Phillip & Martin Kraeter lecture about The Economic Landscape of the UAE with special approach to the entrepreneurial mindset and start-ups

1. The Economic Landscape of the UAE
Entrepreneurial Mindset - How to Start-Up
Phillip & Martin Kraeter / 13.11.2020

2. Speaker
Introduction
Martin Kraeter
CEO & Global Head MCI CLT
Dubai & Hanoi
Law & Tax | Facilitation
Law & Economy
(Ludwig Maximilians University Munich)
Phillip Kraeter
CSO & VP Asia MCI CLT
The Hague & Dubai
Strategy | Research | Holdings
International Studies
(Leiden University, SISU Shanghai
International Studies University)

3. Introduction
Preliminaries
• Our Lecture intends not to be
a Scientific Research
• Aimed to give you a
Holistic Overview
• More as Hands-on
Overview or Guide

4. Where are the UAE located?

5. UAE
Country Profile
• Macro Profile & History
• Socio Profile
• Economy Profile
• Government Profile
• Law Schools | Judicial System
• 07.11.2020 – Progressive
Law Amendments
• Taxation & International Compliance

6. Macro Profile & History
• Macro Overview
• Population: 9.9 mln (2020)
• Area: 83,600 km²
• GDP (PPP): 746,350 bln $
• Global Rank 34, IMF (2019)
• GDP Per Capita (PPP): 69,901$
• Global Rank 6, World Bank (2019)
• Unemployment Rate: 2.6%
• FDI Inflow: 10.4 bln $
• Currency: UAE Dirham (AED)
• Pegged to the US$
• Time Zone: UTC+04:00
• TMF GBC Index: Rank 53/77
• Complexity down from Rank 4 in 2019
• Brief History
• Historic Roots:
„Tribal States“, a Collection of Sheikhdoms
• Nomadic & Loose
• 19th & 20th Century:
Pearl Diving & Trade with India
• 1922 – 1971:
British Protectorate & Administration
• but never a Colony
• 2nd December 1971:
6 Emirates form the Federation of the U.A.E.
• Ras Al Khaimah joins 1 month later
• 2nd November 2004:
Sad Demise of Sheikh Zayed bin Sultan al Nahyan
• Caesura in the further Development of the Country
• Not worsening, but becoming different

7. Socio Profile
• 11.5% of the Total Population only
are „Locals“ = UAE Citizens
• Expat Structure: 38.2% India
10.2 % Egypt, 9.5% Bangladesh,
9.4% Pakistan, 6.1% Philippines,
15.1% Others
• Emiratization Initiatives
• Hard working conditions
• Little to no Worker Protection
• No Workers Unions
• Being addressed

8. Economy Profile
• 2nd Largest Economy in Middle East
• 24th Largest globally by GDP per Capita (Nominal)
• UN, IMF, WTO, WHO, GCC and OPEC Member
• Still heavily dependent from
Oil & Gas Exploration
• Exception: Dubai (O&G = 5% of GDP)
• Massive Diversification Efforts
• Trade & Distribution
• Tourism, MICE, Real Estate
• Communication Infrastructure, Technology
• Seen as one of the most Open Economies
• Rank 18 on ”2020 Index of Economic Freedom”
(right behind USA)
• Exorbitant strong Focus on Infra-
and Urban Structures
• Worldwide Leading Road Network
• 4 International Airports
• High Rankings in Tower Statistics
• Already Among the Strongest
and most Diversified Hubs
• Air, Sea, Road
• Rail in “Embryo Stadium”
• And: Aim for More

9. Government Profile
• Political System = Emirate-wise grouped Constitutional Monarchies
with „topped-up“ Federal Institutions under a President = Federation
• Supreme Council (SC, the 7 Rulers)
• SC elects the President and the Vice President (5 years terms)
• Since 2006 Personal Union of Vice President and Prime Minister
• Prime Minister appoints the Council of Ministers (Cabinet)
• Federal National Council (FNC, 40 Delegates) = Parliament
• Since 2006 – Election, before: Appointment by Rulers (4 years terms)
• Current Reform: 50% Election, 50% Appointment
• Legislation Examination, Advice to Cabinet, Accountability for the System
• Not an electing Parliament
• Plus Point: Great Affection towards Leadership & Institutions

