Dubai
Dubai's economy is fairly clearly divided between the 'onshore' sector, dominated by local business interests, with restrictions on foreign ownership, and the 'offshore' sector which consists of the The Jebel Ali Free Zone, the Dubai Investment Park, Dubai Internet City, the Dubai International Finance Centre (DIFC), which opened in 2003, the Dubai Airport Free Zone, and Dubai Media City. There are no taxes to speak of in Dubai, on- or off-shore, but 100% foreign ownership and customs privileges make the Free Zone and its successors some of the most favourable locations in the Middle East for international operations.
All business in Dubai is low tax, but in Offshore Business Review we examine the Free Zone, the newer DIC and DIFC, shipping and the banking and finance sector, which are the business sectors most interesting to international investors.
Banking and Finance Sector
The regulatory authority since 1980 has been the UAE Central Bank. Recent figures suggested that some 47 commercial banks operate, with a total of around 350 branches, of which about 28 are foreign banks with a combined total of more than 200 branches.Federal law restricts foreign banks to no more than eight branches each. There are a number of Islamic banks in Dubai.
Despite regional uncertainties, UAE banks saw increases in bank deposits during 2002 and 2003. Central Bank figures revealed that deposits with the increased from US$50bn at the end of 2002 to US$65bn at the end of 2003, and more than $70bn in mid-2004. The Central Bank has reported that most of this increase has been accounted for by residents' deposits.
Most banks provide trade, project and consumer financing. Their re-export financing accounts for a large portion of trade finance, and this is viewed as having substantial prospects for growth. Short-term loans (3-6 months) by commercial banks are offered at current interest rates. Project loans are given for five years. Consumer financing is also growing rapidly. Furthermore, the local banking system has well established correspondent relationships with international banks.
Federal law requires that every commercial bank must have a paid-up capital of at least Dh 40 million. There are few investment or merchant banks at present.
In the UAE, the marketing of financial products and services is regulated by the UAE Central Bank under Federal Law No. 10 of 1980 (the Central Bank Law and related banking resolutions). Enforcement of Central Bank policy, however, is often undertaken by the local licensing authorities in the various Emirates.
The Central Bank Law establishes five principal categories of institutions in the UAE - commercial banks, investment banks, financial establishments, financial intermediaries, and monetary intermediaries - all of which must be licensed by both the Central Bank and the local licensing authorities. In addition to these five categories, current practice in the individual Emirates permits the licensing of financial or investment consultants. These consultants are not required to obtain a Central Bank license.
Commercial Banks The Central Bank Law defines a commercial bank as any establishment which customarily receives funds from the public, grants credit and banking facilities, and conducts other banking operations prescribed for commercial banks either by law or by customary banking practice. In the UAE, customary banking practice includes the marketing and sale of investment products and services, including the sale of securities and various funds.
Central bank regulations announced on April 5, 1993, set the minimum capital to risk-weighted asset ratio at 10 percent, which is 2 percent higher than the minimum level recommended by the Basel Concordat committee on banking supervision.
Investment Banks Central Bank Resolution No. 21 of 1988 regulates the activities of investment banks. Investment banks are defined as merchant or development banks or banks which provide medium or long term financing. The Central Bank Resolution authorizes investment banks in the UAE to offer financial products and services, including the issuance of financial instruments and the management of investment portfolios.
Financial Establishments The Central Bank Law permits financial establishments to lend money and to undertake other financial transactions but does not allow them to accept deposits. The Central Bank has adopted a policy that prohibits financial establishments from offering financial products and services. In comparison to commercial banks, the only activity that financial establishments may undertake which commercial banks may not is the lease of equipment and machinery.
Financial Intermediaries Financial intermediaries are brokers. Regulations issued under the UAE Central Bank Law allow licensed brokers to market and to sell foreign and local shares and financial instruments in consideration for a commission. Local and foreign companies may obtain a brokerage license from the UAE Central Bank.
Monetary Intermediaries Monetary intermediaries are money changers. They are not authorized to market or to sell investment products and services.
Investment Consultants The UAE Central Bank has not published regulations on investment consultancy. Under the existing policies of the individual Emirates, a company licensed as an investment consultant may advise and assist clients in pursuing various investment strategies but may not directly sell investment products. Sales of investment products introduced by consultants are, therefore, typically booked outside the UAE. Consultants are also not expected to receive investment funds from clients, although they may assist in the transfer of those funds. Consultants may not provide credit facilities or open accounts for clients but may assist them in opening accounts with brokers and banks. If properly authorized by the client, the consultant could also manage such accounts.
