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	United Arab Emirates		Info-Prod Country Guide
JUDICIARY   BUSINESS FORMS & STRUCTURES   CURRENCY & BANKING   INTELLECTUAL PROPERTY TAXATION   INVESTMENT & TRADE   PUBLIC PROCURMENT   ENVIRONMENTAL LAW

Currency and Banking Foreign Currency Control The UAE has no restrictions or regulations on foreign exchange. Capital, profits, interest, and royalty payments may be repatriated freely. The local currency has been tied traditionally to the US dollar at the rate of US$ 1 to DH 3.67. Banking The current domestic financial market is best described as "over-banked." It consists of forty-eight local and foreign commercial banks, two restricted license (specialized) banks, and thirteen foreign bank representative offices. Central bank regulations announced on April 5, 1993, set the minimum capital to risk-weighted asset ratio at 10 percent, which is 2 percent higher than the minimum level recommended by the Basel Concordat committee on banking supervision. The reduction of higher risk assets may cause concomitant declines in UAE bank profits, but it is anticipated that this will strengthen the banking industry. Most banks provide trade, project and consumer financing. They re-export financing accounts for a large portion of trade finance, and this is viewed as having substantial prospects for growth. Loan decisions are based on project viability and the credit worthiness of the parties involved. Short-term loans (3-6 months) by commercial banks are offered at current interest rates. Project loans are given for five years. Consumer financing is also growing rapidly. Furthermore, the local banking system has well established correspondent relationships with international banks. In the UAE, the marketing of financial products and services is regulated by the UAE Central Bank under Federal Law No. 10 of 1980 (the Central Bank Law and related banking resolutions). Enforcement of Central Bank policy, however, is often undertaken by the local licensing authorities in the various Emirates. The Central Bank Law establishes five principal categories of institutions in the UAE - commercial banks, investment banks, financial establishments, financial intermediaries, and monetary intermediaries - all of which must be licensed by both the Central Bank and the local licensing authorities. In addition to these five categories, current practice in the individual Emirates permits the licensing of financial or investment consultants. These consultants are not required to obtain a Central Bank license. Commercial Banks The Central Bank Law defines a commercial bank as any establishment which customarily receives funds from the public, grants credit and banking facilities, and conducts other banking operations prescribed for commercial banks either by law or by customary banking practice. In the UAE, customary banking practice includes the marketing and sale of investment products and services, including the sale of securities and various funds. Investment Banks Central Bank Resolution No. 21 of 1988 regulates the activities of investment banks. Investment banks are defined as merchant or development banks or banks which provide medium or long term financing. The Central Bank Resolution authorizes investment banks in the UAE to offer financial products and services, including the issuance of financial instruments and the management of investment portfolios. On June 1, 1997, the Emirates Bank Group, which is controlled by the Dubai government, launched UAE's first mutual investment fund with an initial capital of about US$ 8.2 million. The fund offers non-UAE nationals their first opportunity to invest in the UAE's tightly restricted equity market up to a limit of DH 500,000. The huge response by foreign investors prompted the UAE Central bank to raise its original ceiling of 20 percent of foreign investment to 49 percent. When the fund closed for public subscription on June 15, 1997 the investment totaled to US$ 74.5 million. Financial Establishments The Central Bank Law permits financial establishments to lend money and to undertake other financial transactions but does not allow them to accept deposits. The Central Bank has adopted a policy that prohibits financial establishments from offering financial products and services. In comparison to commercial banks, the only activity that financial establishments may undertake which commercial banks may not is the lease of equipment and machinery. Financial Intermediaries Financial intermediaries are brokers. Regulations issued under the UAE Central Bank Law allow licensed brokers to market and to sell foreign and local shares and financial instruments in consideration for a commission. Local and foreign companies may obtain a brokerage license from the UAE Central Bank. Monetary Intermediaries Monetary intermediaries are money changers. They are not authorized to market or to sell investment products and services. Investment Consultants The UAE Central Bank has not published regulations on investment consultancy. Under the existing policies of the individual Emirates, a company licensed as an investment consultant may advise and assist clients in pursuing various investment strategies but may not directly sell investment products. Sales of investment products introduced by consultants are, therefore, typically booked outside the UAE. Consultants are also not expected to receive investment funds from clients, although they may assist in the transfer of those funds. Consultants may not provide credit facilities or open accounts for clients but may assist them in opening accounts with brokers and banks. If properly authorized by the client, the consultant could also manage such accounts. The UAE Central Bank has issued instructions to local municipalities that they may issue investment consultancy licenses but only after first consulting the Central Bank. The UAE Central Bank has recently moved towards a tighter policy regarding investment companies and financial consultants. In the future, such companies will have to obtain a license from the Central Bank and to report under the rules it has established. Investment Companies for the purpose of these regulations have been defined as undertakings which are involved in investment in securities or in the management of trust funds or investment portfolios on behalf of others. The minimum paid up capital for investment companies (including branches of foreign companies ) is DH 25 million, increasing to a larger amount depending on the activities of the company. Financial consultants, on the other hand, are deemed to be individual professionals or groups of professionals providing advice to individuals or companies about the value of securities and other financial instruments or giving recommendation about investing. For these, licenses can be issued with a minimum paid in capital of DH 1 million. Accountants and Auditors Regulations Thus far, no local professional body of accountants has been established in the UAE, but many of the large, international accounting firms maintain offices in the UAE. According to the new Federal law Concerning the Organization of the Auditing Profession No. 22 of 1995 and the supplementing Ministerial Resolutions No. 49 of 1996 and No. 7 of 1997, foreign accounting firms can now only be listed in the register of active accountants if they have operated in the UAE prior to the effective date of the 1995 law. Further, the new law requires that all foreign firms will have to take on UAE nationals as partners. A five year transition period is granted to the existing firms to comply with the new standards. Previous Chapter Contents Menu Next Chapter

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