UAE: The Two Sides of a "Tax-Free Paradise" | Overseas Insights

In 2025, the uncertainty brought about by the US tariff policy has cast a persistent shadow over global economic and trade exchanges, and also posed unprecedented challenges to Chinese enterprises going global.

In the face of each impact, Chinese enterprises always demonstrate greater flexibility and resilience, and find new ways out. From Southeast Asia to Mexico, and now to the Middle East, enterprises seek business opportunities in policy changes, look for certainty in uncertainty, and turn each external impact into an opportunity to expand into new markets.

In the Middle East, the UAE market stands out. It is estimated that by 2030, the bilateral trade volume between China and the UAE will reach $200 billion.

As the first Gulf country to establish a strategic partnership with China, on January 1, 2024, the UAE officially became a full - fledged member of the BRICS. In the same year, the two countries signed and exchanged 19 cooperation agreements and memoranda of understanding, to promote bilateral cooperation in areas such as the Belt and Road Initiative, investment, trade, and technology.

Against the backdrop of the increasingly close cooperation between the two countries, how can emerging economies find investment entry points in the UAE? What compliance risks in terms of law, finance, and talent need to be noted behind the preferential policies? How can enterprises build an organic business ecosystem locally?

With these key issues that concern Chinese enterprises going global, on July 25, 36Kr and Qiantang Construction Investment Group jointly held the 2025 "From 'Ingenuity' to the 'World'" Going Global Conference. Relevant UAE units, overseas service providers, and representatives of Chinese enterprises going to the Middle East discussed investment opportunities in the UAE and cooperation models for overseas investment at the parallel session "Investing in BRICS" - Country - Specific Cooperation and Matching Meeting in the afternoon.

Chinese Automobile Enterprises "Rush to Occupy" the UAE Market

The "Blue Ocean" of the UAE Market

In recent years, the UAE has been promoting energy transformation. The new energy vehicle industry has also been included in the key support areas, providing broad market space for Chinese enterprises. However, in terms of market layout, Chinese automobile enterprises are still in the initial stage. Only three Chinese automobile enterprises, XPeng, ARCFOX, and IM Motors, have entered the UAE, and they have been in the market for less than two years, with sales of only a few hundred vehicles. In contrast, among the top 10 automobile sales in the UAE in 2024, the traditional fuel - powered vehicle brand Toyota ranked first with 84,000 units, followed by Nissan and Hyundai. In the electric vehicle field, Tesla dominated with sales of 11,600 units.

In the view of Liu Yanjun, the vice - president of Zanmei Automobile, the lackluster performance of Chinese automobile enterprises is reasonable to some extent. On the one hand, Chinese automobile enterprises have entered the UAE market relatively recently, and market penetration is still insufficient; on the other hand, the consumption driving force for new energy vehicles locally is also weak. Not only is the infrastructure (such as charging piles) not yet perfect, but the local fuel price is only about 4 yuan per liter in RMB equivalent, so the advantages of new energy vehicles over fuel - powered vehicles are not obvious.

However, many local dealers have seen the strong future demand for high - end new energy vehicles. Vera Tang, the vice - president of the overseas business line of Interlip Group, observed that local leading dealers are vying for the distribution rights of Chinese electric vehicles, and a leading Chinese luxury electric vehicle brand series (luxury electric vehicles priced over 400,000 yuan) also has a strong intention to enter the UAE market.

"In the future, the prospects for Chinese automobile enterprises in the Middle East are bright, but Chinese automobile enterprises of different sizes need to find differentiated tracks when entering the market." Compared with the layout of some leading automobile manufacturers in the fields of unmanned driving and intelligentization, niche brands such as Zanmei Automobile choose to focus on segmented markets with lower investment costs and quick returns in a short period.

Liu Yanjun revealed at the conference that in the first half of 2025, Zanmei Automobile invested in and built a commercial vehicle assembly plant in Saudi Arabia, with an initial production capacity of 5,000 units, focusing on commercial vehicles of 6 - 8 cubic meter micro - van models. At the same time, it also strengthened the layout of charging piles and after - sales service stations, and seized the segmented market through the "ecosystem driving the market" model.

