International Business Environment in UAE

International business environment defines the environment in foreign countries which consists of factors that are exogenous to the home environment of the organization and which influence the organization’s decision making and resource allocation processes. This environment encompasses the political, social, economic, regulatory, legal, tax and technological environments. UAE ranks among the largest economies in Middle East. The following is a description of the international business environment in UAE.

Political Environment

UAE is a federation made up of seven emirates namely Sharjah, Ras al-Khaimah, Dubai, Umm al-Quwain, Fujairah, and Abu Dhabi which is the capital. Each of the above Emirates is autonomous and governed by an Emir who manages the Emirate’s resources. Dubai is ranked by many companies as the most attractive emirate for business. The highest authority in the land is the Supreme Council of Emirs made up of the seven Emirs. The president, the Prime Minister and the Vice-President are drawn from the council and their positions are hereditary. There are no political parties in the country and this creates political stability which translates to low levels of political risk.

Social Environment

Population

UAE’s total population stood at 9.2 million people as at 2013, of which 7.8 million are expatriates from countries such as India, Pakistan, the United States, the UK among others, and 1.4 million were Emirati. The high number of expatriates ensures that the country has the highest standard of skilled human resource that supports international businesses.

More than two-thirds of the population live in either Dubai or Abu Dhabi.

Language and Religion

Arabic, UAE’s native language is widely spoken. English is the second language while large migration equips the country with a variety of languages from Hindi to Mandarin Chinese. Islam is the dominant religion but other religions such as Christianity and Hinduism are practiced.

Climate

UAE lies on prior desert land with a climate characterized by high humidity and temperatures which reach above 50 degrees Celsius in the summer.

Business Hours

A working week in the UAE is from Sunday to Thursday with Friday being the Sabbath day for the Muslims. UAE’s time zone of +4hours GMT allows businesses in the country to respond to various international needs across the globe.

Economic Environment

Currency

UAE’s currency is the Dirhams whose currency abbreviation is AED. The existence of many foreign banks facilitates a robust foreign exchange market.

Transport Infrastructure

In 2014, Dubai International Airport overtook London’s Heathrow Airport as the world’s busiest airport in terms of passengers. A country-wide urban railway network is under construction connecting all major ports to the country’s major cities. This facilitates faster movement of goods from the port to the industries.

Unemployment

UAE’s unemployment rate of 4.5 percent is one of the lowest in Middle East. However, the economy is heavily dependent on foreign labour which accounts for more than 85 percent of the total workforce.

GDP and GDP per Capita

As of 2014, UAE’s GDP stood at 399.45 billion dollars while its GDP per Capita stood at 42, 944 dollars which is the third in the world. Additionally, the country has one of the highest per capita income levels in the world.

Main Sectors of the Economy

UAE is the third largest producer of oil in the world with oil exports accounting for more than 85 percent of the country’s GDP. However, the country is making efforts to diversify through tourism and investments in the financial sector. The county’s manufacturing sector in particular metal processing, real estate, cement and construction, petrochemical industries have witnessed robust growth over the past 5 years.

Inflation Rates

UAE has maintained low inflation rates which stood at 2.3 percent as at 2014.

Ease of Doing Business

UAE ranks as the 31st best country globally in regard to the ease of doing business. This is according to a report published by the World Bank in 2015.

Regulatory Environment

Commercial, industrial and professional licenses are issued by the Department of Economic Development. However, it is worth noting that licenses pertaining hotel and tourism related industries are issued by the Department of Tourism and Commerce. Additionally, all industrial and commercial industries must be registered with the Chamber of Commerce and Industry.

On its hand, the Ministry of Labour and Department of Immigration regulates the process of immigration of foreign workforce by facilitating the issuance of work permits and visas.

 

Legal Environment

In the past, each of the Emirates had its own rules which governed the operations of foreign firms in UAE. However, this changed with the enactment of the Commercial Companies Law of 1984 which was a codified law applicable throughout the UAE. This law permits a 100 percent foreign ownership of professional firms and also allows for 100 percent repatriation of profits and capital. However, for Limited Liability companies, maximum foreign equity participation is capped at 49 percent and at least 51 percent of the company’s share capital should be allocated to UAE citizens.

Taxation

The UAE has no corporate, personal or withholding taxes and this makes the country to rank among countries where there is almost a complete absence of taxation. However, there exist other taxes and levies.

Petroleum and Bank Taxes

These taxes only apply to oil companies and banks. The former pay up to 55 percent tax on income sourced from UAE while foreign banks pay 20 percent tax on the taxable income they generate within the Emirate. Taxable income on oil companies is based on concessional agreements while those on banks are based on the audited financial statements. In addition to these taxes, oil companies also pay royalties which are based on their production.

Municipality Taxes

These charges levied by the different municipalities on people working and living in UAE vary depending on the emirate. Hotels charge a service charge of between 10 to 15 percent per night on their room rates while a service charge of 5 to 10 percent is charged on food purchased in restaurants.

Custom Taxes

Import duties have remained at a constant rate of 5 percent but cigarettes and alcohol are an exemption attracting 100 percent and 50 percent tax rates respectively.

UAE Free Zone Taxes

Companies willing to start operations in UAE’s Free Zones which were established to stimulate UAE’s manufacturing sector are exempted from personal taxes, custom duties and also exempted from corporate taxes for 50 years.

Technological Environment

As at 2013, 88 percent of the country’s population had access to internet.

The Dubai Internet City is one of the Free Zones dedicated to IT companies. The   country also host the Gulf Information Technology Exhibition, one of the largest exhibitions in the world.

Despite there being several television and radio stations, the country’s media is highly regulated by the government.

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