Bilateral trade opportunities are set to soar following the normalisation of the relationship between the two countries.
There have been a number of ‘firsts' since the 15 September signing of the Abraham Accords which normalised the relationship between the UAE and Israel. Containers carrying goods from the UAE arrived on a cargo ship at the port city of Haifa in northern Israel, cementing a trade route between the two nations. A visa waiver deal was agreed during an historic visit of senior UAE officials to Tel Aviv in October, and it has now passed the Israeli cabinet. It's the first such agreement between an Arab nation and the Jewish state. During the same visit, a $3 billion trilateral Abraham Fund with the USA was announced to promote economic cooperation and prosperity in the Middle East and North Africa. The UAE has also begun importing fresh agricultural products from Israel.
Bilateral trade could reportedly reach as much as $4 billion per year, but it's important to note that business ties between the UAE and Israel are not at the starting blocks. “There have been business relationships over the last few years, albeit slightly behind the scenes. This normalisation agreement brings everything out into the open and enables people from both countries to develop the sort of partnerships they were already working on – just more transparently” explains Jonathan Wheeler, MEA market head at TMF Group.
Peace brings opportunity
Yuval Navot, tax partner at leading Israeli law firm Herzog Fox & Neeman, says the normalisation or ‘peace' agreement has resulted in massive interest in Israel-UAE business opportunities. “Interest is especially strong among our clients in the agricultural technology, high-tech, industrial and pharmaceutical sectors. The UAE is working to reduce its dependence on oil and gas, and Israel's technologies and knowledge can help develop the Emirates' own industries. We're also seeing increased interest in purely financial investment in Israeli companies.”
TMF Israel country director Liat Shibolet says her office is fielding a larger than usual number of requests for information about setting up a business in Israel. “I think the enquiries have come in faster than the authorities were ready to handle them, but I'm sure they'll catch up. My feeling is that investment will come to Israel in all forms – direct investments into local companies and technologies, through venture capital and private equity funds. In 2021, we should certainly see a large amount of funding flowing in from the UAE.”
For Israeli investors looking to establish in the UAE, company incorporation is a crucial step to get right. “It's really important to understand the Emirates' free zones and their respective specialisations in order to know which one will suit your company best” explains Julius Garcia, global entity management supervisor at TMF UAE. “There are more than 30 jurisdictions to choose from: free zones and those onshore, on the mainland, that cater to the requirements of all kinds of investors. For example, the Dubai International Financial Centre and the Abu Dhabi Global Market both follow English law are financial free zones. If Israeli investors want to establish in a jurisdiction catering to information technology for example, they also have the choice of the Dubai Development Authority or TwoFour54 in Abu Dhabi. The advantage of setting up a company in a free zone is 100% foreign ownership, compared with setting up on the mainland where a local sponsor or local service agent is typically required.”
Yuval Navot says the UAE's favourable tax status will also be attractive to Israeli investors. “There are reduced corporate tax rates for companies that export from Israel, as low as 6%, and there is no VAT on exports. Couple this with the fact that the UAE is a mostly tax-exempt jurisdiction which is not considered a tax haven.”
However Navot stresses that it's not only the financial advantages exciting Israelis. “We are finally able to start cooperating with the Middle East and be accepted in the Arab world. People are talking about a gas pipeline between the Emirates and Israeli ports. There is a big hope in Israel that this – along with the recent normalisation agreements signed with Bahrain and Sudan – is the first step towards more cooperation and a way to finally reach some semblance of peace.”
The normalisation of relations between the UAE and Israel is not without its teething problems. Julius Garcia points out that there is not yet a UAE embassy in Israel (though the country has announced it will open one in Tel Aviv). This makes document authentication for company and bank account setup a challenge. “But this is natural when you consider there hasn't been a relationship between the countries for such a long time. We expect that in the coming months, any existing hurdles to business incorporation will be removed.”
Commenting from his Dubai base, Jonathan Wheeler is confident that Israelis – both businesses and tourists – will be warmly welcomed, particularly once travel picks up again post-pandemic. “I was speaking to someone recently about holidays and they asked if I'd ever been to Israel. The relationship has always been there, underneath the surface. Personally, I'm looking forward to visiting colleagues in one of the closest TMF offices to me for the very first time, in Tel Aviv.”
Originally Published by TMF, November 2020
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