Changing Business Scenario in UAE
Raju Menon, Chairman and Group Managing Partner, Morison Menon Group was interviewed by The Prospect Group about the new legislation and taxation in the UAE and how businesses are fast changing in the UAE.
How has the correction changed business in the emirate of Dubai? Have there been any major changes in legislation as a result of the crisis? What were the main lessons learned? Have there been any indirect benefts as a result of the crisis?
MENON: The entire UAE economy was in the correction stage from 2009 because of the global recession. Real estate was the major sector afected, however, overall business was still in a good position. Not many legislative changes have happened; rather, legislation and the laws and regulations were tightened. Legislation was made active with regard to real estate norms. This was done before the correction actually happened. The authorities had begun to put these measures in place while the economy was still in a boom. The Real Estate Regulatory Authority (RERA) was set up prior to the correction, but the tightening itself was not implemented until recently. The government has implemented this tightening in such a way that it should not be too hard on the businessmen; they do not want to hurt the business community.
There is an indirect beneft to the economy from the crisis. At the time of the boom it was very difcult for the middle class and lower middle class to live in Dubai because it was so expensive. Because of the correction, life has become much easier. Costs have been reduced and real estate rental rates have come down. From a business perspective, there is more human resources availability at a fair price. Growth can happen, but we have to make sure it is sustainable. The government has to make sure that this situation is maintained. During the boom, businessmen were shifing their core activities into real estate. Margins were lower in their core work, and because of that, the core businesses sufered. Today, businessmen are returning to core jobs. In terms of real estate and home values, any appreciation should be considered as a bonus.
What types of business are you seeing coming to set up operations in Dubai today? What are your expectations for the future?
MENON: Currently, there is a major infow from India, China, and Korea. Before, there were infows from Europe and the US. These have stopped because of the global recession. Once the economies in the West are corrected, the businessmen from these parts of the world will return to Dubai. No one can deny the infrastructure and facilities in Dubai. Logistically, Dubai also has a big advantage. The combination of infrastructure and geographical advantage is going to bring value to the economy. I expect that those buisnessmen who want to expand their businesses geographically will fnd a hub either in Dubai or elsewhere in the UAE. Basically, the growth within the next two to three years will be much beter than what it is now.
Abu Dhabi as a capital city has a vision that goes to 2030. This is a well-disciplined plan which is very organized. This plan visualizes the growth of Abu Dhabi and with that the growth of the whole UAE is visualized. For example, there is Zones Corp under development and Khalifa Industrial Zone (KIZAD) in Taweela that is just 60 km from Dubai and is 427 sq. km out of which 52 sq. km will be developed as frst phase and is demarcated as an industrial zone. Every economy’s backbone is industry. So they are creating the industrial backbone of the country. Traditionally, the UAE was known as a trading hub, but now it will become an industrial hub in addition to that. The frst phase will cover 300 units of high- profle industries and this will cover chemicals, petrochemicals, pharmaceuticals, food, etc…They are looking for industrial companies from India, the US, Korea, etc. Abu Dhabi is giving many incentives to those industries. First, they are going to provide power at a subsidized rate. Today, power is available here at 35 fls and they are going to ofer it at 15 fls which is going to be very competitive with any industrial zone anywhere in the world. So that is going to be a major atraction. Another atraction will be the efective utilization of human resources. The efciency of human resources is very high in the UAE. I am sure this industrial development will eventually be a major support to the UAE economy. In the other emirates, free zones are available and there are so many businesses registering in emirates like Fujairah, Ras Al Khaimah and Sharjah. Ras Al Khaimah has two free zones, one of them is RAK Free Trade Zone and the other is RAKIA Free Trade Zone. RAKIA is not only a free zone, but national industrial licenses can also be set up through RAKIA with 51% local ownership. These kind of free zones are providing many incentives for investors and they are all competing with each other on a complementary scale.
In what ways are SMEs empowered in Dubai today? How easy is it to establish a company as an entrepreneur and how well positioned is this market for small business operations?
MENON: 98% of the businesses in the UAE are SMEs. There are not many listed companies in the UAE today; there are not more than 30. In Dubai, the government has established SME Dubai to promote SMEs to incubate their businesses. They are promoting nationals in business and there is expatriate involvement as well. The banks are also very bullish on SMEs. All the major banks here have dedicated divisions for SMEs. To set up a business is very easy in the UAE; it is quick, mater of a week to ffeen days. It is important to make sure that all documentation is with the investor when they want to establish a business here. In Dubai, we have 12 people dedicated to helping investors set up businesses and we send foreign delegations to atract businesses to come here. Over the years, we have brought many businesses to Dubai.
What kinds of taxes do pote- ntial investors in the UAE need to be aware of?
MENON: There is a system of taxation in the UAE. There is a tax law in the UAE. Implementation is very limited and applies to the banking sector and oil companies whereas in other areas of business the corporates have been exempt so far. There is no corporate taxation, there is no personal taxation, and there is no estate duty on individuals here. This country only levies a 5% import tax and that too is exempted for many areas. It is very easy to start and operate a business here. Once a business is up and running, you can focus entirely on that business. There is no legislative requirement and there is no compliance requirement. If I go back to India, I have to appoint six to seven people just to handle compliance. As an owner or corporate manager, your time is totally wasted on compliance. We do not have to deal with those issues, we are totally free here. I have clients here doing billions in business operating with three to four people.