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A guide to doing business in the UAE
A guide to doing business in the UAE
A guide to doing business in the UAE
contents
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Clifford Chance Middle East
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Introduction
4
Political environment
5
Financial and tax regime
7
Trade environment
11
Employment
13
Land/real estate
21
Legal environment
24
Product liability
29
Intellectual property rights
31
Investment policies
35
Company law and corporate governance
39
Contacts
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A guide to doing business in the UAE
Clifford Chance Middle East Clifford Chance is one of the longest established international law firms in the Middle East Our team of over 120 lawyers advises clients on domestic, regional and international matters and has delivered many firstof-a-kind deals. We opened our first UAE office in 1975 and are well known for innovative, market-leading work. We specialise in:
Banking, Finance and Projects
Corporate, M&A and Equity Capital Markets
Financial Services Regulatory
Debt Capital Markets and Structured Products
Litigation & Dispute Resolution and Arbitration
Real Estate and Construction.
Our lawyers combine international experience and capability with an intimate and detailed knowledge of local requirements in the region and advise on international, regional and domestic matters. In particular, we:
have over 120 lawyers, fully integrated into the firm's international network, serving the Middle East region
have been present in the Middle East for almost 40 years with offices today in Abu Dhabi, Dubai, Doha and Riyadh
are able to coordinate legal advice and services throughout the Middle East through our close contacts with leading independent firms
have valuable Arabic language skills within the practice, at both associate and partner level, enabling us to work with Arabic documentation.
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A guide to doing business in the UAE
Introduction The purpose of this guide This guide is designed to provide an overview of key considerations for doing business in the United Arab Emirates (UAE) outside of the various free zones. It has been limited to a general description of areas that are of most interest. The legal environment in the UAE is complex and rarely static. As the pace of development of domestic law continues unabated, this publication cannot serve as a substitute for current and necessarily detailed advice on particular problems that may arise. However, it is hoped that it will provide a valuable and informative outline of the relevant law for our clients. Unless the context otherwise requires, references in this publication to the masculine include the feminine. This publication is designed to provide a general summary of the key considerations as at March 2014 (unless otherwise stated). It does not purport to be comprehensive or to render legal advice and, consequently, no responsibility can be accepted for loss occasioned by any person acting or refraining from acting as a result of any statement in this publication. Certain statistical information in this guide originates from third-party sources which are publically available. We do not take any responsibility for the accuracy or completeness of such information and it has not been independently verified by us. Further information Online services: The Clifford Chance online services are useful know-how resources that can keep you up to date with industry and market developments, provide a useful overview of the issues that affect the structuring or financing of crossborder transactions and help you assess and manage risk more effectively. Should you wish to have access we can set up an account for you, please follow the link to select your preferences www.cliffordchance.com/preferences, after which you will receive an email with login details and instructions on how to log into the service for the first time.
A guide to doing business in the UAE
Political environment The UAE is a federation of seven Emirates (Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain) (the Federation). Formerly known as the Trucial States, they were a British protectorate until they achieved independence in December 1971 and merged to form the UAE. Each Emirate has a local government headed by the Ruler of the Emirate. The UAE has a Federal Government which is currently headed by His Highness Sheikh Khalifa bin Zayed Al Nahyan, the President of the UAE and Ruler of Abu Dhabi. There are a number of free zones established within the UAE, including the Jebel Ali Free Zone and the Dubai International Financial Centre (DIFC). Laws, regulations and insolvency regimes applicable within the various free zones can be different to those that apply in the remainder of the UAE. Unless otherwise specified, the information in this Guide does not apply to the individual free zones. For further information with regards to free zones, please see our guide 'Overview of Selected UAE Free Zones' available on the Clifford Chance online services.
Structure of government Constitution In establishing the UAE, the rulers of the seven Emirates issued a provisional constitution in 1971, which became final in December 1996 (the Constitution). The Constitution provides the legal framework for the Federation and expresses Islamic Shari'a jurisprudence to be the main source of legislation. The Constitution apportions powers between the Federal Government (based in Abu Dhabi) and the governments of the constituent Emirates. The Federal Government is entrusted with the task of issuing substantive legislation concerning and regulating the principal and central aspects of the Federation. The municipal governments of each Emirate are authorised to regulate local matters not confined to the Federal Government. Some areas are therefore regulated only at the Federal level, although local interpretations and practices sometimes differ from one Emirate to another. In the event of a conflict between the Federal law and local laws, the Federal law will supersede the local law of an Emirate. The Constitution grants sovereignty to the individual Emirates over their own territories and territorial waters in
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all matters which are not within the jurisdiction of the Federation, such as foreign affairs, defence, justice and public health. It provides for the Federation to form a single economic and customs area with free movement of capital and goods between the Emirates. The natural resources and wealth in each Emirate are considered to be the public property of that Emirate, which is responsible for the protection and exploitation of its natural resources and wealth for the benefit of the national economy. Framework of the Federation The framework of the Federation consists of: (i) the Supreme Council; (ii) the President and Vice President; (iii) the Council of Ministers; (iv) the Federal National Council; and (v) the Judiciary. Supreme Council The Supreme Council is the highest decision-making authority of the Federation and consists of the Rulers of each of the Emirates. Each Ruler (or his deputy) has a single, equal vote on Supreme Council deliberations. The Supreme Council has broad authority over Federal policy and legislative matters within the jurisdiction of the Federation. The decisions of the Supreme Council must be approved: (i) by a majority of five member Emirates (which must include Abu Dhabi and Dubai) with respect to substantive matters; or (ii) by a simple majority vote on procedural matters. While the deliberations of the Supreme Council are declared to be secret by the Constitution, it is believed that, in practice, laws, decrees or executive orders of the Supreme Council are effected with the unanimous consent of each of the member Emirates (although the political and economic influence of Abu Dhabi and Dubai may play a role in ensuring the support of the other Emirates). President and Vice President A President and Vice President of the Federation are elected from among the members of the Supreme Council for terms of five years, with eligibility for re-election without restriction. The current President of the Supreme Council, His Highness Sheikh Khalifa bin Zayed Al Nahyan, the Ruler of Abu Dhabi, has served as President of the Supreme Council since 2004. The current Vice President of the Supreme Council is His Highness Sheikh Mohammad bin Rashid Al-Maktoum, the Ruler of Dubai.