The UAE Central Bank has moved towards a tighter policy regarding investment companies and financial consultants. In the future, such companies will have to obtain a license from the Central Bank and to report under the rules it has established. Investment Companies for the purpose of these regulations have been defined as undertakings which are involved in investment in securities or in the management of trust funds or investment portfolios on behalf of others. The minimum paid up capital for investment companies (including branches of foreign companies ) is DH 25 million, increasing to a larger amount depending on the activities of the company. Financial consultants, on the other hand, are deemed to be individual professionals or groups of professionals providing advice to individuals or companies about the value of securities and other financial instruments or giving recommendation about investing. For these, licenses can be issued with a minimum paid in capital of DH 1 million.
Many of the foreign banks in Dubai are established in the Jebel Ali Free Zone (see below) and the Dubai International Finance Centre.
Dubai could be said to be over-banked, and there is intense competition to offer technologically-advanced services - services on offer include mobile phone banking and Internet banking. With proposed plans to develop the UAE as a regional e-commerce centre and development of the Dubai Internet City, many banks are working on providing high-tech banking products and services.
Dubai International Finance Centre
During 2002, the Dubai authorities developed plans for the Dubai International Finance Centre (DIFC), which was launched in 2003 and began operations in late 2004.
In July, 2003, the UAE Federal Cabinet approved a Federal Decree allowing the DIFC a large degree of sovereignty. The approval of the Decree, which allows for Financial Free Zones to be established in the UAE, marked a significant step forward for the Centre, which hosted a summit between the World Bank and the IMF in September. In July, 2004, the ruler of Dubai guaranteed the legal independence of the DIFC, and in September of that year, he signed a decree formally establishing the Centre.
In addition to confirming the appointment of General Sheikh Mohammed bin Rashid Al Maktoum, UAE Defence Minister and then-Crown Prince of Dubai (now Ruler) as the President of the DIFC, the decree officially created the DIFC Financial Services Authority, the DIFC Judicial Establishments and the DIFC Registrar of Companies.
The 25 international institutions which had already applied to the DIFC for registration by the end of 2003 included Deutsche Bank, which will move to new premises in the Dubai Financial District once these become available.
Asset management companies, banks, and other financial service providers which establish headquarters in the Dubai International Financial Centre (DIFC) are permitted to do business with locally-based high net worth individuals. DIFC Regulatory Authority chief executive, Phillip Thorpe explained in October, 2002, that although DIFC-based firms will not be allowed to enter into the retail market in Dubai, they will be permitted to deal with individuals whose net worth exceeds Dh5 million.
The DIFC has a separate set of laws called the Commercial Code, comprising a comprehensive set of regulations like company law, legislation on property rights, including laws on security and collateral, title to goods and securities, commercial transactions and contracts, and insolvency.
As the Regulatory Authority is a 'one-stop for everything' regulator, financial institutions are granted an umbrella licence covering all services, but with separate permissions for discrete activities such as wholesale banking, asset management, insurance, re-insurance, securities underwriting, broking, dealing, corporate finance advice, investment advice, derivatives trading, etc.
The Regulatory Authority issued rules to prevent money laundering, requiring a licensed institution in DIFC to appoint an appropriately qualified money laundering reporting officer.
In January, 2004, the Dubai Financial Services Authority (DFSA) announced that 12 new laws relating to operations within the Dubai International Finance Centre (DIFC) were now in place. Chief executive officer of the DFSA, Philip Thorpe explained that:
"The 12 new laws have been drafted by the DFSA to world-class standards, using the best examples of legislation from around the globe. They are clear and concise, and will provide certainty as to the rights and obligations of the financial institutions and other companies who will operate in or from the DIFC."
The laws (to which the DFSA has provided access on its website) are:
- Regulatory Law
- Companies Law
- Law on the Application of Civil and Commercial Laws in the DIFC
- Law Relating to the application of DIFC Laws
- Limited Liability Partnership Law
- Contract Law
- Insolvency Law
- Arbitration Law
- Data Protection Law
- Commercial Court Law
- General Partnership Law
- Markets Law.
- A General Trading Licence allows the holder to import, distribute and store all items as per Jafza rules and regulations.
- A Trading Licence allows the holder to import, export, distribute and store items specified on the licence.
- An Industrial Licence allows the holder to import raw materials, carry out the manufacture of specified products and export the finished product to anycountry.
