Do you know the UAE before Oil Industry?
Everyone knows how the United Arab Emirates and its luxurious and sumptuous hotels, shopping malls and sports cars. However, could you even imagine how it would be without oil exploration?
No one could forget its extreme climates and wild desert with the modern and well-developed cities infrastructures, not to mention that it used to rely on the Pearl industry.
The “black gold” – oil has led the UAE turned into one of the richest countries in the world.
The oil industry has changed the country completely.
It has the 5th largest reserves of oil and gas in the world, Abu Dhabi holds more than 90%, while Dubai holds 4%. The rapid development of the Emirates thanks a lot to its oil and gas exports. Almost 30% of the UAE gross domestic product (GDP) is directly from the oil and gas sector.
UAE government keeps devoting all the assets from the oil and gas industry to build a diversified economy, such as free zones, tourism, trade, agriculture, manufacturing as well as re-exports.
Development of the oil industry enables the UAE government to establish comprehensive infrastructure and transportation systems. The booming of the local economy has attracted foreign labour force from all over the world.
How is the oil trading business in UAE?
Despite such a large oil and gas reserves it has, UAE is a rare country in the region that welcomes private-sector investment into its upstream oil and gas exploration and production sector. Foreign companies are able to conduct various types of trade including oil- trading in UAE. There are not only the large international companies but also some small companies present on the UAE oil market as well.
Is banking also a problem in UAE?
Nowadays, oil and trading companies that work through traditional offshore jurisdictions are getting more and more difficulties and problems with banking. It is even virtually impossible as they don't have physical residency in these countries.
But in UAE, it's a totally different story.
An oil and oil-trading company could establish a UAE free zone company with a fully-fledged office and employees and at the same time enjoying the favourable 0% taxation.
The bank account for such company can be obtained in UAE, with local or international banks. Thanks to the policy of the UAE Central Bank’s high capital bank requirement, the UAE banks are among the most reliable ones in the world.
Besides, the UAE banks have simplified reporting system, high-quality services with competitive fees that compared with many European banks. Almost every UAE bank provides distant access through internet and telephone banking systems.
Are there any limitations for oil trading business in UAE?
Although the UAE, especially Dubai has been a major trade partner with Iran, the country is complying with the sanctions published by the US and decreasing its trade with Iran, especially in oil. The UAE companies may face restrictions with Iran when buying oil from Tehran.
When working as an oil and oil-trading free zone company in UAE, there is a main limitation that the company cannot conduct business with the local energy market.
It is available for a local company or a foreign branch office to conduct business with the local energy market or have a link with UAE local oil reserves. But at the same time, the company is required to apply for special permits and licenses, as well as pay taxes and have a local partner.
Basically, there is no corporate tax and income tax for a free zone company. However, for a local oil company or foreign oil company the tax paid can range from 55~87%.
How to start an oil and gas business in the UAE free zone?
Before setting up an oil and gas business in UAE, the first and most important thing for foreign investors to consider is:
Onshore or Free Zone?
If the company would have link or business with the UAE local oil markets and reserves, there 2 types of onshore company to choose: a local liability company and a foreign branch office.
As we mentioned above, the onshore company would have to apply for various permits and licenses, for example, the onshore company in Abu Dhabi would have to register with the Supreme Petroleum Council and get their approval.
For a local liability company, it is required to have 51% ownership by an Emirates local sponsor. While a foreign branch office requires a national service agent.
Free Zone Company
If there is no need to conduct business with the UAE local oil markets and reserves, a free zone company would is a better choice.
Different free zones provide various licenses for the oil and gas business, take Dubai DMCC free zone as an example, it provides trading licenses for crude oil refined oil products, as well as service license for oil & petroleum products sea transport, etc.
Regarding the oil trading business, there are several types of licenses to choose as below:
Crude oil trading abroad
Trading refined oil products abroad
Oilfield chemicals trading
Oilfield & Natural Gas Equipment & Spare Parts trading
Petrol Station Equipment trading
It is a straightforward process to incorporate an oil trading business in the free zone:
Decide business activities, get prior name approval
Choose a local partner or service agent
Apply for initial approval certificate
Prepare the court notarization and MOA
Choose an office location and obtain tenancy contract
Submit all the documents, obtain the approvals and license
Why UAE Free Zone?
The UAE petroleum industry is one of the world’s largest in terms of oil reserves, petroleum productions and crude oil exports. It is the 4th largest crude oil exporter in the world. Its hydrocarbon exports revenues are roughly 20% of all export revenue. Despite the drop in global oil price that leading to the decline of the UAE’s petroleum revenues, it still remains as one of the most important players in the global petroleum industry.
Its leading position in the global petroleum industry has also attracted a significant number of buyers and traders from all over the world to source the best business deals.
With its developed and leading oil industry background, investors are able to enjoy the most professional environment here in UAE. It provides the opportunities to meet potential trading partners and customers, as well as the experience exports in the oil and gas industry. Not to mention the convenience and professional infrastructure and shipment the country has established for crude and refined oil products.
The free trade zones of UAE provide generally similar incentives as followed:
100% foreign ownership
100% tax exemption
Quick apply and approval procedures
Full repatriation of capital and profits
Abundant and inexpensive energy
Some free zones, such as DMCC, also organizes the seminars with experts from the oil and gas industry for its investors to provide them the latest the industrial news and market trends information.
The UAE’s strategic location and its diversified economy has built itself into one of the mature financial hub that connects Asia, Europa and Middle East markets.