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A guide to doing business in the UAE
The primary role of the President of the Supreme Council, and the Vice President in his absence, is to preside over the actions of the Supreme Council, including the enactment of legislation within the jurisdiction of the Supreme Council and the appointment of the Council of Ministers and other officers or representatives of the Federation. Council of Ministers The Council of Ministers (otherwise known as the 'UAE Cabinet') acts as the advisory cabinet of the UAE. The Council of Ministers consists of the Prime Minister of the UAE as its chairman (currently His Highness Sheikh Mohammad bin Rashid Al-Maktoum, the Ruler of Dubai and Vice President of the UAE, as described above), his deputy, and other Ministers. The Council of Ministers is responsible for the various Federal Ministries of the UAE, most importantly the Ministries of: (i) foreign affairs; (ii) interior; (iii) defence; (iv) finance; (v) economy; (vi) justice; (vii) education; (viii) health; (ix) public works; (x) foreign trade; (xi) labour; (xii) social affairs; (xiii) culture, youth and community development; and (xiv) environment and water. In practice, the primary role of the Council of Ministers is the implementation of Federal policy and the development of Federal laws, decrees and budgets for consideration by the Federal National Council (where necessary or appropriate) and, ultimately, enactment by the Supreme Council. The Council of Ministers also independently issues implementing regulations for many of the UAE's Federal laws. Like the Supreme Council, the Council of Ministers has governing by-laws, and its deliberations generally are not a matter of public record. Decisions of the Council of Ministers are by a majority vote, with a casting vote retained by the Prime Minister. Federal National Council The Federal National Council comprises 40 members allocated between the Emirates as follows: (i) Abu Dhabi – eight members; (ii) Dubai – eight members; (iii) Sharjah – six members; (iv) Ras Al-Khaimah – six members; (v) Ajman – four members; (vi) Umm Al-Quwain – four members; and (vii) Fujairah – four members. Half of the 40 members of the Federal National Council are elected by electoral colleges while the other half are appointed by the Rulers of the seven Emirates. The electoral college is comprised of a group of people selected by the Rulers of the Emirates numbering at least 300 times
the number of seats allocated. Each member may only vote for a candidate in his/her Emirate. This mechanism was implemented in 2006. The members of the Federal National Council are private citizens (public officials, including ministerial officials, cannot be members of the Federal National Council). As such, it is intended that the Federal National Council members provide a broad representation of the UAE citizens as a whole. While the Federal National Council acts as an advisory body to the Council of Ministers and, ultimately, the Supreme Council, it does not have independent discretionary executive or legislative authority. Judiciary The judiciary of the Federation is discussed in detail in the Legal Environment section of this guide.
Key policies of government Economic The UAE's economy has, historically, been reliant on crude oil revenues. However, the UAE government has consistently promoted the creation of new business opportunities and the diversification of the economy to decrease the UAE's reliance on one source of income. During the last 15 years the UAE has actively promoted investment in infrastructure (for example the Dubai Metro) and industrial diversification. Private sector investment has been encouraged in a number of different fields, including energy, communications, telecommunications, transport and ports. Social The UAE government is keen to develop social and human resources in the UAE. A large percentage of the 2013 UAE budget has been allocated to social spending (51%) and education (22%). Emphasis is placed on creating world-class healthcare and education systems.
A guide to doing business in the UAE
Financial and tax regime
advise the Federal Government on financial and monetary issues
The system of financial regulation in the UAE is well established and constantly evolving. The UAE banking sector was heavily impacted by the financial crisis of 2008 with real estate and equity prices being the key concerns. However, signs of recovery are appearing.
maintain the Federal Government's reserves of gold and foreign currencies
act as a bank for the Federal Government and other banks operating in the UAE
act as the Federal Government's financial agent with the International Monetary Fund (the IMF), the World Bank and other international financial organisations.
Financial authorities and regulators Securities laws and the regime of financial regulation are still evolving in the UAE. Historically, the regulation of trading and securities and transactions involving investment products were regulated solely by the UAE Central Bank. In 2000, the Securities and Commodities Authority (SCA) was created and together the UAE Central Bank and the SCA regulate the current UAE Federal financial landscape. Under the law, the division of responsibilities between the SCA and the UAE Central Bank remains unclear and it is anticipated that some of this uncertainty will be resolved by the implementation of a new financial services law in the coming months. A separate regulatory regime exists in the DIFC and the regulator in the DIFC is the Dubai Financial Services Authority. A separate regulatory regime will also apply in the new Abu Dhabi Global Market Free Zone, once fully established. UAE Central Bank The UAE Central Bank, established in 1980, is the governing body that regulates and supervises all banks operating in the UAE. The UAE Central Bank monitors banks through its Banking Supervision and Examination Department which conducts reviews of banks periodically based on the risk profile of each bank. It also reviews all of the returns submitted by the banks to the UAE Central Bank. Historically, the UAE Central Bank does not act as a "lender of last resort" and instead this role tends to fall on the individual Emirates. The UAE Central Bank is regulated primarily by UAE Federal Law No. 10 of 1980, which grants the UAE Central Bank powers to:
exercise currency issue, stabilisation, valuation and free convertibility
direct credit policy for balanced growth of the economy
organise and promote an effective banking system with private banks and institutions
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Although the UAE Central Bank is responsible for regulating all banks, exchange houses, investment companies and other financial institutions in the UAE, the Dubai Financial Services Authority regulates all banking and financial services activities in the DIFC. The SCA The SCA regulates listed public companies in the UAE. There are three public exchanges in the UAE (outside of the free zones) the Dubai Financial Market, the Abu Dhabi Stock Exchange and the Dubai Gold and Commodities Exchange. In addition, over the last few years, the SCA has taken a more active role in the regulation of other matters, for example, with regards to investment funds. The role of the SCA is expected to evolve further with the implementation of a new financial services law.