- A Service Licence allows the holder to carry out the services specified in the licence within the Free Zone. The type of service must conform to the parent company's licence, issued by the Economic Department or Municipality of the relevant Emirate in the UAE.
- A National Industrial Licence is designed for manufacturing companies with an ownership or shareholding of at least 51% AGCC (Arabian Gulf Co-operation Council).
- World class technical infrastructure: high bandwidth, low cost telecom infrastructure and secure, high speed support infrastructure;
- State-of-the-art urban infrastructure: cost competitive, flexible office space and world class housing, medical and education facilities;
- Access to talent pool: large pool of high skill, low cost knowledge workers;
- Straight-forward laws and regulations: easy and fast company registration laws, hassle-free immigration process and straight forward legal procedures;
- Supportive environment: Government backed e-business initiatives, business incubators, venture capital funds and e-education programs;
- Gateway to markets: access to regional markets in Middle East, North Africa, Indian Subcontinent and CIS.
- Container cargo handling
- General cargo handling
- Bulk cargo handling
- Berthing for Ro/Ro vessels
- Monitoring, maintenance and repair of reefer vessels
- Facilities for commercial trucks
- Facilities for passengers.
- Marine Services
- Management
- Product Marketing
- Research & Education
- Recreation
- Ship Design and Manufacturing
- Regulatory Law
- Companies Law
- Law on the Application of Civil and Commercial Laws in the DIFC
- Law Relating to the application of DIFC Laws
- Limited Liability Partnership Law
- Contract Law
- Insolvency Law
- Arbitration Law
- Data Protection Law
- Commercial Court Law
- General Partnership Law
- Markets Law.
- A General Trading Licence allows the holder to import, distribute and store all items as per Jafza rules and regulations.
- A Trading Licence allows the holder to import, export, distribute and store items specified on the licence.
- An Industrial Licence allows the holder to import raw materials, carry out the manufacture of specified products and export the finished product to anycountry.
- A Service Licence allows the holder to carry out the services specified in the licence within the Free Zone. The type of service must conform to the parent company's licence, issued by the Economic Department or Municipality of the relevant Emirate in the UAE.
- A National Industrial Licence is designed for manufacturing companies with an ownership or shareholding of at least 51% AGCC (Arabian Gulf Co-operation Council).
- World class technical infrastructure: high bandwidth, low cost telecom infrastructure and secure, high speed support infrastructure;
- State-of-the-art urban infrastructure: cost competitive, flexible office space and world class housing, medical and education facilities;
- Access to talent pool: large pool of high skill, low cost knowledge workers;
- Straight-forward laws and regulations: easy and fast company registration laws, hassle-free immigration process and straight forward legal procedures;
- Supportive environment: Government backed e-business initiatives, business incubators, venture capital funds and e-education programs;
- Gateway to markets: access to regional markets in Middle East, North Africa, Indian Subcontinent and CIS.
- Container cargo handling
- General cargo handling
- Bulk cargo handling
- Berthing for Ro/Ro vessels
- Monitoring, maintenance and repair of reefer vessels
- Facilities for commercial trucks
- Facilities for passengers.
- Marine Services
- Management
- Product Marketing
- Research & Education
- Recreation
- Ship Design and Manufacturing
Dubai International Finance Exchange
The Dubai International Financial Exchange (DIFX) opened for trading for the first time on Monday 26th September, 2005.
The launch of the first truly international stock exchange located between Western Europe and East Asia took place at a ceremony at the Dubai International Financial Centre (DIFC), where the DIFX is located.
The stated aim of the DIFX was to become the leading exchange in its region for equities, bonds, funds, Islamic products and other securities, and a gateway for international and regional investment.
It is the first exchange in the region that has been created to list securities from many different countries. UAE companies will be able to list shares on the DIFX by setting up a holding company in the DIFC. Companies seeking listings on the exchange must have a minimum market capitalisation of $50 million.
The exchange is additionally regulated in such a way as to allow companies which list on it to determine the portion of shares that they want to offer to the investing public. This flexibility is designed to encourage family-owned businesses and government entities discouraged by the current UAE lower listing limit of 55% to list on the bourse.
Dr Omar Bin Sulaiman, Director General of the DIFC Authority, stated at the time that: “This is an historic day for Dubai, the Middle East and the entire region that the DIFX will serve. The exchange will be a catalyst for economic growth and prosperity. It will strengthen the ties between the countries of the DIFX region, as well as between the region and the rest of the world.”
