Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
43
Institutions overseeing capital flows
With its numerous free zones, the emirate of Dubai attracts the vast majority of capital inflows
to the UAE. In order to start a business, registration with Dubai’s Department of Economic
Development is required. Financial services firms setting up in the Dubai International
Financial Centre (DIFC) must seek approval from the Dubai Financial Services Authority
(DFSA), a wholly independent regulatory body. The DFSA collaborates with international
regulators on a continuous basis, and in 2013 it entered into 26 co-operation agreements with
EU and European Economic Area (EEA) securities regulators for the supervision of fund
management activity.
Outside of the DIFC, financial-services firms are overseen and regulated by the Central Bank of
the UAE. The Emirates Securities and Commodities Authority (SCA), headquartered in Abu
Dhabi, is the general governing body for the stock exchanges, securities, and commodities
listed in the UAE (excluding the DIFC).
Foreign investment funds require approval from the SCA in accordance with the UAE
Investment Funds Regulation (2012). Investment funds established in the DIFC are also
treated as “foreign” funds, but an amendment issued in March 2013 introduced exemptions
that retain access to government, brokerage and investment manager clients.
Debt and equity instruments
There are three stock exchanges in the UAE—the Dubai Financial Market (DFM), the Abu
Dhabi Securities Exchange (ADX) and NASDAQ Dubai. The DFM and the ADX initiated merger
talks in 2010, but progress has been slow. The DFM and NASDAQ Dubai consolidated some of
their operations in July 2010. All three stock exchanges suffer from a lack of liquidity, with a
few large stocks accounting for the bulk of trading. By forging a merger, the exchanges are
hoping to create a single and more attractive regional and international trading platform,
which would position the UAE as a market offering exposure to the oil-rich Gulf region.
All banks, as well as companies operating in the DIFC and those listed on the Abu Dhabi
Securities Exchange and Dubai Financial Market, are required to publish financial statements
according to International Financial Reporting Standards (IFRS). This is not required for
unlisted companies, but is encouraged as a best practice. This promotion of IFRS encourages
investment by boosting transparency and facilitating the comparability of financial
information.
Policy initiatives to attract capital flows
Free zones remain the primary tools to encourage capital inflows. The DIFC offers financial
firms highly attractive incentives, such as unrestricted foreign ownership and zero taxation on
profits. A new financial free zone in Abu Dhabi was decreed in April 2013. The zone, referred
to as the Global Marketplace of Abu Dhabi, will allow 100% foreign ownership of businesses
and a 50 year tax exemption on profits.