United Arab Emirate

United Arab Emirate
Picture: World’s 2nd busiest airport in terms of international passengers
Picture: Dubai International Airport - world’s 2nd busiest international passengers airport
Picture: Dubai’s hotel sector - world’s 3rd most profitable
Picture: Dubai’s hotel sector is the world’s 3rd most profitable in 2013, ahead of London and Sydney
Picture: World’s most-visited and largest shopping centre – Dubai Mall
Picture: Dubai Mall - world’s largest shopping centre and most-visited mall
Picture: Sharjah - UAE’s manufacturing hub
Picture: The UAE’s 3rd largest economy, Sharjah, contributes more than 48% of the country’s industrial output
Picture: Foreign citizens: 80% of total population
Picture: Foreign citizens account for about 80% of the UAE’s population
Picture: Abu Dhabi’s population grew by 8% annually during 2005-2012
Picture: Abu Dhabi’s average population growth rate was 8% during 2005-2012
Picture: Abu Dhabi aims at building high-value added industries
Picture: Building sophisticated and high-value added industries is a key priority in Abu Dhabi’s diversification strategy
Picture: Hong Kong’s largest export market in the Middle East
Picture: The UAE is Hong Kong’s largest export market in the Middle East
Picture: Imports of precious stones and transport equipment grew by CAGR of 20% during 2009-2013
Picture: Dubai’s import of precious stones and transport equipment grew by about 20% annually during 2009-2013
Picture: Dubai airport - world’s 5th busiest cargo airport
Picture: Dubai International Airport is the world’s 5th busiest cargo airport in 2013
Table: Major Economic Indicators of UAE
Table: Major Economic Indicators of UAE

Recent Developments

  • After expanding 3.9% in 2015, GDP growth of the UAE[1] is expected to moderate to 2.4% in 2016 amid a slowdown in non-oil activity as a result of a tightening of public spending and softer domestic demand.
  • In February 2016, the UAE announced to introduce a value added tax (VAT) of 5% in 2018, with exemptions covering 100 food items, healthcare and education.
  • The UAE has arisen as a safe haven amid continuing regional unrest. Cumulative FDI reached US$111.1 billion in 2015, increasing 11% over the year.
  • Dubai won the bid for hosting the 2020 World Expo in 2013. Expo-related infrastructure works have begun and create many business opportunities in the construction and tourism sectors. In its 2016 budget, Dubai announced that it would allocate Dh16.6 billion (US$4.52 billion) for infrastructure projects, about Dh1.8 billion (US$490 million) higher than in 2015.
  • In August 2015, the UAE removed fuel subsidies, with savings seen as directed towards financing transport and infrastructure projects.
  • The UAE is Hong Kong's largest export market in the Middle East. In the first eight months of 2016, Hong Kong's total exports to the UAE grew by 13.9% YOY to US$ 4,475 million.

Current Economic Situation

The UAE’s services, industry and agriculture sectors account for, respectively, 50%, 49% and 1% of the combined GDP of the seven emirates. Among the seven, Abu Dhabi and Dubai take up the lion’s share of the country’s GDP. Abu Dhabi, accounting for about 60% of the UAE’s GDP, owns around 10% of the world’s oil reserves and about 90% of the country’s oil reserves, focuses on energy-based industries. Meanwhile, Dubai, the second largest economy in the UAE, is known for its commercial and financial services, tourism, logistics and trading.

Revised statistics released by the UAE Central Bank indicated that non-oil GDP growth increased by 3.2% in 2015 after 4.1% in 2014. Non-oil economic activity continues to decelerate. The Economic Composite Indicator (ECI), a quarterly tracker of the non-oil economic activity, registered growth of 2.4% In Q2 2016, down marginally from 2.5% in the previous quarter. The slowdown was mainly driven by a further tightening of public spending due to fiscal consolidation and softer domestic demand as a result of subsidy cuts. Nevertheless, sectors including transportation, construction and tourism will remain resilient due in part to the preparations for the 2020 World Expo.

Despite the apparent oil glut and sluggish global economic recovery in 2016, no significant move has been made to reduce global oil supply as major suppliers attempting to secure market share. In August 2016, the UAE ranked fourth in oil production at 2.952 million barrels per day (MBD) among the 14-member OPEC, trailing Saudi Arabia, Iraq and Iran.

