UAE and Israel deal opens doors to business

The postponement of Expo 2020 Dubai by a year to October 2021 due to the coronavirus outbreak was hugely disappointing. After all, the six-month, multibillion-dollar global innovation fair was expected to attract some 24 million visitors and be the largest such event ever staged in the Arab world. But despite this setback, the second half of 2020 has proved to be a positive and exciting time for the Gulf region.

In August, the United Arab Emirates announced a landmark deal – known as ‘The Abraham Accord’ – for the “full normalisation of relations” with Israel, becoming the first Gulf state and the third Arab country, after Egypt and Jordan, to establish diplomatic relations with Israel.

Following the announcement, UAE President Sheikh Khalifa bin Zayed Al Nahyan issued Federal Decree Law No. 4 of 2020 on 27 August, which officially repealed the Israel Boycott Law that had stood since 1972 and prohibited all dealings between individuals and companies in the UAE and Israel.

As a consequence, companies and individuals in the UAE are now permitted to enter into agreements with companies, individuals or bodies residing in Israel or belonging to it by nationality as part of commercial or financial operations or other dealings.

The first publicly announced private sector business deal followed just two days later when the UAE’s Apex National Investment Company and Israel’s TeraGroup signed a ‘Strategic Commercial Agreement’ to collaborate on research into Covid-19 and the development of a virus testing device.

Israeli national carrier El Al then made history by operating its first ever flight between Tel Aviv and Abu Dhabi, taking just three hours and 17 minutes to complete the 2,110 kilometre journey instead of the previous seven hours because it was permitted to fly through Saudi airspace for the first time. Saudi Arabia announced that it would allow any flights going to and from the UAE to fly over its territory.

At the same time it was announced that a similar initiative to normalise diplomatic relations between the Kingdom of Bahrain and Israel was underway and, when the accord was formalised at a White House ceremony on 15 September, both the UAE and Bahrain signed agreements to establish full diplomatic, cultural and commercial relations with Israel.

In October, the UAE and Israel signed four agreements to promote and protect investments, a memorandum of understanding on cooperation in science and innovation, an aviation agreement and a visa-exemption agreement. In doing so, the UAE became the first Arab nation to lift visa requirements for Israeli nationals.

The impact has been immediate. Dubai’s budget airline carrier, flydubai, announced it would commence offering direct flights between Dubai and Tel Aviv in November, while Etihad Airways, the UAE’s national airline, announced it would start operating daily non-stop flights to Tel Aviv in March next year. Other airlines are likely to follow suit.

In the banking sector, Dubai’s largest bank, Emirates NBD, recently signed a memorandum of understanding (MoU) with Israel’s Bank Hapoalim to allow Israeli clients to transact directly in the UAE. The normalisation of relations between the two countries has also led UAE-based Free Zones to permit Israeli clients to open companies in the country and for Israeli citizens to be approved for residency visas.

In September, DP World – the Dubai-based multinational logistics company – and other government-related entities signed multiple agreements with Israel-based DoverTower Group, a shareholder of the Israel Shipyards port in Haifa and a partner in Eilat Port. DP World plans to assess port and free zone development opportunities in Israel, as well as establish a direct shipping route between Eilat and the UAE port of Jebel Ali.

The Israel Diamond Exchange and the Dubai Diamond Exchange, which is part of the government-owned Dubai Multi Commodities Centre (DMCC) free zone, signed an agreement to enhance cooperation in the diamond trade. Both the Jebel Ali Free Zone and Dubai Airport Free Zone Authority have also signed MoUs with the Federation of Israeli Chambers of Commerce to support Israeli companies intending to establish businesses in Dubai.

As the geographic and economic lynchpin of the Middle East, investors see the UAE as a vital element of their operations. It is well established as the prime destination for multinationals to set up their regional base and serve the high growth markets in the Middle East, Africa and South Asia. It is also the perfect location for new business setups across diverse sectors.

Properly structured arrangements, utilising the UAE’s free zones, offer Israeli businesses a holding vehicle for the region – a route to market adopted by multinationals from other jurisdictions for many years – and the opportunity to realise significant tax benefits. Outside the 40-plus free zones, which permit 100% foreign ownership, Israelis looking to benefit from the myriad of opportunities in the UAE and the wider Gulf region will also be able to set up a local limited liability companies (LLCs) for trading purposes.

These local LLCs require that 51% of the shares have be held by an Emirati national but, the Sovereign Group has a solution that will work for Israeli businesses. Under the Sovereign Corporate Nominee Shareholder model, Sovereign will act as the 51% ‘corporate shareholder’ in place of an Emirati individual in return for an annual fee. This means that the investing company or individual has a trusted partner that will have no interest in the company’s day-to-day activity and no share of the profits.

The UAE is open for business and looking forward to welcoming Israelis who would like to benefit from the huge number of opportunities that the country has to offer.

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