The DIFX market opened with the listing of five Deutsche Bank securities. These are index tracking certificates, which will cover the US S&P 500, the German DAX 30, the Japanese Nikkei 225, the EuroStoxx 50 and the Stoxx 50.
The DIFX opened with four member banks – CSFB ( Europe) Ltd, Deutsche Bank AG, HSBC Bank plc and UBS AG.
The DIFX expects to have up to 40 members by the end of 2006, including many leading international and regional investment banks. It also expects its issuer base to be the most international in the world, drawn from many countries and with no single country predominating.
The Jebel Ali Free Zone
The Jebel Ali Free Zone (JAFZ) was established in 1985 with the specific purpose of facilitating investment. Accordingly, the procedures for setting up in the zone are relatively simple. Its legal status is quite distinct: companies operating there are treated as being "offshore", or outside the UAE for legal purposes.
The option of setting up in Jebel Ali is therefore most suitable for companies intending to use Dubai as a regional manufacturing or distribution base and where most or all of their turnover is going to be outside the UAE.
100% foreign ownership is permitted in the JAFZ. There is exemption from all import duties and 100% repatriation of capital and profits is guaranteed.
There is freedom from corporate taxation for a period of 50 years, a concession which is renewable. There is a high level of administrative support from the Free Zone Authority. In addition, there are no import or re-export duties, no personal income taxes, no currency restrictions, and no restriction on hiring foreign employees.
Companies approved for operation in Jebel Ali Free Zone are granted one of the following types of licences, renewable annually for as long as the company holds a valid lease from the Free Zone Authority:
Any company wishing to set up a project in Jebel Ali Free Zone must first complete a simple questionnaire. The license application process then takes place and will include a meeting to discuss and finalise the project details. If everything is satisfactory, the Authority will issue conditional approval for the project. Thereafter, a lease agreement and, if required, a personnel secondment agreement will be prepared by the Authority for signature by the company.
At the time of signing, the applicant will be required to provide the insurance policies called for in the agreements and should pay the agreed rental and licence fee prior to collection of the licence.
If the company wishes the Free Zone Authority to sponsor employees on its behalf, applications for entry permits may be submitted once the licence has been issued. The bank guarantee called for in the personnel secondment agreement will be required at this stage together with visa charges.
If the company's project involves the erection of a structure, detailed plans must be submitted after the lease has been signed. When the plans have been agreed, a building permit will be issued.
Administrative work, such as importing equipment or engaging labour for installation of equipment, may proceed in parallel with construction work. But application for entry permits for operatives to be sponsored by the Free Zone Authority will not normally be accepted until a completion certificate for the construction has been issued.
A Free Zone Establishment - or FZE - is an establishment formed and registered in Jebel Ali and regulated solely by the Free Zone Authority.
Such establishments must have a capital of at least Dh 1 million and liability will be limited to the amount of paid-up capital. A FZE need only have a single shareholder and is an independent legal entity.
Any company, organisation or individual wishing to form a Free Zone Establishment must submit a completed application form to the FZE Department of the Free Zone Authority. A decision on whether permission has been granted will be given within 30 days of receipt of the application and any other information and documentation required.
If permission is granted, the Authority will record all relevant details in the FZE Register and issue a Certificate of Formation. This will specify the date of registration after which the FZE will be free to conduct any such business as is permitted in its Special Licence.
The free zone is the base for thousands of leading international firms, including many Fortune global companies from various sectors.
The Free Zone and Dubai Ports Authority (DPA) are inextricably linked, they are led by one chairman and share a strong, symbiotic relationship. The Free Zone is built around the DPA's Jebel Ali terminal, enabling customers to take full advantage of the port's ISO-certified container and general cargo operations. Specialized unloading facilities and purpose-built storage such as the cool and cold stores are also at the disposal of Free Zone companies. Jebel Ali terminal offers efficient cargo handling, and with rates among the lowest in the world, the prospect for exporting is good.
In February 2000 Dubai ruler Sheikh Maktoum bin Rashid al-Maktoum issued a decree setting up a free-trade zone for electronic commerce and technology, known as Dubai Internet City.
Legal and fiscal privileges in the DIC are similar to those applying in the Free Zone.
