The UAE has scrapped the Dh150,000 minimum capital requirement to set up a company. Entrepreneurs planning to set up UAE companies will no longer have to satisfy minimum capital requirements.
Under the amended law, would-be business partners are free to determine the capital requirements of their new company. They are no longer bound to provide a bank guarantee of Dh150,000, as required by the previous law, for forming a company.
In Dubai, the capital requirement for setting up a limited liability company was Dh300,000, twice as high as the national minimum.
Under the move, bureaucratic procedures such as providing banking certificates will also no longer be necessary, limiting the time and red tape required to set up a new business.
10 August 09
Analysis and forecast: decreasing risk
The move will undoubtedly encourage the formation of small and medium sized enterprises and aims to increase the regional competitiveness of the UAE for both international and local entrepreneurs. The move comes at a time of decreasing credibility in some sectors of the UAE’s economy, particularly Dubai. Whilst the scrapping of the minimum requirement will provide a partial incentive, it has to be followed by further, more robust steps to encourage international entrepreneurs to consider the UAE as their base of operations.
In particular, insolvency laws need to be updated to become on a par with those of the developed countries. However, the most serious hurdle remains the requirement to have a UAE national partner owning at least 51% of companies in most sectors. The scrapping of this requirement will give the ultimate boost to the international competitiveness of the UAE. However, the UAE will likely scrap this requirement for a limited number of sectors, whilst keeping it for the time being for the sectors that make the majority of the UAE economy.
Item: Dubai leading real-estate firms report large losses
Dubai developers Emaar and Union Properties and mortgage lender Tamweel reported large losses.
Emaar, the region’s largest real-estate developer made a loss of Dh 1.3bn (US $350m) between April and June 2009 after it was forced to write off Dh 1.73bn from its US homes division. Emaar made a profit of Dh 2.1bn in the same period last year.
Union Properties, another major stock-market listed developer, made a loss of Dh 227.95m, compared with a profit of Dh 317.7 m in the same period last year. The loss was larger than expected by some analysts. Union Properties made a loss of Dh 197.8m in the first half of the year, compared with a profit of Dh 556 m a year earlier.
Tamweel, the Dubai-based Islamic mortgage firm that has had its shares suspended and is in merger talks, unveiled a second-quarter loss of Dh35m Thursday as it increased provisions to cover potential bad loans. Tamweel said it set aside Dh89m in loan provisions in the second quarter, up from Dh6.2m in the same period last year. For the whole first half of this year, the firm made Dh141.2m in provisions, up from just Dh12.5m in the first half of last year.
1-12 August 2009
Analysis and forecast: increasing risk
Emaar, Union Properties and Tamweel together gauge the health of the Dubai economy. The news coming from the three confirms suspicion of the severity of the economic challenges facing Dubai.
Political Capital is aware of difficulties facing both Emaar and Union Properties is meeting their contractual obligations, including on their landmark projects, Burj Dubai and the Index in Dubai, with threats of stoppage and legal action. With no tangible or significant improvement in sight for the real-estate sector in Dubai, real-estate developers will struggle surviving the slump.
Tamweel’s difficulties were very publically exposed in November 2008 in a proposed merger with Amlak, with help from the federal government. Since then, trading in both companies’ shares have been suspended, leading to increasing anxiety amongst investors.
The news demonstrates that the Dubai economy is still struggling with the only solutions proposed involving vague partnerships with government-affiliated entities. With even this potential assistance not materializing, there is further erosion in the confidence of the Dubai economy.
Real-estate and construction have been the backbone of the Dubai recent economic boom. Their collapse has also been the cause of Dubai’s economic bust. The figure below shows that make-up of the Dubai GDP, although construction and real-estate fuel as much as 75 % of the economy.