In recent years Dubai and the UAE are witnessing elevated FDI inflow, mostly driven by a friendly business environment, excellent infrastructure, pro-business policies, and structural reforms focused on diversification of the economy and building of a dynamic and ever-expanding private sector.
Attractive capital markets for foreign entrepreneurs and investors have also helped propel the growth in FDI inflow. As the investors are bullish and confident on the capital markets of Dubai and other emirates, fundraising for startups and scaleups is becoming easier.
As entrepreneurs go global, fundraising through foreign participation becomes more competitive unless international investors and entrepreneurs find the country or region attractive for investment.
Dubai and the UAE in the MENA region are seen to be the front runners in attracting FDI primarily due to a stable economy, tax incentives, and the existence of several free zones.
Why FDI for Economic Stability, Resilience, and Sustainability
Besides being a key driver of economic growth, FDI has always remained a significant non-debt financial resource for a country’s economic development. Foreign investors and entrepreneurs invest in a country to benefit from the investment privileges the country offers. The Dubai government in the recent past has signed more than 100 agreements to secure and facilitate foreign investments.
FDI helps the country develop technological know-how and generate employment. These investments have been pouring into Dubai and the UAE because of the vibrant business climate, the government’s supportive policy framework, and rising global competitiveness.
Data reveals the fact and bears the testimony that Dubai and the UAE are ahead of other MENA countries in terms of FDI inflow. The UAE contributed more than 30 percent of FDI inflow into the MENA region during 2020 and 2021 taking Dubai and the other emirates at the top of the list. The 2022 UNCTAD World Investment Report also reveals that the UAE ranks first in FDI inflows amongst the West Asian countries registering a phenomenal FDI growth of 4 percent and above.
What Attracts Foreign Investors
When foreign financial institutions or companies or governments want to invest, they often look for the economic stability of businesses or projects they are interested in. Besides, such investors focus on governance frameworks that offer transparency and tax efficiency.
Records of economic growth and prospects of economic growth and stability also matter a lot to foreign investors as these instill confidence amongst them. The availability of a highly-skilled workforce also adds to the investors’ confidence in facilitating fund inflow through new company formation in Dubai.
Why FDI is Flowing in Dubai
Dubai, including the other emirates, has attractive capital markets with a lower cost of investment for foreign investors across a lot of sectors. The UAE, as a whole, also symbolizes the political and economic stability investors long for. Dubai is preferred amongst other emirates due to its status as an International financial hub with an expanding and thriving business community. It is also one of the richest and smartest global cities with a high quality of life and high standards of living that global investors get attracted to.
Dubai’s strategic location also adds another feather to its crown as it is at the heart of the MENA region and connected to more than 240 cities worldwide by air. Besides, the city can boast of one of the best transport infrastructure facilities in the world.
International Environmental, Social, and Governance (ESG) investors are also feverish about Dubai after the city rolled out the Dubai Metaverse strategy. As the digital drive picks up speed in the city, doing business is becoming easier. Besides, the Dubai government’s Paperless strategy and adoption of a technology-based unique approach towards measuring, impacting, and sustaining happiness for the entire city are causing investors to flock to the city.
The other reason that is driving investors to Dubai is the ease of doing business. Business registration for a business set up in Dubai is a straightforward process and only takes a few days.
The business community of foreign investors has established proven businesses and family offices in Dubai which is inspiring prospective investors to come and set up a business in the city. Business sectors that are offering the highest stability and growth potential include e-commerce, real estate, insurance, financial services, manufacturing, mining and tourism, and hospitality.
The other most vital reason for investors to choose Dubai is the number of dedicated free zones available in the city specifically designed to support and cater to specific business activities that enable foreign investors to obtain full business ownership. There are more than 40 free zones in Dubai, and some are solely dedicated to research and development.
Business registration and visa issuance processes are transparent and streamlined with easily available low-cost office spaces and warehouses.
Dubai is known as a tax haven and even after the introduction of corporate tax, a business with turnover surpassing AED 375,000 only needs to pay tax on profits and that too at a low rate of 9% which is one of the most competitive tax rates globally.
Foreign investors conducting business activities outside of the UAE don’t come under the corporate tax regime and foreign businesses owned by overseas investors in the free zones continue to enjoy tax holidays subject to fulfilling certain conditions.
The UAE has also signed several double taxation avoidance agreements (DTAA) with different countries which protect Dubai-based companies and individual residents from double taxation. As opposed to the tax systems in other jurisdictions, the UAE and Dubai governments don’t impose any tax on individual income from employment facilitating easier talent engagement and retention.
The Prospect of FDI in Dubai
In connection with the future FDI prospect of Dubai, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum remarked, “We remain committed to enriching Dubai’s enabling business environment to explore fresh growth avenues with our partner investors to achieve even greater success in years to come. Furthermore, diversifying the economy, attracting more investment in future-focused sectors, and enhancing growth opportunities in the digital economy will remain our strategic objectives for Dubai’s development journey.”
Dubai and the UAE as a whole, are dedicated to investor services by creating business opportunities and protecting foreign investments. The UAE at the recently held Emirates Investment Summit announced the launching of projects under the ‘Project of The 50’ program that clearly outlined the next phase of growth in the country.
The primary goal of attracting increased FDI inflow into the country is to channel investment funds with public and private organizations. The nation aims at attracting a whooping AED 550 billion in FDI over the next nine years which is a tempting proposition for all startups and SMEs.
