Doing Business in the United Arab Emirates The D
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Posted On: 04/18/2016 3:54:51 PM
Doing Business in the United Arab Emirates
The Doing Business in the United Arab Emirates (UAE) report acts as an introductory guide to conducting business in the market. It provides an overview of the UAE’s economy, opportunities for Canadian capabilities and considers legal and cultural aspects for clients of the Trade Commissioner Service.
Please contact our team of Trade Commissioners for industry insight and assistance.
Abu Dhabi Trade Commissioner Service
Embassy of Canada Abu Dhabi
9th & 10th Floor, West Tower, Abu Dhabi Trade Towers (Abu Dhabi Mall),
Abu Dhabi, United Arab Emirates
Mailing Address:
P O Box # 6970
Abu Dhabi, United Arab Emirates
Tel.: (011-971-2) 694 0332
Fax: (011-971-2) 694-0398
Email: uae-eau.infocentre@international.gc.ca
Dubai Trade Commissioner Service
Consulate General of Canada
19th Floor Emirates Office Towers
Sheik Zayed Road
Dubai, United Arab Emirates
Mailing Address:
P.O. Box # 52472
Dubai, United Arab Emirates
Tel.: (011-971) 4-404-8555
Fax: (011-971) 4-404 8556
Email: uae-eau.infocentre@international.gc.ca
The UAE is one of Canada’s fastest growing markets in the Middle East. Peaceful and prosperous, the UAE offers Canadian businesses unlimited business opportunities in a diverse open economy. Located in the Arab Peninsula, the UAE is a well-established logistics hub providing access to markets in the Gulf, the Middle East, Africa, Eastern Europe, the Indian Subcontinent and the rest of Asia.
Overview
The UAE is one of Canada’s fastest growing markets in the Middle East. Peaceful and prosperous, the UAE offers Canadian businesses unlimited business opportunities in a diverse open economy. Located in the Arab Peninsula, the UAE is a well-established logistics hub providing access to markets in the Gulf, the Middle East, Africa, Eastern Europe, the Indian Subcontinent and the rest of Asia.
The UAE is a federation of seven emirates on the Arabian Peninsula with seaports on both the Arabian Gulf and the Straits of Hormuz; entrance to the Arabian Gulf. Bordered by Saudi Arabia to the south and west and Oman on the east and north, the emirates of Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al- Qaiwain, Fujairah, and Ras Al-Khaimah cover 83,600 square kilometres, constituting the United Arab Emirates, a nation about the size of New Brunswick.
Sheik Khalifa bin Zayed Al Nahyan is the Ruler of Abu Dhabi and President of the UAE, Sheik Mohammed bin Rashid Al Maktoum is the Ruler of Dubai and Vice President. Sheik Khalifa and Sheik Mohammed sit on the Federal Supreme Council together with the rulers of the other 5 emirates, constituting UAE’s principle policy making body. The Council of Ministers is entrusted with implementing approved legislature. Set up to provide oversight of the Federal Supreme Council is the Federal National Council, comprised of representatives from all emirates by Electoral College.
The local emirate government closely parallels the federal government construct. A member of the ruling family constitutes the executive. Implementing the directives of the executive are various ministries and other departments. The ministries and other departments, together with governmental agencies constitute the emirates governing bodies. This federal system of governance has provided for a stable political environment granting an attractive destination for international investment.
The UAE’s post financial crisis economy continues to present opportunities for international investors albeit be at a more modest rate of return. The property market has cooled, however, strong initiatives to develop the non-oil and gas related sectors of the economy have seen the UAE economy continue to grow. Substantial investments in projects that sustain a knowledge based economy continue and this is expected to be the foundation for sustainable growth.
The UAE Economy
As the global economy continues to recover from the 2009 financial woes, the UAE economy is expected to rebound, with GDP projections for the following years expected to be positive.
United Arab Emirates in 2014 (USD)Nominal GDP$416.4 billionReal GDP Growth4.3%GDP per Capita$65,000GDP - Composition by Sector Industry58.9%Services40.5%Agriculture0.6%Population5.6 million
Source: CIA's, The World Fact Book 2014
The oil and gas industry remains the staple of the UAE economy; however, great strides are being made to diversify the economy to secure a sustainable future beyond hydrocarbons. Federal and emirate authorities aggressively peruse a diversification strategy, capitalising on the oil and gas reserves, investing in the development of infrastructure, human capital, trade and tourism. The role of government will continue to be central to the UAE’s economic growth with government related enterprises being instrumental along with substantial public spending.
The details of the key government initiatives are outlines in strategic and economic visions in the economic blue prints:
The UAE Vision 2021New Education Strategy 2010 – 2020Abu Dhabi Economic Vision 2030Dubai Strategic Plan 2015
Abu Dhabi, home to the several sovereign wealth funds and vast oil reserves, forges ahead with the development of existing and new infrastructure to meet the demand of its growing population. Dubai continues to develop its infrastructure; power generation facilities and district coolers, building on the city’s soft underbelly. Ajman, Fujairah, Ras Al Khaimah, Sharjah and Umm al Quaim continue in the same stead. On the whole the economy remains buoyant, employing 98% of the population with an average per capita income estimated at US$49,600 (2010)making for a sizable domestic market for consumer goods and services.
Trade Between Canada and the United Arab Emirates
Government lead initiatives together with policies aligned with attracting foreign direct investment continue to present opportunities for the global business community. The following table shows trade figures between the UAE and Canada.
