INVESTMENT GUIDE 2022

UNITED ARAB EMIRATES 2023

Framework for investments

Acting jointly

1
Acting jointly

“The Arab region offers abundant oppor-

tunities for German investors: a liberal
trade policy, big international events and
a skilled local workforce are only three of
all the good reasons to invest there. Having
our colleagues on board and collaborating
with local partners who have strong ties to
our firm, we advise investors and clients on
all economic, legal and tax issues in this
exciting region.”
Rödl & Partner
INVESTMENT GUIDE 2022
UNITED ARAB EMIRATES 2023
Framework for investments

Acting jointly
Inhalt
About us 6
Rödl & Partner in the United
Arab Emirates  8
Our services 10
The United Arab Emirates in Figures11
Growing Market 12
Direct Foreign Investments 13
Investment climate 13
Business Development / Free Trade Agreements 14
Legal Forms of Doing Business 15
Joint stock companies 19
A representative office and branch office 20
Trade agent 23

Free Trade Zones 24

General 24
Advantages offered by free zones to foreign businesses 24
Legal forms in a Free Trade Zone 25

Labor and Social security Law 29

Labor law 29
Social security law 34
Contract Law and Settlement
of Dispute 36
General 36
Warranty rights 36
Public procurements 37
International jurisdiction and applicable law 38
Bringing court actions 39

Tax framework 41
National tax law 41
International tax law 44
Tax burden comparison 45

Customs and Importation Regulations 48

Your Contacts 50

Abu Dhabi
About us

Rödl & Partner – The agile caring partner for Mittelstand shaped
world market leaders

www.roedl.com/about-us

6
7
Rödl & Partner in the United
Arab Emirates
The economic importance of the Middle Eastern states has grown
enormously during the last decade, notwithstanding minor trouble
spots of political instability. Products and services “Made in
Germany” are in high acclaim in the Arab countries, currently making
this region one of the most attractive sales markets for German
exports; in 2010 Germany even became the biggest European
exporter to the Middle East & North Africa (MENA) region.

In particular, the United Arab Emirates (UAE) have developed to a

dynamic economic hub of the Middle East during the recent years,
notwithstanding the international financial crisis, and even outdid
the Kingdom of Saudi Arabia by becoming the most important
foreign trade partner of the German export economy in the Arab
world. Thanks to their political stability, diversified economy and
outstanding infrastructure, the United Arab Emirates are an ideal
location for foreign investments – even during the time of economic
and political disturbances in the Middle East.

A liberal economic policy based in particular on facilitation and

promotion of direct foreign investments must ensure sustained
economic stability of the Emirates – even in a situation of decreasing
oil exports. In the federation of the Arab Emirates, Dubai developed
promptly to a regional foreign trade hub and important financial
center of the Arab world. Dubai is attractive for foreign investors in
no small measure due to its multiple free trade zones, which have
been implemented as a concept unprecedented for this region. The
emirate of Abu Dhabi, the largest of all emirates by territory, is also
a seat of the UAE government.

Therefore it is an optimum location for all public law investment

projects. In particular, the invariably liberal economic policies of this
emirate offer foreign businesses investment incentives for further
development of real estate and tourism sectors.

Rödl & Partner has been successfully present in the Middle East and
doing business through its local offices in the region since 2004.
Due to its internationally proven uniform consultancy approach,

8
Rödl & Partner was also able to expand in the Middle East, having
won over a strong market foothold during the recent years.

Our clients in the Arab world benefit from legal consulting and tax
management, auditing, accounting and business process outsourcing
(BPO) services of our local and international experts, which are
provided as comprehensive service packages in accordance with
“one face to the client” approach – whether to prepare a market
entry in the region or to expand the current market presence and
business operations.

We know first-hand the requirements of this market to foreign

investors. Therefore our in-depth knowledge of local specifics and
business practices can be a major contribution to the sustainable
success of our clients also in the long-term.

From our office in Dubai (UAE), we direct and coordinate business

operations of our clients in this region. In Egypt, Bahrain, Qatar,
Kuwait and Saudi Arabia, we are working in close cooperation with
our partner Rödl Middle East. In the other countries of this region,
we rely on a network of experienced, highly skilled local partners
with whom we have developed a longstanding cooperation history.

9
Our services
In line with the range of our services offered in Germany and
worldwide, our Dubai office offers the services of our German-
speaking professionals in the following areas:

AUDITING AND ACCOUNTING

– Annual audits and compilation of annual financial statements in

accordance with national and international standards;
– Interim audits and compilations of interim financial statements.

LEGAL ADVISORY

– On-going legal support;

– Establishment of new companies;
– Commercial agency law;
– Drafting of contracts;
– Infrastructural projects, public procurements;
– Energy law;
– Industrial property rights;
– Real estate law;
– Legal advisory support in all matters of labor law and law on aliens
that concern senior management and core experts;
– Representation in national and international courts of arbitration.

TAX MANAGEMENT

– National and international planning of tax structures;

– Advisory support in cross-border and transfer pricing matters;
– Advisory support in expatriate matters;
– Compilation of tax returns.

BUSINESS PROCESS OUTSOURCING

– Bookkeeping and financial accounting;

– Payroll accounting;
– Reporting, controlling, accounting systems;
– Compilation of annual financial statements;
– Cash management
– Compilation of tax returns.

10
The United Arab Emirates in
Figures

– Founded 1971 (1972)

– Federation of seven autonomous emirates (Abu

Dhabi, Ajman, Dubai, Fujairah, Ras Al-Khaimah,
Sharjah, Um Al Quwain)

– Capital: Abu Dhabi

– Population: 10 million (according to official sources)

– Over 800 German companies have operations in

the UAE

– Portion of foreigners: almost 90 %

– Oil reserves: seventh-largest in the world

– GDP: approximately USD 421.1 billion (2019),

almost USD 39,180 per capita

– Inflation rate: 1.93% (2019)

11
Growing Market
During the recent years, the United Arab Emirates (UAE) have
grown to a dynamically developing economic hub of the Middle
East, notwithstanding the international financial crisis, and
even outdid the Kingdom of Saudi Arabia by becoming the most
important foreign trade partner of the German export economy in
the Arab world.

In the meantime, the UAE have become Germany’s most important

trade partner among the Gulf States. In 2019 ,the value of deliveries
of goods to the countries of the Gulf Cooperation Council (GCC)
equaled 18.7 billion euros.

Currently, approximately 800 German companies have operations

in the UAE, and the majority thereof are located in the emirates of
Dubai and Abu Dhabi.

The emirate Abu Dhabi, besides having the largest territory among
the seven united emirates, is also the seat of the UAE government.
Therefore, it is an optimum location for all public law investment
projects. In the federation of the Arab Emirates, the emirate of
Dubai has promptly grown to become a regional foreign trade
hub and an important financial center of the Arab world. Dubai
is attractive for foreign investors in no small measure due to its
multiple free trade zones, which have been implemented as a
concept unprecedented for this region.

Of particular importance are the diverse commercial agreements

in effect between the UAE and Germany, which include an air
transport agreement and an investment protection agreement.

12
Direct Foreign Investments
INVESTMENT CLIMATE

For foreign companies with operations in the Gulf Region, the

emirate Dubai is often a location of choice for the development of
a regional (distribution) center.

As a consequence, this overview focuses more on the economic

and investment climate and legal framework in Dubai, in so far
as any differences worth mentioning are in existence between
individual emirates in this respect.

Dubai has already become the commercial and trade center of

this region and it continues to grow and develop dynamically.
Dubai maintains, expands and fosters its traditionally good trade
relations with the member states of the Gulf Cooperation Council
(GCC) (Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the UAE),
Iraq and even more outlying countries, such as Pakistan and India.
Trade with East African states is steadily gaining in importance for
the Western World. Dubai is a springboard making it possible to
access this market of considerably more than 1.2 billion.