Availability of finance Finance is readily available within the UAE from both foreign and local banks. Banks operating in the UAE often lend to large borrowers who are well known and low risk. Often this is accompanied by limited disclosure from the borrower. Effective security is generally available, but for certain assets the law is unclear (eg security over ownership interests in limited liability companies (LLC), intellectual property, bank accounts and contractual rights). Enforcement of security can be time consuming and difficult, although steps have been taken to improve the situation for land and building mortgages.
Major banks and financial institutions The list below sets out the foreign and local commercial banks licensed by the UAE Central Bank as at 30 June 2013:
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A guide to doing business in the UAE
Local Banks
Foreign Banks
Abu Dhabi Commercial Bank
Al Ahli Bank of Kuwait
Abu Dhabi Islamic Bank
Al Khaliji (France)
Ajman Bank
Arab African International Bank
Al Hilal Bank
Arab Bank
ARBIFT (Al Masraf)
Bank Meli Iran
Bank of Sharjah
Bank of Baroda
Commercial Bank International
Bank Saderat Iran
Commercial Bank of Dubai
Banque Misr
Dubai Bank
Barclays Bank
Dubai Islamic Bank
Blom Bank France
Emirates Islamic Bank
BNP Paribas
Emirates NBD Bank
CitiBank
First Gulf Bank
Crédit Agricole – Corporate and Investment Bank
InvestBank
Doha Bank
Mashreq Bank
El Nilein Bank
National Bank of Abu Dhabi
Habib Bank A.G. Zurich
National Bank of Fujairah
Habib Bank Ltd.
National Bank of U.A.Q.
HSBC Bank Middle East Limited
Noor Islamic Bank
Janata Bank Limited
Sharjah Islamic Bank
Lloyds TSB Bank
The National Bank of R.A.K. (RAKBANK)
National Bank of Bahrain
Union National Bank
National Bank of Kuwait
United Arab Bank
National Bank of Oman Rafidain Bank Samba Financial Group Standard Chartered Bank The Royal Bank of Scotland United Bank Ltd.
As at June 2013, the UAE Central Bank licenses 51 different commercial banks (comprising 23 locally incorporated banks and 28 foreign banks), two investment banks (Emirates Invest Bank – P.J.S.C. and HSBC Financial Services (Middle East) Limited), four wholesale banks (Deutsche Bank AG, Industrial & Commercial Bank of China, The Bank of Tokyo – Mitsubishi UFI, Ltd. and Korea Exchange Bank) and one company conducting finance and investment activities (Mubadala GE Capital – P.J.S.C.) to operate inside the UAE (excluding the DIFC). In addition, the UAE Central Bank also licenses a number of financial institutions and representative offices of foreign banks and financial institutions. The Dubai Financial Services Authority licenses a number of banks in the DIFC.
Tax The following is merely an overview of the general tax regime in the UAE. UAE tax advice should be sought from specialist tax advisers or consultants who maintain up-todate information on any changes to the tax regime. Clifford Chance does not provide tax advice in the UAE. Under existing UAE law, an income tax decree has been enacted in Abu Dhabi and in Dubai (the Abu Dhabi Income Tax Decree 1965 (as amended) and the Dubai Income Tax Decree 1969 (as amended)) which provides for tax to be imposed on the taxable income of all bodies corporate which carry on a trade or business. In practice, however, the regime is not currently enforced and only companies engaged in the production of oil or gas, some service industries and branches of foreign banks have been required to pay tax. There is currently no withholding tax on interest or dividends in the UAE. The Constitution of the UAE gives the Federal Government exclusive legislative and executive authority in relation to taxes, duties and fees and provides that the payment of taxes is a duty of all citizens. It is not known whether these provisions will be exercised and further taxation implemented in the jurisdiction in the future.
A guide to doing business in the UAE
The UAE has entered into double taxation arrangements with certain other countries, but these are not extensive in number. The table below sets out the list maintained by the Ministry of Finance:
Country
Country
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Final signature
Effective date
France
19 July 1989
15 November 1989
Belgium
30 September 1996
26 June 1997
11 April 1993
9 January 1996
1993
29 January 1994
20 November 2005
7 May 2006
Spain
5 March 2006
13 August 2006
Malta
13 March 2006
13 August 2006
Bosnia and Herzegovina
18 September 2006
30 April 2007
Seychelles
19 September 2006
6 February 2007
Final signature
Effective date
Romania
Egypt
12 April 1994
26 March 1995
Turkey
Algeria
24 April 2001
28 November 2001
Yemen
13 February 2001
25 August 2001
Tunisia
10 April 1996
24 February 1997
Morocco
9 February 1999
26 September 1999
15 March 2001
28 November 2001
26 January 2000
11 June 2000
17 May 1998
25 October 1998
24 September 2003
4 May 2004
Mauritius
18 September 2006
20 June 2007
7 February 1993
29 January 1994
Canada
9 June 2002
7 January 2004
29 April 1992
21 August 1993
Netherlands
8 May 2007
29 November 2007
27 March 2007
3 October 2007
26 June 2007
...
