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Background

Foreign investment

What is the prevailing attitude towards foreign investment?

Despite a number of regulatory and legal barriers to foreign investment and the impact of broad geopolitical issues affecting the Middle East, inward foreign direct investment flows to the United Arab Emirates have, on the whole, continued, reflecting investor confidence in the UAE’s business environment, competitiveness and economy in general. In 2017, the United Arab Emirates remained West Asia’s second largest recipient of foreign investment (second to Turkey), with the amount of foreign investment into the United Arab Emirates at approximately US$10.4 billion, rising by 8 per cent as a result, in part, of rising cross-border sales.

The strategic importance of inward foreign investment flows to the United Arab Emirates continues to be recognised at both a federal and an emirate level, with inward foreign investment considered to be an important pillar in the UAE’s efforts to reduce its dependence on oil and gas revenues and build a sustainable and diversified knowledge-based economy.

The United Arab Emirates aims to transform its economy by updating its regulatory and legal framework, which currently favours local over foreign investment. In this regard, the United Arab Emirates has signed a number of bilateral investment treaties (including those with Columbia, the Maldives and Rwanda being signed in the second half of 2017 and with Argentina and Paraguay in the first half of 2018, albeit not yet in force. Updates to a number of domestic laws that apply to foreign investors and foreign investment are expected to be issued later this year. In addition, the United Arab Emirates has undertaken significant reforms that have made it easier to conduct business and encouraged investment, with the United Arab Emirates now ranking 21st in the World Bank’s annual Doing Business Report 2018, up from 26th place last year - outperforming all other Middle Eastern states. The United Arab Emirates did not, however, rank on AT Kearney’s 2018 FDI Confidence Index, having appeared at 21 on the Index last year. This is seen to be a result of investors spreading more widely across the emerging market space, leading to fewer individual emerging markets placing on the 2018 Index.

UAE investment abroad is significant, with outward flows of US$14 billion recorded in 2017. The largest UAE sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA), is believed to be managing assets upwards of US$683 billion.

What are the main sectors for foreign investment in the state?

The leading sectors for foreign investment in the United Arab Emirates are considered to be oil and gas, aviation, automotive, construction, information and communication technology. The renewable energy sector is generally considered to be one of the main growth sectors for foreign investment in the country. Other high potential areas include aeronautical equipment and services, healthcare and education.

Is there a net inflow or outflow of foreign direct investment?

According to statistics reported in the UNCTAD World Investment Report 2018, there remains a net outflow of foreign direct investment from the United Arab Emirates.

Inward foreign direct investment flows to the United Arab Emirates are now at approximately US$10.4 billion, while outward foreign direct investment flows stand at approximately US$14 billion. According to Dubai FDI Monitor, FDI capital inflows into the emirate of Dubai are currently at 4.73 billion UAE dirhams (approximately US$ 1.3 billion). The ADIA undertakes most of the outward foreign direct investment from the UAE, and, according to the Sovereign Wealth Fund Institute, is believed to be managing upwards of US$683 billion of assets, making it the largest sovereign wealth fund in the Middle East and the third largest sovereign wealth fund globally (after the Government Pension Fund, Norway and China Investment Corporation) by assets under management. Other sovereign wealth funds that invest actively overseas are, in the order of the value of assets:

  • the Investment Corporation of Dubai;
  • the Mubadala Investment Company;
  • the Abu Dhabi Investment Council; and
  • the Emirates Investment Authority.

Investment agreement legislation

Describe domestic legislation governing investment agreements with the state or state-owned entities.

The main law governing investment agreements with the United Arab Emirates or UAE-owned entities is the Government Tenders Law (Federal Order No. 16 of 1975), which stipulates that a supplier, contractor or participant in a federal project tender process must be a UAE national, a company in which a UAE national has a 51 per cent shareholding or a foreign entity represented by a UAE distributor or agent.

Under the Government Tenders Law, tenders to contract with the United Arab Emirates or UAE-owned entities must be accompanied by a preliminary deposit of not less than 5 per cent of the bid value, by way of a letter of guarantee issued by a bank operating in the UAE, or an approved and endorsed cheque drawn on a bank operating in the UAE.