10. Law Schools | Judicial System
• 1971 Constitution determines the Division into Local & Federal Courts,
generally under Sharia Law, with Supreme Court (SC) in Abu Dhabi (AD)
• The underlying Law School is very near to the French / Continental Law School
• Dubai and Ras Al Khaimah maintain their Judicial System with Exclusion of SC in AD
• Court of 1st Instance | Court of Appeal | Court of Cassation
• UAE’s Financial Free Zones (DIFC and ADGM) established their own
Legislation and Judicial System, up to their own Courts
• Law School is here Common Law, procedures in English Language only
• Local & Federal Law & Courts are “excluded”
• Various Free Zones are ambitious to establish at least their own Judicial Executive (Arbitration & Court)
• Strong Trend: Alternative Dispute Resolution (ADR)
• Arbitration and Mediation as progressive Instruments to shorten and ease (also financially) Disputes

11. 07.11.2020 – Progressive Law Amendments I
Really remarkable Amendments to Penal Code | Criminal Law | Inheritance Law!!!
• Divorce
• Under the Laws of Country where the Marriage took Place
• Inheritance
• Free Selection of Applicable Law
• Harassment | Assault | Honor Crimes
• Equal Treatment of “Honor Crimes” = more Protection of Women’s Rights
• Punishment for “society judged” Sexual Offenses liberalized
• Rape of Minors / someone with limited Mental Capacity – Death Penalty
• Decency Laws changed from Imprisonment to Financial Fines (1st offence)

12. 07.11.2020 – Progressive Law Amendments II
• Cohabitation
• Between unmarried Couples or unrelated mixed-sex Flat Mates is now legal!
• Suicide
• Decriminalized – favoring instead Mental Health Support
• “Good Samaritans” | First Aid Helpers
• “Any Person who is committing an Act out of good Intention,
that may end up hurting that Person, will not be punished”
• Alcohol Consumption
• No longer a Criminal Offense, if with or without License
• Judicial Procedure
• Legal Translators now mandatory to be available for Defendants & Witnesses at the Courts
• Publicity is now excluded for Victims of Crimes related to indecent Acts

13. Taxation & International Compliance
• Generally seen as a Tax-free Country – not 100% true
• Federal Corporate Tax Laws exist, but not executed
• Exception: Oil & Gas, Banks & Insurance, Telecommunication
• No Federal or Emirati Personal Income Tax
• Since 2018: Value Added Tax (VAT)
• Actual Tax Rate: 5.0%
• Double Taxation Agreements (DTAA)
with 117 Countries (as per 10/2020)
DTA List – Ministry of Finance
• Agile Implementation of Int‘l (OECD, US, EU etc.)
Compliance Standards
• FATCA, CRS, ESR, UBO Register

14. The Jurisdiction
Hypermarket UAE
• Mainland Sectors
• Free (Trade) Zones
• Financial Free Zones
• Offshore Register

15. Mainland Sectors
• For Mainland Registration and Licensing, all 7
Emirates maintain their own Departments of
Economic Developments
• UAE Company Law requires for LLC and JSC
that min. 51% of Shares are owned by a UAE Citizen
• Professional Firms & Branches require National Agent
• Lift of 51/49 in some fields, mainly related to high FDI
• No Minimum Capital Requirements for Corporations
• Was before 300,000 AED (81,750 $)
• Business Activities are regulated by a Licensing
System with Selection of Activity Codes
• Professional | Commercial | Industrial | Tourism License
• Annual License Renewal
• Commercial | Office Space is mandatory
• Commercial Space also Parameter for Visa Quota
• Shared Offices with > 1 License prohibited
• Virtual Mainland Licenses becoming a Trend
• NEW! E Trader | Trader | Merchant License
• Originally only for UAE and GCC Nationals
• Now open also for Expats – AND no 51/49
• License Focus: Home-, Micro- and Small Business
• Expat Limitation: Professional Services
• E-Commerce, Social Media Trade, Import and Sales
are restricted for UAE and GCC Nationals only

17. Free (Trade) Zones
• FTZs - the Main Driver for UAE’s Eco Development
& Positioning as Global Hub
• > 50 FTZs in UAE
• 1985(!): 1st FTZ, Jebel Ali FZ, Dubai
JAFZA is also the largest fenced FTZ in the World
• > 30 alone in the Emirate of Dubai
• Cluster / Theme / Specialized FTZs well established
• Main Incentives
• No Import or Export Customs Fees
• FTZ Guarantee for Exemption from
Corporate & Personal Tax, usually for > 15 Years
• 100% Foreign Ownership for
Independent Entity, Subsidiary, Branch
• Semi-independent Jurisdiction
• Most flexible Solutions for Commercial Space
• Flexi Desk/Office | Regular Office | Warehouse | Plot
• But Commercial Space to be taken IN the FTZ
• Visa | Residency Quota determined by Space Size
• Limitation to Operations inside the FTZ softens
• Service Activities unlimited rendered also in Mainland
• Trade Activities via Distributor or Branch
• Ambitions to define “universal” Localization
• Licensing aligned to all different Kind of Activity
• Trading | Service | Finance | Industrial License
• NEW – Freelancer License (no entity needed)
• Licenses to be renewed annually
• Free of Tax – but not free from Fee

