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New Mindset Of Foreign Investments To UAE – Case Studies
Pushpakaran Parambath, Senior Partner - Kreston Menon Corporate Services
UAE economy is known to be young, rapid in growth and dynamic, and due to the strategic location between the east and the west, it gained the trust for domestic and international investment. Here came the main role of the authorities who inspire and induce foreign investors to this land of opportunities. The country was always exemplary in introducing investment friendly policies which ensure methodical and consistent growth in economic and industrial realms. UAE’s long-term plan is to diversify the economy with reduced reliance from the oil sector. In order to increase productivity and competitiveness, it is necessary to maintain and continuously improve the business climate and reduce remaining barriers to foreign trade and investment, primarily, bureaucracy, time and costs. Ongoing reforms would be better to run in the areas of human capital development, legal frameworks and clear rules for new entrepreneurs, start-up and SMEs.
Due to the country’s strategic vision of economic, social and environmental potentials, the UAE continues to achieve remarkable developments in many fields including trade, investment, telecommunications, information technology, tourism and infrastructure, as well as human and social development.
Latest reforms in the Foreign Direct Investments (FDI) rules gives more flexibility in business ownership, related regulations and at the same time these changes aim to promote and develop the country’s investment environment. It is estimated that the revision in the Law will augment FDI inflows to the country up to 20% inspite of the impact of the aftermath of the pandemic. Enactment of the FDI Law and subsequent amendment to the Commercial Companies Law has boosted FDI flows into the UAE.
The crises through which the world has been undergoing has resulted in uncertainties on economic growth everywhere. However, during such times, UAE has been focusing on finishing its infrastructure and strategic projects which were kept on hold for a long time. Higher investment and public spending are likely to drive growth to a remarkable elevation in the coming years. It is worth to notice infrastructure investment related to the country’s preparation to host the Expo 2020 Dubai will continue to support the outlook, buttressing the construction sector. This is set to contribute momentum to enhance investment in the country.
Kreston Menon was instrumental in assisting some of the top niche Companies to get 100% foreign ownership license in the UAE as per the provisions of new FDI Law and the Cabinet Resolutions released thereafter.
Case Study- 1: Manufacturer of Wellness Products
The client is a multinational company spread across US, Europe, Asia and Oceania; having operation for almost 90 years. The conglomerate engages in manufacture of healthcare products and other ingredients. The Company has been in operation in the country, however, in a limited way by organizing the availability of the products through contract manufacturing by domestic players which contributed its own pathos and limitations.
Our application process started with a formal meeting with the FDI and DED officials who assessed the merits of the proposal. The FDI department thoroughly evaluated the project feasibility and pinpointed the areas which the plan must address as per the FDI department’s expectations and requirements. Initially the application was for a trading license, however, the client changed the overall objective to take the full-fledged advantage being a 100% foreign owned company. Accordingly, discussions were held with Dubai Industrial City and Dubai Investment Park authorities for setting up a plant for manufacturing cosmetic, wellness products and alternative medicines. The project has been capitalized at AED 50 million which helped to process the application in a much faster way though the minimum capital requirements was AED 20 million. The capital outlay was structured in the form of technology transfer, installation of advanced machinery, introduction of robotic technology and artificial intelligence. The Company formulated the entire proposition for availing a national industrial license which offers duty free export to GCC countries and to the Greater Arab Free Trade Area. The Cabinet Resolution No. 16 of March 2020 (CR) granted the status of a ‘national company’ to a 100% foreign owned company, provided there is 40% local value addition in the manufacturing process, use of sophisticated machinery and modern technology despite absence of 51% UAE National ownership.
Case Study-2: Distributor of Single Brand Product
The corporation is a lifestyle company which is listed in the stock exchange in India and mainly manufactures fashion accessories such as watches, jewelry and eyewear. The entity is part of a multinational group, that started operation in 19th century having business interest from pin to plane. Being a publicly listed company, the major restriction of the Company to directly invest in the UAE market was the mandatory 51% UAE National ownership since this is not acceptable to the regulatory authority back home. The application was treated as a special case even though the CR does not expressly permit the trading segment for 100% foreign ownership. The capital commitment and investment made by the company over a period of five years is AED 250 million. The investment is in the form of setting up of various showrooms, distribution kiosks, service centers etc., pan-UAE. The limited liability company was registered with standard minimum capital; however, the client was asked to submit an assurance certificate to the FDI department as proof of investment made so far while renewing the commercial license. Deployment of qualified staffs and commitment to employ UAE Nationals in the managerial role was also a commitment given by the client to obtain the FDI license.