The physical location of the Internet City is on Sheikh Zayed Road, next to the American University.This area overlooks the Emirates hills golf course development. The City opened for business in late 2000; highlights include:
Shipping in Dubai
Dubai's harbour is the most important port in the Middle East and is ranked among the worlds top 15 in terms of container throughput. The Dubai Ports Authority (DPA) operates the harbour which lies alongside the Jebel Ali Free Zone. Dubai's traditional trade links with nearby Gulf states, Red Sea, East Africa and Asian subcontinent have been enhanced by new commercial ties from around the world. Notable in recent years have been trade relations forged with the emerging CIS and South African markets where shippers are keen to capitalize on Dubai's proven distribution capabilities and advantages.
Dubai Ports Authority (DP World) is known for its ability to provide a superior level of service to shipping lines in Dubai.
Core Services offered by DP World include:
In 2004, the port handled a throughput of 6.42 million TEUs ("Twenty Foot Equivalent Unit" steel ocean shipping containers), representing an increase of 24.6% on its 2003 figures, and making it the 10th largest but also the third fastest growing port.
Also in 2004, Dubai Ports signed a memorandum of understanding with Abu Dhabi Sea Port Authority and Ports Authority of Fujairah to develop joint strategies for both the ports authorities.
Meanwhile, in August 2005, the Dubai Maritime Authority announced plans to launch the first shipping registry in the Middle East open to both domestic and international companies.
Although no time frame was given for the creation of the registry, the move was welcomed by the Emirate's shipping industry.
Dubai Maritime City project manager, Amr Ali explained that:
"The primary function of the registry will be to maintain the specific requirements of the government related to the ship owning company or the ship itself."
"As the first purpose built maritime cluster, we are pleased to be involved in the setting of groundbreaking new industry standards to benefit maritime businesses in the region. We aim to ensure that the highest possible standards are maintained to make it attractive for ship owners and liner operators to register with us."
Dubai Maritime City, expected to be functional in 2006, is an integrated state of the art development that will provide every element of infrastructure required by key marine and maritime related industries.
DMC will be the world's largest maritime development, on a man made peninsula measuring 25 million square feet. Located between Dubai's Port Rashid terminal and Dubai Drydocks, it will be connected to the mainland by a causeway.
Dubai Maritime City will be the hub for maritime businesses from six large and diverse sectors and will provide every element of infrastructure required by them. They include:
Dubai International Finance Exchange
The Dubai International Financial Exchange (DIFX) opened for trading for the first time on Monday 26th September, 2005.
The launch of the first truly international stock exchange located between Western Europe and East Asia took place at a ceremony at the Dubai International Financial Centre (DIFC), where the DIFX is located.
The stated aim of the DIFX was to become the leading exchange in its region for equities, bonds, funds, Islamic products and other securities, and a gateway for international and regional investment.
It is the first exchange in the region that has been created to list securities from many different countries. UAE companies will be able to list shares on the DIFX by setting up a holding company in the DIFC. Companies seeking listings on the exchange must have a minimum market capitalisation of $50 million.
The exchange is additionally regulated in such a way as to allow companies which list on it to determine the portion of shares that they want to offer to the investing public. This flexibility is designed to encourage family-owned businesses and government entities discouraged by the current UAE lower listing limit of 55% to list on the bourse.
Dr Omar Bin Sulaiman, Director General of the DIFC Authority, stated at the time that: “This is an historic day for Dubai, the Middle East and the entire region that the DIFX will serve. The exchange will be a catalyst for economic growth and prosperity. It will strengthen the ties between the countries of the DIFX region, as well as between the region and the rest of the world.”
The DIFX market opened with the listing of five Deutsche Bank securities. These are index tracking certificates, which will cover the US S&P 500, the German DAX 30, the Japanese Nikkei 225, the EuroStoxx 50 and the Stoxx 50.
The DIFX opened with four member banks – CSFB ( Europe) Ltd, Deutsche Bank AG, HSBC Bank plc and UBS AG.
The DIFX expects to have up to 40 members by the end of 2006, including many leading international and regional investment banks. It also expects its issuer base to be the most international in the world, drawn from many countries and with no single country predominating.
The Jebel Ali Free Zone
The Jebel Ali Free Zone (JAFZ) was established in 1985 with the specific purpose of facilitating investment. Accordingly, the procedures for setting up in the zone are relatively simple. Its legal status is quite distinct: companies operating there are treated as being "offshore", or outside the UAE for legal purposes.
The option of setting up in Jebel Ali is therefore most suitable for companies intending to use Dubai as a regional manufacturing or distribution base and where most or all of their turnover is going to be outside the UAE.