At an emirate level, each emirate has specific provisions regulating government procurement activities. For example, an investment agreement with the Abu Dhabi government or an Abu Dhabi government entity will be subject to Abu Dhabi Law No. 6 of 2008, while an investment agreement with the Dubai government or a Dubai government entity will be subject to Dubai Law No. 6 of 1997.

International legal obligations

Investment treaties

Identify and give brief details of the bilateral or multilateral investment treaties to which the state is a party, also indicating whether they are in force.

The United Arab Emirates has signed a variety of bilateral and multilateral investment treaties. It is a founding member of the Gulf Cooperating Council (GCC), and through its participation in it has signed preferential trade agreements with Singapore (signed 2008 and in force 2013) and the European Free Trade Association (signed 2009 and in force 2014). The United Arab Emirates is a party to the Pan Arab Free Trade Agreement (PAFTA/GAFTA) (1998), and, as of 4 September 2018, has signed 62 bilateral investment treaties with developed and developing countries, 37 of which are currently in force. The UAE has also entered into a Trade Investment Framework Agreement with the United States (2004) to provide a framework for dialogue on economic reform and trade liberalisation.

If applicable, indicate whether the bilateral or multilateral investment treaties to which the state is a party extend to overseas territories.

Not applicable.

Has the state amended or entered into additional protocols affecting bilateral or multilateral investment treaties to which it is a party?

No. However, it has entered new agreements as mentioned above.

Has the state unilaterally terminated any bilateral or multilateral investment treaties to which it is a party?

The UAE previously terminated bilateral investment treaties with Egypt and Morocco (in 1999 and 2002, respectively). However, these were subsequently replaced by new bilateral investment treaties.

Has the state entered into multiple bilateral or multilateral investment treaties with overlapping membership?

Through its GCC membership, numerous bilateral investment treaties that the United Arab Emirates has entered into overlap with the GCC’s treaties with investment provisions (eg, the Cooperation Agreement between the European Economic Community, of the one part, and the countries party to the Charter of the Cooperation Council for the Arab States of the Gulf). These treaties continue to operate in parallel.

ICSID Convention

Is the state party to the ICSID Convention?

The United Arab Emirates signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) 1965 on 23 December 1981 and deposited its instrument of ratification on the same date. The Convention entered into force for the UAE on 22 January 1982.

Mauritius Convention

Is the state a party to the UN Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention)?

No. The United Arab Emirates is not a party to the Mauritius Convention.

Investment treaty programme

Does the state have an investment treaty programme?

The United Arab Emirates does not follow or publish an explicit investment treaty programme.

Regulation of inbound foreign investment

Government investment promotion programmes

Does the state have a foreign investment promotion programme?

There is no formal inbound foreign investment programme; however, the United Arab Emirates does have an open trade policy and relatively liberal trade regime. The broad aims of the UAE foreign investment policy are, inter alia, to promote trade relations, increase the contribution of foreign trade to gross domestic product, and foster foreign investment flows. As part of the UAE Vision 2021 National Agenda, the UAE aims to achieve FDI flows of 5 per cent of gross national product, with the Ministry of Economy acting as the key sponsor of this objective.

Although steps are being taken to improve the foreign investment environment in the United Arab Emirates, the UAE’s foreign investment regime is comparably restrictive. Foreign investment and competition between local and foreign investors remains limited, except in free zones, where 100 per cent foreign ownership is permitted. Outside free zones, industrial licences are granted only to domestic companies that are at least 51 per cent owned by UAE nationals, or by 100 per cent foreign-owned branches that appoint a local sponsor or service agent.

In 2006, the Ministry of Economy was mandated to implement a National Investment Reform Process aimed at making the United Arab Emirates more conducive to foreign investment. In 2011, the authorities announced that the Ministry of Economy was preparing a federal law on foreign investment to create more favourable conditions for foreign investment and transfer of know-how. The new law is expected to allow 100 per cent foreign ownership in specific sectors, resulting in an anticipated 15 per cent increase of foreign investment, largely from Asia and Europe. Reports from the Ministry of Economy suggest that publication of the new law is imminent and the Economy Minister has stated that the new law will be issued by the fourth quarter of 2018. In addition, a number of planned updates to the main laws regulating foreign investment in the UAE have been announced.

