A global business hub, the UAE draws many multinational
corporations and investors who want a strategic location for their activities.
To meet international standards and increase transparency, the jurisdiction has
introduced economic substance requirements and regulations. The goal was to enhance the
transparency and credibility of the UAE's tax system and to prevent the erosion
of other jurisdictions’ tax bases These standards also aim to attract genuine
business activities and investments to the UAE, while supporting the country’s
economic diversification and
development. However, their implementation has significantly impacted
certain sectors. Below, we will see what industries in the UAE are most
affected by the above regulations and look into the challenges and
opportunities that have arisen as a result.
Financial services and banking
Challenges: Striking a balance between global operations and satisfying the ESR criteria poses a challenge for multinational financial firms. For them to meet the ESRs without disrupting international operations demands careful strategic planning.
Opportunities: This regulatory shift prompts financial institutions to streamline their operations and enhance efficiency. Establishing a strong presence in the UAE can not only ensure compliance but also open doors to a growing market.
Shipping and logistics
The UAE, with its strategic location, is a draw for shipping
and logistics companies. The local shipping and logistics sector is a thriving
industry that connects markets across continents. The Emirates leverages its
strategic location, modern infrastructure, and advanced logistics to be a vital
link for global trade and transportation. The sector also adopts technology to
improve efficiency in operations, tracking, and supply chain. Regrettably, the
industry also faces challenges under ESRs. In particular, this is true for
holding and leasing companies. The emphasis on substantive activities has led
to a reevaluation of business models in the UAE shipping and logistics sector.
Challenges: Meeting the economic substance requirements
while maintaining a global logistics network is a delicate balancing act.
Companies in this industry have to handle complexities to ensure their
operations align with the regulations.
Opportunities: Investing in infrastructure and expanding
local operations can position shipping and logistics companies for compliance.
Moreover, the demand for logistics services in the region presents growth
Oil and gas
The oil and gas sector in the UAE remains a cornerstone of the nation's economy, contributing significantly to its prosperity. Despite the global push towards renewable energy, the UAE continues to strategically leverage its abundant hydrocarbon resources. With a commitment to sustainable practices, the sector has undergone a transformation, embracing technology and diversifying operations to reduce environmental impact. However, it is not immune to the impact of ESRs as well. Just like lots of other businesses, exploration, extraction, and production companies in the energy sector need to justify their presence and operations in the UAE.
Challenges: Balancing global energy operations with local compliance is a complex task. The capital-intensive nature of the industry requires careful consideration of the economic substance requirements.
Opportunities: The ESR push provides an impetus for oil and gas companies to invest in local infrastructure and technology. Diversifying operations to include more value-added activities within the UAE can lead to improved compliance.
Technology and intellectual property
In 2024, the technology and intellectual property sector in
the UAE stands at the forefront of innovation, reflecting the nation's
commitment to becoming a global tech hub. It has experienced remarkable growth,
with companies focusing on research and development, digital
transformation, and intellectual property creation. Yet, the industry, which
often relies on intellectual property as a key asset, encounters challenges
under ESRs. Companies involved in IP holding and licensing activities are
required to demonstrate genuine business operations within the UAE to
Challenges: Defining and proving substantial activities for
technology companies, which often operate in a virtual and borderless
environment, is a challenging task. To handle the nuances of ESR without
hindering innovation is a significant challenge as things stand.
Opportunities: Investing in research and development
(R&D) centers and expanding tech operations locally can not only guarantee
compliance but also foster innovation and collaboration within the UAE.
Real estate and construction
With a focus on sustainable development, innovation, and
aesthetic appeal, real estate companies have played a pivotal role in shaping
modern urban landscapes across the UAE. The integration of smart technologies
and eco-friendly practices has become increasingly prevalent, aligning with
global sustainability goals. Yet, just like many other businesses, companies
engaged in real estate development, construction, and property management in
the United Arab Emirates may face challenges under ESRs. In particular, holding
and leasing activities will require close scrutiny to ensure compliance.
Challenges: Balancing international real estate portfolios
with local economic substance requirements poses challenges for real estate and
Opportunities: Investing in local construction projects and developing a substantial presence within the UAE can open doors to the booming real estate market and potentially ensure compliance.
Healthcare and pharmaceuticals
The healthcare and pharmaceutical industries, particularly
companies involved in research, development, and manufacturing, are also likely
to encounter challenges under ESRs. The emphasis on substantive activities
requires a reevaluation of operational structures.
Challenges: For companies in this sector, it may be
challenging to deal with the complexities of international healthcare
operations while meeting local economic substance requirements.
Opportunities: Investing in local healthcare infrastructure,
research facilities, and manufacturing plants can position companies for
compliance and tap into the growing healthcare market in the UAE.
Although complying with ESRs may seem complicated, it has
the potential to boost your business reputation in the UAE. With expert
assistance from International Wealth, we hope you can overcome this challenge
with confidence. To achieve your UAE business goals, check this link or contact our team
without further delay!