Case Study-3: Healthcare Service Provider
The applicant is a publicly traded healthcare provider founded almost 35 years back and operates hospitals, diagnostic centers, medical centers and pharmacies in India and Middle East. As per the CR, this activity is subject to approval of competent entities depending on the economic need considering the number of hospitals and health centers in a specific area. However, being an existing group having presence in every nook and corner of the UAE, the merit of the application was undisputable. The business plan provided the long-term objectives of the founders and the value addition they could create in the UAE economy. The most favorable impact that the FDI regulations brought to the client’s business strategy was the comfort they could offer to institutional investors who always preferred lien-free ownership in the group. 51% ownership in the name of a UAE National was always a hindrance in many entities of the founders to attract international investors.
Upon evaluating the entire process of registering the above entities, it is evident that each application for FDI license was treated purely on merit basis and ensuring how the UAE economy would benefit with such an action. The timeframe to complete the above applications took us around 45 to 60 days. The application process was expedited in many cases and turned out to be positive outcome given our experience in this market and well-established business relationships with the authorities.
Presence of the finest entities referred in the above case studies shows that the country has now gained international confidence and the latest amendments to the Commercial Companies Law steadfast the commitments by the regulatory authorities such as Abu Dhabi Investment Office, Dubai Investment Development Office, Sharjah Investment and Development Authority etc. Foreign Direct Investments help the UAE’s economy to boost rapidly, creating new jobs, productivity and consumption. Foreign Direct Investments will continue to grow in UAE, considering there is no direct taxation on corporations or individuals. At the same time, good-quality business climate and longterm political stability promote confidence to all possible foreign investors.
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Message from Kreston’s Global Chief Executive
Liza Robbins, Chief Executive - Kreston Global
2021 marks the 50th year of Kreston. Today, Kreston has grown to one of the largest accounting networks with close to 200 firms in over 110 countries that is home to more than 23,000 dedicated professionals. Kreston gives you access to top-quality advice and exceptional service wherever in the world you happen to do business.
As new markets develop and technology evolves, your business operates on an increasingly global scale. And when you are branching out into the unknown, you cannot beat a bit of local knowledge. Kreston Menon with 27 years of experience in the UAE, is the right partner for your business in the region.
You can trust Kreston Menon for the right advice because they are a team of talented, innovative professionals who offer the best assurance and advisory services not only in the UAE, but across the globe leveraging Kreston’s global resource pool.
Our monitoring and inspection system ensures that our member firms hold themselves to the highest international standards of quality, ethics and working practices.
I am glad to see that Kreston Menon’s values are reflected in their deliberate inclusion efforts amongst their diverse workforce, which in turn enhances Kreston’s global image as a champion in Diversity & Inclusion (D&I).
Our member firms work side by side with clients to understand their ambitions and tackle their challenges. As a network, we have got the connections to bring the right knowledge to the table, whatever the challenge.
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Unified ICV Program Changing the Socio-Economic Landscape in UAE
Kreston Menon
For past many years, the GCC countries have been initiating localization drives, particularly in the oil and gas industry. The major localization initiatives in the region started with Oman Oils In-Country Value (ICV) program followed by Saudi ARAMCO’s IKtVa and Abu Dhabi National Oil Company (ADNOC) ICV program.
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Gearing up for the Next Normal
Raju Menon, Chairman and Managing Partner - Kreston Menon
Every business was looking optimistic for a great 2020 at the beginning of the year, but now are facing a completely different scenario. The COVID-19 pandemic has severely affected businesses across every industry and geographical region. The norms of businesses have changed, be it remote working, changed customer preferences and priorities or radically transformed operational networks.
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ABRAHAM ACCORD: The Game Changer in Middle East
Pushpakaran Parambath, Senior Partner - Kreston Menon Corporate Services
The world woke up to the unexpected and astounding news of the peace treaty between the UAE and Israel, making UAE just the third Arab state, after Egypt and Jordan to establish formal ties with Israel. UAE scrapped an economic boycott against Israel which was in place for decades, allowing trade and financial agreements between the countries.
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Day 1 to Day 1000 VAT Journey in UAE
Surandar Jesrani, CEO & Managing Partner - MMJS Consulting
United Arab Emirates’ (UAE) most significant tax reform, Value Added Tax (VAT) which was introduced in January 2018, is set to complete 1000 days and it is worthwhile to look back on its incredible journey.
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