Canada/UAE Bilateral Trade Statistics (USD millions) 2011201220132014Canada Exports$1,373$1,454$1,536$1,584Canada Imports$910,854$202,181$142,517$78,499
Table 2
Source: Industry Canada
The UAE’s investment in the infrastructure is unparalleled within the region, and has positioned the UAE as a re-export hub annexing regional and Far East markets, servicing the needs of growing economies; the likes of Qatar, Saudi Arabia, India and China.
The UAE as an export destination and re-export hub is a key destination for Canadian capabilities, in which the following sectors have been identified as priority sectors for the Trade Commissioner Service to the UAE:
Agriculture and Agrifood productsEducation and TrainingHealthcareInformation and Communications TechnologiesInfrastructure development:Capital ProjectsFinancial services and FDI attractionOil and GasVisiting the UAE
Regular Canadian passport holders will no longer need to obtain a tourist visa prior to travelling to the UAE, an entry stamp at any port of entry will be granted. For information on other visa types; please visit the UAE embassy in Canada
For travel related information and advice, please visit the Ministry of Foreign Affairs and International Trade Travel Advisory website.
Methods Entering the UAE Market
Broadly speaking, there are three ways to enter the UAE market: direct exporting, entering into an agency agreement, and establishing a physical presence in the UAE.
Direct Sales
Canadian exporters can do business in the UAE by selling directly to the end-user or selling through an informal, non-exclusive re-seller arrangement. Re-seller arrangements are suitable for products where local promotion and after-sales service are not factors. This type of sale is low risk, but has limited growth and profit potential. It is suggested that companies interested in a growth-oriented marketing program select an alternative method to penetrate the UAE market, such as establishing a distributorship/agency relationship with a local company.
Distributorship/Agency Agreements
UAE law does not distinguish between an agent or distributor, referring to both as commercial agents. All agents must be registered with the Ministry of Economy and Commerce. Agent selection is critical as contracts may not be terminated (be it cancelation or non-renewal) with ease, except with sufficient cause as determined by a government committee. Previous rulings have been in favour of the local agent with terminated agents being awarded a compensatory amount when contract is terminated.
The UAE does not award agents licences spanning the length and breadth of the country, exclusive licences are awarded and limited to at least one emirates. Consequently, exporters are urged to pay close attention to geographic territories when concluding contracts. Exporters with a nationwide mandate, must appoint a separate agent for each emirate, or appoint a master agent with offices or sub-agents in each emirate. Most successful trading houses fall into the latter category.
Only UAE nationals or companies wholly owned by UAE nationals may act as agents, and all commercial agents must be registered with the Ministry of Economy and Commerce. Contracted agents must have a presence and be licensed to operate in each emirate in which he/she does business. Agents with exclusive distribution rights may prevent the products from being imported into the specified territory. Exception is made for specified items exempted from the Trade Agencies Law 1.
Foreign firms may enter into agency contracts on a project basis, with the relationship restricted specific projects and automatically terminated upon reward or completion.
Given the complexities of terminating an agency contract as well as the exclusive nature of the contracts, appointing an agent and determining the geographic area covered by the agreement is critical.
Licensing
Licensing of manufacturing processes is a growing market, especially with the UAE's intention to increase the quality and diversity of local production. However, the total market for industrial licenses remains relatively small due to the limited amount of manufacturing done in the UAE.
The majority of licensing is done for the fabricating and/or marketing of trademarked items. Licensees of sports logos, universities, animated characters, etc., are servicing a very active market with one of the world's highest disposable incomes. Licensing is an effective and quick way to meet the current demand, especially among young consumers, for North American styles.
Establishing a Physical Presence in the UAE
There are distinct advantages in maintaining a local presence in the UAE as businesses and government officials prefer to deal with someone they know and trust. Historically, personal relationships have always been important to doing business in the Middle East. In addition, local firms are closer to the local and regional market, customers, contacts, and other elements affecting business.
While there are many ways of establishing a presence in the UAE, the most popular methods are through branch offices, limited liability companies, or within free zones. Except in free zones, foreigners are only permitted to own up to 49 per cent of limited liability companies. The remaining 51 per cent must be owned by a UAE national. Foreign companies can market their products in the UAE either through these limited liability companies or through 100 per cent UAE National owned distributorships. There are exceptions to this per cent shareholding rule, the most relevant being for professional or artisan companies, andbranches or representative offices. Each of these exemptions allows 100 per cent foreign ownership, but with restrictions on the allowable scope of business activities. Foreign contractors or service businesses require UAE national sponsors, one for each emirate in which they do business.
Free Zones have become an integral part of the UAE’s position as a regional commercial and re-export hub, with 15% of the UAE’s trading activities taking place within these zones. All zones allow 100 per cent foreign ownership, tax and customs exemptions, full rights to repatriate profits and capital and simplified services to manage red tape. You may access more information about individual free zones at UAE Free Zones.
Steps to Establishing an Office
Legal requirements for Canadian companies setting up a UAE-based office depend mostly on the nature of the business the firm is engaged in, its level of involvement in the UAE, and the emirate where it locates. However, laws are very similar among emirates. Canadian companies need a local sponsor, both for the firm and for its resident employees. A sponsor must be a UAE national or institution, such as a free zone. The sponsor can be involved in the business, or simply a service sponsor providing, for a fee, legally required administrative functions. It is recommended that legal assistance be secured. The Canadian Consulate can recommend some firms.