In addition, Liu Yanjun specifically reminded that localized technology adaptation is also an indispensable challenge for automobile enterprises going to the UAE. The extremely high - temperature weather (50 - 60°C) that often occurs in the UAE places extremely high requirements on the battery heat - resistant system, while the operating environment of new energy vehicles in China generally does not exceed 40°C. The battery heat - resistant system needs to be optimized accordingly.

Behind the Policy Dividends

The Compliance "Traps"

A large number of foreign enterprises choose to invest in the UAE, largely attracted by its open and friendly investment environment. For example, some free trade zones offer preferential policies such as a corporate income tax as low as 0 - 9%, 0% personal income tax and capital gains, and exemption from corporate tax. However, many enterprises may overlook that transactions between a company registered in a free trade zone eligible for 0% corporate income tax and its related companies in taxable areas may be taxable. Otherwise, they are likely to be subject to tax recovery and even fines.

In this regard, Bian Jiang, the vice - president of Huizhi Group, analyzed that the basic principle in the field of international taxation is to primarily follow the OECD principles. In 2023, the new tax law in Dubai introduced transfer pricing - related principles. If enterprises ignore the importance of transfer pricing in related - party transactions between non - taxable areas and the mainland, problems may arise. From a more detailed technical perspective, transactions between related companies need to conform to the fair market value, avoiding the transfer of profits from high - tax areas to low - tax areas through related - party transactions, which could erode the tax base.

So how can enterprises avoid risks and ensure compliance in transactions with related companies? Bian Jiang, the vice - president of Huizhi Group, summarized three key points:

Enterprises should make pre - judgments on the rationality of local related - party transactions and make relevant preparations;

Companies in non - taxable areas can act as brand - holding entities, while companies in taxable areas act as sales entities, and the sales entities need to undertake substantial sales functions, rather than being used solely for settlement. Otherwise, offshore companies or "shell companies" established just for book - keeping are likely to be investigated;

For enterprises in free trade zones to obtain the 0% corporate income tax preference, in addition to registering a company in the free trade zone, they also need to meet the criteria for "qualifying income". When it comes to transactions with taxable areas, they cannot both enjoy the tax policy and fail to fulfill their tax obligations. Since the criteria for "qualifying income" allow for offshore business, Bian Jiang suggests that enterprises can also introduce a third - country non - related party in the sales path, such as adopting a sales path of "A to Hong Kong, and then from Hong Kong to B".

In addition to the "tax - exemption traps", Li Biliang, a partner in international taxation at PwC China, added from a broader perspective of tax compliance. Enterprises need to consider overall tax arrangements even when they are not yet profitable in the target country. Because enterprises often enjoy many incentive policies in the entry stage and basically do not need to pay taxes, but the tax costs have actually been incurred and will gradually become prominent in the subsequent holding, operation, and exit stages.

In addition to tax - related compliance issues, the compliance of talent employment also needs to be emphasized. Vera Tang mentioned that enterprises are often cautious when setting up entities overseas. Therefore, in the pre - preparation stage, they can adopt the very popular "employer - of - record" model in the international market (i.e., the "nominal employer"). Business cannot stop, and talent cannot wait. This model enables enterprises to conduct business during the establishment of the tax structure without setting up an entity. Through the nominal employer scheme, enterprises' overseas talent recruitment is no longer restricted by time, geography, or development stage, truly achieving "talent competition" on a global scale.

For example, when a leading consumer electronics enterprise first entered the UAE and had not yet established an entity locally, it first adopted the "employer - of - record" model. With the assistance of Interlip, it recruited a local manager. In less than a year of employment, this manager helped the enterprise become a popular brand in the local consumer electronics category, facilitating the enterprise to quickly start talent allocation and business promotion.

After enterprises complete their pre - planning, establish entities, and have strong capabilities, they need to pay more attention to labor law compliance in terms of employment. For example, labor contracts are preferably in Arabic, and local culture and work - rest habits should be respected (Dubai has a 4.5 - day workweek, and employees can enjoy 2.5 days of rest, etc.).

In addition to tax and talent employment compliance requirements, enterprises also need to understand and adapt in advance to the "hidden compliance" rules behind the local religious culture. Lily, the marketing director of the Middle East Bridge, emphasized that religious culture in the Middle East market is not a "soft background" but a hard requirement at the institutional level.

