Special Reports
New Dubai International Financial Centre Set Up

International Tax Review
November 2004

On September 19 2004, the ruler of Dubai enacted the laws of the
Dubai International Financial Centre (DIFC), a recent addition to
the several free-trade zones already existing in the UAE. The DIFC
aims to benefit the region as a whole by acting as a catalyst for
the region's economic development in the same way that similar
centres in the US and Hong Kong have contributed to their respective
regional development.

The Dubai Financial Services Authority (DFSA) is the independent
regulatory authority set up to oversee operations at DIFC. As a
free-trade zone, the DIFC has its own set of governing laws.
Even though UAE is largely considered "tax free" most of the
Emirates have enacted brief corporate income tax legislation.

However, the legislation is only enforced on limited industry
sectors; at present, only foreign oil companies and branches of
foreign banks are taxed. As the DIFC offers a guaranteed tax
holiday, this ensures that existing tax legislation will not be
applicable to its clients even if enforcement of tax legislation in
the UAE is widened.

In July 2004 a federal decree was passed to establish the DIFC and,
more recently, the laws that govern operations in the DIFC were
issued by the ruler of Dubai in September 2004. These are the
regulatory law, the company law, the limited liability partnership
law, the general partnership law, the contract law, the insolvency
law, the arbitration law, the data protection law, the markets law,
the law regulating Islamic financial business, the law relating to
the application of DIFC laws and the law on the application of civil
and commercial laws.

Article 14 of Law No 9 of 2004 for DIFC stipulates a zero tax rate
for a period of 50 years from the date of enactment. The tax holiday
can be renewed for a similar period by resolution of the ruler of

Shortly after the DIFC laws were formally enacted, the DFSA issued
its first licences to operate in the DIFC to Julius Baer (Middle
East), Standard Chartered Bank and GCC Energy Fund Managers.

Another early registrant was the Dubai International Financial
Exchange Limited (DIFX) set up as a limited liability company within
the DIFC. DIFX aims to become a leading forum for the listing and
trading of a range of securities including equities, bonds, funds,
Islamic products and derivatives.

There are six initial areas of focus at DIFC for investors to take
advantage of:

banking services (investment, corporate and private banking);
capital markets (equity, debt instruments, derivatives, and
commodity trading through the DIFX);
asset management and fund registration (fund registration,
administration and management);
reinsurance (insurance, reinsurance, captives and brokers),
Islamic finance structures; and
back-office operations.


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