Companies are required to be licensed by the emirate of domicile before beginning business activities. In general, individual emirates will issue: Trade Licenses covering all kinds of trading activity; Professional Licenses covering professions and services; Industrial Licenses for industrial and manufacturing activities; and Vocational Licenses for craftsmen and artisans. Licenses for some categories of business require approval from certain federal ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE., insurance companies and related agencies from the Ministry of Economy and Commerce, manufacturing from the Ministry of Finance and Industry, and pharmaceutical and medical products from the Ministry of Health. More detailed procedures apply to businesses engaged in oil and gas production and related industries.
In addition to the required licenses, all Canadian companies doing business in the UAE must be registered with the Chamber of Commerce in each of the Emirates where the business is licensed to operate. In the UAE, chambers are part of the government and membership is mandatory. Firms must decide on the purpose of the office it wishes to establish, as this will determine ownership requirements. For firms conducting regional marketing or administrative functions, a representational office, allowing 100 per cent ownership, may be best. For firms conducting offshore services, a branch office, also allowing 100 per cent ownership, is suggested.
Marketing your product or serviceSelling Factors/Techniques
The commercial tradition of the UAE is that of the middleman or trader acting as a conduit for goods from large manufacturers to South Asia, the Gulf, and East Africa. Today, with Dubai as the hub, the UAE services those markets, as well as the rest of Africa and all of the Middle East, and the newly independent states of Central Asia. The UAE’s business traditions place a very high premium on personal relationships and perceptions of integrity. Thus price and personal relationships are the key determinants in the UAE market. Product quality, after-sales service, and regular maintenance requirements determine purchasing decisions in the new UAE as there is a layering effect that separates the top echelon from all but the most important business decisions. The many expatriate managers of UAE-based companies bring with them cutting edge management concepts. However, this welcome new trend has not reduced the importance of personal relationships, particularly when UAE nationals are involved. Since working relationships need time to mature, Canadians are advised to invest time in the market with, preferably, a local presence. Face-to-face contact is essential with a local sponsor, agent, or partner with sufficient access and influence in those circles most important to that particular business. For Canadian firms selling consumer goods to UAE traders, there is no substitute for price. Government procurement also places heavy emphasis on selection of the low bidder, as long as the lowest price bidder is compliant with all technical specifications. Although the UAE is more liberal than other Arab states and English is widely spoken, sensitivity to local traditions and Islamic beliefs is essential. Arabic language on packaging and advertising is both desirable and highly effective in the marketing of consumer goods.
Sales Service/Customer Support
The commercial and industrial markets are also very competitive. For these markets price is also a key purchase factor, but quality, durability, and after-sales service are increasingly determinants for purchases by government and business. The emphasis on after-sales service favours those products backed by local distributors with adequate part stocks and routine maintenance capabilities. The training of qualified maintenance and repair personnel is a critical marketing factor for the more sophisticated end of the market.
Selling to the Government
Government buyers are either the Federal or Emirate governments. Federal purchases are administered through the respective agency in Abu Dhabi or Dubai. Emirates’ purchases are arranged by the relevant local authority, often with the federal agency assistance. In most cases for non-military purchases, government entities will deal only with UAE registered companies and will favour local products over imports. Only when a good or service of acceptable quality is not available locally will the procurement authority seek outside sources. It is common business practice for bids to go direct to select firms that were prequalified with the organization in question.
The military structure in the UAE operates under the Ministry of Defence with the national military elements (Army, Air Force, Navy) reporting to the General Headquarters in Abu Dhabi. Their procurement rules prohibit the use of agents, and require the use of offset arrangements for 60 per cent of the contract value. Canadian goods and services enjoy an outstanding reputation for quality, but, with the exception of hydrocarbon-related industries, are under-represented in this market. For military and civilian government procurement and projects, Canadians are encouraged to seek a presence in the UAE and get their goods/services prequalified to bid. Competition in the public sector is very strong. There are some very large procurement projects under way as UAE governments are investing heavily in infrastructure projects such as roads, power generation and distribution systems, desalination facilities, sewage systems, public housing, recreational facilities, hospitals and other medical facilities and services, schools, athletic facilities, refineries and other hydrocarbon facilities, airports and government buildings. In the Agri-Food sector, the government often partners with local, privately held companies to manage tenders.
Tenders Pre-Qualification Process
For public sector contracts, the requirement almost always is for the foreign company to have a local presence and a valid trade licence in the UAE. Foreign firms can also partner with national companies and establishments should they not wish to have an independent set-up.
Design Consultants can be prequalified by filling out an application form obtained from the entity that they wish to register with and which allows the organisation to assess the consultant's capability to take on future projects. The assessment is often based upon but not limited to technical abilities, project experience, qualifications of staff, financial and economic capabilities and historical performance record. Some of the local entities have an online system that helps facilitate the registration and prequalification process and also track the status of the application. This process may, however, differ from one emirate to the other and it is therefore important that companies take the time to get well versed with the system.
The acceptance of the consultant's pre-qualification is at the discretion of the local entity that reserves the right to reject any proposals. A site-visit to inspect the premise of the consultant's registered office may sometimes be necessary to assess operational capacity, as the level of prequalification is partly based on the consultant's ability to take on large scale projects.
