Dubai is making great strides in positioning it self on the world map as the regional hub for international business. The creation of the Dubai International Financial Centre (DIFC) in 2004 is expected to help this dynamic country achieve this goal by harnessing regional capital and investment. Dubai’s ultimate objective is to achieve the same stature as New York, London and Hong Kong, focusing primarily on the vast region between Western Europe and East Asia, while strengthening links between the financial markets of Europe, the Far East and the Americas.

Arguably, Dubai’s plan is built on solid foundation. That’s because between the financial centers of Europe and South East Asia lies a region comprising 42 countries - stretching from the western tip of North Africa to the eastern part of South Asia (including North and Eastern Africa, the Levant, the Caspian, the Indian Subcontinent and the GCC States), with a population of 2.1 billion people and a combined GDP of close to US$ 2 trillion – which has been without a world-class financial centre.

Since the DIFC was created it has attracted a myriad of senior regional as well as global firms. Currently, some 150 of the Fortune 500 companies (including all of the top 10) have established a presence in Dubai. The 23 free zones of the United Arab Emirates (UAE) are now host to numerous multinational and regional companies - including over 5,000 companies from over 100 different countries located in Dubai’s Jebel Ali Free Zone.

Dubai has also established a world-class stock exchange, the Dubai International Financial Exchange (DIFX), which opened its doors in September 2005. The DIFC focuses on several sectors of financial activity, including investment, corporate and private banking; capital markets - equity, debt instruments, derivatives and commodity trading); asset management and fund registration; insurance and reinsurance; Islamic finance; business processing operations and other ancillary services.

DIFC is an “onshore” financial centre, offering a platform of choice for leading financial institutions and service providers looking to do business in the region. It aims to play a pivotal role in meeting the growing financial needs and requirements of the region.

Firms operating in the DIFC are eligible for benefits such as a zero tax rate on profits, 100 per cent foreign ownership, no restrictions on foreign exchange or repatriation of capital, operational support and business continuity facilities.

In order to achieve its vision, the DIFC aims to provide a business-friendly environment that offers world-class regulation and transparency; a safe, friendly, desirable place for people to live and work; and an oasis of stability.

DIFC’s transparent and well regulated environment will enable it to gain the trust of the international financial community. Recognizing that financial capital moves to places where it is safest and best rewarded, the DIFC’s combination of transparency and zero tax rate should enable Dubai to benefit from the global “flight-to-quality”.

The DIFC concept has evolved as a means of:

Providing depth to the regional financial markets by broadening the range of traditional methods of financing currently provided by regional banks.

Attracting liquidity back into investment opportunities within the region, thereby contributing to its economic growth.

Facilitating planned privatizations in the region and enabling initial public offerings of privately owned companies, thus providing impetus to the program of deregulation and market liberalization throughout the region.

Contributing to the development of regional stock markets which, in turn, will contribute towards broadening the capital and ownership base of private sector companies; and, promoting the growth of Islamic finance and the development of the region’s reinsurance sector.

The Dubai International Financial Exchange Limited (“DIFX”), a subsidiary of the DIFC, is expected to play a major role in the development of regional capital markets by attracting key regional companies to list their shares and other issued securities on the exchange. This, in turn, is expected to attract international investors and encourage additional portfolio flows to the region, thereby accelerating the process of the region’s integration with world markets.

It is envisaged that listings on the DIFX will be primarily derived from IPOs, alternate listings for companies already quoted on other exchanges and fixed income listings at both the corporate and sovereign levels.

The DIFX also aims to develop an innovative, broad-based product strategy that will promote the attractiveness of the DIFX as a listing destination. The DIFX will also provide participants with an efficient and cost effective technology infrastructure operating to international standards.

The DIFX is designed to be a transparent, liquid, efficient, and well regulated exchange. In developing its regulatory environment, the DIFX has adopted the following principles:

Promoting international and regional investor confidence in the market.

Attracting liquidity back into investment opportunities within the region, thereby contributing to its economic growth.

Operating orderly markets.