To achieve fiscal consolidation amid declining government revenues, the UAE government has introduced a number of measures to reduce government spending through energy subsidy reforms. In January 2015, Abu Dhabi took steps to reduce subsidies by introducing new water and electricity tariff systems based on usage. In August 2015, the UAE government removed fuel subsidies in petroleum, making it the first oil producer in the Middle East to deregulate energy prices. Total subsidies cost the country US$17 billion (12% of total government spending) in 2014. Subsidy reforms are expected to help ease pressures on the budget to allow savings to be directed towards financing transport and other infrastructure projects.

To further strengthen their revenue base and reduce the dependence on fluctuating oil prices, the UAE announced in February 2016 to introduce value added tax (VAT) at 5% from January 2018, with exemptions including 100 food items, healthcare and education. In the first year of VAT introduction, the UAE is expected to generate Dh12 billion (US$3.3 billion) of new tax revenue.

Economic diversification

With an aim to reduce the contribution from the oil-related sectors, the UAE strives to diversify its economy by developing tourism, retail, trade and real estate industries. The UAE is adhering to its long-term strategy to diversify its national economy, from slightly less than 70% of the country’s GDP currently, to as high as 80% in 2021. In November 2015, the UAE announced a Dh300 billion (US$81.7 billion) plan to foster a knowledge economy and innovation, which will include initiatives with major investments in education, health, energy, transport, space and water. The plan also includes tripling the labour force in the “knowledge economy” by 2021.

The UAE is well known for its rapid infrastructure and construction development. Many construction projects once put on hold during the global financial tsunami in 2008 and the Dubai liquidity crisis in 2009 have been resumed or completed, thanks also to the revived business confidence and capital influx in the wake of the Arab Spring that has swept through the MENA region since 2011. These projects include the Mall of the World (a mixed-use complex incorporating the world's largest shopping mall), Deira Islands (a 15-km waterfront cluster of hotels, residential and retail areas), and the Mohammed bin Rashid City project (a mega shopping mall and 100 hotels are being planned). Despite the slow recovery of global economy, Dubai was reportedly continuing awards of significant projects in 2016, including the US$840-million second phase of the Atlantis Hotel on The Palm Jumeirah, and the Nakheel’s US$380-million Palm Gateway Towers.

The UAE is also developing new sectors, such as the Islamic Economy, and investing in innovation, content development and other such activities, consistent with the goal to build towards economic diversity and fortify the UAE against the wild gyrations of the global world markets. In 2013, Dubai won the bid to host the 2020 World Expo. An estimate of expo-related investment of US$6.8 billion will be spent on exhibition facilities and infrastructure, including a metro system extension. Further, many tourism projects, such as the Bluewaters Island (a retail, residential, hospitality and entertainment complex) and three themes parks (Motiongate Dubai, Bollywood Parks and Legoland Dubai), are under construction. A new retail park with more than 25,000 sqm gross leasable area (GLA) was open in September 2016 at Dubai’s Jebel Ali area. This Outlet Village is modelled on a Tuscan hilltop town and located near Dubai Parks and Resorts, equidistant between “old" Dubai and Abu Dhabi.

The logistics industry has become increasingly important to the country’s economic diversification. As a trading and transportation hub in the MENA region, Dubai is the region’s largest container handler, with container throughput more than doubling from 6.4 million TEUs to 15.2 million TEUs between 2004 and 2014. In 2015, Dubai handled a record 15.6 million TEUs, ranking the 9th busiest seaport in the world.

Thanks to the expansion of airport infrastructure and airline networks, passenger traffic in the Dubai International Airport (DIA) grew 10.7% to reach a historical high of 78 million in 2015, making it the world’s busiest airport for international passengers. Despite a shift of cargo operations to Al Maktoum International Airport (AMIA) at Dubai World Central (DWC), DIA handled a record volume of 2.51 million tonnes of aircargo in 2015, increasing by 3.4% from 2014 and making it the world’s 6th busiest aircargo port in 2015. AMIA, Dubai’s second airport, started managing passenger traffic in October 2013 after launching its cargo operations in 2010. Currently, there are 36 freight operators at AMIA, including Emirates’ SkyCargo and Hong Kong-based Cathay Pacific. In 2015, the Dubai authorities announced plans to expand AMIA’s passenger terminal capacity to 130 million passengers per annum in 2022.