For healthcare projects, it is a two tier approach. Each type requires a minimum level of prequalification based on the complexity of the facility as follows:
Design Consultants with a prequalification level of Tier 1 will only be permitted to undertake the smallest and least complex health facilities.Design Consultants with a higher level of prequalification (Tier 2-4) will be permitted to undertake the more complex health facilities.
Once a company has been pre-qualified, receiving invitations for tenders becomes a simpler process depending on the scope of the project. Canadian firms seeking opportunities are advised to monitor tendering notices posted on public utility, transportation, and municipal web sites, among others.
The prequalification process when approaching private sector entities, although similar to the public sector in terms of qualifications needed to do the job is somewhat more flexible. Companies can get started by sharing their capabilities with the project developers that in turn if interested, would ask for a meeting and take the discussion forward, eventually resulting in the Canadian company being pre-qualified to undertake future projects.
While the requirement to have a local presence remains, it is not always a prerequisite for the pre-qualification process to commence. However, when being short listed for a project, not having a local alliance in place may be seen as lack of commitment and raise questions on the final delivery of the project. It is imperative that companies use the interim period between the PQ and RFP to work the market and get a better understanding of the industry to be able to submit a successful bid. Where necessary, partnering with international consultants as part of a larger consortium may be another market access option to consider.
Legal ConsiderationsThe Importance of Local Legal Counsel
The need for a local attorney will obviously be affected by the size, complexity, and nature of the business to be conducted. The legal system of the UAE is very different from Canada’s. Prior to the modern era, business was conducted according to the dictates of religious law, The Sharia, and traditional custom. Codified law based on modern standards is evolving, as are practices based on the law, such as court and other legal procedures. Where laws appear to govern certain practices according to commonly accepted principles, terms and definitions are often at variance with usual interpretations. What the law says is one thing, what the law means is another thing. Licensing, registration, sponsorship, immigration and labour laws for a workforce almost totally expatriate, the difficulty of termination of agency agreements, partnership requirements, and the preferences given to locals in dispute resolution, among other differences with the Canadian system, argue strongly for Canadian firms to consult local legal counsel. There are many law firms with experience in dealing with Canadian clients and are experienced in the local market, please visit the Trade Commissioner Servicewebsite or contact us for a list of registered Canadian lawyers within the UAE.
Currency
The UAE uses the dirham which is pegged to the US dollar at a rate of AED3.67 to USD1. The GCC has considered introducing a common currency for the GCC Customs Union, however, not much progress have been toward implementing the common currency.
Taxes and Duties
The UAE does not tax personal incomes or corporates. Oil producing companies and branches of foreign banks are the exception and are taxed 20% of the profits are taxed up to a maximum of 20% on their profits.
The UAE is part of the Cooperation Council for the Arab States of the Gulf and signatory to the GCC Customs Union and the Customs Union sets the precedence for import duties into the GCC Common Market; generally speaking 5%, is levied on all foreign goods entering the market. For more information on the GCC customs regulations, please visitImplementation Procedures for the GCC Customs Union.
Canada and UAE signed a convention for the avoidance of double taxation and the prevention of fiscal evasion which is to be ratified. For more information please visit Tax Convention Signed Between Canada and the United Arab Emirates.
Protecting Intellectual Property
The UAE is a member of the General Agreement on Tariff and Trade World Trade Organisation and has developed laws reflecting intellectual property rights laws in accordance with the World Trade Organization. The legislative frameworks for intellectual property protection are the Prevention of Fraud and Deception in Commercial Dealings Law 4 of 1979 and the following three principle laws:
Copyright and Neighbouring Rights Law 7 of 2002, Ministry of Economy and CommerceTrademark Law 8 of 2002, Ministry of Finance and IndustryPatents Design and Industrial Models Law 17 of 2002, Ministry of Information and Culture
The corresponding ministries are entrusted with the implementing the respective laws. Intellectual property law enforcement is carried out at a local emirate level by the local customs authority and not by a federal body, a unified federal customs authority providing oversight is yet to be formed. The supporting infrastructure to enforce and uphold the legislation does require improvement. Canadian businesses are encouraged to seek legal counsel for assistance.
List of contacts and additional sources of information
Canada
United Arab Embassy in Ottawa
125 Boteler Street
Ottawa, ON
K1N 0A4
Tel: + 613 565 7272
Authentication and Service of Documents Section (JLAC)
Foreign Affairs and International Trade Canada
125 Sussex Drive
Ottawa, Ontario,
Canada K1A 0G2
Tel: 613-944-4000 or 613-944-9136
Export Development Canada
150 Slater Street
Ottawa, ON K1A 1K3
Tel: 613-598-2500
United Arab Emirates
Canada Business Council, Abu Dhabi
PO Box 105075, Abu Dhabi, UAE
Tel: +971 (0)2 446 7223
Fax: +971 (0)2 446 7224
Email: admin@cbcabudhabi.com
Canada Business Council, Dubai and Northern Emirates
PO Box 52472, Dubai, UAE
Tel: +971 4 447 3237
Fax: +971 (0)4 359 1026
Email: cbc@cbc-dubai.com
Ministry of the Economy
Abu Dhabi: P O Box 901, Abu Dhabi, UAE
Dubai: P O Box 3625, Dubai, UAE
Tel: +971 2 626 5000 (ABDBI) +971 4 2954000 (DUBAI)
Fax: +971 2 621 5339 (ABDBI) +971 4 295 1991 (DUBAI)
Email: ecoconomy@emirates.net.ae
BRWC IS H20 GOLD
The Doing Business in the United Arab Emirates (UAE) report acts as an introductory guide to conducting business in the market. It provides an overview of the UAE’s economy, opportunities for Canadian capabilities and considers legal and cultural aspects for clients of the Trade Commissioner Service.
