SECTION 1: Market outlook
1.1 How would you summarise your jurisdiction's attitude
towards the influence of Japanese corporate culture in its
Japanese companies find it challenging to introduce Japanese
corporate culture–typified by overtime, limited
vacations, and careful attention to detail in all activities at
work–to commercial and industrial workplaces in the
Specifically, the UAE does not have a culture of overtime
and many employees expect to take up to a month of paid
vacation at a time per year. The labour law promotes both
limited overtime and 30 days of annual paid vacation. There is
also little emphasis in the work culture placed on the
importance of attention to detail. However, Japanese companies
that are more flexible with their workforce can be successful
in the local business environment.
The UAE is unique in that foreign nationals make up more
than 99% of employees in the private sector. Japanese companies
must be ready to manage a diverse workforce often made up of
employees from the Middle East, South Asia, Southeast Asia and
beyond. For this purpose, a detailed set of work rules and
regulations is important for employees to have a common
understanding with management.
1.2 What is the outlook for Japanese investment into your
jurisdiction over the next 12 months?
The UAE is a federation of seven Emirates. Of these, Dubai
is the commercial capital that is a hub for the Middle East
region, whereas Abu Dhabi is the seat of the federal government
and the source of the country's oil and gas wealth. About 300
Japanese companies have a presence in Dubai, making it the
largest focus for Japanese business in the Middle East and
Africa region. About 70 Japanese companies have a presence in
Abu Dhabi, focused primarily on work carried out in Abu Dhabi.
The other five Northern Emirates (Sharjah, Ras Al Khaimah,
Fujairah, Ajman and Umm Al Quwain) account for less than ten
percent of the territory of the UAE, and a few Japanese
companies have trading or manufacturing facilities, notably in
the two Emirates of Ras Al Khaimah and Sharjah.
Dubai will continue to be the favored city for Japanese
multinational companies to establish a regional hub for the
Middle East. Some Japanese companies based in Dubai cover more
than 80 countries across the Middle East, Africa, Southwest
Asia and Central Asia.
Abu Dhabi, with the dominance of a longstanding oil and gas
economy, is less likely to see new entrants from Japan, unless
there is a company engaged in a specific contract or project in
Some Japanese companies consider the Northern Emirates for
establishment of comparatively low-cost manufacturing
SECTION 2: Approving foreign investments
2.1 Explain the foreign investment approval process and
In a free zone, approval of a foreign direct investment is
straightforward. The application is generally made only towards
that free zone authority and other approvals are typically not
required (except for certain federal approvals for specific
sectors listed in 2.4).
Despite the small territory and population of Dubai, with
approximately two million people, the city has more than 30
free zones, each of which is its own jurisdiction that follows
its own rules for business establishment and operation. There
is then onshore (non-free zone) which follows the local
A company registered in a free zone cannot carry out
business outside of that free zone.
Free zones are generally free of foreign investment
restrictions. Like the UAE mainland, they are also subject to
no corporate tax and limited restrictions on the hiring of
foreign nationals. Most Japanese companies in a Dubai free zone
are established in either the Jebel Ali Free Zone (JAFZ), which
surrounds the Jebel Ali Port, or the Dubai Airport Free Zone
(DAFZ), which is adjacent to the Dubai International
A free zone company cannot carry out commercial activity on
the mainland UAE. To operate on the mainland UAE, a company
must establish an onshore presence, as either a branch of a
foreign company, or an LLC. Japanese companies in the
engineering and construction sectors, logistics, or retail
sales sectors often establish an LLC, which is subject to a
maximum of 49% foreign ownership, requiring a UAE national to
hold at least 51% of the share capital.
Outside the free zone, an investor will apply to set up a
company through the Ministry of Economy (in the case of a
branch of a foreign company) or the Department of Economic
Development (in the case of an LLC), and the approval is
largely procedural, subject to the blanket foreign investment
restriction that is typically capped at 49%.
2.2 Are there any investment restrictions in specially
regulated sectors and is the government entitled to any special
rights in these sectors?
Outside the free zones, the standard cap on foreign
investment is a maximum of 49%, requiring at least 51% local
There are essentially no foreign investment restrictions
inside the free zones except in federally regulated areas such
as banking, finance, telecommunications, pharmaceuticals and
In banking and finance, where approval of the UAE Central
Bank is required, foreign shareholding is capped at a maximum
of 40% of the ordinary share capital.
For insurance companies, there is a maximum cap of 25%
Foreign investment is prohibited in some sectors such as
manpower services and real estate brokerage.
Natural resources are developed pursuant to concessions
awarded by the Emirate governments. Many of these concessions
are only awarded to foreign companies with proven capabilities
in the sector.
