Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

UNITED ARAB EMIRATES

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: February 13, 1974.
Exchange Arrangement
CurrencyThe currency of the United Arab Emirates is the U.A.E. dirham.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe U.A.E. dirham is pegged to the dollar, the intervention currency, at Dh 3.67275 per $1.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketThe United Arab Emirates Central Bank (UAECB) maintains a swap facility, which commercial banks may use to purchase dirhams spot and to sell dirhams forward for periods of one week, one month, and three months. For each bank, maximum limits of the equivalent of $20 million outstanding for one-month and three-month swaps and $10 million outstanding for one-week swaps are in effect. There is also a daily limit of $3 million on purchases by each bank for one-month and three-month swaps. This facility is designed to provide temporary dirham liquidity to commercial banks. Swap facilities are not available to banks having a short position in dirhams, except for covering forward transactions for commercial purposes.
Official cover of forward operationsYes.
Arrangements for Payments and Receipts
Prescription of currency requirementsThere are no prescription requirements, but settlements with Israel are prohibited.
Payments arrangements
Regional arrangementsUnited Arab Emirates is a member of the GCC customs union.
Administration of controlYes.
International security restrictionsIn accordance with UN Security Council Resolution No. 1373 (2001), accounts belonging to individuals and/or organizations associated with terrorism are frozen. Banks are required to verify identification for transfers exceeding Dh 40,000. Money changers are required to do the same for transfers exceeding Dh 2,000. Free zones in the United Arab Emirates are required to verify the identification of persons wishing to establish businesses.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadThese accounts may be maintained in offshore affiliates of domestic banks.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedThese accounts may be opened by banks and trade, financial, and industrial companies incorporated outside the United Arab Emirates that have no local branches; by branches of local institutions in foreign countries; and by embassies and diplomatic agencies. These accounts may also be opened by U.A.E. citizens working abroad and by nonresident foreigners working in the United Arab Emirates.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresOnly licensed parties may engage in import trade. Importers may import only the goods specified in their licenses.
Negative listImports of a few products are prohibited for health, security, or moral reasons.
Other nontariff measuresImports from Israel are prohibited, as are imports of products manufactured by foreign companies blacklisted by the Arab League.
Import taxes and/or tariffsMost imports are subject to a customs duty of 4% of their c.i.f. value. In accordance with the GCC customs union, a maximum CET of 5% applies on most dutiable goods.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesNo.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsAt least 51% of the shares of U.A.E. corporations must be held by U.A.E. nationals or organizations. Companies domiciled in free zones are exempt from this requirement and may be up to 100% foreign owned.
Sale or issue locally by nonresidentsYes.
Bonds or other debt securities
Sale or issue locally by nonresidentsYes.
On collective investment securities
Purchase locally by nonresidentsPurchases by GCC residents are exempt from controls.
Sale or issue locally by nonresidentsThe issuance of some mutual funds is permitted.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investment
Inward direct investmentAt least 51% of the equity of companies, other than branches of foreign companies, must be held by nationals of the United Arab Emirates. GCC nationals are permitted to hold (1) up to 75% of the equity of companies in the industrial, agricultural, fisheries, and construction sectors; and (2) up to 100% of the equity of companies in the hotel industry. GCC nationals are also permitted to engage in wholesale and retail trade activities, except in the form of companies, in which case they are subject to the company law. In free zones, foreign ownership is permitted up to 100%.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsNonresidents may own properties in some real estate developments in Dubai.
Controls on personal capital transactionsNo.
Provisions specific to commercial banks and other credit institutionsCommercial banks operating in the United Arab Emirates are prohibited from engaging in nonbanking operations.
Lending to nonresidents (financial or commercial credits)Banks operating in the United Arab Emirates are required to maintain special deposits with the UAECB equal to 30% of their dirham placements with, or loans to, nonresident banks when these transactions have a remaining maturity of one year or less. The profits of foreign banks are subject to a profit tax levied by local authorities at an annual rate of 20%.
Investment regulations
Abroad by banksBanks are not allowed to lend more than 7% of their capital base to one foreign institution. Also, they are not allowed to invest more than 25% of their own funds in shares or bonds issued by commercial companies. Loans to foreign governments with a first-class credit rating and placement in such countries’ financial institutions are exempt from such limits.
In banks by nonresidentsNonresidents may not acquire more than 20% of the share capital of any national bank.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 2004
No significant changes occurred in the exchange and trade system.

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