United Arab Emirates

Merchandise Trade

• The UAE has been a member of the World Trade Organization (WTO) since April 10, 1996, and a member of the General Agreement on Tariffs and Trade since March 8, 1994.


• The UAE is a member of the GCC alongside Kuwait, Oman, Saudi Arabia, Bahrain and Qatar. GCC membership means that the UAE is part of a single market and customs union with a common external tariff. Under the accord, goods imported into the GCC area can be freely transported throughout the region without paying additional tariffs.


• Generally, a customs duty of 5% is imposed on the cost, insurance and freight value of imports.


• A 5% VAT was introduced in the UAE as of January 1, 2018. The tax will apply to almost all goods and services except basic food items, education and healthcare. The 0% VAT rate also applies to goods and services exported outside the VAT-implementing GCC member states, international transportation, crude oil/natural gas, the first sale of residential buildings and some specific areas.


• On October 1, 2017, the UAE implemented an excise tax on tobacco products, carbonated drinks and energy drinks. The tax applies to both locally manufactured and imported goods. The applicable tax rates are 50% for carbonated drinks and 100% for tobacco products and energy drinks. Since January 1, 2020, the tax has applied to electronic cigarettes (with or without nicotine or tobacco) and liquids used in them (both at a rate of 100%) as well as beverages with added sugar or sweeteners (50%).


• Prohibited products include live swine and other products prohibited on security, health and safety grounds. Restricted products include pig meat products and alcoholic beverages, which require import licences and, in most cases, the tariff on these products is 200%. Certain medicines can be imported or exported only after receiving the necessary permits from the authorities.


• Trading (importing and/or exporting) in the UAE requires a trading licence and a trader code, which is available from the customs department of each emirate and is valid throughout the UAE. Import and export licences are dependent on ownership rules, with certain industries requiring a domestic partner with a share of 51% of ownership in the importer or exporter in order to obtain the relevant permits. These ownership rules changed in 2018 and are further outlined below (see FDI Policy section).


• Imports of all live animals, animal products (except food products of animal origin) and fodder need an import permit issued by the Ministry of Climate Change and Environment. Additionally, all live animals, animal products, plants and plant products are subject to quarantine requirements and need to be accompanied by health certificates.


• The UAE aims to achieve long-term prosperity for current and future generations through Vision 2021, which aims to forge a sustainable and diversified economy that is flexible in adopting new economic models and capitalises on global economic partnerships. Among the 12 key performance indicators it has set to achieve this are: non-oil real GDP growth, net inflow of Foreign Direct Investment as a percentage of GDP, the share of UAE nationals in the workforce, the 'Emiratisation Rate' in the private sector and the contribution of small and medium-sized enterprises to non-oil GDP.

Sources: WTO – Trade Policy Review, United Arab Emirates, Fitch Solutions

Negotiations for a free trade agreement (FTA) between the European Union (EU) and the GCC started in 1990 but were suspended in 2008. The region represents an important export market for the EU and ongoing cooperation between the two led to a more structured informal dialogue on trade and investment being launched in May 2017. The EU has had a delegation to the UAE since 2013 and in January 2018 a cooperation agreement was signed with the UAE Ministry of Foreign Affairs and International Cooperation to scale up EU–UAE relations and strengthen cooperation on key issues of mutual interest including trade, innovation, research and multilateral cooperation.

6.1 Multinational Trade Agreements

Active

1. WTO: The UAE has been a member of the WTO since April 1996.
   
   
2. The GCC Customs Union: This customs union, which entered into force on January 1, 2003, seeks to enhance ties between member countries and allows the free movement of local goods among member states. The UAE's trade with these countries is tariff-free. Other members are Bahrain, Kuwait, Oman, Qatar and Saudi Arabia. This agreement helps member states to leverage each other's industrial capacity and logistics networks. The geographic proximity of these countries and their general adoption of free-trade economic policies are factors that foster a competitive business environment. Only imports of certain sensitive goods from GCC countries face tariffs, and there is freedom of movement between GCC countries without customs or non-customs restrictions. All members benefit from having common regulations and procedures and unified standards and specifications for all products. There is freedom of movement between GCC countries for the vast majority of goods without restrictions, reducing the overall time and cost burdens for supply chains.
   
   
3. The Pan-Arab Free Trade Area (PAFTA): PAFTA was established in order to create an Arab economic bloc that could effectively compete with other countries while ensuring that member countries increased trade with each other. PAFTA entered into force on January 1, 1998. The most important aspect of the agreement was that over the next decade (to 2008), each member country would seek to reduce customs fees by 10% per annum as well as gradually eliminate trade barriers. In March 2001, the member countries decided to reduce the period over which the reductions in tariffs could be made so as to speed up the process and in January 2005 the elimination of most tariffs among the PAFTA members was enforced. Parties to PAFTA include Algeria and the Palestinian Authority as well as the original signatories: Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, the UAE and Yemen. 
   