Many foreign companies are active in the telecommunications
sector providing equipment or constructing facilities, but only
two local national companies, operating as the brands Etisalat
and Du, are licensed as telecommunications companies.
2.3 Which authority oversees competition clearance? Please
give a brief overview of the merger clearance process.
A competition law was introduced in 2012, but there is not
yet a robust system in place by which foreign investment is
scrutinised for anti-competitive impact. Mergers and foreign
investments are generally not subject to competition clearance
2.4 Are there further approval requirements that foreign
investors should be aware of?
Any company, regardless of how much foreign direct
investment is in the company, must obtain prior regulatory
approval to establish a business in certain commercial sectors.
The approvals are typically linked to the company's ability to
meet the regulatory requirements of operating the business.
At the federal level, required regulatory approvals
- approval from the UAE Central Bank for any
banking of finance business outside of the Dubai
International Financial Centre (DIFC) free zone;
- approval of the Securities and Commodities
Authority (SCA) for financial analysis, financial
consultancy, and brokerage in shares and bonds;
- approval of the UAE Insurance Authority
for any insurance company, broker or agent;
- approval by the Telecommunications
Regulatory Authority (TRA) for the import or sale of
- approval of the Ministry of Health for sales or
manufacture of pharmaceuticals or cosmetics;
- approval of the National Media Council for
all media, publication, printing, advertising, filming,
broadcasting and art production.
At the Emirate level, local regulatory approvals are
required for companies doing business in sectors that include
education, tourism, hospitality, food processing, food service,
personal security, healthcare, real estate brokerage, oil
exploration and development, taxi and transport services,
construction contacting, and engineering consultancy. The
competent agency or department will differ from Emirate to
SECTION 3: Investment techniques
3.1 What are the most common legal entities used for
Japanese investment in your jurisdiction?
A Japanese company setting up in the UAE will typically
- In Dubai and the Northern Emirates, where
there are more than 300 Japanese companies, it is most common
to establish a free zone company in one of the many free
zones. The entities differ by free zone and the common
entities include a free zone establishment (FZE), a free zone
company (FZCO) and a free zone LLC (FZ-LLC).
- In Abu Dhabi, where free zones are
limited, it is most common to establish a branch of a foreign
company, which is how more than 90% of the Japanese companies
in Abu Dhabi operate. There are no foreign capital
restrictions for the registration of a branch, but a UAE
local national or a company wholly-owned by a UAE national
must act as the local service agent (or sponsor) of the
- Companies active in construction,
engineering, retail sales, trading, or transport must have a
presence onshore and not within the free zones. This is most
commonly an LLC established pursuant to the UAE Commercial
Companies Law. At least 51% of the shares in an LLC must be
held by a UAE national or the wholly-owned company of a UAE
Importantly, there are nominee arrangements by which a
foreign investor can control management of an onshore company
without the active participation from the local shareholder,
and by which the local shareholder is paid a simple fee.
However, a UAE shareholder cannot irrevocably transfer their
rights to the foreign shareholder, and nominee arrangements
must be carefully structured to not violate requirements of law
that prohibit restricting the rights of such local
3.2 What are the key requirements for establishment and
operation of these legal entities?
The process is laborious but not difficult when handled by
First, a preliminary application is submitted to reserve the
company name and other key details with the applicable
authority (free zone authority or Department of Economic
Development or Ministry of Economy).
As to documentation, a Japanese company will have to create
an English translation of its teikan (articles of
association) and tokibo tohon (corporate
registration), and pass a resolution authorising the
establishment or share acquisition that appoints a local
representative to represent the company in the UAE for the
company registration process. As the UAE has not signed the
Hague Apostille Convention, these documents must be notarised
in Japan, approved with Japan's Ministry of Foreign Affairs,
and then authenticated with the UAE Embassy in Shibuya,
The documents are then sent to the UAE where they are
further authenticated and Arabic translations are issued by a
licensed legal translator.
The articles of association of a new company are then
notarised at a local notary public and submitted to the
Department of Economic Development, or for a free zone, signed
and submitted to the free zone authority. For an onshore LLC,
several protections and controls may be entrenched in the UAE
company's constitutional documents such as rights to appoint
all members of the board, veto rights over key matters, and
enhanced dividend rights (such as 80% of the profits being
distributable to the foreign 49% shareholder). It is also
desirable to sign a shareholder agreement with the local
The company must also lease an office prior to completing
the incorporation process. Companies cannot be established
without a physical office and a mere address is not enough for
When these documents are submitted, the new company is
established, and a commercial licence stating the company's
permitted commercial activities is issued as proof of
Post-incorporation tasks include the opening of a bank
account and registration of a post office box.
