Ras Al Khaimah: Low-Tax Business Sectors

On this Page:

- Ras Al Khaimah Banking and Finance Sector
- Ras Al Khaimah Free Trade Zone
- Ras Al Khaimah Investment Authority Free Zone
- Ras Al Khaimah Shipping

Ras Al Khaimah’s economy has traditionally been based on physical businesses such as manufacturing and trading, but the government is keen to attract investment into the services sector, and an offshore companies registry has been created to attract international holding and investment activities.

There are many opportunities for foreign investment in Ras Al Khaimah, but there are restrictions on foreign ownership of businesses in the ‘onshore’ economy. For this reason the government has established the Ras Al Khaimah Free Zone (RAK FTZ) regime which grants 100% foreign ownership of businesses, in addition to customs privileges and other benefits such as 100% repatriation of capital and profits.

There are no taxes to speak of in Ras Al Khaimah, on- or off-shore, and therefore the Free Zones are some of the most favourable locations in the region for international operations.

All business in Ras Al Khaimah is low tax, but in the Low-Tax Business Review we examine the Free Zones, the banking and finance sector, and the marine registry.

Ras Al Khaimah Banking and Finance Sector

The regulatory authority since 1980 has been the UAE Central Bank. At the end of the third quarter of 2010 there were 839 domestic banks, including 707 branches, 23 head offices, 84 pay offices, and 25 electronic banking services units; and 160 foreign banks including 83 branches and 28 head offices. Federal law restricts foreign banks to no more than eight branches each. There are a number of Islamic banks in Dubai.

Bank deposits of more than AED651.5 billion were recorded in the UAE by the Central Bank in 2007. This had increased to more than AED912 billion by the end of 2008 and over AED982 billion at the end of 2009. At the end of September 2010, bank deposits of more than AED1,013 billion had been recorded. Deposits by non-residents rose by more than 20% in the first nine months of 2010 to AED106.6 billion.

Most banks provide trade, project and consumer financing. Their re-export financing accounts for a large portion of trade finance, and this is viewed as having substantial prospects for growth. 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.

Federal law requires that every commercial bank must have a paid-up capital of at least AED40 million. There are few investment or merchant banks at present.

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.

Central bank regulations announced on April 5, 1993, set the minimum capital to risk-weighted asset ratio at 10%, which is 2% higher than the minimum level recommended by the Basel Concordat committee on banking supervision.

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.

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 moved towards a tighter policy regarding investment companies and financial consultants. 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 AED25 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 AED1 million.

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Ras Al Khaimah Free Trade Zone

Ras Al Khaiamh is fast becoming one of the region’s most attractive offshore business locations, but the emirate is also the industrial heart of the UAE and therefore business activity has traditionally centred on physical activities such as manufacturing, trading and other export-orientated business. What the emirate lacks in oil and gas wealth it compensates for in large deposits of limestone, which has helped to create successful cement and ceramics industries exporting to countries all over the world. The largest pharmaceutical manufacturer in the UAE is also located in Ras Al Khaimah and has operations in Germany and Ecuador. Glass and steel making are also important industries.

Most of these industries are located in the Ras Al Khaimah Free Trade Zone (RAK FTZ), which launched in 2000 and is divided into five ‘parks,’ located in various parts of the emirate. These include the Industrial Park, Business Park, Technology Park, Aviation Park and Academy Zone.

The Industrial Park is situated along the coastal road approximately 18 km north of Ras Al Khaimah and just 6km from Ras Al Khaimah’s main port, Saqr. It covers an area of about 130 hectares. As well as heavy industry, the Industrial Park also contains extensive warehouse space in units sized from 150 square meters up to 500 square meters which are suitable for light manufacturing and assembly, as well as for storage. The industrial zone is under constant expansion, and a much larger industrial area, known as the Al Ghayl Industrial Park is being developed for heavy industry and which currently covers 223 hectares.

The Business Park is located in the centre of Ras Al Khaimah city and provides modern office facilities equipped with power, phone, internet and fax access, air conditioning, housekeeping services, 24 hour security and private postal address. Rental costs start at AED1,200 per square meter per year, and may include electricity costs. Lease terms are for one year and are renewable annually. A full year’s rent must be paid at the time of registering the company.

The 100 hectare Technology Park is situated to the south of Ras Al Kahimah city, close to Dubai in an area that is seeing rapid growth in light industry and of automated manufacturing plants.

The 75,000 square meter Aviation Park is located at Ras Al Khaimah International Airport and specializes in maintenance, repair and overhaul operations.

The Academy Zone is a dedicated facility from which educational organisations can offer academic programmes to the community of Ras Al Khaimah. Educational organisations can either manage their operations at an allocated building or build their own campuses at an assigned location in Ras Al Khaimah. It is estimated that half of Ras Al Khaimah’s population of 240,000 is made up of local Emiratis (much higher than in neighbouring Dubai for example) and it is said that the total number of students graduating from secondary school is 6,500 per year.

