The UAE attracted Dh76 billion ($20.7bn) in foreign direct investments in 2021, up 3.9 per cent from 2020, as a result of measures the country took to develop various economic sectors and improve the ease of doing business.
Foreign investments into the country were directed at traditional and renewable energy, oil and natural gas, financial services, insurance activities, real estate, health, industry and agriculture, the Ministry of Economy said on Wednesday.
The digital economy, technology, artificial intelligence, Internet of Things, blockchain, medical technologies, high-speed transport, virtual and augmented reality, robotics and self-driving cars also attracted "considerable FDI", it said.
"This result is a natural outcome of the pioneering measures and initiatives implemented by the UAE in the past phase to develop its economic sectors and significantly enhance its investment climate," said Abdulla bin Touq, the UAE minister of economy.
"These policies align with a new economic model that is more flexible and sustainable, with more openness to global markets, and are also in line with future economic trends and emerging technologies."
The country's total FDI balance increased 13.7 per cent year on year to reach nearly Dh630bn by the end of 2021, the ministry said.
The UAE ranked first in the Arab world and 15th globally in Kearney's FDI Confidence Index for 2021, advancing four places compared with 2020. It outperformed major global economies such as Singapore, Australia, Portugal, Denmark, Ireland, Brazil and Finland in the overall ranking of the index.
The growth in FDI inflows to the UAE reflects the confidence of the international community in its investment environment, said Minister of State for Foreign Trade Thani Al Zeyoudi.
New legislation and the launch of the Projects of the 50 campaign are set to have a concrete effect in the long run on the flow and quality of foreign and domestic investments and the UAE’s overall economic growth, he said. This will result in creating jobs and developing new skills.
The Arab world’s second-largest economy has undertaken economic, legal and social structural reforms aimed at strengthening its business environment, attracting FDI, drawing high-skilled talent and incentivising companies to set up or expand their operations in the country.
The reforms include the expansion of longer-term residency visas to broader categories of residents, wide-ranging changes to personal and labour laws, allowing 100 per cent foreign ownership of onshore companies and the decision to change the UAE’s working week to Monday to Friday to align with other major economies.
The UAE's outward FDI flows to other countries reached nearly Dh82.6bn in 2021, a growth of 19.1 per cent year on year, the ministry said.
UAE companies have boosted the competitiveness of the national economy in advanced global industries such as aviation, transport, mining and conventional and renewable energy. They also invested in real estate, construction, ICT, oil and natural gas, logistics, ports and infrastructure, tourism, hotels, entertainment, banking and agriculture.
This result is a natural outcome of the pioneering measures and initiatives implemented by the UAE in the past phase to develop its economic sectors and significantly enhance its investment climate
Abdulla bin Touq,
UAE’s Minister of Economy
The Emirates is keen to increase FDI flows to the country and aims to boost economic output by up to 6 per cent in 2022 despite headwinds and global geopolitical challenges, Mr bin Touq said last month.
"If we want to double our economy from Dh1.4 trillion to Dh3tn in seven years, which we have announced, we have to average a growth of about 5 per cent to 6 per cent," the minister said at the time. "I’m hoping for that target to happen this year."
The UAE is also working to strengthen relations with key trading partners.
The UAE and Israel have concluded talks on a Comprehensive Economic Partnership Agreement (Cepa) that is expected to boost non-oil trade and investment between the two countries.
The agreement is ready for signing and paves the way for a "new era of collaboration" in priority sectors such as agriculture technology, medical technology, new energy solutions and advanced technology, Mr Al Zeyoudi said last week.
The UAE signed a similar agreement in February with India that is expected to boost non-oil trade between the two nations to $100bn in five years, from $60bn currently.
The country is also in Cepa negotiations with Indonesia, the biggest economy in South-East Asia. A similar deal is being negotiated with South Korea, which is expected to be finalised by the end of 2022.
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Industry: Technology and talent management
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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