18. Financial Free Zones
Dubai International Financial Center (DIFC)
• Established in 2002, operational 2004
• UAE’s first Onshore Financial Centre
• Banks, Financial Institutions, Asset Managers,
Funds, Insurances, Service Provider
• Independent Regulator:
Dubai Financial Service Authority (DFSA)
• Strict Compliance Regime
• Independent Jurisdiction with own Law &
Court System (Common Law)
• In GFCI on Rank 17 global
• Rank (-5) & Rating (-7) in 2020
Source: GFCI, issued 25 Sep 2020
• 40 Years Zero Tax on Corporate Income
Abu Dhabi Global Market (ADGM)
• Established in 2013, operational 2015
• Banks, Financial Institutions, Asset Managers,
Funds, Insurances, Service Provider
• Independent Regulator:
Financial Services Regulatory Authority (FSRA)
• Similar to DIFC:
independent Jurisdiction, own Laws,
ADGM Court
• In GFCI on Rank 33 global
• Rank (+6) & Rating (-1) in 2020
Source: GFCI, issued 25 Sep 2020
• Leading Role in Digital Asset Regulation (2018)
• Highly attractive for Crypto Companies

19. Offshore Register
• UAE established 3 IBC Jurisdictions
• Dubai: In JAFZA FTZ
• Ras Al Khaimah: RAKICC
• Ajman: In Ajman FTZ
• “Non-Physical” Entities with
Registered Office at Registered Agent’s
Place (mandatory)
• Usage for: Property Ownership,
Holding Business, Wealth Structuring,
Inheritance, Commission Trade,
IP & Licensing
• And “whatever”
• Advertised IBC Benefits
• No Corporate Tax
• 100% Foreign Ownership
• 100% Capital and Profit Repatriation
• UAE Bank Account
• International Invoicing
• Limited Liability Company
• Privacy and Confidentiality
• Multi-Currency Bank Account in UAE
• Virtual Office Facilities in UAE
• New Development – Trusts & Foundations
• Regulatory obstacles

20. The S.W.O.T.
of UAE
What are the main Strengths?
What are the Country’s Weaknesses?
Are there any Opportunities on the Horizon?
What could Threaten the Country’s Progress?

21. Strengths & Weaknesses
Strengths
• Infrastructure
• Zero Tax*
• Hub Geography
• Geo-Political Stability
in a Turbulent Region
• Oil
• Tourism
Weaknesses
• Bureaucratic Inconsistencies
• Part. untransparent Regulation
• No Member of The Hague Protocol
• Over-dependence on few Sectors
• Desert Climate

22. Opportunities & Threats
Opportunities
• Hub Facility to Asia & Africa
• strong Emerging Markets
• Access to New Markets
• Israel - Abraham Agreement
• Accelerated Diversification
• Technological Advances
Threats
• Global Pandemics
• CoVid19
• Loss of Investments
• Other Hubs developing globally
• Climate Change
• Pegged to USD

23. Startup Support:
Does it exist?
• Government Initiatives
• Incubators & Accelerators
• Support from Banks
• Private Equity | Venture Capital | Funds

24. Government Initiatives I
• Long-term Feature – 100% Foreign Ownership
• Mainland partial (increasing), Free Zones, Offshore Register
• Modification of Visa / Residency System
• 5Y, 10Y, Permanent Residency, Golden Visa,
no National Sponsor, up to Naturalization
• SME Support in Public Projects
• Allocation of 5% of Contract Volume (110m $, Dubai)
• Allocation of 20% of EXPO2020 Contract Volume

25. Government Initiatives II
• Intensive Efforts towards Technology
• First Country establishing a Ministry of Artificial Intelligence
• Constant Roll-Out of SMART Initiatives G2C and G2G
• Happiness (UAE is also the first Country with its own Ministry of Happiness)
• Leveraging of Technologies, mainly Blockchain and AI
• Paperless City – Dubai, starting 2021
• Processes – Lean, Fast & Cheap
• Dubai Strategy – see https://smartdubai.ae
• BUT: “You have to come to our Office!”