Branches of foreign universities may operate in the Academy Zone include. Other authorized activities include the provision of infrastructure and facilities to educational institutions, in-house training activities and distance learning. Student visas are available for university students. These last for 18 months and are applicable to students aged from 18 to 21.

Defying the challenging economic environment, the RAK FTZ continued to achieve steady growth during 2010 – its 10th year in operation. The RAK FTZ registered 1,740 new free zone companies during the year, while its International Companies (IC) division registered a record number of 1,499, a 14.65% increase in the total number of registrations compared to 2009. Licence renewals also achieved a significant growth of 16.49% in 2010, with 3,271 companies renewing their business licences, reinforcing the free zone’s reputation as one of the most attractive investment zones in the Middle East. As of the end of 2010, the total number of actively operational registered companies in RAK FTZ stood at over 5,000.

A further 522 new companies were registered in the RAK FTZ in the first quarter of 2011, in addition to 970 licence renewals in the same period.

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Ras Al Khaimah Investment Authority Free Zone

The Ras Al Khaimah Investment Authority (RAKIA) was constituted under an Emiri Decree in 2005 as the vehicle to facilitate and promote investment and economic activity in the fast-growing emirate. RAKIA’s role is to develop and manage the industrial parks which include the free zones and industrial zones in the Al Hamra and Al Ghail areas of Ras Al Khaimah. Within four years of its launch, RAKIA had attracted some USD2.5bn worth if investment in industrial projects in Ras Al Khaimah.

In 2007, RAKIA launched an offshore business registry called RAK Offshore, providing international investors with a low-cost, hassle-free International Business Company option with few restrictions, and with the aim of attracting investors looking for an alternative to traditional offshore financial centres. For RAKIA offshore companies there are no restrictions on the number of shareholders or directors, and they are under no obligation to hold an annual meeting or to file audited accounts. The only information displayed on the register is the name of the company and the date of incorporation, thus a high degree of confidentiality is maintained.

RAKIA offshore companies cannot conduct business locally except with those supplying accounting, audit, legal and banking services, and staff cannot be employed locally. RAKIA offshore companies can acquire local real estate, but they are most suitable for international activities such as trading, consulting, inter-group financing, holding company activities, intellectual property, investment, shipping and e-commerce. RAKIA offshore companies are also useful for accessing the UAE banking system.

Because there is no ‘special’ tax exemption regime in Ras Al Khaimah – a no-tax emirate regardless of company status - companies incorporated in the RAKIA offshore zone may also take advantage of the UAE’s network of double tax agreements, which includes China, France, Germany, India, Italy, Malaysia and Turkey, among other countries.

More than 2,000 companies had registered in the RAKIA Free Zone in the first two years after its launch, attesting to the popularity of the regime.

The RAKIA international business regime is established by the RAK Offshore Regulations, 2006. Incorporation typically takes one day and costs USD950 regardless of share capital or type. Annual registration costs USD680.

Regulations are expected soon to allow the registration of trusts, foundations, collective investment schemes and offshore banking services in the RAKIA offshore zone.

In 2007, the RAKIA announced that it is to develop a modern complex known as the RAK Financial City, which is intended to become the home of the RAK Investment Authority’s offshore facility. Developed on an area of 320,000 square meters, it will include 12 towers ranging from 25 to 65 floors. Three of the towers will have offices, eight will be given over to residential use and the remaining tower will be a hotel. The area will have parking facility for over 10,000 cars. The project is being developed with an investment of AED3 billion.

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Ras Al Khaimah Shipping

The RAK Investment Authority has an open yacht registry which has been conceived in response to growing demand for these facilities from leisure boat-owners. The intention is that owners will be able to register their vessels from anywhere in the world via a modern and secure registration system. In order to register their vessel in Ras Al Khaimah, owners need to transfer ownership to a Free Zone Company. A vessel such as a yacht is typically divided into 63 shares, a minimum of 33 of which must be owned by the company. The following requirements must be met to register a vessel in with RAKIA Offshore:

• Original documents of sale must be presented
• Proof must be provided of a Certificate of Survey and Tonnage Management issued by an approved Classification Society. If the vessel is more than 24 meters in length, an International Tonnage Certificate is required
• Crew and yacht masters on mega-yachts must be certified by recognized certification authorities
• A certificate of incorporation is needed if a company is applying for registration
• An initial registration fee must be paid
• A deletion certificate must be presented if the vessel is being removed from another register
• Foreign language documents which are used in support of an application must be accompanies by a notarized translation and be certified by a notary public.
  

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