Dubai has become an accepted regional economic, investment and

infrastructural center for the whole Middle East. In consideration
of its commercial traditions based on economic freedom, Dubai
is also called “city of merchants”. It is a hub for trade relations
between the Eastern and the Western worlds.

A stable national budget of the UAE secured by oil revenues – in

particular those coming from the emirate Abu Dhabi – and thus
not overly dependent on tax revenues – is the basis for substantial
growth rates in all emirates.

An ideal working environment, pleasantly liberal living conditions –

also for non – Muslims, high living standards, a modern healthcare
system and a well-developed education system are the arguments
sufficiently convincing for locals as well as foreigners to settle
down in Dubai.

13
 Political stability maintained since the establishment of the
UAE in 1971, invariable priority to political-economic interests
and comparatively low crime rates make Dubai a popular tourist
destination.

A well-developed infrastructure for trade with the total region

includes a major network of international flights, one of the world’s
largest container transshipment points, an extensive distribution
hub and multiple first-rate hotels and shopping malls.

Dubai has become the Gulf region’s leading trade fair center;
furthermore it is the region’s location of choice for representative
offices of foreign companies, which are often in charge of business
development in the whole Middle East and even in more remote
areas. However, the emirate of Abu Dhabi is the best location for
state procurement projects.

Dubai represents new commercial ideas and economic

possibilities. Dubai’s leaders have developed adequate capacities
and skills to build a solid platform for future global scale projects
with professional competence and unerring instinct for success.
Saudi Arabia, Kuwait, Qatar, Iraq, Iran and the UAE themselves
are the world’s six largest natural oil and gas suppliers located in
direct proximity to Dubai. The economies of all these countries
are flourishing. However, foreign businesses may face problems
with gaining access to these markets for diverse reasons. The task
becomes much easier if you have a foothold in Dubai.

BUSINESS DEVELOPMENT / FREE TRADE AGREEMENTS

The importance of the GCC states for German economy has

grown significantly during the recent years. In addition, the GCC
states are notable for their high affinity to Europe. In particular,
goods marked “made in Germany” are invariably popular and in
high demand there. A number of incentivizing and promotional
measures have been taken to improve the framework conditions
for German and European business in the GCC states.

14
The German-Emirati Joint Council for Industry & Commerce (AHK),
the only bilateral chamber of commerce in the Arabian Peninsula,
was established in 2009 with offices in Abu Dhabi and Dubai.
Furthermore, AHK business delegation offices attend to locations
in Qatar, Oman, Kuwait, Saudi-Arabia, Bahrain and Yemen. Through
its activities, AHK offers an important networking platform and
provides market entry support in the UAE as well as in the other
GCC states.

The European Union is also a very important trade partner for the
Gulf Cooperation Council. As early as 1988 the two organizations
concluded a cooperation agreement, which has been in effect since
1990. This agreement is the basis for extensive and comprehensive
development of economic relations. Workgroups have been set up
for economic cooperation, energy and environment. Ministers of
foreign affairs from the EU and the GCC are meeting annually in
turns in the EU and in the current state of the GCC Presidency-in
Office (the most recent meeting took place in Manama, Bahrain, in
June 2013).

The most important step towards more intensive bilateral contacts

is the free trade agreement between the EU and the GCC. Although
started in 1990, the negotiations were suspended between 1991
and 2001. Most of the controversial issues have been cleared
meanwhile, even though there have been no further progress since
2009.

Next to the development of economic relations, the EU is also

making efforts to expand the cooperation to other areas (such as
energy security, environment protection, culture and education,
human rights, combating terrorism).

LEGAL FORMS OF DOING BUSINESS

Legal framework

From the foreigner’s perspective, business carried on in the UAE

is shaped to a major extent by the UAE Commercial Companies
Law (CCL). This law offers a range of legal forms available for

15
 a commercial company to be constituted under the UAE law.
These forms dictate (to varying extent) the corporate structure,
the rights and obligations of shareholders towards one another,
and the liability of the company itself and of its shareholders.
This law grants certain company organization forms a de facto
juristic personality (i.e. the status of a legal entity) without giving a
definition of this legal term (Article 12 of the CCL).

The Commercial Companies Law gives an impression that the

concern of the UAE government is giving UAE citizens a dominant
role in all legal forms available to constitute a company under the
UAE law has been neglected. Previously, it was a requirement for
any company constituted in the UAE to have one or more national
partner(s) whose share in the company’s capital is not less than
51 percent (Article 22 of the CCL). However, there is no longer a
need for such ownership. Only in the case of companies with a
strategic impact, such as banks or businesses in the health care
sector, there are special restrictions on full ownership by non-UAE
nationals.

Therefore, a foreign investor can either become a partner in a limited

liability company constituted under the UAE law or establish an
own branch office, which will not enjoy a juridical personality.
However, some other company organisation forms offered by the
CCL law, such as a private joint stock company under the UAE law,
may also be of interest for foreign investors.

Limited liability companies

Foreign products or services can be distributed in the UAE through

a limited liability company (LLC) constituted under the UAE law.
This LLC must no longer provide a 51 percent compulsory portion
of the local capital but can be in a 100 percent ownership of a
foreign entity. The internal relations between the shareholders are
regulated relatively liberally and are only subject to the mandatory
rule of the UAE law in respect to certain aspects.

16
– General
The legal framework for business carried on by the LLC is
the UAE Commercial Companies Law (CCL). Limited liability
companies play an important role in the economic life of the
United Arab Emirates. A LLC becomes a juristic personality
upon constitution, and the liability of the partners in it is limited
to their shares in the company capital. The LLC is characterized
with considerable flexibility in all matters regarding allocation
of its profits and losses and authority to govern the company.
Where a share of foreign capital is involved, the LLC is the most
popular legal form for a company constituted under the UAE
law – to the extent and unless the conditions prerequisite are
satisfied for a branch office or representative office of a foreign
company.

Despite the numerous compensation options, the LLC was

initially viewed with considerable skepticism by foreign
companies due to the mandatory 51 percent majority
shareholding of a local partner, which was prescribed by law.
In the meantime, this supposed disadvantage has disappeared
due to the new regulation of the CCL, so that as of now a full
foreign ownership is possible.

– Business object
The company’s business object must be stated clearly and
comprehensively in its Memorandum of Association because
the company will only be able to operate within these limiting
borders subsequently. The business object statement must
be worded very carefully, with account of the traditional
local expressions and accepted phrases used by the relevant
authorities. The business object also determines the scope
of the company’s business license and import license, among
other things.

The business of trade agents or authorized dealers may only be

carried on by UAE citizens, i.e. by individuals with the respective
citizenship as well as public joint-stock companies, and public
legal entities with at least 51 % national capital contribution.
Consequently, the CCL law only gives the LLC (in Article 3) the

17
 status of a juristic personality with the UAE nationality without
giving it a full-scale UAE citizenship, and so the business
objective of a trading business is basically limited by the UAE
law on trade agents. Nevertheless, a LLC with foreign capital
can also carry on a trading business in practical terms –
in accordance with prevailing views and current accepted
practices of the emirates Dubai and Abu Dhabi. But it should be
remembered at all times that trade in own products is treated
differently from conclusion of trade agency agreements (that
are subject to compulsory registration) on exclusive distribution
of another’s products.