26. Incubators & Accelerators I
• Strong Focus on Technology, but with Widespread
• Buzzword Addiction (AI, Autonomous, 3D, Blockchain, etc.)
• Clear Focus and Embedding in the General Emiratization Policy
• Omnipresent Initiatives to bring young Emiratis away from Government Jobs into
Entrepreneurships
• Exceptions everywhere where Tech is seen as “coming from abroad”
• Big Players are UAE’s Sovereign Funds, primarily not for Start Ups
• ADIA / ADIO Abu Dhabi Investment Authority / Office 696.66bn $
• ICD Investment Corporation of Dubai 239.38bn $
• Mubadala Investment Company (Abu Dhabi) 228.93bn $
• EIA Emirates Investment Authority (Federation) 45.00bn $

27. Incubators & Accelerators II
• Selection of Accelerators, Incubators, Tech Hubs
• Area 2071 – Accelerator with focus on “UAE Centennial 2071” https://area2071.ae
• Astrolabs – Co-Working for DigiTech Sector, powered by DMCC (FZ Authority) https://astrolabs.com
• DTEC – Entrepreneur Campus, powered by DSO (FZ Authority) https://dtec.ae
• Dubai Future Accelerator – Private/Public Collaboration Enabler, powered by DFF (Initiative) https://dubaifutureaccelerators.com
• Fazzaa Center – Member Benefit Scheme for Emiratis https://fazaa.ae
• FinTech Hive – Startup Incubator, powered by DIFC (FZ Authority) https://fintechhive.difc.ae
• Flat6Labs – Startup Accelerator, powered by twofour54 (FZ Authority) https://www.flat6labs.com
• Ghadan 21 – Startup Accelerator, powered by Government of Abu Dhabi https://ghadan.abudhabi
• in5 – Enabling Platform, powered by TECOM Group (FZ Authority) https://infive.ae
• Mohammed Bin Rashid Fund for SME (Dubai SME) – Focused Fund to invest in Startups https://thefund.ae
• Silicon Oasis Founders – Mobile Application Incubator, powered by DSO (FZ Authority) https://dso.ae
• Techstars / Hub 71 – Part of Ghadan 21, Startup Community, lead by ADGM https://hub71.com
• Turn8 – Dubai Arm of a US VC Firm as Startup Incubator https://turn8.co

28. Support from Banks

29. Support from Banks
• StartUp- and SME-friendly Claim belongs to the “Good Tone”
• ONLY – Not more, not less
• “SME Banking” is in any Bank an existing/established Department
• First Challenge is to even get a Current Bank Account
• High Minimum Balances are Standard – 10 to 100 THOUSAND $
• SME Credit Facilities?
• Traditional UAE Banking: Eligibility if Entity is older than 3 Years
• “Risk Management” and Overcollateralization are massive Bottlenecks
• With view to the Legal Pitfalls of Credit Facilities – anyways advise against
• Placebos for SME’s – FinTech Clones & Blueprints, powered by Banks
• At the End = Mobile Banking Applications “with a Touch”
• Old wine in new bottles: NeoBiz (Mashreq), liv (ENBD), moneysmart (ADCB)

30. Private Equity | Venture Capital | Funds
• 84 VC & PE Firms, Angel Groups, Micro VC’s & Syndicates, plus
35 Funds are active in the entire UAE – which is obviously low
• Tech Startup Funding:
2018 319m $ (110 deals)
2019 253m $ (105 deals)
• The Segment is small and relatively clear
• Under the Top 10 active Investors are alone 5 Sovereign Funds,
Government owned Free Zones or their Accelerators:
Mubadala, ICD, Flat6Labs, twofour54, DSO
• Many established Business Conglomerates in UAE
are active as investor too, without going public
or promoting themselves
Sources: crunchbase, CBINSIGHTS

31. Facilitation:
How to start
a Business?
• Jurisdiction Evaluation & Selection
• Incorporation & Structural
Cost Frames
• Administration Procedures
• Pitfalls – Mentality | Processes | Legal
• Setup Helpers – useful?

32. Jurisdiction Evaluation & Selection I
1. Judge the Jurisdiction Category
primarily by your Market Approach
• Focus Mainland / Domestic Market Mainland Setup
• Focus Overseas Markets Free Zone Setup
• Focus Both Free Zone & Mainland Distributor
• Focus Conveying, IP, Commissions etc. Offshore Setup
2. Localize your Jurisdiction Candidates
• Cluster Focus of Jurisdictions (e.g. Thematic Free Zones)
• Operational Jurisdiction Features
• Geographical Preferences, e.g. Distance Living vs Working
• Pricing of Structural Cost, Residency Cost etc.