26 October 2007
...
7 July 1992
4 May 2004
Philippines
22 September 2003
29 December 2004
Korea
22 September 2003
4 May 2004
Singapore
1 December 1995
17 June 1996
Indonesia
30 November 1995
17 June 1996
Thailand
1 March 2000
12 November 2000
Malaysia
28 November 1995
17 June 1996
Sudan Syria Lebanon Mozambique Pakistan India India (Amendment Protocol) Sri Lanka
China
1 July 1993
5 June 1994 4 May 2004
Ukraine
2003
28 February 2004
Belarus
27 February 2000
2 January 2001
9 June 1998
24 November 1999
Armenia
22 April 2002
29 December 2004
Tajikistan
17 December 1995
29 January 2000
Turkmenistan
Mongolia
21 February 2001
29 November 2002
Azerbaijan
20 November 2006
30 April 2007
Austria
23 September 2003
27 April 2004
Poland
31 January 1993
29 January 1994
9 April 1995
18 March 1996
Germany Finland Italy Czech Republic
Bulgaria Uzbekistan
24 September 2003
New Zealand
Luxembourg
12 March 1996
24 February 1997
22 January 1995
20 November 1995
30 September 1996
26 June 1997
The position in the free zones is different as free zones have their own rules and regulations. Typically free zones offer guaranteed tax holidays for businesses which establish a presence in the free zones.
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A guide to doing business in the UAE
Transfer pricing Currently, there are no regulations relating to transfer pricing in the UAE.
Transfer taxes Notary fees are payable in connection with the execution of agreements to transfer shares, real estate and certain other assets. Currently there are no property taxes in the UAE; however, a fee is payable to the relevant Emirate's lands department when registering dealings relating to real estate. The registration fees applicable in Abu Dhabi and Dubai for the most common dealings (indicative only) are set out below: Registration Fee Dealing
Abu Dhabi
Dubai
Transfer
2% of property value, up to a maximum of AED1 million.
4% of the consideration paid. There is no cap on the fee payable.
Mortgage
0.1% of amount secured, up to a maximum of AED1 million.
0.25% of the amount secured.
Lease
1% of annual rent.
4% of total rent under the lease, if the lease is for a term of 10 years or greater, otherwise a nominal fee applies.
A guide to doing business in the UAE
Trade environment The UAE is a member of the World Trade Organisation as well as the GCC Customs Union, which applies uniform custom tariffs across the Gulf Co-operation Council (GCC). The UAE is also a member of the Greater Arab Free Trade Area. The UAE's membership of the Greater Arab Free Trade Area provides for the duty-free trade of certain goods between signatory states to the agreement. The UAE imposes a boycott on trade with Israel.
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The UAE's Membership of the Greater Arab Free Trade Area provides for the duty free trade of certain goods between signatory states to the agreement. The GSO will also carry out tests on the relevant product during the manufacturing process to ensure compliance. The GCC Standards are not applicable in the free zones; however, for the purposes of importing into the UAE, companies will require a certificate showing compliance with the GCC Standards. If the company does not obtain the GSO certificate, the customs authorities will not clear the products.
Foreign exchange regulations Import and export regime (including the GCC Customs Union) A unified customs tariff is applied throughout the GCC. Most goods are taxed at 5%. Duty is charged on the CIF (cost, insurance, freight) value of the goods at the port of entry. As a result of the UAE's membership of the GCC Customs Union, once a product has been imported into the UAE, it should be able to move freely within the GCC and no further custom duties should be imposed. There are no local export restrictions and no local export duties.
Currently, there are no foreign exchange control regulations in the UAE. The only exception is transactions involving Israeli parties.
Bilateral investment agreements Country
Date of Signature
Date of Entry into Force
Algeria
24 April 2001
3 June 2002
Austria
17 June 2001
1 December 2003
Azerbaijan
1 November 2006
24 August 2007
Bangladesh
17 January 2011
---
The UAE's membership of the Greater Arab Free Trade Area will also mean that it should be easier to move goods into certain other Middle Eastern countries including: Egypt, Iraq, Jordan, Kuwait, Libya, Palestine, Saudi Arabia, Sudan, Syria, Tunisia, and Yemen.
Belarus
27 March 2000
16 February 2001
Belgium and Luxembourg
5 March 2004
10 November 2007
1 July 1993
28 September 1994
GCC Standardization Organisation (GSO)
Czech Republic
23 November 1994
25 December 1995
11 May 1997
11 January 1999
Finland
12 March 1996
15 March 1997
France
9 September 1991
10 January 1995
21 June 1997
2 July 1999
22 January 1995
29 April 1997
Jordan
15 April 2009
12 February 2010
Korea, Republic of
9 June 2002
5 June 2004
12 February 1966
---
The GSO publishes GCC Standards and Technical Regulations for products and services, including motor vehicles, tyres and toys, which are designed to be applied in substantially the same form in each member state of the GCC.
China
Egypt
Germany The GSO issues certificates for particular products. This ensures that manufacturers comply with certain health and safety standards. The first step in the GSO process is to register with the GSO. To obtain a registration the GSO team will visit all manufacturing sites to ensure conformity with the GCC Standards and thereafter will work with companies to achieve compliance.