100% foreign ownership is permitted in the JAFZ. There is exemption from all import duties and 100% repatriation of capital and profits is guaranteed.
There is freedom from corporate taxation for a period of 50 years, a concession which is renewable. There is a high level of administrative support from the Free Zone Authority. In addition, there are no import or re-export duties, no personal income taxes, no currency restrictions, and no restriction on hiring foreign employees.
Companies approved for operation in Jebel Ali Free Zone are granted one of the following types of licences, renewable annually for as long as the company holds a valid lease from the Free Zone Authority:
Any company wishing to set up a project in Jebel Ali Free Zone must first complete a simple questionnaire. The license application process then takes place and will include a meeting to discuss and finalise the project details. If everything is satisfactory, the Authority will issue conditional approval for the project. Thereafter, a lease agreement and, if required, a personnel secondment agreement will be prepared by the Authority for signature by the company.
At the time of signing, the applicant will be required to provide the insurance policies called for in the agreements and should pay the agreed rental and licence fee prior to collection of the licence.
If the company wishes the Free Zone Authority to sponsor employees on its behalf, applications for entry permits may be submitted once the licence has been issued. The bank guarantee called for in the personnel secondment agreement will be required at this stage together with visa charges.
If the company's project involves the erection of a structure, detailed plans must be submitted after the lease has been signed. When the plans have been agreed, a building permit will be issued.
Administrative work, such as importing equipment or engaging labour for installation of equipment, may proceed in parallel with construction work. But application for entry permits for operatives to be sponsored by the Free Zone Authority will not normally be accepted until a completion certificate for the construction has been issued.
A Free Zone Establishment - or FZE - is an establishment formed and registered in Jebel Ali and regulated solely by the Free Zone Authority.
Such establishments must have a capital of at least Dh 1 million and liability will be limited to the amount of paid-up capital. A FZE need only have a single shareholder and is an independent legal entity.
Any company, organisation or individual wishing to form a Free Zone Establishment must submit a completed application form to the FZE Department of the Free Zone Authority. A decision on whether permission has been granted will be given within 30 days of receipt of the application and any other information and documentation required.
If permission is granted, the Authority will record all relevant details in the FZE Register and issue a Certificate of Formation. This will specify the date of registration after which the FZE will be free to conduct any such business as is permitted in its Special Licence.
The free zone is the base for thousands of leading international firms, including many Fortune global companies from various sectors.
The Free Zone and Dubai Ports Authority (DPA) are inextricably linked, they are led by one chairman and share a strong, symbiotic relationship. The Free Zone is built around the DPA's Jebel Ali terminal, enabling customers to take full advantage of the port's ISO-certified container and general cargo operations. Specialized unloading facilities and purpose-built storage such as the cool and cold stores are also at the disposal of Free Zone companies. Jebel Ali terminal offers efficient cargo handling, and with rates among the lowest in the world, the prospect for exporting is good.
In February 2000 Dubai ruler Sheikh Maktoum bin Rashid al-Maktoum issued a decree setting up a free-trade zone for electronic commerce and technology, known as Dubai Internet City.
Legal and fiscal privileges in the DIC are similar to those applying in the Free Zone.
The physical location of the Internet City is on Sheikh Zayed Road, next to the American University.This area overlooks the Emirates hills golf course development. The City opened for business in late 2000; highlights include:
Shipping in Dubai
Dubai's harbour is the most important port in the Middle East and is ranked among the worlds top 15 in terms of container throughput. The Dubai Ports Authority (DPA) operates the harbour which lies alongside the Jebel Ali Free Zone. Dubai's traditional trade links with nearby Gulf states, Red Sea, East Africa and Asian subcontinent have been enhanced by new commercial ties from around the world. Notable in recent years have been trade relations forged with the emerging CIS and South African markets where shippers are keen to capitalize on Dubai's proven distribution capabilities and advantages.
Dubai Ports Authority (DP World) is known for its ability to provide a superior level of service to shipping lines in Dubai.
Core Services offered by DP World include:
In 2004, the port handled a throughput of 6.42 million TEUs ("Twenty Foot Equivalent Unit" steel ocean shipping containers), representing an increase of 24.6% on its 2003 figures, and making it the 10th largest but also the third fastest growing port.
Also in 2004, Dubai Ports signed a memorandum of understanding with Abu Dhabi Sea Port Authority and Ports Authority of Fujairah to develop joint strategies for both the ports authorities.