For example, in Saudi Arabia, during Ramadan, not only are there dietary taboos for employees, but the working hours of Muslim employees are reduced to 6 hours a day, yet enterprises still need to pay full - salary. In the UAE, all food and beverage enterprises must obtain official certification, and imported food and raw materials must meet halal standards to enter the country. In areas such as Abu Dhabi and Sharjah, the sale of alcohol is strictly restricted.

Overseas Financial Solutions: Local Currency Settlement,

Overseas Cash Pools, and Islamic Bonds

In the process of enterprises "going global", challenges in the financial field such as overseas financing and cross - border settlement have always been present. For the new energy vehicle industry going to the UAE, the cash - flow pressure caused by the long capital - chain cycle is a prominent problem. "At the front - end client side, there are difficulties in foreign exchange settlement, and at the back - end, enterprises themselves bear relatively high financial pressure," Liu Yanjun said. Different from the situation in China, overseas suppliers often do not accept payment terms and require full - payment settlement from automobile enterprises, which makes higher requirements for enterprise capital turnover. It takes 45 - 60 days to transport finished vehicles from China to overseas, further exacerbating the capital - occupation pressure.

The African market, which Zanmei Automobile mainly targets, has long been in a trade deficit and has a shortage of US dollar foreign exchange reserves. Coupled with the fact that automobiles are high - value commodities, customers often face the dilemma of lacking US dollars for payment.

In this situation, local currency settlement has become a supplementary solution. On May 27 this year, China and the UAE signed a memorandum to launch a pilot project for direct RMB - dirham settlement. Li Biliang of PwC said that this shows the UAE's positive intention to deepen cooperation with China and helps enterprises reduce settlement costs and save a large amount of expenditure in the exchange process. However, it should be noted that since the dirham is closely pegged to the US dollar, the advantage of local currency settlement is not significant from the perspective of exchange - rate fluctuations. Its benefits are more reflected in the simplification of the settlement process and cost reduction.

For large multinational groups with a global layout, building overseas cash pools can effectively reduce capital - settlement costs. Li Biliang mentioned that recently, some enterprises have reduced capital - settlement costs by setting up treasury centers in Hong Kong. However, when building such cash pools, tax compliance needs to be considered. Cross - border interest flows involve withholding tax and corporate income tax. Therefore, while reducing settlement costs and hedging exchange - rate risks, solutions to balance tax costs need to be found.

In this round - table forum, Bian Jiang also introduced a characteristic financial tool suitable for the local financial environment in the Middle East - Islamic bonds, which are widely used in Islamic countries in the Middle East and Southeast Asia.

The main advantages of Islamic bonds are:

The collateral is mostly heavy assets such as real estate, infrastructure, and energy (such as ports and photovoltaic power plants), and investors have strong traceability to physical assets;

Due to the excess liquidity in the Islamic market, the financing cost is 10 - 15 basis points lower than that in the international standard debt market;

The bond term is usually 3 - 5 years or even more than 10 years, providing stable and continuous financial support for enterprises;

They are in line with green development policies, and enterprises issuing green Islamic bonds can obtain better financing conditions and government support.

Bian Jiang also emphasized that Islamic bonds are just one of the enterprise financing tools. Enterprises still need to combine treasury centers and cross - border cash pools and other methods. On the premise of meeting the foreign - exchange control requirements of the home country and the host country, achieve diversified financing to reduce the pressure and cost of capital use.

Localization Strategies for Talent, Supply Chain, and Partners

Globalization and localization are two sides of the ultimate goal of enterprises going global. At the very beginning of going global, enterprises should be clear: whether they are just "product - selling companies" making a superficial attempt, or aiming to be "globally - native enterprises". This will directly affect their future overseas tax structures, talent selection, and overall business strategies.

Vera Tang's view on talent selection is that in the initial stage of channel - going - global, the core goal of enterprises is to open up the market and sell products. At this time, deploying Chinese marketing talents familiar with Chinese business can often promote work quickly. When it comes to the brand - going - global stage, when enterprises need to deeply cultivate the local market and enhance brand influence, they must recruit talents who understand the local culture and have local knowledge. And in the mature stage of organizational - capability - going - global, such as building factories overseas, enterprises need to build a complete local - ized team. If they are still regarded as "Chinese companies going global" rather than global enterprises integrated into the local area, then their talent strategy is a failure.