While the federal government is responsible for the broad framework of policy-making in the United Arab Emirates, each of the seven emirates sets its own strategy, which is integrated into the overall federal plan. In April 2016, Dubai launched its own foreign direct investment monitor, the Dubai Investment Agency Monitor (Dubai FDI Monitor), under the Dubai Department of Economic Development. The purpose of the Dubai FDI Monitor is to provide accurate and real-time reporting on FDI flows, trends and economic impact.

Applicable domestic laws

Identify the domestic laws that apply to foreign investors and foreign investment, including any requirements of admission or registration of investments.

The main laws regulating foreign investment in the United Arab Emirates are:

  • the GCC Common External Customs Tariff;
  • the GCC Common Customs Law, the Federal Companies Law (Law No. 2 of 2015);
  • the Commercial Agencies Law (Law No. 18 of 1981; as amended by Federal Law No. 14 of 1988 and Federal Law No. 13 of 2006);
  • the Federal Commercial Transactions Law (Law No. 19 of 1993);
  • the Civil Code (Law No. 5 of 1985);
  • the Federal Industry Law (Law No. 1 of 1979); and
  • the Government Tenders Law (Law No. 16 of 1975).

While the regulatory and legal framework in the UAE currently favours local over foreign investment, the investment laws and regulations are evolving and are expected to become more conducive to foreign investment (see question 13).

Although it was widely anticipated that the new Federal Commercial Companies Law (Federal Law No. 2 of 2015) would include a relaxation of the foreign ownership restrictions, this did not materialise. However, according to the authorities, the new investment law will regulate foreign investors’ rights, protect and promote foreign investment and give national treatment to foreign nationals, including allowing an investment with 100 per cent foreign equity. Together with the eagerly anticipated Federal Arbitration Law (Federal Law No. 6 of 2018), which came into force earlier this year, and the implementation of the new Federal Bankruptcy Law at the end of 2016, this is seen as a significant step towards furthering the UAE’s position at the forefront of investment in the region.

Relevant regulatory agency

Identify the state agency that regulates and promotes inbound foreign investment.

Investment policy in the United Arab Emirates is coordinated between the federal government and the respective emirates. At a federal level, the Department for Investment at the Ministry of Economy is the state agency responsible for regulating and promoting inbound foreign investment to the country.

Relevant dispute agency

Identify the state agency that must be served with process in a dispute with a foreign investor.

As an initial step, the Department for Investment at the Ministry of Economy should be notified of any dispute with a foreign investor. The Department will act as mediator, giving both parties access to the UAE’s investment policies, laws and regulations with a view to resolving the dispute amicably. However, if a dispute cannot be resolved amicably, the Department will refer the matter to the Department of Legal Affairs at the Ministry of Economy.

Investment treaty practice

Model BIT

Does the state have a model BIT?

No.

Preparatory materials

Does the state have a central repository of treaty preparatory materials? Are such materials publicly available?

The UAE does not have a central depository of treaty materials.

Scope and coverage

What is the typical scope of coverage of investment treaties?

There is no set definition of investment that is applicable to all UAE BITs, although generally in each BIT investment, it is defined broadly. For example, the UK-UAE BIT defines investment as ‘every kind of asset owned or controlled by investors of either of the Contracting Parties’, which includes (though not exclusively):

  • movable and immovable property and property rights such as mortgages, liens or pledges;
  • shares in and stock and debentures of a company and any other form of participation in a company;
  • liquid assets, deposits and claims to money or to performance under a contract having financial value;
  • intellectual property rights, goodwill, technical processes and know-how; and
  • business concessions conferred by law or under contract, including concessions to exploit natural resources.

Protections

What substantive protections are typically available?

Not all UAE BITs contain the same substantive protections or express standards of treatment in the same way. However, below are some common provisions in most UAE BITs.

Fair and equitable treatment

Most UAE BITs have a broad clause, which provides that each contracting party ‘shall accord to investments by investors of the other Contracting State fair and equitable treatment’ (eg, the Austria-UAE BIT). However, other fair and equitable treatment clauses provide an express reference to fair and equitable treatment in accordance with the principles of international law (eg, the BITs with Armenia, France and Mongolia).

Unreasonable, arbitrary or discriminatory measures

Most UAE BITs prohibit government measures that are unreasonable, arbitrary or discriminatory and that impair or harm an investment.