– Company capital
The minimum share capital to be paid in by the partners at
establishment of the company varies from emirate to emirate;
for example, in Abu Dhabi that is AED 150,000 – whereas the
emirate Dubai does not currently have any mandatory minimum
threshold for share capital to be paid in at establishment of a
LLC. The capital should be paid in to a deposit account with
a bank in the UAE because these funds will only become
available to the LLC management after the constituting process
is completed. The bank issues the partners a respective
confirmation in writing, which must also be included in the
documentation package to be submitted to authorities for state
registration of the newly constituted company.

Similar to a German limited liability company – GmbH, the

executive governance body in a UAE limited liability company
is also the board of directors. The law regulates the structure of
the executive governance body very flexibly. The board can

consist of at least one director who is either appointed from

among the shareholders or hired externally. In case of more
than one director, the Memorandum and Articles of Association
can include provisions that regulate the relations among the
board members. The authority of the board of directors can be
regulated in the Memorandum and Articles of Association, or in
a private contract in writing, or in the resolution issued by the
shareholders. In case of a LLC with foreign capital, the foreign

18
 partner, whether an individual or a legal entity, can be appointed
to the board of directors under the Memorandum and Articles of
Association or under a separate (management) contract.

Partners also do have the option to make pledges. This must

be conducted in accordance with the company’s memorandum
under an official notarized document and requires an entry into a
central commercial register (Art. 79). This enhanced opportunity
for financiers to take security over shares will probably facilitate
the credit flow to UAE business.

JOINT STOCK COMPANIES

A private joint stock company under the UAE law (JSC) is

comparable to a German private joint stock company (private AG),
whose shares are not listed at a stock exchange. The UAE JSC must
have a share capital not less than AED 5 million and at least three
shareholders. Next to private joint stock companies, the law also
speaks of public joint stock companies whose shares are traded
at a stock exchange. A public JSC under the UAE law must have
at least 10 shareholders and a share capital not less than AED 30
million.

The UAE Commercial Companies Law (CCL) is also the legal

framework for operation of private and public JSCs. The CCL sets
very detailed rules and requirements for public JSCs. Most of
these rules, including those with respect to company organization,
governance, accounting and reporting, also apply to private JSCs.

The business object of a private JSC is not limited by any legal

provisions. However, the company must be able to prove that its
business is properly organized and adequately carried on and
accounted for and that it is in compliance with accepted business
standards and practices. The founding shareholders must state the
objective for which the company is constituted in the Memorandum
of Association and be able to demonstrate a feasibility study paper,
which substantiates the feasibility of founding the company.

19
 The share capital with a minimum of AED 5 million, which can fully
be owned by foreign investors, must be subdivided into shares of
the same value, which may not be less than AED 1 and more than
AED 100. The JSC is not allowed to issue any personal shares,
founder shares or preferential shares. The liability of shareholders
in a private JSC is also limited to their subscribed shares in the
share capital.

A private JSC is managed by the board of directors (BoD) of not

less than 3 and not more than 11 members. Directors are elected
to the board to serve for three years and may be re-elected after
the expiry of their term in office. The Board members elect from
among themselves a chairman, who also fills the office of the
company CEO. The ordinary general meeting of shareholders
elects members to the board of directors by secret ballot. As an
exception, the JSC Articles of Incorporation can state that after
the JSC is constituted the founding shareholders may appoint the
first board of directors from among themselves for maximum three
years after the JSC is constituted. The BoD rules of procedure must
be regulated basically in the Articles of Incorporation of the JSC.

The JSC legal form should be considered for a bank, an insurance

company and an investment fund because the law does not allow
them to be constituted in the LLC form.

A REPRESENTATIVE OFFICE AND BRANCH OFFICE

Definition and distinction

Foreign companies can establish a representative office or a

branch office, if their intended business is generally permitted in
the UAE; these legal forms are denied an own legal identity and
are treated as a part (remote office) of the foreign company – and
thus they are 100 percent owned and can be fully controlled by
the head office (parent company) that has established them. The
company agent (“National Agent”) prescribed by the law is only
needed to ensure formal compliance with legal requirements, if
the agency contract is worded carefully.

20
The legal framework for the establishment of remote offices of
foreign companies in the UAE is the Commercial Companies Law
(CCL), which draws a differentiating line between representative
offices and branch offices. The main difference between these
two types of remote offices of a foreign company is the range
of activities they are allowed to carry on. The both offices may
not be established until a permit to this effect is obtained from
the Ministry of Economy after prior approval by the competent
authority in the concerned emirate. The both may not commence
their activities except after registration in the register maintained
by the Ministry of Economy. The representative office may
only represent, coordinate, supervise, act as an intermediary,
advertise, etc., but it may not get directly involved in any business
transactions, whereas the branch office can directly participate in
the parent company’s business activities.

Since the representative office and the branch office are not
treated as an independent juristic personality, they use the name
of the foreign company that has established them – mainly adding
to it the words “Middle East Regional Office” or “Dubai Branch”,
which is a direct indication that they are only a remote office of the
concerned foreign company.

Operating a representative office

The permit issued to a representative office does not allow it any

direct, active involvement in business transactions carried on
locally. Therefore representative offices are mainly established to
carry on preparatory actions and to provide assistance and support
to business operations of their foreign head office, for example,
by performing market research, holding marketing events for the
parent company or operating a local service center that provides
warranty services to customers. In particular, representative
offices of foreign companies are permitted to carry on the following
activities in the UAE:

– Representation of the head office at the local market;

– Delivery of training and support to trade agents, supervision
over their activities;

21
 – Holding marketing events and market research;
– Provision of advisory support and warranty repairs to
customers;
– Actions preparatory to bidding in tenders;
– Support to and supervision over activities of the head office’s
joint ventures.

In all its activities, the representative office should remember at all

times that it is not permitted to carry on any economic activities
of its own and in particular that it is not allowed to conclude
any contracts, or to run any trading operations, or to offer any
chargeable services, and consequently to generate own revenues.

Operating a branch office

The permitted activities of a branch office extend outside the

scope of those permitted to a representative office. In particular,
a branch office may carry on business transactions. Therefore, the
branch office needs own capital and is subject to severer regulation
in terms of accounting and auditing. The Ministerial Committee
checks one by one all activities for which a permit is requested
by the foreign head office and either permits or does not permit
them. There are no clearly phrased legal rules or even general
rules defining which activities may and which activities may not
be permitted to a branch office. However, it can be concluded as
a general rule that the branch office’s intended activities must be
useful for the whole territory of the UAE and may not infringe the
existing legal rules. In exclusive situations, it may be possible to
challenge the refusal of permission by the ministry of economy
in court. A National Agent, who previously must have been a UAE
citizen, is no longer required for a branch office - regardless of the
free trade zones.

TRADE AGENT

Distribution of goods or services in the UAE. Basically, all third

party agency forms known in Europe, such as a trade agency,
authorized dealership or commission agency, are also represented
in the UAE. However, their rights and obligations are fully regulated

22
by the UAE law on commercial agents because the concerned
distribution partners are citizens of the UAE. All references to an
agent below will be references to a trade agent.

A foreign company must appoint a trade agent for distribution

of its products or services; the agent distributes these products
within the territory specified in the contract. Until 2020, business
operations of foreign companies in the UAE and in the other
Gulf States required compulsory involvement of a local partner.
Therefore, the activities of a trade agent had to be carried on only
by individuals who are UAE citizens or by companies fully owned
by UAE citizens. Since 2020, public joint-stock companies, and
public legal entities with at least 51% national capital contribution
have the right to register commercial agencies. Federal Law No.
3/2022 even grants the Cabinet authority to allow international
companies, including those not owned by UAE nationals, to
engage in commercial agency activities related to their products
without the need for a commercial agent in the UAE if they meet
special requirements and if it is recommended by the responsible
Minister.