   
4. GCC–European Free Trade Association (EFTA – Iceland, Liechtenstein, Norway and Switzerland): The GCC and the EFTA states signed a FTA with the GCC which came into force on July 1, 2014. The agreement covers the progressive elimination of tariffs on trade in services and manufactured goods, as well as investment, and other trade-related issues, such as protection of intellectual property, and is fully consistent with provisions of the WTO. In addition, bilateral arrangements on agricultural products between individual EFTA states and the GCC form part of the instruments establishing the free trade area between both sides.
   
   
5. GCC–Singapore FTA: The GCC–Singapore FTA (GSFTA) applies to the trade in goods and services and became effective on September 1, 2013. The GSFTA eliminates most tariffs (99%) on Singapore's exports to the GCC. This is a comprehensive agreement covering trade in goods, rules of origin, customs procedures, trade in services and government procurement, among others. Key sectors benefitting from the agreement include telecommunications, electrical and electronic equipment, petrochemicals, jewellery, machinery and iron and steel-related industry. The recognition of the halal certification of Singapore's Majlis Ugama Islam Singapura will also pave the way for trade in halal-certified products to gain faster access to the GCC countries.

Signed But Not Yet in Effect

The Trade Preferential System of the Organization of the Islamic Conference (OIC): The agreement would see to the promotion of trade between member states by including most-favoured nation principles, harmonising policy on rules of origin, exchanging trade preferences among member states, promoting equal treatment of member states and special treatment for the least developed member states, and providing for regional economic bodies made up of OIC nations to participate as a block. The agreement will cover all commodities groups. The OIC comprises 57 members, which means fully realising such an agreement would be highly impactful, encompassing approximately 1.8 billion people. Although the framework agreement, the protocol on preferential tariff scheme and the Rules of origin have all been agreed on, members are required to update and submit their concessions list for the agreements and system to be able to come into effect. As of April 2020, only 14 nations, the UAE among them, have done so.

Under Negotiation

1. Australia–GCC: Australia and the GCC share a significant economic relationship, encompassing trade and investment across a broad range of goods and services. The GCC is a key market for agricultural exports such as livestock, meat, dairy products, vegetables, sugar, wheat and other grains. The agreement provides an opportunity to address a range of tariff and non-tariff barriers related to food exports that will benefit the food and drink sectors in the UAE. To date, there have been four rounds of Australia–GCC FTA negotiations, with the last one held in June 2009. An Australia–GCC FTA would provide an opportunity to reduce barriers to trade in mineral commodities and automotive parts. Provisions on investment would both encourage inward investment from the GCC as well as enhance security for Australian investments in GCC countries themselves, including in such areas as mining or the development of educational campuses. No progress is expected on an FTA with the GCC while the intra-Gulf tensions, which commenced in June 2017, remain unresolved.
   
   
2. GCC–Mainland China: The first-round negotiations of the GCC–Mainland China FTA commenced on April 27, 2005. Greater trade liberalisation will help develop the industrial and service sectors. Trade liberalisation with the GCC will help the group integrate and grow with mutual cooperation and comprehensive tariff reduction. In 2017 Mainland China accounted for 12% of the GCC's total global trade. Thus far, the two parties have held nine rounds of negotiations and have reached an agreement on the majority of issues concerning trade in goods.
   
   
3. IGCC–India: The GCC and India are negotiating an FTA. The agreement is expected to remove restrictive duties, push down tariffs on goods and pave the way for more intensive economic engagement between the nations. More than 50% of India's oil and gas comes from the GCC countries.
   
   
4. GCC–Japan: Japan and the GCC are negotiating an FTA. This agreement will seek to reduce tariffs and liberalise services trade and investment. Japan mainly imports aluminium, natural gas, liquid natural gas and petroleum products from the GCC, while Japan mainly exports electronics, vehicles, machinery and other industrial products to the GCC.
   
   
5. Other: A number of other GCC FTAs are currently under negotiation. The countries engaged in negotiations include Pakistan, New Zealand, South Korea, the Mercosur bloc and Turkey.
   

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Foreign Direct Investment

• Value Added Tax: 5%
• Corporate Income Tax: N/A

Source: United Arab Emirates Ministry of Finance

Important Updates to Taxation Information

• In January 2018, the UAE Cabinet approved two double tax agreements concluded by the territory in 2017 with Moldova and Croatia.
  
  
• There is a growing trend of tax reforms in the Middle East region and this may result in changes to the tax laws in the UAE. Based on public sources, the UAE is in the early stages of studying a federal corporate tax regime for the country.
  
  
• On October 1, 2017, the UAE implemented excise taxes on certain goods.
  
