Why Dubai and the UAE Lead the MENA Region for Foreign Direct Investment

The capital markets of Dubai and the wider UAE are the business bedrock of the MENA region, and investor confidence is high. That’s good news for startups and scale-ups looking to get off the ground or secure their next funding round. With the globalisation of entrepreneurship, attracting investment is more competitive than ever. That’s why it pays to be based in a city or region that attracts strong interest from foreign investors. The UAE is appealing for many reasons, notably its stable economy, tax advantages, and the fact there are more than 40 free zones.

Why Foreign Direct Investment Matters

Foreign Direct Investment (FDI) – when a company or government makes a substantial investment in a foreign concern – is vital for long-term economic stability and strong connections between global economies. It’s also great for entrepreneurs. As a place to do business, the UAE offers an attractive government-backed business environment for entrepreneurs and foreign investors. But we’ll let the numbers tell the full story. In 2020 and 2021, the UAE accounted for over 30% of FDI inflow into the MENA region. That puts Dubai and the rest of the UAE in the number one spot. Furthermore, according to the UNCTAD World Investment Report 2022, the UAE also ranks first for FDI inflows in West Asian countries, with an impressive FDI growth rate of 4%. The UAE’s capital market has shown incredible resilience in the wake of the global pandemic. For those of us living and working in the region, particularly Dubai, it’s easy to see the appeal for foreign investors – especially when you consider that the government has signed over 100 agreements to protect and stimulate foreign investment.

What Foreign Investors Need

So what are foreign investors looking for? And how can you make your startup or scale-up an attractive proposition? While every investor and each investment is different, there are some common features of many foreign direct investments. When foreign companies or governments are looking to invest, they tend to seek out businesses or projects based in stable economies – with capital markets that make it easy to do business. For that reason, investors should focus on jurisdictions with streamlined and tax-efficient regulations. Cities and regions with a strong track record for growth and a highly-skilled workforce also give investors confidence. That’s because an FDI makes a capital investment and usually takes a controlling share of the business and therefore plays an active role in decision-making.

Why Dubai Attracts FDI

“The emirate’s world-class infrastructure, flexible regulatory framework, and dynamic business ecosystem that supports innovation and attracts global talent are factors that cement Dubai’s position as the world’s leading investment destination.” 

– His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of The Executive Council of Dubai

Dubai and the wider UAE have attractive capital markets for foreign investors across a broad range of sectors. Importantly, the UAE offers the political and economic stability investors crave. At the same time, many foreign investors and entrepreneurs choose to be based in Dubai because of its well-established and thriving business community. As one of the world’s wealthiest cities, high standards of living and exceptional quality of life add to the appeal. For investors, Dubai is more than just a great place to live and do business. As a central trading hub for the Middle East and the Gulf Cooperation Council (GCC), it is ideally situated within the MENA region, with Dubai International Airport connecting the emirate with over 240 global destinations. Dubai’s transport infrastructure is one of the best in the world, helped by the Digital Dubai initiative, which aims to make it a smart, sustainable, future-proofed city. Dubai is also an attractive location for environmental, social and governance (ESG) investors. Alongside Abu Dhabi, it’s ranked as the smartest city in the MENA region for its use of data and digital services to improve residents’ lives and make doing business easier. The government is driving digital innovations covering everything from the Dubai Paperless Strategy, which aims to eliminate 1 billion pieces of paper from government services to the Happiness Agenda, which aims to make Dubai the happiest city on the planet. Of course, one of the main draws of Dubai for both entrepreneurs and foreign investors is how easy it is to get a company up and running. Business registration is a straightforward process, which in most cases, takes days rather than weeks or months. Free zones like Meydan provide ready-made entrepreneurial ecosystems that can support businesses with all the services they need to thrive and grow. You can’t put a price on the peace of mind gained from joining a community of overseas entrepreneurs who have already set up successful businesses with foreign investment. These investors are already well-established in several key markets, including wholesale and retail, real estate, financial services, insurance, manufacturing, and mining and quarry exploration.

Reasons to Choose Dubai

“In a world facing profound challenges over the past few years, Dubai offers one of the safest and most stable business environments, boosting investor appetite. The emirate provides a policy ecosystem for future-focused high-tech sectors, while its robust infrastructure offers a productive environment for conventional businesses.” 

– His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of The Executive Council of Dubai

What investors and entrepreneurs require from a business location is the freedom and infrastructure to carry out business easily and reap the financial rewards. Business destinations such as Dubai and the wider UAE benefit from foreign investments coming into the city. For this reason, Dubai has become a hotbed of investment opportunities.  

Tourism

Dubai has a thriving tourism industry. Pre-pandemic, the number of annual tourists rose from 14 million in 2015 to nearly 17 million in 2019. As the number of tourists and short-term residents – such as social media influencers – increases year-on-year, opportunities abound in the hospitality sector. From hotels, restaurants, and entertainment venues to travel agents and logistics, there are many possibilities for entrepreneurs and investors.  

Free Zones

One of the most compelling reasons foreign investors choose Dubai is the number of free zones specifically designed to meet diverse business needs. From the Meydan Free Zone in the heart of the city to locations on the outskirts, these special economic zones are dedicated to supporting particular business activities and enabling foreign investors to maintain full ownership of their businesses. There are even zones dedicated to research and development. Free zones streamline the process for business registration, including obtaining the correct visas. They also provide ready-made infrastructure for free zone companies such as office space, warehouses, and living quarters.  

Taxation

As of 2023, tax will only be payable on corporate income exceeding AED 375,000 – around USD 102,000. Even then, it’s paid at the attractively low rate of 9% – making it one of the most competitive in the world. However, it’s important to note that this tax doesn’t apply to foreign investors who conduct business outside the country, and foreign businesses based in free zones continue to enjoy advantageous taxation rules. For example, the transfer of profits from Dubai to other countries is, in most cases, tax-free. Dubai residents and resident companies are also supported by a number of double taxation agreements, which help keep the tax burden low. Moreover, unlike most other countries, there are no employment taxes in Dubai.

The future of FDI in Dubai

“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.”  – His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of The Executive Council of Dubai

Dubai and the wider UAE are committed to creating investment opportunities and supporting the outflow and inflow of FDI. At the recent Emirates Investment Summit, the UAE announced the first tranche of projects to be released under the ‘Project Of The 50’ programme, which aims to foster the UAE’s next phase of growth. In terms of FDI, the objective is to connect investment funds with public and private organisations in order to attract around AED 550 billion in FDI over the next nine years. And that’s an appealing prospect for any prospective entrepreneur. Looking for a leading free zone in the heart of Dubai? Discover Meydan