Trade agency agreements are subject to compulsory registration

with the relevant ministry of economy. The reason is that only after
registration of the contract the trade agent can enjoy distinctive
legal protection, which can considerably complicate termination
of the concluded agency agreement for the foreign company. An
attempt to terminate the contract can lead to time-consuming
negotiations and the necessity to pay a significant reimbursement.

23
Free Trade Zones
GENERAL

There are many free zones in the UAE. The majority thereof are
located in the emirate of Dubai. A large number of free zones have
been set up in the UAE since the emergence of the oldest free
trade zone Jebel Ali, which was established in Dubai as a seaport
free zone in 1985, after the construction of Jebel Ali, the world’s
largest man-made harbor of that time, had been completed. Each
free zone is managed and operated autonomously by its own
authority. For instance, the Jebel Ali Free Zone Authority (JAFZA)
manages, operates and supervises the functioning of the Jebel Ali
free trade zone.

Next to their management and supervision functions, free zone

authorities also have legislative duties. That is why the rules and
regulations applicable to foreign-owned businesses operating in
free zones can actually vary within a broad range. Therefore, all
applications relevant for business operations in a free zone should
be submitted directly and solely to the authority responsible for the
management and operation of that zone. Neither the administration
of the concerned emirate nor the federal government of the UAE is
directly responsible for such matters.

ADVANTAGES OFFERED BY FREE ZONES TO FOREIGN

BUSINESSES

A company established in a free zone offers the foreign parent

the main benefit of guaranteed tax and customs duty exemptions,
which can be a substantial advantage – even though there is a
general customs duty of 5 percent and corporate income tax of
9 percent starting from June 2023 onwards in the UAE.

Despite the numerous advantages of free zones, their role has

changed significantly within the past years. With the amendments
to the U.A.E. Commercial Companies Law (CCL) and the resulting
abandonment of the need for a National Agent, free zones have lost
one of their most significant advantage. The exact impact of these
changes, which generally increase the attractiveness of investing in

24
the UAE, but deprive the free zones of their main advantage, cannot
be estimated with regard to a possible framework legislation yet.

The different types of affiliates available to foreign investors

to establish a free zone company include basically a Free Zone
Establishment (FZE) – a legal form similar to that of a German one-
person GmbH, a Free Zone Company (FZC) – a legal form similar to
a German limited liability company (GmbH), and a remote office.
However, the exact rules for these legal forms can vary from zone
to zone.

The advantages for a company set up by a foreign investor in a free

zone can be summarized as below:

– Outstanding infrastructure, especially in Dubai (e.g. flexibility

of free zone authorities and dedication to provide services
to investors, well-equipped offices and warehouse premises,
availability of excellent sea, air and motorway logistics
solutions);
– Companies with foreign capital in which a majority partner is a
citizen of a GCC member state can obtain a production license
valid for the whole country through their presence in a free
zone.

LEGAL FORMS IN A FREE TRADE ZONE

Remote offices

Offices of foreign companies can also be set up in free zones of

the UAE without an independent juristic identity. A reference is
basically made in this respect to the general information which
can be found in this guide regarding remote offices.

Particular terms and conditions for registration of a remote office

in a free zone (e.g. permitted activities) depend on the rules and
regulations of the concerned free zone. Before 1992, the possibility
of foreign companies to set up a remote office was generally limited
to the possibility to establish such an office solely in a free zone

25
 existing at the time. For instance, the Jebel Ali Free Zone Authority
was offering three different types of licenses for setting up of a
remote office. Back then, same as presently, a license could only be
obtained for a remote office in conjunction with the conclusion of
an office / warehouse tenancy contract or in conjunction with the
conclusion of a contract to lease land on which own facilities will
be constructed. This approach clearly demonstrates the intent of
free zone authorities to attract only investors that will actually play
an active role in the economic life of the UAE and not restrict their
activities solely to the establishment of a “letter-box” company.

Free Zone Establishment (FZE) and Free Zone Company (FZCo)

The establishment of a corporate entity with a sole (foreign)

shareholder (so-called FZE) only became possible for the first time
in the Jebel Ali Free Zone in 1992.

As a legal entity, the FZE has its own juristic identity and own
capital, and the sole shareholder’s liability is limited to the paid-in
contribution to the company’s share capital. The FZE can establish
its subsidiaries within the free zone, where necessary, also in the
legal form of a FZE. Basically, this approach makes it possible to
establish a concern (group of companies). Where a subsidiary
is set up outside the free zone, it should be remembered that a
FZE can often be established even without a Memorandum and
Articles of Incorporation, which fact may lead to problems with
the establishment of its subsidiaries under certain circumstances.

Almost all adjacent emirates and neighbor states of the UAE

require as part of the newly established company registration
process that an authenticated copy be presented of the parent
company’s Memorandum and Articles of Incorporation. Therefore,
if a FZE is intended to function (at least in the medium term)
as a holding company for the total Middle Eastern region, care
should be taken to arrange for the Memorandum and Articles of
Incorporation for it (on voluntary grounds, if applicable) as early
as during its establishment process. In case the authority of the
concerned free zone does not accept these bylaws, it would make
sense to set up a company in the legal form of a FZCo with at least

26
two shareholders and, in the worst possible case, even to consider
moving the company’s location to a different free zone.

It became possible to set up a legal entity with more than one

shareholder via introduction of the FZCo form (in part also FZ
LLC), which must usually have between two and five shareholders.
Depending on the legal characteristics of a FZCo in the concerned
free zone, it is basically comparable in legal terms with a limited
liability company constituted under the German law (GmbH).

Exports to the UAE

Its license entitles a foreign company with a subsidiary in a free

zone to export goods from the free zone to the UAE or to other
countries. Such goods are treated as foreign goods – even where
they are exported from a free zone to the territory of the UAE. It
should be remembered in this respect that the right to export goods
usually does not automatically imply the right to import them to the
intended destination. The consignee must take care in advance to
obtain this right to import the shipped goods in accordance with
the applicable laws of the destination place.

In the UAE the right to import foreign goods depends on whether

the consignee’s license also entitles the holder to import goods.
A trade agent in the UAE invariably enjoys the right to import
foreign goods; the same applies to a company that has a vested
lawful interest in imports of these goods in view of its (permitted)
business activities. Therefore, the importation right is usually
granted to commercial companies whose permitted business
carried on under a valid license is directly associated with the
concerned imported goods.

Transit goods moved from a free zone either through an airport or

through a seaport located outside free zones in the UAE or goods
temporarily imported from a free zone to the UAE for repairs,
further procession, etc. and subsequently moved back to the free
zone are not subject to subsequent customs duty in the UAE. In
case of temporary imports of goods, an adequate security deposit
can be provided to the relevant customs office instead of payment

27
 of the customs duty. This security deposit will be repaid when the
goods are returned back to the free zone.

Other transit goods can be exported directly on the basis of an

export certificate issued by the free zone authority.

Goods are neither sealed nor made subject to any other form of
government control, while in transit. The export certificate is issued
against presentation of a document that confirms deposit of the
applicable import duty of 5 percent of the value of the concerned
goods. After the goods are exported, the deposited amount is
repaid against valid evidence that the goods have been exported.
If transit goods never leave the UAE, the deposited amount will not
be repaid – but customs authorities do not impose any further duty
or penalties in respect thereof.