Italy
Kuwait
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A guide to doing business in the UAE
Country
Date of Signature
Date of Entry into Force
Lebanon
17 May 1998
14 July 1999
Malaysia
11 October 1991
22 May 1992
Mongolia
21 February 2001
---
26 March 2012
---
9 February 1999
1 April 2002
24 September 2003
---
Pakistan
5 November 1995
---
Poland
31 January 1993
9 April 1994
Portugal
19 November 2011
---
Romania
11 April 1993
7 April 1996
Russian Federation
28 June 2010
---
4 April 2011
---
Sweden
10 November 1999
6 May 2000
Switzerland
3 November 1998
16 August 1999
Syrian Arab Republic
26 November 1997
10 January 2001
Tajikistan
17 December 1995
---
Tunisia
10 April 1996
24 February 1997
Turkey
28 September 2005
24 July 2011
9 June 1998
24 November 1999
Ukraine
21 January 2003
28 February 2004
United Kingdom
8 December 1992
15 December 1993
Uzbekistan
26 October 2007
22 April 2008
Vietnam
16 February 2009
---
Yemen
13 February 2001
25 August 2001
Montenegro Morocco Mozambique
Sudan
Turkmenistan
Source: United Nations Conference on Trade and Development
A guide to doing business in the UAE
Employment Employment matters in the UAE are governed by Federal Law No. 8 of 1980 regulating Labour Relations, as amended, together with various supplementary Ministerial Decrees and Resolutions (the Labour Law).
Categories of employees The Labour Law applies to employees working in the UAE (except for certain free zones) whether they are nationals or non-nationals. Certain categories of employees are exempted from the Labour Law, such as domestic servants, staff and workers employed by the Federal Government and members of the armed forces and police. No distinction is drawn between white-collar and blue-collar employees in terms of the rights conferred by the Labour Law. The Labour Law does not deal specifically with employees who are also directors. The position of directors (or managers) of companies incorporated in the UAE is regulated to a certain extent by Federal Law No. 8 of 1984 (as amended) (the Commercial Companies Law).
Hiring Employers recruit through a variety of sources, including via the internet and by advertising in newspapers and journals. Recruitment agencies are commonly used for the recruitment of professionals. A state-run agency assists in the recruitment of UAE nationals. Emiratisation is a programme which was introduced in 2004 by the UAE Government to encourage employment for its citizens in both public and private sectors. In order to live and work legally in the UAE, work permits and residence visas are required for all nationals who are not from the UAE or any of the other GCC states. The residence visa is issued under the sponsorship of the employer (except in cases where a married woman is sponsored by her husband, or a child by its father). A labour card is usually issued for one year at a time, while a residence visa is usually valid for two years.
Discrimination The Labour Law does not expressly outlaw discrimination. UAE nationals, followed by other Arab nationals, have a right to employment over the right of people of other nationalities. The UAE government is pursuing a policy of
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"emiratisation", pursuant to which certain professions have quotas of UAE nationals that must be employed. Generally, for every establishment that employs over 50 employees, at least 2% should be UAE nationals. (The quota is much higher in the financial and insurance sectors.)
Contracts of employment The parties to the employment contract are free to contract on whatever terms they choose provided always that they are not less favourable than the provisions of the Labour Law. Under the Labour Law, only two types of contract are recognised. These are "Fixed Term Contracts" or "Indefinite Term Contracts". Fixed term contracts have a specified commencement and termination date and must not exceed four years, but are thereafter renewable by mutual consent of the parties. Indefinite term contracts have a commencement date, but do not specify a termination date and can be terminated by either party by giving at least 30 days' prior written notice. The employment contract must be in writing. In order to obtain a labour card, the Standard Form Contract must be filed with the Ministry of Labour. While the standard form may suffice for unskilled labourers, it is usually not sufficient for other categories of employees, and employers often make use of their own contracts which are usually far more detailed than the Standard Form Contract. In the event of a dispute, the Labour Department is likely to consider (at first instance) both contracts (if there are two) regardless of the different entities concerned and regardless of whether only one contract is registered, and is likely to uphold the provisions out of both contracts that are most beneficial to the employee. It is not possible to enforce an employment contract in the UAE where it does not comply with the provisions of the Labour Law (except to the extent that it is more beneficial to the employee). Trial periods are common in the UAE. The Labour Law provides that the maximum trial period shall be six months, and that a person may only be placed on probation once during the course of employment with the same employer. During the trial period the employee may be dismissed without notice, except where the employment contract provides for a longer notice period to be given. Under the Labour Law, it is possible for an employee to agree that, after termination of his employment, he shall refrain from competing with the employer or participating in any enterprise which competes with that of the employer. Such agreement will only be valid if it is limited as to the
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A guide to doing business in the UAE
time, place and nature of business, to the extent necessary to protect the employer's lawful interests. The UAE Civil Code (Federal Law No. 5 of 1985, as amended by Federal Law No. 1 of 1987) (the Civil Code) imposes an obligation on the employee to keep confidential the industrial secrets of the employer, including on termination of the contract as required by agreement or custom, and to preserve the things entrusted to him (whether tangible, such as company property, or intangible, such as intellectual property or confidential information) for the performance of his work. The UAE Federal Penal Code (Law No. 3 of 1987) imposes criminal liability on anyone who, by reason of his profession or employment, is entrusted with confidential information, and who discloses it in circumstances other than those permitted by law, or who uses it for his own advantage without the consent of the person to whom the confidential information relates. Generally, if intellectual property is created by an employee during the course of employment, it will belong to the employer and compensation is only payable to the employee in limited circumstances.
Pay and benefits Basic pay There is no minimum salary under the Labour Law. With effect from 1 September 2009, a "Wages Protection System" was implemented in the UAE, which applies to all employers that are registered with the Ministry of Labour. (The Wages Protection System currently does not apply to entities registered within any of the UAE free zones, although this position is likely to change in the future. The Jebel Ali Free Zone, for instance, applies the Wages Protection System). Employers are now required to pay their employees' salaries into accounts held at banks or other institutions that have been approved by the Ministry of Labour, and which appear on its "Agents List". The Ministry of Labour will maintain a database of all salary payments in the private sector, to ensure that the full salaries are paid on time. Employers are required to complete and submit a prescribed form declaration within two weeks of the salary payment becoming due. For most employers, this will mean submitting the declarations on a monthly basis.
