As we look ahead to next year, there is increasing evidence that the UAE will likely see an influx of foreign investment.
There are a number of reasons to be optimistic about the UAE – favorable environment for economic substance (ESR) and ultimate beneficial ownership (UBO) regulations, as well as rapid pandemic recovery, and being at the forefront of digital transformation.
All of these combined make the outlook for the UAE very favorable.
Let’s take a look in more detail.
1. The pulling power of being whitelisted
The ESR demands laid down by the EU have been in effect for a couple of years now and despite the UAE originally being placed on the EU blacklist of those jurisdictions non- cooperative in terms of tax, it’s now off it – in effect ‘whitelisted’ – since October 2019. This is a direct result of the UAE making major changes to laws for setting up and running International Business Companies. The pulling power of this cannot be understated.
Even before this, the UAE was building momentum in terms of Foreign Direct Investment (FDI). According to the 2020 version of the UNCTAD World Investment Report 2020, the UAE witnessed a surge in FDI by 33% between 2018 and 2019. This is despite the country being blacklisted for a portion of that. Now the brakes are off, the UAE has never been more attractive to foreign investment.
2. The pushing power of others being blacklisted
Linked to the above is the fact that so many other jurisdictions remain on the blacklists – Mauritius, Panama and the Seychelles, to name a few high-profile locations. The negative economic impact of being part of a blacklisted jurisdiction has been substantial and many companies are looking for new homes.
One estimate made in the Journal of International Tax and Public Finance suggests the blacklist has wiped USD 56bn from the capital of implicated firms.
With options now vastly reduced, companies are increasingly looking towards whitelisted jurisdictions like the UAE for redomiciliation, especially given the country’s strong history of supporting the needs of companies.
3. The advantage of UBO laws
Data privacy laws have been the cause of some tension recently. International agreements between countries require a certain amount of information to be divulged to comply with corporate transparency laws. But at the same time, local regulations have worked hard to protect privacy.
Finding a balance has been tricky for some countries, yet the UAE offers companies the best of both worlds. The UBO regulations require businesses to keep a private register of UBOs and notify their Registry of any changes.
However, this is as far as it goes. Many EU member states require companies to divulge private data to public UBO registers. This is not the case in the UAE, where the data isn’t made available to the public. It’s a real bonus for the many companies looking to maintain a certain level of privacy.
4. The swift pandemic response
With many healthcare systems around the world wounded by the impact of the coronavirus pandemic, the situation has been a little different in the Gulf.
In the UAE, the response by the government was relatively swift. For example, airports were closed down for 15 days to reduce the spread of the virus and no expense has been spared on testing. Right now, according to Our World In Data, the UAE is performing over 10,000 daily tests per million people, a rate that is second only to Luxembourg throughout the world.
The net result is that compared to much of the world, the number of cases and deaths has been low.
However, like all countries, the necessary moves made by the government to control the spread of the virus has slowed the economy. The IMF suggests that the UAE central bank’s financial support package amounted to almost 20% of GDP and that real GDP growth will fall 6.6%.
Yet, the UAE government is actively helping the economy recover and attract investment. For anyone interested there is an online portal developed by the Ministry of Economy called Stimulating the Business Environment to Address COVID-19 Virus Effects. This offers a wide range of information for the investor community, the latest pandemic developments, best practices for doing business during COVID-19, and analysis and reports on the impact of the pandemic on investment.
The net result is that the IMF is also optimistic about the UAE economy – predicting it will recover by 1.3% in 2021 – suggesting foreign investors will feel similarly upbeat.
5. The strong digital offering
The UAE has long invested in its digital and technological future. So much so that in the UN’s E-Government Survey 2020, the country fared well. It was ranked at 21, maintaining a position in the top 25 countries around the world for its digital transformation. It was 7th globally for its telecommunications infrastructure and 8th for its online services.
This is no coincidence either. Just a year earlier, the IMD World Digital Competitiveness Ranking 2019 report placed the UAE first in the Arab world for all three factors: technology, future readiness and knowledge. Globally it was second for technology.
Being able to offer great digital services is a real pull at any time, but especially in a world that has been forced to operate increasingly online.
More reasons still
These are just what we see as the top reasons. But with an increasingly diversified economy and ongoing changes to visas, inheritance and business ownership, there are ever more reasons to be confident in the UAE’s ability to attract foreign investment.