28
Labor and Social security Law
LABOR LAW

In the UAE, the legal framework for the legal relationship between
the employer and the employee is the UAE Federal Law No. 33 of
2021, which entered into force on 2. February 2022 and repeals
the previously existing UAE Labor Law, UAE Federal Law No. 8 of
1980, as amended. The UAE LL regulates all fundamental aspects
of the legal relationship between the employer and the employee
and in particular working hours and working conditions, paid leave
entitlement, employment termination and the employer’s diverse
contractual and duty of care obligations. These mandatory rules
of law are applicable to local as well as foreign employees in equal
measure. However, these provisions do not apply to employees
of federal and local government entities, members of the armed
forces, police and security and domestic workers. Furthermore,
some free zones have specific regulations that slightly differ from
those of the UAE Labor Law, but only apply within the concerned
free zone.

Generally, employment contracts are drafted on the basis of a

bilingual (English-Arabic) model employment contract issued
by the Ministry of Labor and Social Affairs or by the authority
of the relevant free zone. The employment contract is subject
to compulsory official registration after it is signed by the both
parties.

Furthermore, it is a common practice for the employer and the

employee to agree on additional terms and conditions. In such
cases, the provisions of the UAE LL must be complied with,
unless the additional agreement offers more favorable terms and
conditions to the employee.

Although in theory a contract in writing is not necessary to

validate the employment relationship in legal terms, it is advisable
nonetheless to conclude one as documentary evidence.

A fundamental change in the new law is the abolition of contracts

with an unlimited term. The parties must agree on a fixed term.
However, a maximum duration of the contract is no longer

29
 stipulated according to the amendment by Article 1 of Federal
Law No. 14/2022. An extension does not necessarily have to
include an explicit written notification and consent. The contract
can be extended implicitly if the parties continue their rights and
obligations after the actual expiry of the employment relationship.

Employers are required to implement provisions of the new UAE

Federal Law No. 33 of 2021 regarding fixed term employment by
1. February 2023, or face fines of up to AED 1,000,000 for a single
violation or up to AED 10,000,000 for repeated violations.

The parties can agree in a probation period of up to six months.

During this period, either party may terminate the employment
contract at any time. If the employer intends to terminate the
employment relationship during the probation period, the
employer must observe a notice period of at least 14 days. If,
on the other hand, an employee wishes to terminate during the
probation period, he or she must observe a notice period of at least
30 days if he or she subsequently wishes to enter into employment
with another employer in the UAE, or a notice period of at least
14 days if the employee wishes to leave the UAE. After the end
of the probation period, the contractually agreed notice periods
apply. For the employer, the contractual notice periods may not be
shorter than the statutory notice period of 30 days and not longer
than 90 days. If one of the parties does not comply with the notice
period, it must compensate the other party (“payment in lieu of
notice”), even if the failure of notice did not result in harm to the
other party. The compensation should be equal to the worker’s
salary for the entire notice period or the remaining part thereof.

The employment contract can be terminated ordinary or

extraordinary by either party. The requirement in each case is the
existence of an important reason. Possible valid dismissal reasons
are described in the UAE LL in an exhaustive list. The employee
may challenge the termination by means of an appeal to the
Ministry of Labor. The appeal claim may only seek reimbursement
of damages, not re-employment.

30
The labor law regulations are interlocked in part with the regulations
on aliens because a foreign employee – with the exception of
individual exceptions such as the so-called remote work visa – will
only receive a residence visa (for a limited term) if he holds a work
permit issued by the Ministry of Labor and Social Affairs. A work
permit will only be issued if the employee’s profession and skills
are generally useful for the UAE and if the employee has entered
the country legally and is thus in compliance with the regulations
on aliens. Furthermore, a work permit may only be issued to a
foreigner against proof that no similarly qualified UAE citizens are
available to fill the concerned vacant position. Next to the work
permit, the foreign employee will need a visa which is issued upon
submission of the relevant employment contract and a legalized
and translated certificate of professional training. On top of that,
the foreigner also has to pass a health check.

The UAE labor and migration law is very restrictive concerning

the employment of foreigners – and therefore any of the following
situations will be viewed as an offence against the law:

– Employment without a valid work permit or residence visa;

– Residence in the UAE without being employed (exceptions are
very rare);
– Omission to notify termination of work to the Ministry of Labor
and Social Affairs within three months of leaving the employer;
– Omission to notify filing of a “dismissal protection suit” to the
Ministry of Labor and Social Affairs within six months of its
filing date.

It should be pointed out in this respect that UAE authorities

severely punish any infringements of the labor and migration
law, which may cause grave consequences for the employee as
well as for the employer. For example, if the employer does not
comply with its obligation to arrange for a proper work permit and
residence visa for its employees, the employer will be fined and
entered in the so called “black list”, complicating the receipt of
further visas in the future.

31
 Correspondingly, the law entitles the employee to terminate the
employment relationship without notice, should his employer
demand that he work without a proper work permit and residence
visa.

The maximum number of working hours in a week is 48 (8 hours a

day for the statutory working week of six days). Deviations from this
rule are possible in some industries (e.g. hotel business, security
agencies, etc.) as well as provided they are to the employee’s
benefit. During the lent month of Ramadan, daily working time is
two hours less (also for non-Muslim personnel).

Compared to the previous legal situation, the law no longer

stipulates Friday as a mandatory weekly day of rest, whereby only
one weekly day of rest – to be agreed individually – must now be
granted as a minimum requirement. This is particularly in line with
the change in the weekend for the public sector in the United
Arab Emirates. The private sector is basically free to adopt this
adjustment, so that this adjustment of the working days is now
also no longer opposed from a labor law perspective.

Since the public sector officially moved the weekend from

weekdays Friday and Saturday to Saturday and Sunday in January
2022, most private companies also remain closed on Saturdays and
Sundays when they allow their workers to work a five-day week.

The new UAE Federal Law No. 33 of 2021 provides for companies to
introduce part-time and flexible work arrangements and introduces,
in its implementing regulations, among others, the following work
models in addition to the usual "full-time employment contract"
for a single employer:

– Part-time work - work for a single employer on a part-time

basis;
– Temporary work - work performed for a specific period of time
and for a specific task;
– Flexible work - work that allows for a change in work hours to
accommodate the employer's business needs;
– Remote work - work performed away from the workplace that
can be either full-time or part-time; and

32
– Job sharing - work that is divided between one or more
employees on a part-time basis.

The new UAE Federal Law No. 33 of 2021 also provides that a
minimum wage may be set in the future. However, this has not yet
been used at this point in time.

Overtime is subject to mandatory overtime premium rates. To

protect employees, after 1 September 2009 payroll may only be
paid via so-called Wages Protection System (WPS) (Order no.
788 / 2009 of the Ministry of Labor). This system applies to all
companies and employees registered with the UAE Ministry of
Labor. This obligation does not yet extend to companies in free
zones, but such zones often have own protection arrangements
in place. Based on information from the employment contracts
registered with the Ministry of Labor, the WPS checks whether the
reported wages are actually being transferred in local currency to
the employee’s account with a local bank. If the employer does not
comply with the WPS rules, it can be fined and work permits and
residence visas can be withdrawn from its employees.

Next to fourteen (14) days of national holidays in the UAE, any

employee becomes entitled to a mandatory paid leave of 30
calendar days after he has worked for his employer for one year. If
the length of his employment is between six and twelve months,
the employee is only entitled to two days per month. In case of
sick leave, the employee is entitled to sick leave allowance, which
makes full payroll for 15 days in a year and 50 percent of payroll
for further 30 days in a year. No allowance is payable for sick
leave days in excess of that number. However, an employee is
not entitled to sick leave if the illness is due to the employee's
misconduct. After a total of 90 days of sick leave, the employer
becomes entitled to terminate the employment contract due to the
employee’s sickness.

Before a claim is initiated in case of a labor dispute, a reconciliatory

hearing must be held with the reconciliation committee in the
Ministry of Labor (free zones may have differing arrangements).
The reconciliation committee issues its recommendation for

33
 settlement of the dispute within two weeks. Ordinary courts may
only be applied to after this. The limitation period for such claims
is one year after the emergence date.