Meanwhile, in August 2005, the Dubai Maritime Authority announced plans to launch the first shipping registry in the Middle East open to both domestic and international companies.
Although no time frame was given for the creation of the registry, the move was welcomed by the Emirate's shipping industry.
Dubai Maritime City project manager, Amr Ali explained that:
"The primary function of the registry will be to maintain the specific requirements of the government related to the ship owning company or the ship itself."
"As the first purpose built maritime cluster, we are pleased to be involved in the setting of groundbreaking new industry standards to benefit maritime businesses in the region. We aim to ensure that the highest possible standards are maintained to make it attractive for ship owners and liner operators to register with us."
Dubai Maritime City, expected to be functional in 2006, is an integrated state of the art development that will provide every element of infrastructure required by key marine and maritime related industries.
DMC will be the world's largest maritime development, on a man made peninsula measuring 25 million square feet. Located between Dubai's Port Rashid terminal and Dubai Drydocks, it will be connected to the mainland by a causeway.
Dubai Maritime City will be the hub for maritime businesses from six large and diverse sectors and will provide every element of infrastructure required by them. They include:
All business in Dubai is low tax, but in Offshore Business Review we examine the Free Zone, the newer DIC and DIFC, shipping and the banking and finance sector, which are the business sectors most interesting to international investors.
Banking and Finance Sector
The regulatory authority since 1980 has been the UAE Central Bank. Recent figures suggested that some 47 commercial banks operate, with a total of around 350 branches, of which about 28 are foreign banks with a combined total of more than 200 branches.Federal law restricts foreign banks to no more than eight branches each. There are a number of Islamic banks in Dubai.
Despite regional uncertainties, UAE banks saw increases in bank deposits during 2002 and 2003. Central Bank figures revealed that deposits with the increased from US$50bn at the end of 2002 to US$65bn at the end of 2003, and more than $70bn in mid-2004. The Central Bank has reported that most of this increase has been accounted for by residents' deposits.
Most banks provide trade, project and consumer financing. Their re-export financing accounts for a large portion of trade finance, and this is viewed as having substantial prospects for growth. Short-term loans (3-6 months) by commercial banks are offered at current interest rates. Project loans are given for five years. Consumer financing is also growing rapidly. Furthermore, the local banking system has well established correspondent relationships with international banks.
Federal law requires that every commercial bank must have a paid-up capital of at least Dh 40 million. There are few investment or merchant banks at present.
In the UAE, the marketing of financial products and services is regulated by the UAE Central Bank under Federal Law No. 10 of 1980 (the Central Bank Law and related banking resolutions). Enforcement of Central Bank policy, however, is often undertaken by the local licensing authorities in the various Emirates.
The Central Bank Law establishes five principal categories of institutions in the UAE - commercial banks, investment banks, financial establishments, financial intermediaries, and monetary intermediaries - all of which must be licensed by both the Central Bank and the local licensing authorities. In addition to these five categories, current practice in the individual Emirates permits the licensing of financial or investment consultants. These consultants are not required to obtain a Central Bank license.
Commercial Banks The Central Bank Law defines a commercial bank as any establishment which customarily receives funds from the public, grants credit and banking facilities, and conducts other banking operations prescribed for commercial banks either by law or by customary banking practice. In the UAE, customary banking practice includes the marketing and sale of investment products and services, including the sale of securities and various funds.
Central bank regulations announced on April 5, 1993, set the minimum capital to risk-weighted asset ratio at 10 percent, which is 2 percent higher than the minimum level recommended by the Basel Concordat committee on banking supervision.
Investment Banks Central Bank Resolution No. 21 of 1988 regulates the activities of investment banks. Investment banks are defined as merchant or development banks or banks which provide medium or long term financing. The Central Bank Resolution authorizes investment banks in the UAE to offer financial products and services, including the issuance of financial instruments and the management of investment portfolios.
Financial Establishments The Central Bank Law permits financial establishments to lend money and to undertake other financial transactions but does not allow them to accept deposits. The Central Bank has adopted a policy that prohibits financial establishments from offering financial products and services. In comparison to commercial banks, the only activity that financial establishments may undertake which commercial banks may not is the lease of equipment and machinery.
Financial Intermediaries Financial intermediaries are brokers. Regulations issued under the UAE Central Bank Law allow licensed brokers to market and to sell foreign and local shares and financial instruments in consideration for a commission. Local and foreign companies may obtain a brokerage license from the UAE Central Bank.