SECTION 4: Dispute resolution
4.1 How effective are local courts' enforcement and dispute
resolution proceedings, and what should Japanese investors be
particularly aware of?
The law regarding civil procedures is universal across the
UAE, but five Emirates, including Abu Dhabi, opt into a federal
court system, whereas Dubai and the Emirate of Ras Al Khaimah
operate their own court system. Courts are divided into First
Instance Courts, Appeal Courts, and the Court of Cassation or
Courts in the UAE mainland follow a civil law system and are
heavily based on written pleadings in the Arabic language.
Outside experts and auditors play an important role in the
Courts in Dubai are generally perceived to be fair to
foreign investors and do not specifically favour local
The DIFC has its own common law courts which can be agreed
as the courts of jurisdiction for some commercial contracts
signed inside and outside the DIFC.
4.2 Does your jurisdiction have a bilateral investment
protection treaty with Japan and is that commonly used by
There is no bilateral investment treaty between the UAE and
4.3 Do local courts respect foreign judgments and are
international arbitration awards enforceable?
Foreign arbitral awards are enforceable pursuant to several
international treaties, most notably the New York Convention
that the UAE ratified in 2006.
Foreign judgments may be enforced where all the following
conditions are met:
- UAE courts do not have jurisdiction in the
dispute in which the judgment has been given or the order
- the foreign courts had jurisdiction;
- the opposing parties in the case in which
the judgment was given were summoned to appear and duly
- the judgment is final and not subject to
- it does not conflict with a judgment or
order previously issued by a court in the UAE;
- the judgment is not in breach of public
morals or public order in the UAE.
SECTION 5: Forex controls and local operations
5.1 What foreign currency or exchange
restrictions should foreign investors be aware of?
There are no foreign currency restrictions.
The UAE dirham (AED) is pegged to the US dollar at a rate of
$1 = AED3.673.
SECTION 6: Tax implications
6.1 Are there tax structures and/or favourable intermediary
tax jurisdictions that are particularly useful for Japanese
investors into the country?
The UAE is designated as a tax haven under Japan's tax laws.
However, following recent liberalisation of Japan's tax laws,
Japan tax advisors generally no longer recommend the
structuring a major investment from Japan into the UAE through
the Netherlands (although this was previously one preferred
6.2 What are the applicable rates of corporate tax and
withholding tax on dividends?
Except for the oil and gas production sector and the UAE
branch offices of foreign banks, there is presently no
corporate tax in the UAE. There are also no withholding
A shareholder resolution is typically required to approve a
dividend or profit distribution. Companies established in the
free zones must often submit written proof of the resolution to
the free zone authority, and banks may request proof of these
submissions before they will remit a dividend.
A new five percent value-added tax is proposed to be
introduced from January 1 2018.
6.3 Does the government have any tax incentive schemes in
There are no government tax incentives as there is presently
no corporate tax in the UAE nor any withholding taxes.
The most notable government incentive is for the industrial
sector, where a company with an industrial licence may receive
an exemption of payment of the five percent import duty on raw
6.4 Are there any reciprocal tax arrangements between your
jurisdiction and Japan? If so, how can they aid investors?
There is a tax treaty between Japan and the UAE, but this
has little impact on Japanese investment into the UAE, and the
primary beneficiary of the treaty is the UAE's two
T: 971 50 554 6205
Christopher Gunson is a partner of Amereller, based
in the firm's Dubai office. He has been based in the
Middle East since 2009.
Gunson is fluent in Japanese and much of his
practice involves representing and advising more than
100 Japanese multinational companies on matters in the
Middle East region. This work includes commercial
transactions such as agency and distributor agreements,
strategic investments and joint ventures, regulatory
compliance, and employment matters.
He is a regular speaker in Japanese on Middle East
business law matters in Japan and has spoken at events
sponsored by JETRO, JCCME, SMBC and JOI.
In addition to his corporate and commercial work,
Gunson conducts substantial work in the oil and gas
sector and he is a frequent author and commentator in
news media concerning developments in the oil and gas
sector in Abu Dhabi, Iraq and Iran.
Legal manager, Amereller
T: 971 4 432 3671
Akiko Abe is a legal manager with more than 15 years
of experience working in international law firms. She
has been in the UAE since 2012 and supports Japanese
and multinational companies on legal and administrative
aspects of their business.
Abe has taken an active role in project management
on a number of complex finance transactions, especially
on due diligence and deal closing.
Abe has a LLB from Aoyama Gakuin University, a BA
from Campbell University, and a LLM from Temple
University Beasley School of Law. She is not admitted
in any jurisdiction and works under the supervision of
the firm's lawyers.
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