The new legal situation also now makes it easier for employees
to assert claims against their employers in that employees are
exempt from court costs when enforcing claims in court up to a
maximum of AED 100,000.

SOCIAL SECURITY LAW

There are no mandatory unemployment insurance or pension

insurance schemes for foreign employees in the UAE. Only the
employees who are UAE citizens are covered by pension insurance
schemes. For foreigners, there is no mandatory accident and
disability insurance either, but it is highly recommended to
acquire such insurance policies because in case of an accident
during the course of work, the employer is obliged to pay for the
employee's treatment, travel and rehabilitation costs resulting
from the accident. In addition, the employer is obliged to pay
100 percent of the employee's wages for up to six months and
50 percent for a further six months during the period of absence
from work due to the accident. In the event of death or permanent
occupational disability, the employee's dependents are entitled
to compensation in an amount determined by law.

The UAE has also introduced a new unemployment insurance

scheme that provides financial support for employees in the public
and private sectors, which came into effect at the beginning of
2023. The unemployment insurance is mandatory for employees
who are not exempt by law, with monthly contributions to be
paid by the employees themselves. This provides employees who
lose their jobs under unforeseen circumstances with monthly
financial assistance amounting to 60 percent of their basic salary
for a limited period of time, up to a maximum of AED 20,000. The
program is open to both Emirati and foreign nationals who are
UAE residents and work in the public and private sectors, as well
as in local and foreign companies. Investors, domestic workers,
people on temporary contracts, workers under the age of 18, and
retirees are exempt from the new scheme.

34
According to the UAE LL, the employer is obliged to ensure
medical treatment for his employees. For example, this obligation
had been limited in the Emirate of Dubai until recently to the
employer’s obligation to provide for a so called “health card”
to the employee. However, this health card only covers basic
medical treatment in public hospitals. It is highly advisable in
any case to acquire additional private health insurance.

Some of the individual emirates have acknowledged that their

existing health care system is not sufficient and started the
development of a new system some years ago, with the emirate
Abu Dhabi as a leader in this field. Since 2007, the employers have
been obliged to conclude a contract with an officially recognized
and licensed health insurer for their foreign employees (Law
no. 23/2005). A work permit may not be issued unless such
mandatory health insurance is in place. The full costs thereof
shall be borne by the employer.

The emirate Dubai followed this practice and created (with its Law
no. 11/2013) the basis for the respective insurance obligations,
which have to be implemented step by step, starting in 2014.
Based on this obligation, employers in Dubai are also obliged to
conclude health insurance contracts for their foreign employees.

The minimum requirements for health services are set by law, and
such insurance can be concluded only with a state-approved and
certified insurance company.

35
Contract Law and Settlement of
Disputes
GENERAL

In early 70’s, seven sovereign emirates – Abu Dhabi, Ajman, Dubai,

Fujairah, Ras Al-Khaimah, Sharjah and Umm Al-Quwain – united
into a federation under the name of the UAE. According to the
UAE provisional constitution of 18 July 1971, general jurisdiction
of the Federation covers implementation of laws and regulations,
in particular in the fields of civil law, commercial law, procedural
law and protection of intellectual property rights. Furthermore,
the constitution states that pre-constitutional laws of individual
emirates will find further application unless they come in conflict
with the constitution or until they are amended or suspended by
new laws.

Since the federal legislative authority has not made extensive

use of its constitutional powers, laws of the individual emirates
are still in effect to a major extent. These laws are based in part
on Islamic law and in part on non-Islamic modern legislation.
Therefore, detailed and comprehensive contractual regulation is
highly advisable to avoid eventual conflicts.

In particular, the contract should typically regulate terms and

conditions of the contractual relationship, contract duration and
termination as well as situations of default and special conditions.
Such contractual provisions are binding unless they infringe
applicable law or the substance of Islamic law (the Islamic order
public) because one of the Sharia principles is, “A contract is the
law for the parties thereto”.

WARRANTY RIGHTS

Warranty claims arising from sales contracts are regulated by

the UAE Civil Code (“UAE CC”). However, Article 1 of the UAE CC
says that civil code provisions do not apply within the scope of
the commercial law. But since the commercial code regulations
concerning warranties are still in the pipeline and the respective
amendment has not yet been enacted, the current legislation is

36
still applicable to warranty claims. Therefore, common law and
the Sharia is applied to regulate warranty claims (the Sharia being
an unreliable source because of its differing interpretations by
different legal Islamic doctrines). The chances to succeed are
highly unpredictable, whether in court or out of court, in warranty
litigations in the UAE. To avoid problems of this kind, detailed and
comprehensive contractual regulation of warranty issues is highly
recommended in all trade transactions.

In the UAE, common law regulation of warranty claims arising from

trade transactions is currently as follows:

Generally, the seller is obliged to transfer the buyer the title to the
goods free of defects in title and quality. In order to protect possible
warranty claims the buyer should strictly fulfil his/her obligation
of inspection and notification of defects. The buyer must inspect
the goods promptly upon their arrival and notify eventual defects
to the seller. In the absence of such notification, the goods are
deemed accepted and the purchase contract properly executed.
If the goods have any hidden defects, prompt notification to the
seller is necessary to give a warranty claim. Otherwise, the goods
are deemed accepted unconditionally.

PUBLIC PROCUREMENTS

In the UAE, public procurement contracts are basically awarded

in open tenders. Traditionally, the emirate Abu Dhabi is the most
important location for bidding in tenders for public procurement
contracts. That is why a separate law has even been enacted
to regulate tendering procedures and the execution of public
procurement orders.

There are detailed regulations on public procurements at the

federal level and at the level of individual emirates. These
regulations are generally based on uniform principles underpinned
by model contracts of Fédération Internationale des Ingénieurs
Conseils (FIDIC).

37
 Often the UAE government only awards public procurement
contracts only to companies which are either a juristic personality
constituted under the UAE law (if appropriate, including companies
with 49 percent of foreign capital) or a party in some other
contractual relationship with a local agent or partner.

Additionally, local companies often benefit from a general

price advantage of 10 percent, as opposed to foreign bidders.
Furthermore, they receive considerable prepayments upon
conclusion of the contract with the government and must provide
less security (lower value guarantees) than foreign companies.
Thus, local involvement of a bidding company is crucial for success
in a tender for a public procurements contract.

INTERNATIONAL JURISDICTION AND APPLICABLE LAW

Contracts concluded in the UAE are generally governed by the

UAE law. According to the UAE Civil Code, accepted commercial
practices and the circumstances of the concerned commercial
transaction should also be taken into account for determination of
the intended contract content (in addition to the contract wordings
and the applicable law).

Generally, the UAE law allows the parties to regulate the contract
status as well as the place of jurisdiction directly in the contract.
However, in practice UAE courts tend to assume their jurisdiction
even where the contract states otherwise.

The decision of the Court of Appeal of the emirate Dubai can be taken
as an example: Court assumed its jurisdiction notwithstanding a
jurisdiction clause to the contrary agreed between the contracting
parties. The decision was supported with the following arguments:
A jurisdiction clause in favor of a foreign court cannot prevent local
courts, otherwise competent, from the execution of their authority.
This should be remembered in particular where enforcement of a
foreign court ruling cannot be ensured.

According to the UAE Civil Procedure Law (“UAE CPL”),

international courts have jurisdiction, if local courts at the place of

38
execution have jurisdiction over a lawsuit against a foreigner who
is a non-resident regarding a contract with a place of execution
within the UAE. In case of an illegal act committed within the UAE,
jurisdiction lies with courts with jurisdiction over the place where
the act has been committed. Furthermore, Article 24 of the UAE
CPL says that any agreements amending the above international
jurisdictions are null and void.