Companies which fail to comply with the provisions of the Wages Protection System will be denied the right to obtain new work permits for employees. The authorised signatory of the company will be held responsible for the information contained in the declarations, and may be subject to civil and criminal liability for any violations. Each company will need to have a bank account at one of the Ministry-approved banks, and will need to enter into a contract with such bank to provide the required service. Each employee will need to open an account at one of the approved banks, into which the salary will be paid. (Some banks have a higher minimum balance/salary requirement than other banks, so, depending on the salary levels of employees, different banks may need to be used). The employer is responsible for all costs involved in joining the Wages Protection System, including bank charges, service provider fees and all other costs, and employers may not deduct any such charges from their employees' salaries, whether directly or indirectly. As part of the administration of the Wages Protection System, information will be shared between the banks, the UAE Central Bank and the Ministry of Labour to ensure that the salaries paid match with the details registered at the Ministry of Labour. (There would be no problem if the actual salary paid exceeded the amount reflected on the contract filed with the Ministry of Labour – such as in the case of a salary increase – but the amount paid should not be less than that registered at the Ministry of Labour). Up until now, in the case of expatriate employees, a portion of salary was frequently paid in the home country to meet the employee's ongoing financial commitments in the home country. In the past, the full salary would be reflected in the Ministry of Labour official contract, but there was no requirement for the full sum to be paid in the UAE. With the introduction of the Wages Protection System, the full salary as reflected in the contract filed with the Ministry of Labour will need to be paid in the UAE, so any transfer to the employee's home country bank account would need to take place after the full salary has been paid locally. Although the Decree implementing the Wages Protection System is not clear, it is likely that the definition of "wages", as used in the UAE Federal Labour Law will apply. This includes all the employee's contractual entitlements, such as basic salary, commission, and allowances. Discretionary bonuses that are not contractual entitlements would be excluded, which means that discretionary bonuses do not need to be paid in accordance with the Wages Protection
A guide to doing business in the UAE
System, and could, in theory, be paid outside the UAE, in cash, or into any other bank account. The Wages Protection System is aimed at salary and benefits that are paid as "cash" to employees. Where the employer pays a benefit other than in cash or to another party (eg pension contributions directly to the pension fund, life assurance premiums paid directly to the assurance provider, etc), because the employee would never have received the cash amount (or payment into a bank account) anyway, there is no need for these amounts to be paid under the Wages Protection Scheme. As the Wages Protection System legislation does not specifically address the issue of discretionary bonuses and non-cash benefits such as pension contributions the position will need to be monitored in case any policy or guidance notes are issued. Pensions The statutory end of service gratuity is usually given to employees in lieu of benefits under a pension scheme for employees who have more than one year's service. The end of service gratuity is calculated on the basis of 21 days' basic pay per year of service for each of the first five years, and 30 days' basic pay for each additional year. Where an employer provides a pension or similar scheme for employees, it is possible for the employee to choose in writing between the pension scheme and the statutory end of service gratuity. International companies which have a pension scheme in place, and who set up in the UAE, typically offer benefits under the pension scheme in lieu of the statutory end of service gratuity. There is no entitlement to an end of service payment if the employee is terminated for one of the reasons set out in Article 120 of the Labour Law (which include failing to carry out basic duties under the employment contract or being found drunk or intoxicated by drugs during working hours. Incentive schemes Share incentive schemes are not mandatory in the UAE, but are fairly common in the case of very senior executives. Fringe benefits Common fringe benefits typically include private medical insurance, accommodation allowance and an annual air ticket allowance. In some cases, an education allowance or company car will also be provided. There are indications that mandatory private health insurance to be provided by employers in respect of all employees will be introduced
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throughout the UAE within the next couple of years. (It is already mandatory within the Emirate of Abu Dhabi for employers to provide private health insurance for employees). Deductions There is currently no personal income tax levied in the UAE. Generally, deductions from salary are prohibited, except in certain limited circumstances provided in the Labour Law (eg for the recovery of advances made by the employer, or employee's contributions to a savings fund). The deductions generally must not exceed one quarter of the employee's remuneration.
Social security There is no state-administered social security scheme for non-UAE nationals. UAE national employees are obliged to participate in the state-administered General Pensions and Social Securities Scheme under Federal Law No. 7 of 1999 (the Pensions Law). UAE national employees are obliged to contribute to the General Pensions and Social Securities Scheme 5% of their salary (by way of salary deduction), while employers are obliged to contribute an amount equivalent to 15% of the UAE national employee's salary, of which the State will contribute 2.5%. Employees who are nationals of the other GCC states must be enrolled in the pension scheme applicable in their home country. Employees who are enrolled in the statutory pension scheme will not be entitled to receive an end of service gratuity under the Labour Law.
Hours of work The maximum normal working hours are 48 per week, and no employee should work for more than five consecutive hours without breaks for rest, meals and prayer, amounting in aggregate to at least one hour. The one-hour break is not counted as part of the working hours. The maximum normal daily working hours are eight, but may be increased to nine in commercial establishments, hotels, restaurants, guard duties, and other operations where the Ministry of Labour so authorises. During the Holy Month of Ramadan, the normal working hours are reduced by two per day. This applies to all employees, irrespective of whether they are Muslim or observing the fast.
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A guide to doing business in the UAE
Holidays and time off Holidays In addition to published official holidays (with full pay) that are declared by the Ministry of Labour and Social Affairs for the sector in which they are working (public or private), an employee is entitled to minimum annual leave with full pay in each year of service as follows:
two days for every month, if service is more than six months but less than one year
30 days if service exceeds one year
pro rata for any fraction of the final year of service.
