medical examinations, and a signed copy of the job contract all need to be lodged with the UAE Ministry of Labour before the work permit will be granted.

9.3 Visa/Travel Restrictions

Citizens of other GCC and EU states do not need a visa to visit the UAE. Citizens from North American states, Central Asian states and Asian states in general can obtain a visa upon arrival, and citizens of African and South American states are required to arrange a visa in advance. Visa processing times are estimated at being 4-6 weeks.

9.4 Work Sponsorship System

Several changes were made to better protect worker's rights under the 'Kafala' system which came in to effect from January 1, 2016. These included: that job contracts must specifically reflect the terms offered to the employee verbally and must be signed by both parties prior to being submitted to the Emirate Ministry of Labour as part of the formal work permit application; that a contract of employment has come to an end if employer has not met their contractual obligations (e.g. failed to pay their employees for 60 days or more); and allows workers greater freedoms in terms of seeking alternative employment within the UAE and therefore obtaining a new work permit through a new employer.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Aa2 (stable)26/05/2017
Standard & Poor'sNo ratings data availableNo ratings data available
Fitch RatingsEntity not ratedEntity not rated

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of doing business Index
34/189
26/190
21/190
Ease of paying taxes Index
1/189
1/1901/190
Logistics Performance Index
13/160
N/A11/160
Corruption Perception Index
24/176
21/180N/A
IMD World Competitiveness15/6110/637/63

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank56/202
Short-Term Economic Risk Score
63.5
62.165.4
Long-Term Economic Risk Score61.9
63.563.8
Political Risk Index Rank74/202
Short-Term Political Risk Score83.12583.183.1
Long-Term Political Risk Score69.069.669.6
Operational Risk Index Rank20/201
Operational Risk Score727173.8

Source: Fitch Solutions
Date last reviewed: October 18, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
The UAE has been perhaps the most successful of the Gulf States when it comes to diversifying its economy away from oil, which accounts for just under 35% of GDP. However, with diversification has come greater exposure to the global economy. Tougher regulations (focussing on 'concentration risks' and more stringent loan-to-value ratios for mortgages) for banks which have come into force in the past two years will go some way towards creating a more sustainable development model over the long run.

OPERATIONAL RISK
The UAE is the GCC and MENA regional top performer for operational risk, which increases its attractiveness as a global business and investment destination. The UAE's operating environment is boosted by its comparably lower crime and security risks than other GCC and MENA states, its highly attractive trade and investment environment, by virtue of its comparatively diversified economy, competitive Special Economic Zone incentive offerings, as well as its high quality and well-connected logistics network. The UAE's score is weighed down by its labour market, largely due to the low numbers of tertiary educated graduates (especially within fields such as science, technology, engineering and mathematics) present in its labour force, by global standards.

Source: Fitch Solutions
Date last reviewed: October 20, 2018

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: UAE short term political risk index
Graph: UAE short term political risk index
Graph: UAE long term political risk index
Graph: UAE long term political risk index
Graph: UAE short term economic risk index
Graph: UAE short term economic risk index
Graph: UAE long term economic risk index
Graph: UAE long term economic risk index

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: October 8, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
UAE Score72.867.879.668.675.3
MENA Average47.649.348.148.844.1
MENA Position (out of 18)1113
2
MENA Average47.649.348.148.844.1
MENA Position (out of 18)1113
2
Global Average49.649.749.949.149.8
Global Position (out of 201)20
1333832

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: UAE vs global and regional averages
Graph: UAE vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
UAE
72.8
67.879.668.675.3
Qatar
66.263.963.171.566.5
Bahrain
64.658.468.5
71.460.1
Oman
62.851.059.864.476.0
Saudi Arabia
61.563.061.862.658.6
Jordan
58.254.959.159.060.0
Kuwait
55.152.351.752.464.1
Morocco
52.839.862.054.854.6
Egypt48.546.046.456.445.3
Tunisia
46.242.352.447.342.8
Iran
43.248.738.350.835.1
Lebanon42.747.950.041.332.4
Algeria
41.644.031.742.947.9
West Bank and Gaza
34.046.436.831.621.2
Libya
28.244.426.029.213.4
Syria
28.242.930.027.012.7
Iraq
27.243.725.228.611.3
Yemen
22.030.623.018.516.1
Regional Averages47.549.348.148.444.1
Emerging Markets Averages46.848.047.545.746.0
Global Markets Averages49.649.7
49.949.149.8

100 = Lowest risk, 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: October 8, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with the United Arab Emirates

Graph: Major export commodities to UAE (2017)
Graph: Major export commodities to UAE (2017)
Graph: Major import commodities from UAE (2017)
Graph: Major import commodities from UAE (2017)

Note: Graph shows the main Hong Kong exports to/import from the UAE (by consignment)
Date last reviewed: October 18, 2018

Graph: Merchandise exports to UAE
Date last reviewed: October 17, 2018
Graph: Merchandise exports to UAE
Date last reviewed: October 17, 2018
Graph: Merchandise imports from UAE
Date last reviewed: October 18, 2018
Graph: Merchandise imports from UAE
Date last reviewed: October 18, 2018

Note: Graph shows Hong Kong exports to/import from the UAE (by consignment)
Exchange rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department, Fitch Solutions


2017
Growth rate (%)
Number of UAE residents visiting Hong Kong16,838-16.02

Source: Hong Kong Tourism Board


2017
Growth rate (%)
Number of Middle East residents visiting Hong Kong129,816-0.2

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: October 15, 2018

11.2 Commercial Presence in Hong Kong


2016
Growth rate (%)
Number of United Arab Emirates companies in Hong Kong22
N/A
- Regional headquartersN/A
- Regional officesN/A
- Local offices22

Source: Hong Kong Census and Statistics Department

11.3 Treaties and Agreements between Hong Kong and the United Arab Emirates

Hong Kong and the UAE signed Comprehensive Double Taxation Agreements in December 2014 and the deal came into force in December 2015.

Source: Inland Revenue Department

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

The Arab Chamber of Commerce & Industry

The Arab Chamber of Commerce & Industry (ARABCCI) was established in Hong Kong 2006 as a leading organization at promoting commercial ties between Hong Kong/China and the Arab World. From a base of 8 founding member companies, ARABCCI has now evolved to include an ever-growing number of members. The Chamber is run by business experts for business professionals, dedicated to opening enormous trade opportunities by providing extensive information and professional services to our members.

Address: 20/F, Central Tower, 28 Queens Road, Central, Hong Kong
Email: info@arabcci.org, secretariat@arabcci.org
Tel: (852) 2159 9170

Source: The Arab Chamber of Commerce and Industry

Consulate General of the United Arab Emirates Hong Kong
Address: Unit 4903-06, 49/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong
Email: hongkongcon@mofaic.gov.ae
Tel: (852) 2866 1823
Fax: (852) 2866 1690

Source: Hong Kong Protocol Division of Government Secretariat

11.5 Visa Requirements for Hong Kong Residents

An entry visa is required for Hong Kong SAR passport holders and BNO passport holders.

Date last reviewed: October 15, 2018

Content provided by Picture: Fitch Solutions – BMI Research