BRINGING COURT ACTIONS

Recognition and enforcement of foreign court awards

Currently, there is no international treaty between the Federal

Republic of Germany and the United Arab Emirates on mutual
recognition and enforcement of court rulings. Moreover, there are
no approved federal-level or emirate-level regulations concerning
recognition and enforcement of foreign court decisions. Only the
civil procedure law of the emirate Abu Dhabi deals with certain
aspects of recognition and enforcement of foreign court rulings
– for recognition of a foreign court decisions. According to this
law, the reciprocity principle must be complied with, i.e. court
decisions of the respective countries must be mutually recognized.

There are no other laws in the UAE or in individual emirates to

regulate recognition and enforcement of foreign court rulings.
Regarding decisions of German courts, that means that such
decisions must first be recognized by emirate courts and then
enforced according to the procedure for enforcement of local court
rulings. Notwithstanding the unclear legal situation within the UAE
and possibly lengthy proceedings in the matter of recognition and
enforcement of German court decisions by Emirate courts, prior
experience shows that recognition and enforcement of German
court decisions in the UAE is not unusual.

The jurisdiction clause and the arbitration clause in the contract

are of utmost importance to avoid unnecessary difficulties with
claim enforcement.

39
 The UAE became the 138th country to accede in 2006 the New
York Convention of 1958 on the Recognition and Enforcement of
Foreign Arbitral Awards.

Implementation of the declaration of accession into the local law

in 2006 created a legal framework for recognition and enforcement
in the UAE of court rulings pronounced in other member states.

Legal assistance

Lawsuits are often protracted and cost-intensive in the UAE.

Therefore, litigation should only be considered as an option where
the amount in dispute is sufficiently high. On the other hand, an
amicable out-of-court settlement would often be more advisable in
view of prospective future business relations with UAE partners. If
litigation is inevitable, you should remember that the plaintiff must
be represented by an attorney-at-law in dealings with UAE courts.

On the other hand, the defendant can either be represented by

an attorney-at-law or represent himself. Similar to the Anglo-
American legal system, the UAE system differentiates between
litigators and consultant lawyers. Although a foreigner may give
out-of-court advice (provided he has a valid consultancy license
for the UAE), foreign, i.e. non-Arabic, attorneys are not permitted
in UAE courts. The only official court language is Arabic.

Legal fees can be negotiated freely. Please note that each

party to a lawsuit must bear its legal expenses independently
(notwithstanding in whose favor the court ruling is made).

40
Tax framework
NATIONAL TAX LAW

The current UAE constitution of 1971 grants individual emirates the

authority to tax legal entities and individuals and to enact own tax
laws at emirate level.

In exceptional cases, the authority to collect taxes and to enact tax

laws can be moved to the federal level under a law or an agreement,
although till presently the Federation has never until now made use
of such authority to enact tax laws. However, from June 2023, an
income tax in the form of a corporate income tax will be introduced
for the first time. In fact, the UAE federal government has so far
generated more revenue from fees for registration of companies
and foreign representative offices or branch offices. Fees for
trade licenses payable by companies at regular intervals (it is not
possible to carry on business in the UAE without such license) are
another source of revenue. Despite the introduction of corporate
income tax as of June 2023, it can be generally stated that the UAE
does not currently levy the following taxes:

– Income tax;
– Withholding tax.

Individual emirates have made use of their tax legislative authority

and enacted laws for certain areas of fiscal law. For instance, in the
emirate of Dubai the Dubai Income Tax Decree of 1969 regulates a
uniform system for taxation of corporate incomes (incomes of legal
entities) within Dubai.

Tax rates are set according to a sliding scale, the highest rate being
55 percent. However, only oil, gas and petrochemical companies
are taxed in practice, and the applicable tax rates are agreed
individually during the concession negotiations.

Business of foreign banks is also subject to taxation and the

applicable tax rates are set individually when the license is
issued. There is actually no tax burden in effect at the moment for
commercial companies outside the above industries and sectors.
In Dubai, hotel business services are directly taxed at the rate of 10
percent (for example, catering and accommodation).

41
 The UAE has introduced taxation of companies and corporations
for the first time through the levy of a corporate income tax with
Federal Law No. 47 of 2022. This is levied on an annual basis and
the first assessment period will be for companies with a fiscal year
from 1. January – 31. December, the period from 1. January 2024 –
31. December 2024.

The standard tax rate is 9 percent on net profits exceeding the

threshold which is to be set by the Cabinet (AED 375,000). The tax
rate for incomes below this threshold is 0 percent.

Corporate Tax applies to all taxable persons, including resident and

non-resident persons except for the exempted persons according
to Art. 4 of the law. Under certain conditions, Free Zone companies
are also subject to corporate income tax.

VAT

In accordance with a decision by the six member states of the Gulf

Cooperation Council (Bahrain, Qatar, Kuwait, Oman, Saudi Arabia,
United Arab Emirates; the so-called GCC states) in 2015, the UAE
legal system has a uniform nationwide value added tax system
since January 1, 2018. The main motivation for the introduction the
Value Added Tax (VAT) was, in addition to the creation of another
source of revenue to finance the rising costs of services of general
interest and welfare, and in particular to minimize the dependence
on oil and gas resources. To this end, the United Arab Emirates
established the Federal Tax Authority (FTA) at considerable
financial expense to collect the tax. The Federal Tax Authority
is the executive authority in the tax refund procedure and the
competent authority in the appeal procedure.

– Organization
The legal framework for value added tax in the UAE is provided
by the Federal Decree-Law No. (8) of 2017 on Value Added Tax
(in short: VAT-Law) and its implementing regulation (Cabinet
Decision No. (52) on the Executive Regulations of the Federal
Decree law No. (8) of 2017 on Value Added Tax). Accordingly,
all imports of goods and services provided in return for

42
 consideration (fee) by a person with business capability in the
UAE are subject to VAT. The standard tax rate is 5 percent.

However, some specific transactions, although taxable in

themselves, are subject to a reduced VAT rate of 0 percent
(tax-exempt supplies). These include, among others, the cross-
border transportation of passengers and goods, the first-time
transfer of residential buildings or the supply of oil and gas
products. Federal Law No. 18 (2022) extended the goods subject
to zero-rating and the further exemptions for VAT registration.

Furthermore, there are numerous transactions that are generally

exempt from VAT. These include, for example, the sale of
undeveloped land, local public transport and certain financial
services.

The taxable amount for VAT is the consideration. The supplier of

goods or services is therefore obliged to collect the VAT as part
of the supply of the service and to pay it to the tax authorities.

– Mandatory registration
All companies in UAE territory that reach a taxable annual
turnover of AED 375,000 must register with the Federal Tax
Authority (FTA) for the collection of VAT. In this respect, there
is a registration obligation for these companies. Lower-turnover
companies that reach a taxable annual turnover of at least AED
187,500 are free to register with the FTA.

– Import and export of goods and services

The so-called Reverse Charge Mechanism facilitates the
collection of VAT within contractual relationships, which
concentrates on the import of goods or services from a for tax
purposes UAE registered company.

Under this mechanism, the importer is treated as if he had

supplied the goods to himself within the UAE. The tax liability
is transferred to the recipient of the goods or services at no
extra cost, thus exempting the supplier abroad from collecting
and paying the tax and from the obligation to register in the
destination country.

43
 On the other hand, goods exported to third countries but also
within the GCC states are subject to zero-percent taxation (zero-
rated supply).