Dubai’s many positive attributes, which have contributed to its success as an established international business hub, also serve to make DIFC a renowned international financial centre.

Dubai has been an economically dynamic city since the formation of the United Arab Emirates in 1971, and has since achieved remarkable economic growth and political stability. Over this 30-plus-year period, the country has been transformed from an oil and gas dependent state to a broadly diversified economy based on international trade, banking, tourism, real estate and manufacturing.

The accumulated annual growth of Dubai’s economy in the last decade stood at 10 percent, the highest rate of growth in the world. Oil has played a progressively diminishing role in the Emirate’s economic profile. In 1985, the oil sector contributed to just under half of Dubai’s GDP. By 1993 that figure had fallen to 24 percent, and currently to less than 6 percent. By 2010, oil revenues are expected to account for less than 1 percent of Dubai’s GDP.

A market orientated economy with complete freedom of movement of capital, no restrictions on foreign exchange, and full convertibility of the Dirham, Dubai has proved to be a highly attractive destination for foreign direct investment.

Dubai’s well developed infrastructure - plus its free zones, which offer substantial tax and other incentives - along with its strategic location in the Gulf make it a natural centre for international trade. The UAE accounts for around 14 percent of the region’s exports - worth almost US$ 81.4 billion a year - and Dubai has become the world’s third largest re-export centre, after Hong Kong and Singapore.

Expatriates comprise over 80 percent of Dubai’s population, with over 150 nationalities working and living harmoniously together in a safe, almost entirely crime-free environment. Dubai attracts a highly skilled workforce, which is absorbed by the country’s growing number of international companies, professional service firms and financial institutions. Education standards are high, with almost 20 percent of the population possessing a university degree or higher qualification. The literacy rate currently exceeds 90 per cent.

Expatriates enjoy tax - free salaries, schools accredited to international standards, a high standard of health-care, and excellent recreational facilities - including four championship golf courses.

Much of Dubai’s remarkable economic development and growth can be attributed to a progressive, and enlightened, government with a clear vision and strategy for the Emirate’s economy. It is also a government which has a remarkable track record in executing large, complex, and ambitious projects.

Institutions establishing in the DIFC can potentially gain from the following key benefits:

100 percent foreign ownership.

Zero percent tax rate on income and profits.

An extensive tax treaty network for UAE incorporated entities.

Freedom to repatriate capital and profits - without restrictions.

Internationally accepted laws and regulatory processes.

A world-class, independent, regulatory agency working alongside other financial regulatory agencies located in major global jurisdictions.

A wholly transparent operating environment, complying with global best practices.

A dollar denominated environment.

An international stock exchange with primary and secondary listings of debt and equity instruments.

A variety of legal vehicles that may be established with capital structuring flexibility.

A pool of skilled professionals residing in Dubai and the region.

A modern and efficient transport, communications and internet infrastructure.

A responsive one - stop shop service for visas, work permits and other related requirements.

The market capitalization of the major national exchanges in the region has more than doubled over the past five years. Growth has been driven by more than just an oil boom. It is evidence of an increasing understanding of the benefits and the corresponding needs of sophisticated capital markets, among issuers and investors alike. Meanwhile, the recent growth in regional IPOs has been meteoric. The appetite for new issues is also being fuelled by the surge in regional liquidity, attributable in large part to the abundance of petrodollars, as well as the repatriation of capital into the region.

The DIFX will support the DIFC in these efforts by providing a liquid and transparent market for the many successful privately owned companies in the region and soon to be privatized businesses that seek ways to raise capital through listings on an efficient stock exchange. Issuers will benefit from improved regional and global visibility for their companies, while investors will benefit from access to a wider range of investment opportunities. The result: a pooling of liquidity and a more efficient allocation of capital and investment, benefiting both issuers and investors alike.

By adding another growth industry to Dubai’s diverse economic base, the DIFC is expected to make a strong contribution to the GDP growth of Dubai, as well as that of the UAE and the region as a whole.

Excerpted from PriceWaterhouseCoopers “Doing Business in the Dubai International Financial Centre” (with major edits).