Most-favoured-nation clauses

Many UAE BITs contain some form of most-favoured-nation (MFN) protection. Usually, the MFN clause provides that the contracting states shall accord to investments of investors of the other contracting party treatment not less favourable than the treatment that it accords to investments of its own investors or investors of any third state. However, some UAE MFN clauses provide that the MFN requirement does not require the contracting state to offer investors the same treatment as the state guarantees to members of free trade areas, customs and economic unions, and similar agreements (eg, the BITs with Armenia, Finland, Malaysia and Russia).

Expropriation

Each UAE BIT contains provisions on expropriation, although the exact formulations of the expropriation provisions vary. In general, expropriation is not prohibited, but it must be for a public purpose, be followed by fair compensation, and not be discriminatory. The BITs with Italy, Romania, Tajikistan, Turkmenistan and Ukraine also expressly prohibit expropriation in violation of a contractual provision regarding stabilisation.

Umbrella clauses

Not all UAE BITs contain an umbrella clause. The BITs with Armenia, Belarus, China, Malaysia, Mongolia, Pakistan, Switzerland and the United Kingdom contain umbrella clauses, although the formulation of the umbrella clause in each BIT is slightly different.

Dispute resolution

What are the most commonly used dispute resolution options for investment disputes between foreign investors and your state?

Some UAE BITs allow for immediate recourse to arbitration, while others require a claimant to first seek a remedy through negotiations or in the host state courts. However, most of the UAE BITs provide for arbitration under the UNICTRAL or ICSID rules.

Confidentiality

Does the state have an established practice of requiring confidentiality in investment arbitration?

There is no express confidentiality practice and no express confidentiality provisions are included in the arbitration clauses in UAE BITs. Therefore, any arbitration involving the UAE is likely to adhere to the confidentiality provisions (if any) in the rules of the relevant arbitral institution.

Insurance

Does the state have an investment insurance agency or programme?

The United Arab Emirates is a member of the Islamic Corporation for the Insurance of Investment and Export Credit, which aims to facilitate trade and investment between member countries and the world through Sharia-compliant risk-mitigation tools. It is also a member of the Islamic Development Bank.

Investment arbitration history

Number of arbitrations

How many known investment treaty arbitrations has the state been involved in?

On 28 June 2017, a Turkish contractor, BM Mühendislik ve İnşaat AŞ, registered a claim against the United Arab Emirates (ICSID Case No. ARB/17/20). A Tribunal of L Yves Forier (Canada), Charles Brower (United States) and Zachary Douglas (Australia) has been constituted and as of 4 September 2018, the claimant has filed its memorial on the merits.

There have been only two previous cases brought before ICSID arbitral tribunals against the United Arab Emirates, namely:

  • Impregilo, SpA and Rizzani De Eccher SpA v United Arab Emirates (ICSID Case No. ARB/01/1); and
  • Hussein Nauman Soufraki v United Arab Emirates (ICSID Case No. ARB/02/7).

The decision and dissenting opinions in the case of Soufraki have been extensively considered and provide a useful summary of ICSID jurisprudence on the determination of issues of ‘effective’ nationality and the weight to be given to national laws of the parties. The Impregilo case is understood to have been settled on confidential terms.

In the first half of 2018, two further ICSID cases involving UAE investors were registered: Rasia FZE (UAE) and Joseph K Borkowski (USA) v Republic of Armenia (ICSID Case No. ARB/18/28) and Société des Parcs d’Alger (Algerian) and Emirates International Investment Company LLC (UAE) v People’s Democratic Republic of Algeria (ICSID Case No. ARB 18-11).

Jurisdiction challenges have been raised in the two ICSID cases involving UAE investors that were registered in 2017: DP World Limited v Kingdom of Belgium (ICSID Case No. ARB/17/21) and Itisaluna Iraq LLC and others v Republic of Iraq (ICSID Case No. ARB 17/10) (with VTEL Holdings ltd and VTEL Middle East and Africa Limited being the UAE claimant parties)) and it remains to be seen how these cases will affect perceptions of investor-state arbitrations in the United Arab Emirates.

Industries and sectors

Do the investment arbitrations involving the state usually concern specific industries or investment sectors?

The known investment treaty arbitrations involving the United Arab Emirates or investors from it have concerned disputes arising out of the construction industry and transportation and telecommunications sectors.

Selecting arbitrator

Does the state have a history of using default mechanisms for appointment of arbitral tribunals or does the state have a history of appointing specific arbitrators?