Please contact our team of Trade Commissioners for industry insight and assistance.
Abu Dhabi Trade Commissioner Service
Embassy of Canada Abu Dhabi
9th & 10th Floor, West Tower, Abu Dhabi Trade Towers (Abu Dhabi Mall),
Abu Dhabi, United Arab Emirates
Mailing Address:
P O Box # 6970
Abu Dhabi, United Arab Emirates
Tel.: (011-971-2) 694 0332
Fax: (011-971-2) 694-0398
Email: uae-eau.infocentre@international.gc.ca
Dubai Trade Commissioner Service
Consulate General of Canada
19th Floor Emirates Office Towers
Sheik Zayed Road
Dubai, United Arab Emirates
Mailing Address:
P.O. Box # 52472
Dubai, United Arab Emirates
Tel.: (011-971) 4-404-8555
Fax: (011-971) 4-404 8556
Email: uae-eau.infocentre@international.gc.ca
The UAE is one of Canada’s fastest growing markets in the Middle East. Peaceful and prosperous, the UAE offers Canadian businesses unlimited business opportunities in a diverse open economy. Located in the Arab Peninsula, the UAE is a well-established logistics hub providing access to markets in the Gulf, the Middle East, Africa, Eastern Europe, the Indian Subcontinent and the rest of Asia.
Overview
The UAE is one of Canada’s fastest growing markets in the Middle East. Peaceful and prosperous, the UAE offers Canadian businesses unlimited business opportunities in a diverse open economy. Located in the Arab Peninsula, the UAE is a well-established logistics hub providing access to markets in the Gulf, the Middle East, Africa, Eastern Europe, the Indian Subcontinent and the rest of Asia.
The UAE is a federation of seven emirates on the Arabian Peninsula with seaports on both the Arabian Gulf and the Straits of Hormuz; entrance to the Arabian Gulf. Bordered by Saudi Arabia to the south and west and Oman on the east and north, the emirates of Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al- Qaiwain, Fujairah, and Ras Al-Khaimah cover 83,600 square kilometres, constituting the United Arab Emirates, a nation about the size of New Brunswick.
Sheik Khalifa bin Zayed Al Nahyan is the Ruler of Abu Dhabi and President of the UAE, Sheik Mohammed bin Rashid Al Maktoum is the Ruler of Dubai and Vice President. Sheik Khalifa and Sheik Mohammed sit on the Federal Supreme Council together with the rulers of the other 5 emirates, constituting UAE’s principle policy making body. The Council of Ministers is entrusted with implementing approved legislature. Set up to provide oversight of the Federal Supreme Council is the Federal National Council, comprised of representatives from all emirates by Electoral College.
The local emirate government closely parallels the federal government construct. A member of the ruling family constitutes the executive. Implementing the directives of the executive are various ministries and other departments. The ministries and other departments, together with governmental agencies constitute the emirates governing bodies. This federal system of governance has provided for a stable political environment granting an attractive destination for international investment.
The UAE’s post financial crisis economy continues to present opportunities for international investors albeit be at a more modest rate of return. The property market has cooled, however, strong initiatives to develop the non-oil and gas related sectors of the economy have seen the UAE economy continue to grow. Substantial investments in projects that sustain a knowledge based economy continue and this is expected to be the foundation for sustainable growth.
The UAE Economy
As the global economy continues to recover from the 2009 financial woes, the UAE economy is expected to rebound, with GDP projections for the following years expected to be positive.
United Arab Emirates in 2014 (USD)Nominal GDP$416.4 billionReal GDP Growth4.3%GDP per Capita$65,000GDP - Composition by Sector Industry58.9%Services40.5%Agriculture0.6%Population5.6 million
Source: CIA's, The World Fact Book 2014
The oil and gas industry remains the staple of the UAE economy; however, great strides are being made to diversify the economy to secure a sustainable future beyond hydrocarbons. Federal and emirate authorities aggressively peruse a diversification strategy, capitalising on the oil and gas reserves, investing in the development of infrastructure, human capital, trade and tourism. The role of government will continue to be central to the UAE’s economic growth with government related enterprises being instrumental along with substantial public spending.
The details of the key government initiatives are outlines in strategic and economic visions in the economic blue prints:
The UAE Vision 2021New Education Strategy 2010 – 2020Abu Dhabi Economic Vision 2030Dubai Strategic Plan 2015
Abu Dhabi, home to the several sovereign wealth funds and vast oil reserves, forges ahead with the development of existing and new infrastructure to meet the demand of its growing population. Dubai continues to develop its infrastructure; power generation facilities and district coolers, building on the city’s soft underbelly. Ajman, Fujairah, Ras Al Khaimah, Sharjah and Umm al Quaim continue in the same stead. On the whole the economy remains buoyant, employing 98% of the population with an average per capita income estimated at US$49,600 (2010)making for a sizable domestic market for consumer goods and services.
Trade Between Canada and the United Arab Emirates
Government lead initiatives together with policies aligned with attracting foreign direct investment continue to present opportunities for the global business community. The following table shows trade figures between the UAE and Canada.
