NEWS Fiscal & legal

Dubai, how to approach the market: laws and rules

UAE has two parallel jurisdictions governing financial services: the first governed by UAE Federal legislation and second one is Dubai International Financial Centre (“DIFC”), a free zone governed by its own laws and regulations

In UAE (United Arab Emirates) there is no distinction between banking and other financial services in relation to cross-border activities. The financial regulation is based on the criterion of territoriality and it prohibits from carrying any financial activity without being licensed.
A licence is required for activities undertaken directly (through its representatives) or indirectly (through agents) within the UAE via remote means of communication regardless of the status of the prospective or existing client.
Any kind of financial promotion and advertisement in the UAE or into the UAE may be considered as a regulatory solicitation of business and therefore forbidden without a full licence.
There is no cross border licence in the UAE allowing foreign banks/financial advisors to offer services to UAE residents without a local presence.

Establishment onshore

The activity of financial consultation and financial analysis is an activity subject to licensing by the Emirates Securities & Commodities Authority (“ESCA”), pursuant to the Federal Law No (4) of 2000 concerning the Securities & Commodities Authority and the amendments thereof.
A person may not practise the financial consultancy and financial analysis business without obtaining the required licence for this purpose, according to Decision No (48/R) of 2008 Concerning the Financial Consultation and Financial Analysis.
ESCA shall issue its decision to approve or reject the licensing application within 30 days from the date of submitting the application that have satisfied the terms, requirements and technical standards set by markets and approved by ESCA.
In order to obtain a licence to practice the activity of financial consultation and financial analysis, the following key conditions must be met:
  • UAE company (one of the forms in Federal Law pertaining to Commercial Companies) applying and at least 51% of its share capital is held by UAE nationals or GCC nationals,
  • the purposes of the company include practising the business of financial consultation and analysis,
  • the paid up share capital of the company is at least AED 1.000.000 (approximately USD 272.000),
  • the company has the required qualified technical and administrative personnel to practice the business of financial consultation and financial analysis,
  • the company has an internal control and regular audit system,
  • provide the required administrative and technical staff to practice its business,
  • foreign companies licensed by similar regulatory authorities in their own countries may practice the business of financial consultation and financial analysis, provided that such companies have at least 5 years of experience and that they satisfy the conditions.

DIFC (Dubai International Financial Centre)
With the recent economic development fuelled to some extent by the significant increase in oil prices, rapid expansion of trade, population growth and the vast infrastructure projects currently underway, there is a growing requirement for a financial centre to serve the rapidly expanding needs of institutions and governments in the region.
The DIFC is a geographically defined financial free zone which provides a platform for business and financial institutions to reach into and out of the emerging markets of the region. The quality and range of DIFC’s independent regulation, common law framework, supportive infrastructure and its tax friendly regime make it an ideal base to take advantage of the region’s rapidly growing demand for financial and business services. DIFC fills the time zone gap for a global financial centre between the leading financial centres of London and New York in the west and Hong Kong and Tokyo in the east.
The DIFC concept has evolved as a means of:

  • providing depth to the regional financial markets by broadening the range of traditional methods of financing currently provided by regional banks
  • attracting liquidity back into investment opportunities within the region thereby contributing to its economic growth
  • facilitating planned privatizations in the region and enabling initial public offerings of privately owned companies, thus providing impetus to the programme of de-regulation and market liberalization throughout the region
  • contributing to the development of regional stock markets which, in turn, will contribute towards broadening the capital and ownership base of private sector companies, and
  • promoting the growth of Islamic finance and the development of the region’s reinsurance sector

Nasdaq Dubai (formerly Dubai International Financial Exchange Limited “DIFX”) an international stock exchange located in DIFC, continues to play a major role in the development of regional capital markets by attracting key regional companies to list their shares and other issued securities on the stock exchange. This, in turn, is expected to attract international investors and encourage additional portfolio flows to the region, thereby accelerating the process of the region’s integration with world markets.

Benefits of Setting Up in DIFC

  • 100% foreign ownership
  • Zero percent tax rate on income and profits for a period of 50 years from inception
  • Freedom to repatriate capital and profits without restrictions
  • A world class, independent regulatory agency working alongside other financial regulatory agencies located in major global jurisdictions
  • International legal system based on common law of England and Wales (the only common law jurisdiction in the region)
  • No Shariah compliance required
  • An international stock exchange with primary and secondary listings of debt and equity instruments
  • A variety of legal vehicles that may be established with capital structuring flexibility
  • A pool of skilled professionals residing in Dubai and the region
  • A wholly transparent operating environment, complying with global best practices and internationally accepted laws and regulatory processes
  • Potential access to the UAE’s wide network of double tax treaties