  
• VAT was implemented in the UAE on January 1, 2018, with a standard rate of 5%. This follows the ratification by the UAE of the Common VAT Agreement of the GCC for the introduction of VAT in the GCC region.

Localisation Requirements

Developing human capital and increasing nationals' workforce participation constitute key elements of the GCC member states' economic diversification plans and will continue to drive labour market policies across the region over the coming decade. The UAE government has launched a policy of 'Emiratisation', similar to that of 'Saudisation' in neighbouring Saudi Arabia, which is intended to boost the employment of Emirati nationals in the private sector and reduce reliance on expatriate labour. There are specific local hiring quotas which must be fulfilled for companies with 50 employees or more, and companies in the banking, insurance and retail sectors. Specific jobs are reserved for Emirati citizens through legislation, such as Human Resources managers, secretaries and government liaison personnel. These local hiring requirements are not applicable to companies with their operations based in the UAE's free trade zones.

Work Permits for Skilled Workers

Citizens who are not from the GCC need to be sponsored by their employer, and therefore need to have a job offer in order to be able to apply for a work permit. Various documents such as educational and professional qualifications, results of medical examinations and a signed copy of the job contract all need to be lodged with the UAE Ministry of Labour before the work permit will be granted.

Work Sponsorship System

Typically, as a result of relatively small domestic populations and the fact that a large portion of the domestic working-age population is employed by the public sector in all six of the GCC states, employing foreign workers to fill low-skilled and high-skilled positions for the private sector has been relatively easy. The large presence of migrant workers in many GCC states – the UAE is second only to Qatar in having the greatest number of migrant workers – is attributed to the 'kafala' (sponsorship) system, which emerged in many GCC states in order to regulate the relationship between employers and migrant workers in these countries. The employer is seen as the foreign worker's sponsor and is entirely responsible for their visa and legal status. A downside risk is that some foreign workers have had their passports and wages illegally withheld by GCC employers, and some risk not being allowed to leave the country or change employers without their current employer's permission.

The main objective of the 'kafala' system is to facilitate the steady supply of temporary and rotating labour rapidly to such countries during times of economic boom – a labour force that could then be expelled fairly easily in less prosperous periods. However, owing to increasing pressure on GCC states from human rights groups about the exploitation of foreign workers under this system changes came into effect from January 1, 2016, to better protect workers' rights under the 'kafala' system. These changes included job contracts that must specifically reflect the terms offered to the employee verbally and must be signed by both parties prior to being submitted to the Emirate Ministry of Labour as part of the formal work permit application; also that a contract of employment has come to an end if an employer has not met their contractual obligations (for example, failed to pay their employees for 60 days or more). The changes allow workers greater freedoms in terms of seeking alternative employment within the UAE and, therefore, obtaining a new work permit through a new employer.

Visa/Travel Restrictions

Citizens of other GCC and European Union states do not need a visa to visit the UAE. Citizens from North American states, Central Asian states and Asian states in general can obtain a visa on arrival, and citizens of African and South American states are required to arrange a visa in advance. Visa processing times are estimated at being four- to six weeks.

New visa rules have been implemented (effective October 21, 2018) by the Ministry of Human Resources and Emiratisation (MoHRE) which allow visitors and tourists to apply for new UAE entry visas without leaving the country, and grant one-year residency extensions to widows and divorced women. The new rules will also allow visitors to be granted a new entry permit (valid for 30 days), but only twice. Extension of entry permits will require a payment of AED600 (not applicable to citizens of GCC nations).

Regulation surrounding long-term visas now offers:

• 5-year residency visas to persons owning real estate in the UAE worth a minimum of AED5 million
• Renewable 10-year visas to persons with investments in the country worth a minimum of AED10 million (if non-real estate investments make up at least 60% of the total portfolio)
• 5-year visas for entrepreneurs
• 10-year visas for specialised talents and researchers with top qualifications in the fields of science and knowledge such as doctors, scientists, inventors and creative individuals in culture and art.
• 5-year visas for 'outstanding students'

Source: United Arab Emirates, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, IMD, Transparency International

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: April 16, 2020

Hong Kong’s Trade with the United Arab Emirates

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Telecommunications and sound recording and reproducing apparatus and equipment	3,761.1
Commodity 2	Non-metallic mineral manufactures	1,414.2
Commodity 3	Miscellaneous manufactured articles	368.9
Commodity 4	Office machines and automatic data processing machines	249.6
Commodity 5	Electrical machinery, apparatus and appliances, and electrical parts thereof	138.6

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Miscellaneous manufactured articles	1,600.0
Commodity 2	Non-metallic mineral manufactures	1,489.0
Commodity 3	Telecommunications and sound recording and reproducing apparatus and equipment	385.3
Commodity 4	Power generating machinery and equipment	145.7
Commodity 5	Electrical machinery, apparatus and appliances, and electrical parts thereof	126.0