The Legal and Business Impacts of the Israel – UAE “Abraham Accords”: A Historic Opportunity for Bilateral Trade and Commerce

Introduction

On September 15, 2020 the United Arab Emirates (the “UAE”) and the State of Israel officially signed the “Abraham Accords Peace Agreement: Treaty of Peace, Diplomatic Relations and Full Normalization Between the United Arab Emirates and the State of Israel” (the “Abraham Accords”). The Abraham Accords were officially announced and jointly issued on August 13, 2020 by H.H. Sheikh Mohammed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, Israeli Prime Minister Benjamin Netanyahu, and U.S. President Donald J. Trump.

Abraham Accords: Significance

The adoption by the two countries of the Abraham Accords marks the commencement of a fundamental shift in the regional geopolitical landscape which, in addition to being a diplomatic breakthrough of historic significance, will also present exciting opportunities for trade and commerce between the two countries.

The Abraham Accords makes the UAE (along with Bahrain shortly thereafter) one of only four, out of 22, member states of the Arab League to have normal relationships with Israel (prior to the Abraham Accords, Israel only maintained full diplomatic relations with two of its Arab neighbors, Egypt and Jordan, after signing peace treaties in 1979 and 1994, respectively).

The Abraham Accords and the repeal of the UAE Boycott Laws (as described below) in their entirety paves the way for economic, cultural, diplomatic and political cooperation between the two countries. In particular, the Abraham Accords expressly highlight the stated desire of the two countries to cooperate in a number of spheres, including inter alia: (i) finance and investments, (ii) civil aviation, (iii) visas and consular services, (iv) innovation, trade and economic relations, (v) healthcare, (vi) water security, (vii) legal cooperation, (viii) energy, (ix) protection of the environment, and (x) tourism, culture and sport. The Abraham Accords contemplate that the two countries intend to enter into additional agreements or treaties to memorialize their cooperation in those spheres.

Shortly following the official announcement of the Abraham Accords, the Kingdom of Bahrain (which, along with the UAE, the Kingdom of Saudi Arabia, the Sultanate of Oman, the State of Qatar, and the State of Kuwait, is a member of the Gulf Cooperation Council (“GCC”)) also announced its intention to normalize its diplomatic relations with Israel. On the same day as the execution of the UAE – Israel Abraham Accords, Bahrain and Israel also signed the “Bahrain – Israel Abraham Accords – Declaration of Peace, Cooperation and Constructive Diplomatic and Friendly Relations” which is substantially similar to the UAE – Israel Abraham Accords. At this stage, it is unclear whether other GCC countries such as the Kingdom of Saudi Arabia will also take steps to normalize their relationship with Israel.

Repeal of UAE Boycott Laws

Following the announcement of the Abraham Accords, H.H. Sheikh Khalifa Bin Zayed Al Nahyan, President of the UAE, issued UAE Federal Decree Law No. 4 of 2020, abolishing Federal Decree Law No. 15 of 1972 Concerning the Arab League Boycott of Israel (“Boycott Laws”).

The most significant impact of the repeal of the Boycott Laws is that it now allows for individuals, firms and government entities in the UAE to enter into agreements with Israeli companies and citizens as part of commercial or financial operations of any nature whatsoever. It is also now permissible to import, export or possess Israeli goods and products and trade in them in the UAE, all of which were previously strictly prohibited (such prohibitions were in line with the Arab League Council’s resolutions approving the Unified Law on the Boycott of Israel which was implemented by the Arab League member states including the UAE shortly following its foundation on December 2, 1971).

Prior to the Abraham Accords, UAE individuals and companies were strictly prohibited from conducting any commercial activity with Israel, including the import of goods from Israel or the export of goods to Israel. The repeal of the Boycott Laws therefore presents a significant opportunity for trade and commerce between the two nations, especially in the fields of technology, healthcare and defense. Early estimates indicate that the normalization of ties could soon see multi-billion bilateral trade between the two countries.

Practical Impacts

In the few short weeks since the announcement of the Abraham Accords, there have already been many positive developments including:

• Etihad Airways flying the first commercial passenger flight from the UAE to Israel and each of El Al, Etihad Airways and Emirates Airlines having regular scheduled flights (for passengers or cargo) to and between Israel and the UAE;
• Immediately upon the official announcement of the Abraham Accords, the ability to place phone calls from the UAE to Israel (which was previously not possible) and the ability to directly access (without using means to bypass the internet filtering in the Emirates) Israeli news websites that had previously been blocked by UAE authorities;
• Mediterranean Shipping Company having one of the first cargo ships making the voyage from UAE to Israel and successfully unloading its cargo;
• Bank Leumi signing memoranda of understanding with each of First Abu Dhabi Bank and Emirates NBD of Dubai as well as sending a historic funds transfer to each bank;
• Europe-Asia Pipeline Co. (a state-owned company) and MED-RED Land Bridge (a joint venture between Israel and the UAE) signing a memorandum of understanding to extend an oil pipeline, currently running from Eilat to Ashkelon, to the UAE;
• The UAE, Israel and the U.S. announcing the establishment of a joint regional US$3 billion development fund, named the Abraham Fund based in Jerusalem, the remit of which will be to provide private funding for “development initiatives to promote regional economic cooperation and prosperity in the Middle East and beyond”;
• The UAE officially requesting to open an embassy in Tel Aviv; and
• An Israeli-owned shopping chain having entered into agreements to open stores in the UAE.

Structuring Considerations for Israeli Businesses

With its business-friendly environment, the UAE is a favored hub for most multinationals doing business in the GCC region, the wider Middle East and in Africa. The UAE is a jurisdiction with a favorable tax environment and a wide net of tax treaties with other countries. The UAE also has a developed infrastructure with the ready availability of high-caliber professional business advisors.

Accordingly, the UAE would be a natural jurisdiction for Israeli businesses wishing to expand their business regionally or globally in a tax-efficient manner to set up a local presence (which they can now openly do). In this respect, it is worth noting that on October 15, 2020, the UAE and Israel also reached a preliminary agreement on a treaty on avoiding double taxation, as part of the impetus to encourage investments between the two countries. Such tax treaties help prevent similar taxes being imposed by two countries on the same taxpayer.

In addition to tax agreements, the time difference being just one hour and the two countries operating the same working week should allow for ease of business dealings. As such, it is expected that following the Abraham Accords we will now see a number of UAE and Israeli companies taking advantage of the opportunities including cross-border joint ventures, funds in either country diversifying their investor base and the expansion of regional businesses into a previously unavailable jurisdiction.

Properly setting up a business in the UAE requires a good understanding of the legal and regulatory environment, and in particular rules restricting foreign ownership. It is important for Israeli businesses wishing to set-up a presence in the UAE to be well advised to ensure that they have a robust set up in either one of the financial free zones (such as the Dubai International Financial Centre or the Abu Dhabi Global Market) or the other non-financial free zones. It is also important for Israeli financial institutions wishing to tap into the private or public capital pools in the UAE or to launch financial products including investment funds to receive appropriate regulatory advice.

The Dechert team has a wealth of experience advising foreign companies investing in or raising capital from the UAE. Any foreign players considering new investment opportunities or the set-up of a presence in the UAE should contact our team to discuss the most efficient structure and the proper regulatory set-up.