Family leave After one year of continuous service, a working woman is entitled to a total of 45 days' maternity leave with full pay. (This would be "calendar" days, rather than "working days".) This leave includes the period before and after delivery. If the woman has not completed one year's service, the maternity leave above will be granted with half pay. In either of the above cases, maternity leave may not be deducted from any other leave to which a working woman is entitled. At the end of the maternity leave, a woman has the right to extend the leave for a maximum period of 100 days without pay if this absence is caused by illness. This illness can be continuous or interrupted, but in either case the employee must provide a medical certificate that she is unable to work. The illness must have been caused by the nature of the employee's work or prior confinement. During the 18 months following delivery, a working woman who is nursing her child has a right to two daily breaks not exceeding half an hour each for this purpose. These two intervals are classified as part of the working hours and no deduction in wages may be made in this respect. Illness An employee who is absent through illness (other than an injury caused by his employment) must report it to his employer within two days. After two days, the employer may have the employee medically examined to verify the cause of illness. An employee is not entitled to any paid sick leave during his probationary period. Where an employee has completed more than three months' continuous service following the end of his
probationary period (if any is stipulated in the contract of employment) he is entitled to a maximum period of 90 days' sick leave, which may be either continuous or cumulative in respect of every year of service. Payment during any sick leave taken by the employee is calculated as follows:
the first 15 days with full pay
the following 30 days with half pay
any subsequent periods, without pay.
No remuneration is payable during sick leave if the employee's illness is the direct result of the employee's misconduct; for example, illness that is attributable to the consumption of alcohol or narcotic drugs. An employer may not terminate an employee's contract during sick leave. Any such notice will be considered invalid. Other time off A Muslim employee is entitled once during his contract of service to leave without pay for up to 30 days for performing the Hajj pilgrimage (pilgrimage leave). Such period does not count as part of annual leave or any other leave to which the employee is entitled.
Health and safety Accidents An employer is obliged to provide adequate preventive equipment to protect employees against the danger of employment accidents and occupational diseases that may occur during employment, as well as against fire and other hazards that may result from the use of machines and other machinery. Although employers are not obliged by law to provide any form of insurance in this regard, as a matter of practice, many of the larger employers, especially the international companies, do so. Health and safety consultation An employer is obliged to inform each employee at the time of recruitment of any dangers connected with the employment and of the protective measures the employee must take. While employers are not obliged to consult with employees on health and safety issues, they are obliged to display detailed instructions in a conspicuous position at the workplace indicating the measures to be taken to prevent fire and to protect the employees against hazards to which they may be exposed while performing their work.
A guide to doing business in the UAE
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Trade unions are not recognised nor are they permissible in the UAE.
The Labour Law does not recognise collective agreements.
Provided that certain conditions apply, the Labour Law provides for a one-off payment to be made to an employee on the expiry or termination of an employment contract. An employee completing one year or more of continuous service is entitled to end of service benefits to be calculated as follows:
There is no right to strike under UAE law.
There are no formalised requirements for employee participation in the UAE, nor are there any works councils.
21 days' wages for each year completed for the first five years of service
30 days' wages for each year thereafter,
Industrial relations and trade unions
Disputes relating to employment or termination of employment should be referred to the Ministry of Labour.
Acquisitions and mergers General There is no specific legislation that addresses the obligation to inform and consult with employees in the event of any business or share sale. The Ministry of Labour and the Immigration authorities should be notified where the business or share sale is to have an effect on the employee's residence visa (eg if the employer entity is changing, thereby resulting in a change of sponsor for immigration purposes). Information and consultation requirements There are no information or consultation requirements under UAE law. Notification of authorities
provided that the total end of service benefits shall not exceed a total of two years' wages. This gratuity payment is calculated by reference to the last basic wage earned (basic wage for these purposes does not include any allowances or discretionary bonuses). The Labour Law provides that the remuneration used as a basis for the purpose of calculating the severance pay shall not include what is given to the employee in kind, including housing allowance, transport, travel allowance etc. Further, the employer is entitled to deduct any amounts owed to him by the employee from the latter's severance pay. The prevailing opinion is that any amount payable to an employee as wages, including wages paid by commission or payment by percentage, may fall within the definition of wages and be taken into consideration in calculating gratuity payable. Where an employee under a fixed-term contract resigns before the end of his contract, he will not be entitled to the full amount of gratuity unless his continuous service has exceeded five years.
If the business or share sale results in a change of employer (whether by transfer of employment, or as a result of merger), the Ministry of Labour and Immigration authorities should be notified, as it would be necessary to transfer the sponsorship of the employee to the new employer.
An employee under an indefinite term contract who resigns after continuous service of:
between one and three years, is entitled to one third of the gratuity provided for in the Labour Law
between three and five years, is entitled to two thirds of the stipulated gratuity
Termination
more than five years, is entitled to the full gratuity.
Individual termination
However, where an employer terminates an employee's indefinite term contract, the full gratuity will generally be payable.
A contract under the Labour Law may be terminated:
by mutual consent, provided that the employee consents in writing
where a contract is for a fixed term, upon its expiry, unless it is expressly or impliedly renewed
where a contract is for an unlimited period, by at least 30 days' notice of either party given for a valid reason in accordance with the Labour Law.