Canada/UAE Bilateral Trade Statistics (USD millions) 2011201220132014Canada Exports$1,373$1,454$1,536$1,584Canada Imports$910,854$202,181$142,517$78,499
Table 2
Source: Industry Canada
The UAE’s investment in the infrastructure is unparalleled within the region, and has positioned the UAE as a re-export hub annexing regional and Far East markets, servicing the needs of growing economies; the likes of Qatar, Saudi Arabia, India and China.
The UAE as an export destination and re-export hub is a key destination for Canadian capabilities, in which the following sectors have been identified as priority sectors for the Trade Commissioner Service to the UAE:
Agriculture and Agrifood productsEducation and TrainingHealthcareInformation and Communications TechnologiesInfrastructure development:Capital ProjectsFinancial services and FDI attractionOil and GasVisiting the UAE
Regular Canadian passport holders will no longer need to obtain a tourist visa prior to travelling to the UAE, an entry stamp at any port of entry will be granted. For information on other visa types; please visit the UAE embassy in Canada
For travel related information and advice, please visit the Ministry of Foreign Affairs and International Trade Travel Advisory website.
Methods Entering the UAE Market
Broadly speaking, there are three ways to enter the UAE market: direct exporting, entering into an agency agreement, and establishing a physical presence in the UAE.
Direct Sales
Canadian exporters can do business in the UAE by selling directly to the end-user or selling through an informal, non-exclusive re-seller arrangement. Re-seller arrangements are suitable for products where local promotion and after-sales service are not factors. This type of sale is low risk, but has limited growth and profit potential. It is suggested that companies interested in a growth-oriented marketing program select an alternative method to penetrate the UAE market, such as establishing a distributorship/agency relationship with a local company.
Distributorship/Agency Agreements
UAE law does not distinguish between an agent or distributor, referring to both as commercial agents. All agents must be registered with the Ministry of Economy and Commerce. Agent selection is critical as contracts may not be terminated (be it cancelation or non-renewal) with ease, except with sufficient cause as determined by a government committee. Previous rulings have been in favour of the local agent with terminated agents being awarded a compensatory amount when contract is terminated.
The UAE does not award agents licences spanning the length and breadth of the country, exclusive licences are awarded and limited to at least one emirates. Consequently, exporters are urged to pay close attention to geographic territories when concluding contracts. Exporters with a nationwide mandate, must appoint a separate agent for each emirate, or appoint a master agent with offices or sub-agents in each emirate. Most successful trading houses fall into the latter category.
Only UAE nationals or companies wholly owned by UAE nationals may act as agents, and all commercial agents must be registered with the Ministry of Economy and Commerce. Contracted agents must have a presence and be licensed to operate in each emirate in which he/she does business. Agents with exclusive distribution rights may prevent the products from being imported into the specified territory. Exception is made for specified items exempted from the Trade Agencies Law 1.
Foreign firms may enter into agency contracts on a project basis, with the relationship restricted specific projects and automatically terminated upon reward or completion.
Given the complexities of terminating an agency contract as well as the exclusive nature of the contracts, appointing an agent and determining the geographic area covered by the agreement is critical.
Licensing
Licensing of manufacturing processes is a growing market, especially with the UAE's intention to increase the quality and diversity of local production. However, the total market for industrial licenses remains relatively small due to the limited amount of manufacturing done in the UAE.
The majority of licensing is done for the fabricating and/or marketing of trademarked items. Licensees of sports logos, universities, animated characters, etc., are servicing a very active market with one of the world's highest disposable incomes. Licensing is an effective and quick way to meet the current demand, especially among young consumers, for North American styles.
Establishing a Physical Presence in the UAE
There are distinct advantages in maintaining a local presence in the UAE as businesses and government officials prefer to deal with someone they know and trust. Historically, personal relationships have always been important to doing business in the Middle East. In addition, local firms are closer to the local and regional market, customers, contacts, and other elements affecting business.
While there are many ways of establishing a presence in the UAE, the most popular methods are through branch offices, limited liability companies, or within free zones. Except in free zones, foreigners are only permitted to own up to 49 per cent of limited liability companies. The remaining 51 per cent must be owned by a UAE national. Foreign companies can market their products in the UAE either through these limited liability companies or through 100 per cent UAE National owned distributorships. There are exceptions to this per cent shareholding rule, the most relevant being for professional or artisan companies, andbranches or representative offices. Each of these exemptions allows 100 per cent foreign ownership, but with restrictions on the allowable scope of business activities. Foreign contractors or service businesses require UAE national sponsors, one for each emirate in which they do business.
Free Zones have become an integral part of the UAE’s position as a regional commercial and re-export hub, with 15% of the UAE’s trading activities taking place within these zones. All zones allow 100 per cent foreign ownership, tax and customs exemptions, full rights to repatriate profits and capital and simplified services to manage red tape. You may access more information about individual free zones at UAE Free Zones.
Steps to Establishing an Office
Legal requirements for Canadian companies setting up a UAE-based office depend mostly on the nature of the business the firm is engaged in, its level of involvement in the UAE, and the emirate where it locates. However, laws are very similar among emirates. Canadian companies need a local sponsor, both for the firm and for its resident employees. A sponsor must be a UAE national or institution, such as a free zone. The sponsor can be involved in the business, or simply a service sponsor providing, for a fee, legally required administrative functions. It is recommended that legal assistance be secured. The Canadian Consulate can recommend some firms.
