The United Arab Emirates (UAE) is a federation of seven states situated on the south-west shore of the Arabian/Persian Gulf. With its largest city Dubai and its capital Abu Dhabi both attracting many global corporations and financial institutions, it has become the leading financial centre of the MEASA (Middle East Africa South Asia) region.

Although it is among the world’s top ten largest oil producers, for many years the UAE has been keen to move away from its reliance on hydrocarbons. In order to attract foreign investment, it has now established over 40 free zones in the country. For companies choosing to operate from them, there are exemptions from taxation such as Value Added Tax (VAT), Corporate Tax and Customs Duty.

From a treasury point of view, the key locations in the UAE are as follows:

Dubai

The Dubai International Financial Centre (DIFC) is the preeminent financial centre in the Emirates. Launched in 2004 as part of Dubai’s strategy to diversify its economic resources and attract capital and investment, it now contains the largest ecosystem of financial services-related companies in the region.

“Dubai has positioned itself towards banks and treasury centres,” says Dubai-based Rahul Daswani, a skilled treasury and finance professional with over 20 years’ experience in the Middle East. “Its strategy is centred around tourism, and trade and financial expertise.”

As such, it is home to 17 of the world’s top 20 banks and five of the top ten asset managers, as well as many other financial institutions and leading global law and consulting firms. Set up as an independent jurisdiction within the UAE, the DIFC was empowered to create its own legal and regulatory framework. As Daswani explains: “It is effectively a small geographical portion of the city, carved out as a separate territory.”

Abu Dhabi

Abu Dhabi, the capital of the UAE federation, houses the government and diplomatic missions. “Abu Dhabi, being an oil-rich Emirate, started out with energy, so it houses the offices of lots of energy companies. Having in the past focused heavily on real estate has meant that developers of some very large infrastructure projects are based there,” says Daswani. “But now they have also started focusing on the financial sector and have set up the Abu Dhabi Global Market (ADGM), which is similar to the DIFC. They have the largest bank in the region, which is First Abu Dhabi Bank, as well as the government investment funds.”

Established in 2013, the ADGM represents a viable alternative for foreign financial businesses setting up in the Emirates. By positioning itself as a pro-business and dynamic financial free zone, it is seen as an attractive jurisdiction for many financial start-ups.

Sharjah

Sharjah, meanwhile, is the Emirates’ third largest city. “It is focused on a more traditional model,” Daswani notes. “It not only wants to focus on modernising trade, but also at the same time continue with the old traditions that have been established so that the business models just do not move away from the Arab world and Sharia.”

Favourable climate

When it comes to choosing a treasury centre location, there are a number of considerations that companies need to look at. “International businesses consider a range of factors when choosing to establish themselves in an overseas market, primarily focused on the regulatory and infrastructure environment of the proposed treasury centre,” says Finali Fernando, Regional Head of Products, Global Payments Solutions, HSBC Middle East. “In terms of regulation, an economically stable market and internationally reputable regulatory regime, supported by a robust legal framework, with a competitive tax environment and easy currency transfer options, are paramount.”

According to PwC’s Regional Treasury Centres in ADGM – Tax and Regulatory Analysis report, a number of European and US-headquartered groups have chosen the UAE for their Regional Treasury Centres (RTCs). Its geographical location, combined with the business-friendly environment and quality of infrastructure, makes it particularly convenient for treasury management across Europe, the Middle East and Africa.

“The UAE is, I would argue, a strong case study for having the right attributes of a desirable RTC,” says Fernando. “The country has established an ongoing economic and social deregulation programme, which includes the establishment of free zones and a tolerant international outlook, which makes it an attractive location for international businesses to invest in.” He notes that the UAE’s reputation for economic and political stability has been gained over many decades, “and the UAE clearly ticks the box of being well-located between eastern and western markets in geography and time zone.”

“In certain other countries there are no regulations governing how a company can operate as a treasury function or in-house bank within a corporate group,” says Mohamad El Dirani, Partner, Financial Services Tax Leader at PwC Middle East. “The UAE – specifically the Abu Dhabi Global Market (ADGM) – however, gave real clarity on the issue of licensing a company’s treasury to become an in-house bank or treasury cash pool header.”

Tax considerations

In December 2022 it was announced that the UAE would be implementing a corporation tax regime from 1st June 2023. “Before the change in the tax law, it was very clear that if you had your cash pool header or your in-house bank based in the UAE, any deposits received, loans made or interest paid or received – even treasury service fees you charge other group companies – were not going to be taxable in the UAE. Now, with the corporate tax law coming in, we need to take a closer look at that,” says El Dirani.

“I don’t think the new corporate tax law will hinder that,” he adds. “We still have the potential to have those treasury centres based in the free zones, subject to getting further confirmation from the government via a Cabinet decision on the definition of income of a free zone company that will be subject to a 0% tax rate. But I would assume income such as interest, or treasury related services from foreign sources, potentially falls within what qualifies as 0% taxable income.

“However, where the UAE treasury entity is a constituent entity within a Pillar 2 group, income from interest or other treasury related services should be taxable based on the Pillar 2 rules that the UAE is expected to release in the future, which are expected to override freezone 0% tax benefits.”

Its strategic location between the three continents of Europe, Africa and Asia, together with favourable regimes in the free zones and a pool of highly skilled workers, mean that the UAE provides a unique environment in which companies can prosper and grow.

“Dubai, besides having the benefit of being the Middle East’s financial centre, is well renowned for its modern, well-funded and ambitious infrastructure,” says Fernando. “But all of the country continues to see great momentum on big infrastructure projects which will benefit employees and businesses, such as the ongoing US$14bn Etihad Railway Project to link all the seven Emirates of the UAE.” This railway, connecting 11 key cities and regions across the UAE, will allow passengers to travel from Abu Dhabi to Dubai in just 50 minutes.

Meanwhile, to mark the Emirates’ 50th anniversary as a nation in 2021, the country launched its “Projects of the 50” initiative setting out the vision for the next 50 years. Among the first 13 projects announced was “The Fourth Industrial Revolution Network”, designed to promote the adoption of advanced technologies by companies in the national industrial sector in partnership with leading providers such as Siemens, Microsoft, Cisco and IBM.

Over the coming five decades, a host of major projects will be undertaken – not just to accelerate the country’s growth, but also to establish it as a global leader in a number of sectors, and maintain its position as an attractive destination for investors and travellers across the globe.