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The hallmark of Dubai and the UAE economy is their “zero tax” regimes. The absence of
corporate taxes indicates that corporate debt and leverage are not incentivised by tax breaks.
As a result, corporates may source their funding for capital growth either through equity or
debt. This therefore takes away an important instrument by which the government could
incentivise and promote the development of the debt market in the UAE.
With regard to Shariah governance, the UAE adopts a non-centralized model; approval for any
Islamic financial product - including sukuk - is given by the appointed Shariah committee of
the respective commercial or investment banks involved in the issuance. There is no national
authority that performs the oversight function on the Shariah compliance of sukuk structures.
Although the model works well in this jurisdiction, it is criticized for creating discrepancies in
terms of Shariah rulings on sukuk structures, especially with the recent Dana Gas sukuk
debacle. The issuer, Sharjah-based Dana Gas PJSC (the Middle East’s first and largest regional
private natural gas company), declared Shariah non-compliance of its mudarabah sukuk
structure in June 2017 - as a defense against not paying its sukuk holders.
Although Islamic banking is well developed in the UAE, having contributed 44% (USD 163.12
billion) of its total GDP in 2016 and as illustrated earlier in Chart 4.16, the Islamic money
market is still limited. Thus far, the CBUAE has not issued any short-term instrument such as
treasury bills, notes, bonds or sukuk dominated in AED, thereby causing the total debt
issuances of the UAE to be lower than those of the other GCC countries. Nevertheless, the
CBUAE has already introduced Shariah-compliant IMLF since 2014 and accepted sukuk as a
form of collateral. This effort is anticipated to aid in the growth of the Islamic money market,
therefore enhancing the liquidity of the bond market.
Figure 4.7 summarizes the key factors that have influenced the growth and development of
UAE’s sukuk market. Meanwhile, Figure 4.8 highlights the phases of Islamic finance inclusion
into the UAE’s financial landscape since the establishment of Dubai Islamic Bank in 1975 to
what the market has currently achieved and what should be further improved to reach the
status of a matured market.