Financial development

To enhance investor confidence and prevent over-speculation in the property sector, the UAE central bank has been tightening regulations on the banking sector. In March 2014, Abu Dhabi agreed to refinance US$20 billion of debt extended to Dubai, rolling over the debt to 2019 at a fixed interest rate of 1%, down from 4% previously. Based on IMF estimates, the total debt of Dubai and its GREs totalled at US$142 billion (equivalent to 102% of the emirate’s GDP), in which US$92 billion is scheduled to mature in 2014-19.

In June 2012, the Dubai government issued Islamic bonds (Sukuk) totalling US$1.25 billion, marking its return to the bond market in almost a year to take advantage of the emirate’s economic rebound and lower financing costs. Since the peak of the Dubai World debt crisis in 2010, the cost of insuring the emirate’s debt has dropped by one-third. With the sukuk proceeds and renewed confidence in Dubai as a safe haven despite regional upheavals, the Dubai government has greater room for managing its budget deficits and refinancing plans. As of September 2016, a total value of US$ 45.6 billion of Sukuk was listed in Dubai, making it the world’s largest Sukuk listing centre by value. 

Investment Policy

Despite the on-going political and military conflicts in different countries in the Middle East and North Africa (MENA) region, the UAE is considered not just a safe haven for capital flight, but also investment. The UAE welcomes FDI and highlights it as a key part of its long-term economic plan, with a goal to raise inward FDI from 2.7% of its gross national product (GNP) in 2014 to 5% in 2021.

Various emirates in the UAE have set up their own investment promotion units. The Abu Dhabi Department of Economic Development (DED) is responsible for leading the emirate’s economic agenda towards a balanced, diversified and sustainable knowledge-based economy. In attracting FDI, Abu Dhabi provides many investment incentives, including zero corporate tax and income tax, with more details found at the DED website.

In 2015, the Abu Dhabi Investment Attraction Committee has been set up to draft a FDI attraction strategy that focus on sectors already identified under the Abu Dhabi Economic Vision 2030. These sectors include industry, tourism, transport and logistics, financial services, insurance, media, energy, construction, real estate, telecom, information technology, health and education.

In Dubai, a new investment promotion agency under the emirate’s Department of Economic Development was established in 2014. The Dubai Investment Development Agency is tasked with enhancing Dubai's position as a global economic hub for attracting investment, targeting strategic sectors including manufacturing, logistics, information technology, green technology, retail, tourism and healthcare.

Free zones

Dubai was the first emirate in the UAE to pioneer the free zone model, offering foreign businesses attractive concessions and investment incentives. Currently, there are nearly 40 free zones in the UAE (10 more free zones are currently under development) and many of them have specialised themes such as finance, logistics, media, healthcare, textiles and automobile. Companies in free zones can usually enjoy 100% foreign ownership and profit repatriation, with no corporate tax, no customs duty, no currency restrictions, no labour restrictions and no trade barriers or quotas. A Free Zone Authority (FZA) governs each free zone and is responsible for issuing operating licenses. Further details can be found at the official website of the UAE Free Zones.

Dubai’s Jebel Ali Free Zone (JAFZA), for example, is one of the largest and most successful free zones. JAFZA accounts for, respectively, almost 50% and 25% of Dubai’s and the UAE’s total non-oil exports, as well as 20% of all FDI inflows into the UAE. In 2015, total number of companies in JAFZA increased by 8%, including a 12% growth in sectors such as equipment & machinery, electronics and steel and building materials. Currently, JAFZA is home to more than 7,000 companies including more than 100 Global Fortune 500 enterprises. These companies are engaged in a range of industrial and service sectors, majority of which involved in trading activities, and the rest in the manufacturing and logistics sectors.

While recently there are plans to relax the current 49% ownership restriction to allow 100% foreign ownership of companies outside free zones in certain strategic sectors, it is worth noticing that the overall regulatory and legal framework in the UAE still favours local over foreign investors. There is no national treatment for investors in the UAE and foreign ownership of land remains restricted.