Specifically in the UAE market, compared with countries like Saudi Arabia that have requirements for "local employment ratios", Dubai is more lenient in issuing work visas. Enterprises do not need to deliberately hire local employees to meet the quota and can more flexibly select talents that truly match their business needs.

Therefore, the core of localization is actually internationalization. In cities like Dubai, local nationals only account for about 10% of the population, and the rest are mostly foreign workers or expatriates with work visas or golden visas. Therefore, the local culture, education, and language environment are highly internationalized. The sales director of Dreame mentioned earlier is a German who has settled in the local area for many years and has a deep understanding of the local market. Such "international talents" are actually the "locals" that enterprises need.

In addition to professional human - resources agencies, local channels that enterprises can seek help from in the UAE include: reaching local nationals through government - led talent - matching platforms; cooperating with universities such as the University of Sharjah and the University of Dubai; actively using organizations such as the Dubai Chamber of Commerce and Industry to obtain information on local employment trends and talent recruitment needs. Lily also suggests that enterprises participate in their activities to increase local exposure.

For manufacturing enterprises, improving the supply chain and after - sales system is crucial for building a local - ized ecosystem. Liu Yanjun believes that the core lies in in - depth participation in local market operations. Take the African market as an example. Due to the relatively low per - capita wage (about 800 - 1000 yuan), limited purchasing power, and insufficient charging facilities, consumers have concerns about after - sales support and vehicle safety (such as the risk of fire). The acceptance of new energy vehicles in many countries is still at a low level, similar to the early stage of the development of China's new energy vehicle industry.

Facing these real challenges, Zanmei Automobile chose to "get involved directly", set up charging piles on its own, improve the after - sales network, and gradually cultivate the market through heavy - asset investment such as building factories and holding assets. These practices are different from the strategies of domestic enterprises that focus on product strength, create popular models, and deeply cultivate unmanned driving and intelligentization. He shared: "In the initial stage of the overseas market, enterprises need to make long - term efforts, spending 1 - 2 years or even longer to cultivate the market and drive supporting supply - chain enterprises to jointly improve the overseas ecological layout."

Obviously, building a local - ized ecosystem cannot rely solely on the strength of enterprises themselves. It is necessary to rely on the resource support of local ecological partners. Li Biliang said that when considering cooperation methods with local partners, a joint - venture company is not the only option. The core is to clarify the enterprise's own needs - whether it needs financial support, values the partner's resources, or both.

In the former case, enterprises should give priority to selecting representative funds or partners, such as introducing local sovereign funds. Even if the investment amount is limited, such investments can provide government credit endorsement, supply - chain resources, and connections to customer demand, helping enterprises quickly open up the market. For large - scale investment projects such as building factories, enterprises can jointly establish a joint - venture company with upstream and downstream supply - chain partners to form an interest - binding relationship. However, the setting of the equity ratio needs to be decided after comprehensive consideration of multiple factors such as finance, taxation, and law.

Therefore, Bian Jiang suggests that enterprises can choose diversified cooperation methods according to their own situations. From the perspective of the enterprise's going - global stage, for enterprises in the initial stage of going global, it is recommended to test the market through channel - going - global or cooperation with suppliers; for mature enterprises in the post - going - global local - ized operation stage, it is recommended to learn from the "Huawei model" and establish a database and cloud - storage management center locally in the form of "joint - venture + authorization", which can not only meet the local legal and religious requirements but also quickly adapt to the local market. Focusing on specific industries, for example, for enterprises related to the automobile supply chain and sales, it is recommended to take advantage of the offshore financial advantages of Hong Kong, establish a wholly - owned holding company in the free trade zone through ODI (Outward Direct Investment), and then establish a joint - venture enterprise with local partners to optimize the corporate structure.

This article is from the WeChat official account "Hangzhou Qiantang Enterprise Going - Global Service Base". Author: Zhejiang Enterprises Going Global. Published with the authorization of Qiantang.