However, with regard to services provided to a customer located

outside the United Arab Emirates (UAE), the place where the
actual benefit of the service occurs is decisive, thus not every
service provided outside the UAE is subject to zero-rated taxation.

– Free zones and VAT

The respective free trade zones are treated differently for VAT
purposes. For example, there are so-called Designated Zones,
which are treated as being outside the UAE territory for VAT
purposes. Deliveries of goods between such Designated Zones
and imports into these zones are therefore not taxable.

The remaining free zones are generally considered to be within

the territory of the UAE for VAT purposes, meaning that the
supply of goods or services by companies located in these free
zones is taxable in the same way as if they had been supplied
in the national territory.

INTERNATIONAL TAX LAW

With regard to the delimitation of the taxation of cross-border

activities between the Federal Republic of Germany and the UAE,
the Double Taxation Treaty (“DTT”) concluded between the two
countries with effect from 1. January 2009 has been in effect until
31. December 2021.

This agreement provided for the tax credit method to avoid double
taxation from a German perspective. There was no provision
for exempting income generated in the UAE by companies or
individuals with unlimited tax liability in Germany. Since then, the
DTT has not been renewed.

As already explained, the UAE will introduce income taxes for

the first time as of June 2023. This will make the DTT between
Germany and the UAE more relevant than ever.

44
With regard to the German structure of companies willing to invest,
the question arises whether only the tax credit method or the
exemption method will be applied under the future DTT to avoid
possible double taxation. Under the tax credit method, the income
is subject to German taxation in full, with any income tax levied in
the UAE being offset (subject to the maximum offsetting amount).
In this way, the profits generated in the UAE are brought up to the
German taxation level.

But in case a capital company constituted under the UAE law

pays dividends to a German limited liability company, the method
prescribed by the DTT to avoid double taxation has no effect due
to the absence of a double taxation situation because the German
Corporate Tax Law grants an exemption for such earnings (subject to
a “fine” of 5 percent on intercompany dividends) at the national level.

If dividends are paid to a German private company, the legal

form of shareholders should be analyzed. The so-called “partial
income method” applies to individuals (i.e. only 40 percent of the
dividends are tax-free).

In case of profits of UAE-based permanent establishments (for

example, a branch office without an independent juristic identity),
profit withdrawals can only be performed tax-free basically if a
profit exemption is granted by the DTT (subject to the so-called
exemption with progression clause). It remains to be seen whether
the future DTT will contain such a provision or whether it will be
replaced by the tax credit method.

TAX BURDEN COMPARISON

The aggregate tax burden of German companies with operations

in the UAE is demonstrated below on the example of a German
capital company with a subsidiary in the UAE, assuming that the
UAE subsidiary is comparable to a German capital company in
terms of the legal form chosen for it. It is further assumed that the
subsidiary is transferring its total profits to the German holding
company. The 2008 corporate tax reform was taken into account
for the purposes of the following tax burden comparison. The data
for Dubai and Germany is expressed as percentages.

45
 Dubai (2023)

Capital company
Income before tax 100.00
Corporate tax 9 % ./. 9.00
Profit after tax 91.00
Dividends paid out, gross 91.00
Withholding tax on dividends ./. 0.00
0%
Dividends, net 91.00

Germany

Capital company
Net cash inflow 100.00
Non-deductible business 5.00
expenses according to § 8(b)
Para. 5 of the Corporate Tax Law
(5 % percent of gross dividends)
Local trade tax rate, in percent 400.00
Trade earnings 4.17
Trade tax ./. 0.83
Corporate tax 15 % ./. 0.63
Solidarity tax 5,5 % ./. 0.03

Balance in case of profit 98.51

retention

46
Further payment to the shareholder
Amount paid out (gross 98.51
dividends)
Capital gains tax 25 % ./. 24.63
Solidarity tax 5,5 % ./. 1.35
Net payment 72.53
Individuals (private property)
Dividends, gross 98.51
Taxable income 98.51
Flat rate withholding tax 25 % 24.63
Credit on capital gains tax ./. 24.63
Remaining income tax ./. 0.00
Solidarity tax (5.5 %) on top of 1.35
income tax
Credit on solidarity tax on top of ./. 1.35
capital gains tax
Remaining solidarity tax ./. 0.00
Balance after tax 72.53

Tax burden in case of profit 0.00

retention in a local capital
company
Tax burden in case of profit 1.49
retention in a German capital
company
Tax burden in case of further 27.47
payment to a shareholder with
German tax residence
(an individual)

47
Customs and Importation
Regulations
In the UAE, customs legislation and customs administration is
generally within the authority of individual emirates, which have
however relatively uniform practices.

A bill of entry must be filed with the competent customs authority

in respect to goods imported from third countries. This bill of entry
is viewed as an application for an import permit with simultaneous
declaration and customs clearance of the concerned goods as well
as payment of customs duty. The importer fills in the respective
form, which will be stamped by customs after an inspection.
Together with the bill of entry, the importer must submit the
relevant shipment documents (such as bill of lading, air waybill or
certificate of origin).

Certain goods (such as drugs, weapons, munitions, pesticides or

wireless information transmitter devices) require a special import
permit. Upon filing of the customs declaration, applicable customs
duty must be paid or a bank guarantee must be provided as
security. A customs duty exemption certificate must be provided
in respect to goods exempted from customs duty or not subject to
customs duty.

The lists of goods exempted from customs duty in the emirates

of Abu Dhabi and Dubai can be requested from the Federal
Agency for Foreign Trade (Bundesagentur für Außenwirtschaft).
A stamp of the competent customs authority on the bill of entry
certifies customs clearance of the imported goods, and the
importer becomes entitled to bring them into the UAE. Another
confirmation of compliant importation of goods is the so-called
“landing certificate”, which is issued by the customs authority on
request (upon presentation of the stamped bill of entry).

If imported goods are processed within the UAE and exported

(or even re-exported without processing), the amount paid as
customs duty or provided as a security deposit is returned and
the respective bank guaranty is released on the basis of a so-
called “Custom Exit / Entry Certificate”. This certificate is issued

48
by a competent customs authority at (re-)export of the goods upon
presentation of the respective bill of entry or landing certificate.

The compulsory import duty is generally 5 percent in the UAE,

which is at the level of the minimum customs duty of the Gulf
Cooperation Council. The customs duty for tobacco wares and
alcohol range between 25 and 34 percent (if a bill of entry is issued
at all). Goods from Gulf Cooperation Council member states can
be imported duty free. Travelling luggage in reasonable volumes
is also free of duty (if not intended for commercial use). Trade
samples and advertisement materials for distribution free of
charge or at nominal price are generally also duty free.

Specific regulations apply to importation of goods to UAE free

zones. Since no customs duty is charged in free zones, there is
generally no customs clearance. Nonetheless, goods to be imported
are subject to customs examination of the respective free zone,
excluding transit goods which are re-forwarded without delay.
Goods remaining in the free zone are inspected by customs and
declared under a special trade free zone bill. Goods manufactured,
processed or stored in a free zone are declared (with the appropriate
bill of entry of the concerned emirate) and customs duty is levied
at importation to the UAE territory, because they are treated as
goods imported from a foreign customs territory.

49
Your Contacts
UNITED ARAB EMIRATES

NICOLA LOHREY
Managing Partner

T +971 4 2950 020

nicola.lohrey@roedl.com

DUBAI

Bay Square Building 11,

Office 404 + 407
Business Bay, Dubai
P.O.Box 23297
United Arab Emirates Dubai

50
51
Visit us!
www.roedl.com

All information has been thoroughly researched and compiled. The authors and editors
disclaim any responsibility for the accuracy and comprehensiveness of the contents hereof
and for subsequent changes in the legal environment.