Foreign investment

The UAE accounts for nearly 30% of total FDI stock in the Gulf Cooperation Council (GCC)[2]. According to the 2016 World investment Report published by UNCTAD, UAE’s cumulative FDI reached US$111.1 billion in 2015, a yearly growth of 11%. The bulk of FDI was concentrated in the sectors of real estate, trade and car repairs, finance and insurance and manufacturing. China’s investment in the UAE has been growing in recent years, with cumulative FDI rising from US$764.3 million in 2010 to US$2.3 billion in 2014.

Trade Policy

The UAE is a member of the World Trade Organisation (WTO), and maintains a rather liberal trade regime. Imports are subject to few controls except for the import of arms and ammunition, alcoholic beverages, agricultural pesticides, narcotics and pork products. Israeli goods are also prohibited. There are no exchange controls in the UAE. However, all importers have to apply for a licence, and an importer can import only those goods specified in the licence.

Customs duty is calculated on the CIF value at the rate of 5% for most products. Imports of intoxicating liquors, however, are subject to a 50% customs duty on their CIF value, while the rate for tobacco products is 100%. CIF value will normally be calculated on the declared value of the shipment.

There is no specific labelling requirement on goods in general, but food labels have to contain product and brand names, production and expiry dates, country of origin, name of the manufacturer, net weight in metric units, and a list of ingredients and additives in descending order of proportion. All fats and oils used as ingredients must be specifically identified on the label. Labels should be in Arabic, or both Arabic and English.

The tie between the UAE and its fellow members of the GCC is strong. In November 1999, the GCC formed a customs union, which took effect from 1 January 2003. The accord establishes a single tariff of 5% on more than 1,500 imported items from non-member countries. It also provides a list of other essential items that can be imported duty-free. Under the accord, goods imported into the GCC area can be freely transported subsequently throughout the region without paying additional tariffs.

Regional trade agreements

On the regional level, The UAE seeks to deepen mutually beneficial collaboration with Arab nations through the Greater Arab Free Trade Area Agreement (GAFTA). Under the GAFTA, which came into force on 1998, UAE can enjoy free trade with Algeria, Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia and Yemen.
International trade agreements

As part of the GCC, UAE has free trade agreements (FTAs) with Singapore, New Zealand and the European Free Trade Association (EFTA) of Switzerland, Norway, Iceland, and the Principality of Liechtenstein. Negotiations on the establishment of FTA with the EU, Japan, China, India, Pakistan, Turkey, Australia, Korea and the Group of Mercosur which include Brazil, Argentina, Uruguay and Paraguay are also on-going.

The UAE has concluded double taxation agreement (DTAs) with a number of countries/territories including the Chinese mainland. On the heels of concluding a Comprehensive Double Taxation Agreement with Hong Kong in 2014, the UAE is negotiating with Hong Kong on an Investment Promotion and Protection Agreement (IPPA).

Hong Kong's Trade with UAE^

The UAE is Hong Kong's largest export market in the Middle East. In the first eight months of 2016, Hong Kong's total exports to the UAE went up by 13.9% YOY to US$4,475 million. Major export items included pearls, precious and semi-precious stones (US$2,048 million, 45.8% of total, +49.1% YOY), telecom equipment and parts (US$1,184 million, 26.5% of total, +8% YOY), jewellery (US$205 million, 4.6% of total, -37.7% YOY).

Hong Kong's imports from the UAE dropped by 2.1% YOY to US$2,672 million in the same period. Major import items included pearls, precious and semi-precious stones (US$1,167 million, 43.7% of total, -10.9% YOY), jewellery (US$848 million, 31.7% of total, +36.7% YOY), telecom equipment and parts (US$239 million, 8.9% of total, -24.2% YOY).

Table: Hong Kong Trade with UAE
Table: Hong Kong Trade with UAE

The UAE’s Involvement in Hong Kong’s Economy

According to the Census & Statistics Department of Hong Kong, there were 17 UAE local companies with a presence in Hong Kong as of June 2015. UAE companies in Hong Kong include the National Bank of Abu Dhabi (NBAD), Mashreq Bank, and Emirates Airlines.

More Information

More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides

Related information: UAE infographics


[1]  The UAE consists of seven emirates, namely Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Fujairah, Umm al-Qaiwain and Ajman.

[2]  Gulf Cooperation Council (GCC) comprises of six Middle Eastern countries - Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman.