COUNTRY INTERNATIONALIZATION FOCUS: THE UAE

COUNTRY INTERNATIONALIZATION FOCUS: THE UAE

Last January I participated in the Institutional Mission to Dubai, promoted by ApriEuropa in collaboration with ConfProfessioni in order to increase Italian opportunities, professional and business, in the United Arab Emirates, UAE, of which Dubai is precisely part, https://confprofessioni.eu/primo-piano/missione-a-dubai-internazionalizzare-per-crescere/. It was undoubtedly a moment of professional and human enrichment: for this reason I thought it would be interesting to try to convey what I learned and explain in brief what aspects characterize the UAE area and make it so attractive to the world of entrepreneurship, as well as professional consulting.

REGULATORY FRAMEWORK IN THE EAU

Before hypothesizing any kind of economic activity to be established in the UAE, I think it is first relevant to know briefly what is the regulatory conformation: the regulatory framework is characterized by the co-existence of Islamic law, the Sharia, and civil law that is more conventional and more similar to the law we understand in the Western world. The UAE is a federal state consisting of 7 emirates, namely Abu Dhabi, Ajman, Dubai, Fujaira, Ras al-Khaima, Sharja, and Umm al-Qaywayni; therefore, there are two levels of legislative regulations: the first level, federal, governs regulations concerning defense, foreign affairs, education, and health, while the second level, local, is responsible for regulating aspects and disputes pertaining to people and economic activities.

BUSINESS ACTIVITIES IN THE EAU

Turning to the more practical and technical aspects of business, Federal Law 2/15 identifies the following types of companies, legal entities, that can be used in the UAE:

Public Joint Stock Company, legal entity assimilated to our listed S.p.A,
Private Joint Stock Company, legal entity assimilated to our unlisted S.p.A,
Joint liability Company, legal entity assimilated to one of our unlisted S.n.c,
Limited liability Company, legal entity assimilated to one of our S.r.l,
Branch, legal entity established in the form of a branch in a foreign location,
Joint Venture, legal entity formed through a strategic business agreement.

In order to carry out export activities, it is appropriate to broadly consider what provisions are in force in the UAE, distinguishing two alternative possibilities, based on the current "Commercial Companies Law":

the exclusive sale of goods and services, without the need to set up local offices. Foreign companies wishing to engage in direct business activities with the UAE by supplying goods and services from abroad must necessarily appoint a commercial agent already in the market: the agent must be a UAE national or a company that has at least 51 percent share capital owned by an Emirati; the agency agreement can be registered with the Ministry of Economy and thus fall under the Agency Lawwhich imposes constraints and penalties on the foreign company in case of disputes and termination, effectively protecting the local agent; alternatively, it is possible to enter into an unregistered and non-exclusive agreement that falls under the generic Civil Transactions Law where constraints are less stringent;
the establishment of local permanent establishments. The following options are considered:
- set up companies in the mainland, for which an Emirati partner with at least 51 percent of the share capital is mandatory: as a result, the importance of already having an established business or personal relationship over time with Emiratis seems clear; as of July 2019, and later supplemented in April 2020, the possibility of foreign ownership of up to 100 percent has been provided for as many as 122 sectors, including manufacturing and agribusiness, as long as innovative technologies with high added value are used. This legislation is aimed at attracting medium/large companies to the country, given the high minimum amount of share capital required, €500,000, which, however, varies depending on the operating sector. Certainly, the following are essential requirements when setting up an Emirati legal entity: authorization in the adoption of the name, subject to local approval; possession of a Memorandum of Association, Memorandum of Incorporation, drafted in Arabic and notarized by a notary public; and registration in the local business registry, after notifying the municipality of the incorporation;
- setting up a company in Free Trade Zone, which allows up to 100 percent foreign ownership and duty exemption for re-export activities, possibility of repatriation of capital and profits made, and total absence of taxation and constraints in hiring employees. FTZs were established to attract foreign investment, know-how, stimulate the economy, and create a non-oil development pipeline in the federation; they basically lend themselves to those businesses not oriented to long-term permanence planning, as there are limits to maneuvering with respect to the domestic market;
- establish a foreign parent company subsidiary, so-called Branch, up to 100 percent owned by the parent company. Therefore, since it is not an autonomous entity, it must proceed with the use of an Emirati service agent to carry out administrative paperwork vis-à-vis the government;
- establish a Representative Office. Basically, it is an alternative entity to the Branch and is only authorized to perform acts ancillary to commercial ones.

TAXATION IN THE EAU
Lastly, with regard to taxation, the current legislation is federally coordinated, but there are independent laws that vary from emirate to emirate. In general, the UAE has a convention against double taxation and anti-avoidance regulations with Italy: however, from our point of view, the UAE is on the so-called black list because of the very low taxation present. Providing broadly illustrative data on the very low taxation applied and the inevitable affordability:

the general duty is 5% of the value of the imported goods and is applied to most types of goods, with exceptions, e.g. alcohol and derivatives have a very high duty of 50% + 30% Municipality Tax;
goods imported into FTZs are not subject to customs duties, provided the goods do not then enter the territory of the Emirate, as they are considered extra-territorial for the purposes of the customs law;
as of January 1, 2018, value-added tax, VAT, was introduced at a rate of 5 percent on the value of goods and services sold in the country, although there are still exceptions for which it is not present;
in any emirate, the income of individuals is not subject to any taxation, not even withholding tax. The only individual tax levied is on the income from real property, called the property tax: employers of tenant employees or commercial tenants must pay a tax that varies from 2 to 15 percent of the rental income, depending on the activity performed and the emirate to which they belong; no tax is payable by the property owner. For example, in the case of Dubai those operating in the commercial sectors and conducting a rental property must pay 5% of the annual rent to the Dubai municipality while if they are operating in the banking sector 15%;
there is no registration tax, but there is a 4% sales tax on real estate transfers, payable 50/50 between the two contracting parties;
as far as direct corporate taxation is concerned, the real news is the news of the introduction of a 9% corporate tax on corporate profits that is expected to come into effect from 1/06/23, except for companies that will have profits of less than AED 375,000, about € 90,000, to equally support start-ups and micro/small businesses.

CONCLUDING REMARKS
In the ranking of "Doing Business," compiled by the World Bank, the UAE ranks 21st, and in terms of the specific "Starting a Business" ranking, it ranks 51st, with 6 procedures and about 8 days to establish a company. The above also shines through in a short stay of just a few days in Dubai: it is a city that immediately gives the impression of being alive, dynamic and smart, which can offer business opportunities constantly, but at the same time presents a challenging market in terms of quality and competition, which is not always easy to penetrate; in general, the value of Made in Italy exports as of 2021 in the UAE is 4.8 billion, which is a testament to the positive trade relationship existing between the two countries.

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