What a difference a year makes in the UAE
by Sipho Ngwenya
2019 was a significant year for business in the UAE. A year of introducing new initiatives and creativity aimed at making the country an even more attractive destination to live, do business and invest in. In this month’s insight we will focus on the top five changes that were announced throughout the year which in our opinion will have the biggest impact on international businesses and investors alike.
2019 in a glimpse
1. Golden Visas
The introduction of the new long-term 5- and 10-year visa undoubtedly makes one of the most impactful initiatives that were rolled out last year.
The logic is simple. By extending the residency visa from 3 to 5 or 10 years and pushing back the renewal date, the UAE government is basically giving people and businesses more security and reasons to settle down and invest long-term in the country. The goal being to retain existing residents and investors, bring in new investors, encourage more business development and attract the best talent to study and work here. With this initiative, in our opinion, the government is doing all the right steps to appease its people’s demands for more stability and integration by addressing what often seemed like a lack of long-term commitment to the country. The visa swap process is fast and easy, and it has already received some good feedback.
At the same time, by putting strict eligibility criteria in place the government ensures that the granting of the visas is done in a controlled manner and the system does not get abused. In essence, eligible for 10-year visas are scientists, creatives, inventors and, in general, specialists in their fields, as well as executives and wealthy investors bringing investments of more than AED 10 million (around US$2.7 million). On the other hand, the 5-year visa is eligible to property investors investing more than AED 5 million (US$1.4 million), entrepreneurs and exceptional students with outstanding grades.
We, at Loggerhead Partners, have already assisted some of our clients in attaining these visas.
2. Re-introduction of the Investor Visa
By rule of law, the maximum amount of time a UAE resident is allowed to stay away from the country is 180 days. A relaxed ruled compared to other residency programs but still a headache for those whose business life makes it practically very difficult to meet the deadline.
By re-introducing the Investor Visa, the UAE government is basically granting investors an exception to the 180-day rule and heeding the sentiments of thousands of business owners and entrepreneurs who usually have interests in multiple locations and need to travel extensively. The qualified investors simply need to fly back to the UAE once every year.
3. Economic Substance Regulations come into force
As the issue of economic substance becomes an increasingly central topic of international discussion and as new substance laws are unfolding in key offshore jurisdictions across the world we, at Loggerhead, strongly welcome this changing environment and see it as an opportunity for major business hubs such as the UAE to implement a transparent framework around the notion of Substance.
Joining other credible international business jurisdictions, the UAE has indeed been working towards fully implementing the economic substance regulations into its national law, in essence, requiring all corporations operating in its grounds to demonstrate actual economic proof. This, in our opinion, further solidifies the position of the UAE as a real economy and a major trading country in the Middle East, Asia and beyond.
As 2019 has seen the UAE rising to the challenges facing the offshore business by adapting rather than killing the business, we have seen the same pro-business attitude in the offshore jurisdictions of the country. Namely, RAKICC introduced a new hybrid product that offers the best of the two worlds of Offshore and Free Zone. The so-called Premium Product allows offshore companies registered with RAKICC to carry out their activities onshore by establishing a subsidiary at RAKEZ, which is a Free Zone. With that, investors get to meet the substance and visa requirements satisfied by the Freezone company, be in a position to open local and international bank accounts in the country all the while ensuring an extra level of confidentiality and flexibility offered by the ‘parent’ Offshore company. When you combine this with traditional zero-tax benefits, one can see why it’s worth investing in the country.
4. Re-domiciliation of Offshore Companies to RAKICC
In an attempt to further encourage foreign investment, RAKICC has also started offering competitive rates for the migration of offshore companies into their jurisdiction. What re-domiciliation basically means for a company is that it can conveniently domicile from one jurisdiction to another by changing the country under whose laws it is registered while at the same time keeping its legal identity the same and its company history intact.
For RAKICC, the re-domiciliation offering is poised to attract companies who are in the lookout for new bases due to the recent changes in substance requirements in the traditional offshore territories. This option provides a very good solution for owners of offshore companies, for example in the BVIs, who decide not to pour in extra money just to meet the new substance requirements in the BVI but instead want to migrate to a real economy and a solid international trade jurisdiction like the UAE. Re-domiciliation will ensures a smooth continuation of their company and its business activities.
5. 100% Foreign Ownership of Mainland Companies
One of the other key announcements of the 2019 was the allowing of 100% ownership of mainland companies by foreign entities. Previously all mainland companies needed to have at least 51% local shareholding. Currently the initiative is only available to specific sectors and business activities, but more are anticipated to join suit as more details on how the system will work come in. This is a groundbreaking initiative in the region and is anticipated to result in more FDI into the country.
This in no way covers all the notable changes but does go to show that UAE is making massive strides in drawing more investors and creating a bigger economy less reliant on oil. Other changes in law worth noting are the new anti-corruption and anti-money laundering laws.
Big Plans for 2020
With all these great initiatives that were enforced in 2019, it is anticipated that 2020 will be just as active.
The biggest highlight of the year is undoubtedly Expo 2020 – themed “Connecting Minds, Creating the Future”. Having a start date in October 2020 and a time span of 6 months, the event is expected to attract over 25 million visitors and inject over US$35 billion into the UAE economy. This creates an amazing opportunity for companies to do business and benefit not just from the Expo itself but also the legacy that it is poised to create; increased real estate prices, new business sectors, an abundance of investment projects and new technologies. We think this is a great moment to invest in the country by setting up a company there and tap into the numerous business opportunities that this year will bring.
For those not familiar, 2021 will mark the 50-year anniversary of the UAE. Vision 2021 is an initiative set by the UAE government back in 2010 which aims to make the country among the best countries in the world by the Golden Jubilee anniversary. The focus is on sectors such as Healthcare, Education, Competitive Knowledge, Sustainable Environment and Infrastructure, to name a few. With just over a year left for it to be completed, we expect the government to be investing a lot of resources in 2020 to meet its targets on time. In turn, we expect this to translate into new business opportunities for those interested in investing in the country.
As a result of these two projects and many others to come within the year, the UAE has released its biggest fiscal budget ever for the year 2020. The budget allocated is north of AED66 billion (US$18 billion). What is more, for all its pocket expansion, the country will be running once again a zero-deficit in 2020 which inspires confidence in the strength of the economy.
As the year 2020 unfolds, we will be keeping you updated on all the developments happening in the country. Stay tuned for our next editions of the Monthly Insight.
If you are interested in knowing more about how to set foot in the UAE, reach out to us to arrange for a free consultation.