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In an attempt to diversify away from rapidly-diminishing oil and gas reserves and further open the doors to foreign direct investment (FDI), GCC countries have been driving their economies through the introduction of free zones.

In particular, the UAE has blazed the trail for free zones by creating a wealth of incentives for international firms to come and set up their trade in the Middle East. With a GDP of US$163bn in 2006, the UAE is one of the top countries to attract FDI in the region, and free zones have immensely contributed to the nation's economy and the inflow of investors. They have also played a vital role in the country's industrial development.

While the main legal standpoints on investment in the UAE are outlined in the Commercial Companies and the Trade Agencies laws, which holds provisions that limit and regulate the involvement of foreign investors in the UAE's economy, a large portion of trade moves through the country's free zones - which number over 20 at the moment.

In those free zones, foreign investors can enjoy 100% ownership, operate in a tax-free environment and be exempt from the licensing, agency, emiratisation or the hiring of UAE nationals and national majority-ownership obligations that are applicable elsewhere within the domestic economy.

Most recently, changes have been implemented to the Trade Agency Law and reforms such as the adoption of competition legislation, structural reforms, and further liberalisation of the services sector are being negotiated. The UAE has recognised the underlying potential in free zones and realised that the best way to attract FDI is through friendly trade policies. International companies have also spotted the benefits of setting up in the country. This includes obtaining significant cost advantages that are not generally available in any other business environment.

Some of the incentives include the absence of foreign exchange controls; no trade barriers or quotas; competitive import duties; competitive labour costs - the labour force is multilingual and skilled; competitive energy, financing and real estate costs; and no corporate profit or personal income taxes (except for oil companies and branches of foreign banks).

As approximately 70% of the UAE's trade passes through Dubai, which has become a favoured environment for inward investment over the past few years, the emirate now enjoys a global reputation as a major economic hub for foreign multinational corporations (MNCs).

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