Companies are required to be licensed by the emirate of domicile before beginning business activities. In general, individual emirates will issue: Trade Licenses covering all kinds of trading activity; Professional Licenses covering professions and services; Industrial Licenses for industrial and manufacturing activities; and Vocational Licenses for craftsmen and artisans. Licenses for some categories of business require approval from certain federal ministries and other authorities: for example, banks and financial institutions from the Central Bank of the UAE., insurance companies and related agencies from the Ministry of Economy and Commerce, manufacturing from the Ministry of Finance and Industry, and pharmaceutical and medical products from the Ministry of Health. More detailed procedures apply to businesses engaged in oil and gas production and related industries.
In addition to the required licenses, all Canadian companies doing business in the UAE must be registered with the Chamber of Commerce in each of the Emirates where the business is licensed to operate. In the UAE, chambers are part of the government and membership is mandatory. Firms must decide on the purpose of the office it wishes to establish, as this will determine ownership requirements. For firms conducting regional marketing or administrative functions, a representational office, allowing 100 per cent ownership, may be best. For firms conducting offshore services, a branch office, also allowing 100 per cent ownership, is suggested.
Marketing your product or serviceSelling Factors/Techniques
The commercial tradition of the UAE is that of the middleman or trader acting as a conduit for goods from large manufacturers to South Asia, the Gulf, and East Africa. Today, with Dubai as the hub, the UAE services those markets, as well as the rest of Africa and all of the Middle East, and the newly independent states of Central Asia. The UAE’s business traditions place a very high premium on personal relationships and perceptions of integrity. Thus price and personal relationships are the key determinants in the UAE market. Product quality, after-sales service, and regular maintenance requirements determine purchasing decisions in the new UAE as there is a layering effect that separates the top echelon from all but the most important business decisions. The many expatriate managers of UAE-based companies bring with them cutting edge management concepts. However, this welcome new trend has not reduced the importance of personal relationships, particularly when UAE nationals are involved. Since working relationships need time to mature, Canadians are advised to invest time in the market with, preferably, a local presence. Face-to-face contact is essential with a local sponsor, agent, or partner with sufficient access and influence in those circles most important to that particular business. For Canadian firms selling consumer goods to UAE traders, there is no substitute for price. Government procurement also places heavy emphasis on selection of the low bidder, as long as the lowest price bidder is compliant with all technical specifications. Although the UAE is more liberal than other Arab states and English is widely spoken, sensitivity to local traditions and Islamic beliefs is essential. Arabic language on packaging and advertising is both desirable and highly effective in the marketing of consumer goods.
Sales Service/Customer Support
The commercial and industrial markets are also very competitive. For these markets price is also a key purchase factor, but quality, durability, and after-sales service are increasingly determinants for purchases by government and business. The emphasis on after-sales service favours those products backed by local distributors with adequate part stocks and routine maintenance capabilities. The training of qualified maintenance and repair personnel is a critical marketing factor for the more sophisticated end of the market.
Selling to the Government
Government buyers are either the Federal or Emirate governments. Federal purchases are administered through the respective agency in Abu Dhabi or Dubai. Emirates’ purchases are arranged by the relevant local authority, often with the federal agency assistance. In most cases for non-military purchases, government entities will deal only with UAE registered companies and will favour local products over imports. Only when a good or service of acceptable quality is not available locally will the procurement authority seek outside sources. It is common business practice for bids to go direct to select firms that were prequalified with the organization in question.
The military structure in the UAE operates under the Ministry of Defence with the national military elements (Army, Air Force, Navy) reporting to the General Headquarters in Abu Dhabi. Their procurement rules prohibit the use of agents, and require the use of offset arrangements for 60 per cent of the contract value. Canadian goods and services enjoy an outstanding reputation for quality, but, with the exception of hydrocarbon-related industries, are under-represented in this market. For military and civilian government procurement and projects, Canadians are encouraged to seek a presence in the UAE and get their goods/services prequalified to bid. Competition in the public sector is very strong. There are some very large procurement projects under way as UAE governments are investing heavily in infrastructure projects such as roads, power generation and distribution systems, desalination facilities, sewage systems, public housing, recreational facilities, hospitals and other medical facilities and services, schools, athletic facilities, refineries and other hydrocarbon facilities, airports and government buildings. In the Agri-Food sector, the government often partners with local, privately held companies to manage tenders.
Tenders Pre-Qualification Process
For public sector contracts, the requirement almost always is for the foreign company to have a local presence and a valid trade licence in the UAE. Foreign firms can also partner with national companies and establishments should they not wish to have an independent set-up.
Design Consultants can be prequalified by filling out an application form obtained from the entity that they wish to register with and which allows the organisation to assess the consultant's capability to take on future projects. The assessment is often based upon but not limited to technical abilities, project experience, qualifications of staff, financial and economic capabilities and historical performance record. Some of the local entities have an online system that helps facilitate the registration and prequalification process and also track the status of the application. This process may, however, differ from one emirate to the other and it is therefore important that companies take the time to get well versed with the system.
The acceptance of the consultant's pre-qualification is at the discretion of the local entity that reserves the right to reject any proposals. A site-visit to inspect the premise of the consultant's registered office may sometimes be necessary to assess operational capacity, as the level of prequalification is partly based on the consultant's ability to take on large scale projects.
