The UAE moved a notch up 14th place in the latest foreign direct investment (FDI) rankings despite lingering pandemic uncertainties and headwinds posed by the global geopolitical situation.
Qatar is the only other country in the Middle East to join the UAE this year on the Foreign Direct Investment Confidence Index compiled by consulting company Kearney.
The UAE had been “the region’s lone market on our index for the past two years”, said Paul Laudicina, chairman emeritus of Kearney and founder of the Global Business Policy Council, who co-authored the report with Erik Peterson, managing director of the council.
“Qatar likely benefited from investor enthusiasm about the country hosting the 2022 Fifa World Cup, the first Arab country ever to do so.”
GCC economies have bounced back strongly from the pandemic-induced slowdown as economic momentum continues to gather pace amid regional governments’ diversification push.
The UAE was among the top 20 economies globally last year that attracted foreign investment as inflows to the country rose 3.9 per cent annually in 2021 to nearly Dh76 billion ($20.7bn). That led the total FDI balance in the country to rise 13.7 per cent over 2020 to about Dh630bn at the end of 2021, the Ministry of Economy said on Wednesday.
The UAE, the Arab world’s second-largest economy, aims to attract Dh550bn in foreign investment to the country by 2030, to eventually reach Dh1 trillion by 2051.
The government is pushing to increase FDI at a time when the global investment landscape is changing rapidly, thanks to post-pandemic trends, evolving economic priorities and a sharp rise in digitalisation.
Other emerging economies that featured in the Kearney index, which ranks 25 countries likely to attract the most investment in the next three years, include China in 10th place and Brazil in 22nd position.
China’s move up two positions in the latest ranking is perhaps “a reflection of the country’s strong economic recovery in 2021 and continued solid growth projections over the next three years”, Kearney said.
The US, the world’s biggest economy, retained its position as the top global FDI destination for the 10th year in a row.
“This result likely reflects tailwinds following the country’s economic rebound to 5.8 per cent growth in 2021 (following a 3.4 per cent contraction the year prior) as well as optimism about the country’s $1.2 trillion infrastructure bill, which was passed in November 2021,” the co-authors said.
Germany, Canada, Japan, the UK, France, Italy, Spain and Switzerland make up the rest of the top 10 global FDI destinations, according to the index.
“In an environment marred by two years of pandemic disruption, this year’s survey once again demonstrated investors’ preference for trusted and developed markets in times of uncertainty,” the report said.
“This is reflected in the relative consistency of the make-up of our list from last year to this year.”
Global chief executives and investors, who were surveyed before Russia’s military offensive in Ukraine, were optimistic about economic growth prospects on the back of improving outlook and a belief that most countries in the index would see their three-year economic prospects improve.
The resurgence of FDI last year after the pandemic, which crimped investment flow by more than 35 per cent in 2020, also drove optimism in the beginning of the year.
Globally, FDI flows increased 77 per cent to about $1.65tn last year, up from just $929bn in 2020. This number surpassed pre-pandemic investment levels, which stood at about $1.5tn, according to the the UN Conference on Trade and Development's Investment Trends Monitor.
However, even before the Ukraine conflict, investors did identify commodity prices, geopolitical tensions and persistent inflation as areas of concern in 2022.
“Just a few months into the year, each of these concerns has already developed, exacerbated, of course, by Russia’s military actions in Ukraine,” the co-authors said.
The largest share of investors surveyed by Kearney intend to maintain their level of FDI or seek additional investments in developed markets rather than in emerging or frontier markets, with governance and regulations among the key considerations.
About 70 per cent of investors are interested in developed markets and are either maintaining or seeking to expand investment opportunities in them, relative to 59 per cent in emerging and 57 per cent in frontier markets.
The intention to seek new investment opportunities was strongest in the Americas (42 per cent), followed by the Asia Pacific (30 per cent), and Europe (21 per cent).
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
Who was Alfred Nobel?
The Nobel Prize was created by wealthy Swedish chemist and entrepreneur Alfred Nobel.
- In his will he dictated that the bulk of his estate should be used to fund "prizes to those who, during the preceding year, have conferred the greatest benefit to humankind".
- Nobel is best known as the inventor of dynamite, but also wrote poetry and drama and could speak Russian, French, English and German by the age of 17. The five original prize categories reflect the interests closest to his heart.
- Nobel died in 1896 but it took until 1901, following a legal battle over his will, before the first prizes were awarded.
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