33. Jurisdiction Evaluation & Selection II
3. Perform a Feasibility about your
Jurisdiction Candidates
• Cost Parameters like Rent, Electricity, Water, Gas etc.
• Checkup of Communication Quality (Provider vs. Provider, Bandwidth etc.)
• Connectivity Individual / Public Transport
• Ease of Administration Processes to setup the Entity
• Visit the Candidates to get a “Look and Feel”
4. Make a Cross-Check for your Result Matrix
• Consult Jurisdiction Administrations with “One Stop Red Tape” or Dialogue Centers
• Open up in already established Offices of Companies in the Jurisdiction and ASK
• Consult Business Helpers, Advisors or Law Firms
5. Decide

34. Incorporation & Structural Cost Frames
• For better Comparison – only Setup and Structural Cost compared
• Operational Parameters vary for each Business Case
• Professional Fees for “Helpers” not reflected = Do-it-yourself
• Auditing Fees, ESR and other Corporate Compliance Charges not reflected
Mainland
Entity
Free Zone
Entity
Financial
Free Zone Entity
Offshore
Entity
Cost of Incorporation
(one-off)
from 2,000 $
to 4,000 $
from 600 $
to 4,500 $
from 1,000 $
to 5,000 $
from 500 $
to 1,000 $
Annual Structural Cost
(from Year 1 onwards,
with min. Commercial Facility)
from 7,500 $
to 25,000 $
from 8,800 $
to 14,700 $
from 20,000 $
to 30,000 $
from 1,500 $
to 3,000 $

35. Administration Procedures
• Admin Procedures vary from Authority
to Authority, but have similar Workflows
Pre- and Company / Trade
Name Approval
• Criminal / Database
Checks of Applicant(s)
• Legal, Exclusion &
Duplication Name Check
Signing with Attestation of Incorporation
Documents and related Contracts
(e.g. Office Facility)
• Mainland Entity: Memorandum & Articles
to be notarized
• Physical Presence in Principle required
• Covid-19 brought some Improvements (Digitalization)
Delivery of Corporate
Documents
• Increasing Electronic Delivery
and Courier Delivery
Ready for Follow-Up
Contracting
• Electricity, Telecom, etc.
Registration of Entity &
Members

36. Pitfalls – Mentality | Processes | Legal
• Cultural Competence is essential when dealing with “Locals”
• Also when dealing with Non-Locals including those who want to be “Local” but aren’t
• English = established Working Language, but not the official Administration Language
• No Survival in Abu Dhabi without Arabic (!), for example
• Early Birds leave their Offices . . . also early
• ‫ة‬ َ‫ر‬ْ‫ﻛ‬ُ‫ﺑ‬ (Bukra)
• Due to the high Speed in Process Digitization and Automation (SMART Solutions)
Hen & Egg Scenarios (decreasing)
• Frequent Escape from “System” to paper – always have a pen with you
• Plus “System Down” as a 10-15% Idle Status
• Translations (EN–AR, AR–EN) are essentially important!
• In case of Disputes and/or Doubts – only Arabic counts
• Waive Google Translate under all Circumstances
• Lawsuits require an Arabic Lawyer – ultimately!

37. Setup Helpers – useful?
• Business Helper / Facilitator is a large Service Sector in UAE
• Goes from 1-Man-Handy-Street-Companies up to
the Big5 in Audit & Accounting – plus Law Firms of all Sizes
• Support in Facilitation is not regulated
• Useful in more complex Setup Scenarios
• Financial Free Zones, if additional Approvals are required,
Entities of Overseas Companies, Multi Layers
• The higher the Feasibility Needs are, the higher is the Advantage
• Depends primarily on own local Knowledge
• For common Start Ups – limited Advantage
• Alternatives: Liaise with an Incubator / Accelerator
• But again: Depends also on local knowledge vs. given Timeline

38. Critical Pathways • Ambition as a Downfall?
• Pioneering every Development
• Overregulation
• Complex Horizon of Regulation
• Development of other (regional) Hubs
• Readjustment to the New Normal
• Post Covid Society
• Going with the Digital Developments

39. The End
REACHOUT – most welcome
Phillip Kraeter
pk@mciclt.net (E-Mail, Zoom)
+31.6 10091370 (WhatsApp, Signal)
Martin Kraeter
mk@mciclt.net (E-Mail, Zoom)
+971.54 4445659 (WhatsApp, Signal)
+84.86 5229150 (WhatsApp, Line, Zalo)