There are no reportable trends on the use of default mechanisms for the appointment of arbitral tribunals or the appointment of specific arbitrators.

Defence

Does the state typically defend itself against investment claims? Give details of the state’s internal counsel for investment disputes.

No. The state typically instructs international counsel to represent it in investment disputes.

Enforcement of awards against the state

Enforcement agreements

Is the state party to any international agreements regarding enforcement, such as the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards?

The United Arab Emirates is a party to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), which entered into force on 19 November 2006, following ratification on 13 June 2006.

In addition, the United Arab Emirates is a party to the following multilateral conventions:

  • the Riyadh Convention on Judicial Cooperation between States of the Arab League (1983), which entered into force in 1999;
  • the GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications (1996); and
  • the Investment Protection Agreement of the Organisation of Islamic Cooperation (1981), which was ratified by the UAE in 1989.

The UAE has also entered into a number of bilateral treaties relating to judicial cooperation, including:

  • the Treaty on Judicial Cooperation in Criminal Matters, Extradition of Offenders, Cooperation in Civil, Commercial and Personal Matters with Morocco (2006);
  • the Treaty on Mutual Legal Assistance in Criminal Matters, Extradition of Offenders, Cooperation in Civil, Commercial and Personal Matters, Service of Judicial and Extrajudicial Documents, Obtaining Evidence, Commissions and the Recognition and Enforcement of Foreign Judgments and Arbitral Awards with Sudan (2005);
  • the Agreement on Legal and Judicial Cooperation with Syria (2002);
  • the Agreement on Legal and Judicial Cooperation with Egypt (2000);
  • the Agreement on Legal and Judicial Cooperation with Jordan (1999);
  • the Treaty on Judicial Cooperation, Recognition and Enforcement of Judgments in Civil and Commercial Matters with France (1992); and
  • the Agreement on Legal and Judicial Cooperation with Somalia (1982).

A number of the international agreements regarding enforcement to which the United Arab Emirates is a party (eg, the Riyadh and GCC Conventions) permit it to refuse to recognise or enforce a foreign judgment or award made against it or one of its officials.

Award compliance

Does the state usually comply voluntarily with investment treaty awards rendered against it?

Not applicable. See question 24.

Unfavourable awards

If not, does the state appeal to its domestic courts or the courts where the arbitration was seated against unfavourable awards?

Not applicable.

Provisions hindering enforcement

Give details of any domestic legal provisions that may hinder the enforcement of awards against the state within its territory.

The UAE Civil Procedure Code contains an overall prohibition on seizing ‘public property owned by the state or one of the emirates’ for the purposes of enforcement (article 247). There are also additional sovereign immunity laws in Dubai (although not Abu Dhabi or the other emirates) that:

  • prohibit filing of lawsuits by or against the Ruler without obtaining his approval;
  • provide that the filing of lawsuits by or against the government of Dubai and any department thereof, including public corporations, is subject to certain pre-filing formalities being complied with (notably: submitting details of the claim to the government of Dubai’s legal adviser, not issuing a claim for two months after submission to the legal adviser, and obtaining an order from the Diwan Director in order to enforce any successful judgment); and
  • prohibit the recovery of debts or obligations of the government of Dubai and any department thereof, including public corporations, by attachment, sale by auction, or taking possession in any other legal manner, of their properties and assets (Dubai Law No. (3) of 1996).

Update and trends

Current developments

Are there any emerging trends or hot topics in your jurisdiction?

Value-added tax

Value-added tax (VAT) was introduced on 1 January 2018 at a standard rate of 5 per cent. VAT is now applied on the supply or import of goods and services, apart from those that are VAT exempt or zero-rated. It remains to be seen what impact the implementation of VAT will have on the investment environment in the United Arab Emirates.

Federal Arbitration Law

In June 2018, the Federal Arbitration Law came into force. Based on the UNCITRAL Model Law, the Federal Arbitration Law provides a more detailed framework for international arbitration proceedings in the Federation and replaces the largely outdated provisions of the UAE Civil Procedure Code. The new law remains untested, and it is likely that, at least initially, there may be inconsistent interpretations of the law by the UAE courts. However, the Federal Arbitration Law is a welcome introduction and should add to investor confidence in the United Arab Emirates.