Monetary Intermediaries Monetary intermediaries are money changers. They are not authorized to market or to sell investment products and services.
Investment Consultants The UAE Central Bank has not published regulations on investment consultancy. Under the existing policies of the individual Emirates, a company licensed as an investment consultant may advise and assist clients in pursuing various investment strategies but may not directly sell investment products. Sales of investment products introduced by consultants are, therefore, typically booked outside the UAE. Consultants are also not expected to receive investment funds from clients, although they may assist in the transfer of those funds. Consultants may not provide credit facilities or open accounts for clients but may assist them in opening accounts with brokers and banks. If properly authorized by the client, the consultant could also manage such accounts.
The UAE Central Bank has moved towards a tighter policy regarding investment companies and financial consultants. In the future, such companies will have to obtain a license from the Central Bank and to report under the rules it has established. Investment Companies for the purpose of these regulations have been defined as undertakings which are involved in investment in securities or in the management of trust funds or investment portfolios on behalf of others. The minimum paid up capital for investment companies (including branches of foreign companies ) is DH 25 million, increasing to a larger amount depending on the activities of the company. Financial consultants, on the other hand, are deemed to be individual professionals or groups of professionals providing advice to individuals or companies about the value of securities and other financial instruments or giving recommendation about investing. For these, licenses can be issued with a minimum paid in capital of DH 1 million.
Many of the foreign banks in Dubai are established in the Jebel Ali Free Zone (see below) and the Dubai International Finance Centre.
Dubai could be said to be over-banked, and there is intense competition to offer technologically-advanced services - services on offer include mobile phone banking and Internet banking. With proposed plans to develop the UAE as a regional e-commerce centre and development of the Dubai Internet City, many banks are working on providing high-tech banking products and services.
Dubai International Finance Centre
During 2002, the Dubai authorities developed plans for the Dubai International Finance Centre (DIFC), which was launched in 2003 and began operations in late 2004.
In July, 2003, the UAE Federal Cabinet approved a Federal Decree allowing the DIFC a large degree of sovereignty. The approval of the Decree, which allows for Financial Free Zones to be established in the UAE, marked a significant step forward for the Centre, which hosted a summit between the World Bank and the IMF in September. In July, 2004, the ruler of Dubai guaranteed the legal independence of the DIFC, and in September of that year, he signed a decree formally establishing the Centre.
In addition to confirming the appointment of General Sheikh Mohammed bin Rashid Al Maktoum, UAE Defence Minister and then-Crown Prince of Dubai (now Ruler) as the President of the DIFC, the decree officially created the DIFC Financial Services Authority, the DIFC Judicial Establishments and the DIFC Registrar of Companies.
The 25 international institutions which had already applied to the DIFC for registration by the end of 2003 included Deutsche Bank, which will move to new premises in the Dubai Financial District once these become available.
Asset management companies, banks, and other financial service providers which establish headquarters in the Dubai International Financial Centre (DIFC) are permitted to do business with locally-based high net worth individuals. DIFC Regulatory Authority chief executive, Phillip Thorpe explained in October, 2002, that although DIFC-based firms will not be allowed to enter into the retail market in Dubai, they will be permitted to deal with individuals whose net worth exceeds Dh5 million.
The DIFC has a separate set of laws called the Commercial Code, comprising a comprehensive set of regulations like company law, legislation on property rights, including laws on security and collateral, title to goods and securities, commercial transactions and contracts, and insolvency.
As the Regulatory Authority is a 'one-stop for everything' regulator, financial institutions are granted an umbrella licence covering all services, but with separate permissions for discrete activities such as wholesale banking, asset management, insurance, re-insurance, securities underwriting, broking, dealing, corporate finance advice, investment advice, derivatives trading, etc.
The Regulatory Authority issued rules to prevent money laundering, requiring a licensed institution in DIFC to appoint an appropriately qualified money laundering reporting officer.
In January, 2004, the Dubai Financial Services Authority (DFSA) announced that 12 new laws relating to operations within the Dubai International Finance Centre (DIFC) were now in place. Chief executive officer of the DFSA, Philip Thorpe explained that:
"The 12 new laws have been drafted by the DFSA to world-class standards, using the best examples of legislation from around the globe. They are clear and concise, and will provide certainty as to the rights and obligations of the financial institutions and other companies who will operate in or from the DIFC."
The laws (to which the DFSA has provided access on its website) are: