Private businesses to soon join in but will seek preferential tax breaks

Dubai: Roll out the big names – just days into the signing of the Abraham Accord with Israel, the UAE’s investment push into that new market is already taking shape.

First, there was the announcement by DP World – one of the UAE’s most global of enterprises – confirming that its new joint venture will make a bid for Israel’s strategically vital Haifa Port privatization. It was earlier in the year that the Israel Government gave the go-ahead for the privatization, a process that could be completed within the next two years.

Leading UAE banks have also found partners in Israel. Then, there was Abu Dhabi Investment Office’s decision to open a base in that country, and Dubai Diamond Exchange confirming an alliance with its counterpart – one by one, the UAE’s public sector entities are setting the agenda in doing business with the new market that has opened up for them. But they are not the only ones.

Private sector gets into the act

The Al Habtoor Group is working towards multiple “collaborations” with potential Israeli partners, including one with Israir Airlines to launch direct commercial flights to the UAE. “The possibilities are endless for both sides in our diversified fields and new ones - and we want to be present to grasp them,” said Khalaf Al Habtoor in a statement.


Exploring the art of the deal... Khalaf Al Habtoor, Chairman of Al Habtoor Group, will hope to gain first mover advantage in Israel. The Group is considering multiple options, including in aviation. (Image Credit: Al Habtoor Group)

But it need not be all about UAE investments flowing into that newly opened market.

“Contrary to common opinion, I believe we’ll see as much investment coming from Israel into the UAE,” said Tasawar Ulhaq, CEO of KIKLABB Licensing and Workspace, owned by Dubai’s Port, Customs and Free Zone Corporation. (And the entity that offers companies registered with it access to office space on board the Queen Elizabeth II.)

“We’ve already started to receive enquiries from Israeli companies interested in setting up in Dubai. Israel has advanced venture capital and tech sectors, so it’s no surprise that most of the interest we’ve received are from these two sectors.

“In addition, we offer the right trade licenses with relevant business activities - and Israel has already been added to our systems.”

But let’s not rush things

Ulhaq says time – and space – must be given for businesses to firm up their plans. “After all, there are entry visa requirements, regular flight schedules, and other aspects that need to be implemented – but this will be beneficial for both countries,” he added.

For UAE businesses that already have links with Jordan or the markets in North Africa, extending their reach into Israel would be relatively easy. And if DP World gets to win Haifa Port, a lot of things would slot into place.

Tax breaks?

Rizwan Sajan, Chairman of the building materials supplier Danube, is one who definitely would be interested… provided he gets some clarity on the tax structure there. “I believe the tax structure is high – but we still need to explore more on it,” he added. “Our focus is mainly on the Gulf markets because of the ease of doing business plus the one-time customs duty. There is a tax element in Muscat and Doha, but negligible.”

Preferential treatment

According to market sources in Israel, those questions related to tax on business activity can be surmounted. “The cost of operations in Israel is much cheaper,” said Ofir Bar-Noy of the recently created Emirates Israel Investment Group.

“There are almost no license fees, and the joint registration of VAT and corporate tax has made starting a business in Israel much easier. In terms of taxes, Israel has also reduced the corporate income tax rate, making it cheaper.”

The country has also made trading across borders easier by eliminating the ‘certificate of origin’ requirement.

What about taxes?

Israel’s tax structure is higher than in the UAE. The Corporate Income Tax is at 23 per cent. There are, however, preferential rates that can reduce the CIT to 16 per cent, 12 per cent and even 7.5 per cent. The VAT is at 17 per cent.

Double taxation deal?

At some point, Israel sources say, a double taxation treaty could be part of the governments’ agenda. “Good tax planning can help [UAE businesses] accrue most of the profit to the UAE and at low tax when doing business with Israel,” said Bar-Noy. “There is a huge potential for economic co-operation and investment, and we hope this will help transform growth in the region.”

According to Matan Bar-Noy, CEO of Emirates Israel Investment Group, “Tech-led sectors would definitely see a lot of interest in investments, but beyond that, we also think Israel’s energy sector and banking would also see a boost by this agreement. With regional names already in conversations for tie-ups, we can see good opportunities even for the traditional sectors.”

“There are no restrictions on foreign businesses. Foreigners can hold 100 per cent of Israeli companies.”

Setting sail

If DP World and its Israeli partner do win the Haifa Port contract, that would be the cue for more investment flows. Surender Singh Kandhari, Chairman of Al Dobowi Group, the tyre company, certainly sees it that way.

“We contract-manufacture our own tyres in some of the largest tyre plants in Asia, using our own equipment and R&D,” he said. “We are one of the largest battery manufacturers in the region and we provide both automotive and industrial solutions.

“[If] the DP World deal is finalized, we will begin our business operations. We are eagerly looking forward to do business in Israel.”

(This article was originally published by Gulf News)