For healthcare projects, it is a two tier approach. Each type requires a minimum level of prequalification based on the complexity of the facility as follows:
Design Consultants with a prequalification level of Tier 1 will only be permitted to undertake the smallest and least complex health facilities.Design Consultants with a higher level of prequalification (Tier 2-4) will be permitted to undertake the more complex health facilities.
Once a company has been pre-qualified, receiving invitations for tenders becomes a simpler process depending on the scope of the project. Canadian firms seeking opportunities are advised to monitor tendering notices posted on public utility, transportation, and municipal web sites, among others.
The prequalification process when approaching private sector entities, although similar to the public sector in terms of qualifications needed to do the job is somewhat more flexible. Companies can get started by sharing their capabilities with the project developers that in turn if interested, would ask for a meeting and take the discussion forward, eventually resulting in the Canadian company being pre-qualified to undertake future projects.
While the requirement to have a local presence remains, it is not always a prerequisite for the pre-qualification process to commence. However, when being short listed for a project, not having a local alliance in place may be seen as lack of commitment and raise questions on the final delivery of the project. It is imperative that companies use the interim period between the PQ and RFP to work the market and get a better understanding of the industry to be able to submit a successful bid. Where necessary, partnering with international consultants as part of a larger consortium may be another market access option to consider.
Legal ConsiderationsThe Importance of Local Legal Counsel
The need for a local attorney will obviously be affected by the size, complexity, and nature of the business to be conducted. The legal system of the UAE is very different from Canada’s. Prior to the modern era, business was conducted according to the dictates of religious law, The Sharia, and traditional custom. Codified law based on modern standards is evolving, as are practices based on the law, such as court and other legal procedures. Where laws appear to govern certain practices according to commonly accepted principles, terms and definitions are often at variance with usual interpretations. What the law says is one thing, what the law means is another thing. Licensing, registration, sponsorship, immigration and labour laws for a workforce almost totally expatriate, the difficulty of termination of agency agreements, partnership requirements, and the preferences given to locals in dispute resolution, among other differences with the Canadian system, argue strongly for Canadian firms to consult local legal counsel. There are many law firms with experience in dealing with Canadian clients and are experienced in the local market, please visit the Trade Commissioner Servicewebsite or contact us for a list of registered Canadian lawyers within the UAE.
Currency
The UAE uses the dirham which is pegged to the US dollar at a rate of AED3.67 to USD1. The GCC has considered introducing a common currency for the GCC Customs Union, however, not much progress have been toward implementing the common currency.
Taxes and Duties
The UAE does not tax personal incomes or corporates. Oil producing companies and branches of foreign banks are the exception and are taxed 20% of the profits are taxed up to a maximum of 20% on their profits.
The UAE is part of the Cooperation Council for the Arab States of the Gulf and signatory to the GCC Customs Union and the Customs Union sets the precedence for import duties into the GCC Common Market; generally speaking 5%, is levied on all foreign goods entering the market. For more information on the GCC customs regulations, please visitImplementation Procedures for the GCC Customs Union.
Canada and UAE signed a convention for the avoidance of double taxation and the prevention of fiscal evasion which is to be ratified. For more information please visit Tax Convention Signed Between Canada and the United Arab Emirates.
Protecting Intellectual Property
The UAE is a member of the General Agreement on Tariff and Trade World Trade Organisation and has developed laws reflecting intellectual property rights laws in accordance with the World Trade Organization. The legislative frameworks for intellectual property protection are the Prevention of Fraud and Deception in Commercial Dealings Law 4 of 1979 and the following three principle laws:
Copyright and Neighbouring Rights Law 7 of 2002, Ministry of Economy and CommerceTrademark Law 8 of 2002, Ministry of Finance and IndustryPatents Design and Industrial Models Law 17 of 2002, Ministry of Information and Culture
The corresponding ministries are entrusted with the implementing the respective laws. Intellectual property law enforcement is carried out at a local emirate level by the local customs authority and not by a federal body, a unified federal customs authority providing oversight is yet to be formed. The supporting infrastructure to enforce and uphold the legislation does require improvement. Canadian businesses are encouraged to seek legal counsel for assistance.
List of contacts and additional sources of information
Canada
United Arab Embassy in Ottawa
125 Boteler Street
Ottawa, ON
K1N 0A4
Tel: + 613 565 7272
Authentication and Service of Documents Section (JLAC)
Foreign Affairs and International Trade Canada
125 Sussex Drive
Ottawa, Ontario,
Canada K1A 0G2
Tel: 613-944-4000 or 613-944-9136
Export Development Canada
150 Slater Street
Ottawa, ON K1A 1K3
Tel: 613-598-2500
United Arab Emirates
Canada Business Council, Abu Dhabi
PO Box 105075, Abu Dhabi, UAE
Tel: +971 (0)2 446 7223
Fax: +971 (0)2 446 7224
Email: admin@cbcabudhabi.com
Canada Business Council, Dubai and Northern Emirates
PO Box 52472, Dubai, UAE
Tel: +971 4 447 3237
Fax: +971 (0)4 359 1026
Email: cbc@cbc-dubai.com
Ministry of the Economy
Abu Dhabi: P O Box 901, Abu Dhabi, UAE
Dubai: P O Box 3625, Dubai, UAE
Tel: +971 2 626 5000 (ABDBI) +971 4 2954000 (DUBAI)
Fax: +971 2 621 5339 (ABDBI) +971 4 295 1991 (DUBAI)
Email: ecoconomy@emirates.net.ae
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