The Labour Law states that where the employer has provided accommodation to the employee, the employee is obliged to vacate the premises within 30 days of the date of termination of employment. Where the employee disputes the amount of his end of service entitlements, these shall be determined by the Labour Department, and, in this case, the 30-day period for vacating the accommodation shall
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A guide to doing business in the UAE
commence from the date that the employer deposits the value of the expenses and entitlements as determined by the Labour Department concerned (such as the requisite gratuity). Where an employee is a UAE national, termination of employment may only be done in accordance with the provisions of Ministerial Resolution No. 176 of 2009. Notice The Labour Law requires the employer to give a minimum of 30 days' notice for terminating an employment contract, although it is open to the employer to extend this period, and the court will uphold the notice period most beneficial to the employee. Payment in lieu of notice is permissible and should be calculated on the basis of the last remuneration received. In addition, where the contract provides for a longer notice period, that longer period of notice should be given to the employee. An employer may dismiss an employee without notice, and with forfeiture of the statutory end of service gratuity, for one of the reasons set out in Article 120 of the Labour Law, namely:
if the employee adopts a false identity or nationality or submits forged certificates or documents
if the employee is engaged on probation and is dismissed during the probationary period or on its expiry
if the employee makes a mistake resulting in substantial material loss for the employer, provided that the employer notifies the Labour Department of the incident within 48 hours of its becoming aware of its occurrence
if the employee disobeys instructions regarding industrial safety or the safety of the workplace, provided that such instructions are in writing and have been posted in a conspicuous place and, in the case of illiterate employees, such instructions have been explained to them verbally
if the employee does not perform his basic duties under the employment contract and persists in violating them despite the fact that he has been the subject of a written investigation for this reason and that he has been warned that he will be dismissed if such behaviour continues
if the employee reveals any secret of the establishment in which he is employed
if the employee is finally sentenced by a competent court for an offence involving honour, honesty or public morals
if the employee is found in a state of drunkenness or under the influence of a drug during working hours
if, while working, the employee assaults the employer, the responsible manager or any of his colleagues
if the employee is absent from work without a valid reason for more than 20 non-consecutive days, or for more than seven consecutive days.
Reasons for dismissal In the event that the employee's contract cannot be severed by mutual agreement, the Labour Law provides that an employee's contract may only be cancelled for a "valid reason". In essence, dismissal of an employee for reasons relating to his work performance will generally constitute a valid reason. In the case of redundancy, where the underlying reason has nothing to do with the employee's performance, it is unlikely to be considered a valid reason for termination. Where, however, the employee is dismissed for reasons other than his work performance, he is deemed to be "arbitrarily dismissed". In this regard, Article 123 of the Labour Law provides that the employer may be ordered by the court to pay compensation to the employee. In assessing the relevant quantum of compensation, the court is likely to look at the nature of the employee's job, what damage has been caused to him, the duration of his service and the reason for termination of his employment. Such compensation is subject to a maximum of three months' remuneration. Accordingly, employers are advised to make the reasons for dismissal clear in any letter of termination, and to ensure that they comply with the concept of "valid reason" under UAE law. In a 2012 Dubai Court of Cassation case, the court recognised that where an employer changes the terms and conditions of employment to the detriment of the employee, such that the employee is forced to resign, this may amount to arbitrary dismissal. Although the concept of "constructive dismissal" is not expressly recognised in UAE law, this case brings under the scope of "arbitrary dismissal" circumstances which may be akin to constructive dismissal in other jurisdictions. If the employer terminates a fixed term contract for reasons other than those specified in Article 120 of the Labour Law, he will be liable to pay compensation to the employee. The compensation shall be determined on the basis of the
A guide to doing business in the UAE
wages due for a period of three months or for the remaining period of the contract, whichever is less. If an employee under a fixed term contract resigns before the end of his contract, he will be required to pay compensation to his employer for any prejudice that the employer suffers as a result of the early termination. The maximum amount of such compensation is limited to the lesser of one and a half months' remuneration or the remuneration for the rest of the contract period. As a starting point, in order to ensure that the Standard Form Contract in the UAE is terminated officially in the eyes of the Labour Department, the standard Arabic release form should be signed. In addition, a compromise agreement may be a good idea for additional protection in relation to confidentiality etc. From a UAE law perspective, the compromise agreement should be drafted in such a way that the employee acknowledges that the amount he receives under the agreement is in full and final settlement of all amounts having arisen or accrued by virtue of the Standard Form Contract. Such acknowledgement should expressly include all of his employment rights in the form of salary, benefits, annual vacation, settlement of account, expenses and end of service gratuity due to him under the laws of the UAE and the terms of his contracts. Special protection An employer cannot terminate an employee's contract during annual leave. The Labour Law does not expressly include any protection against dismissing employees on maternity leave. In the event of an employment dispute, the aggrieved party should file a complaint with the Labour Department. The Labour Department will summon both parties to a hearing, and shall endeavour to ensure that the dispute is resolved amicably. Neither party is permitted to have legal representation at this hearing. If the parties are not able to reach an amicable settlement, the Labour Department shall refer the dispute to the Court. No claim based on an employment dispute may be heard if brought to court after one year from the date on which the entitlement became due. There are no provisions in the Labour Law addressing redundancy dismissals.
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Closures and collective dismissals The Labour Law does not address the procedure for and/or gratuity payments applicable in the context of an individual or collective redundancy exercise.
Data protection Employment records There are no comprehensive data protection laws in the UAE (outside of the free zones), although it is anticipated that a Federal law on data protection will be issued in the near future. There are also various pieces of legislation that may have an impact on the security and processing of personal data in certain circumstances including employee records. The Labour Law obliges an employer, who employs five or more employees, to collect and maintain certain personal information in respect of each employee. This information includes the employee's name, address, marital status, nationality, remuneration, date of recruitment, any penalties imposed on him, any employment injuries or occupational diseases, and the date of and reasons for the termination of employment. The Penal Code prohibits the publication of a person's private affairs. In Dubai only, the Transactions and Electronic Trade Law (Dubai Law No. 2 of 2002) makes it a criminal offence for any person "enabled by powers granted to him by this law" to access information contained in electronic registers or documents or correspondence deliberately or negligently to disclose such information. It seems that this provision is primarily aimed at persons who provide electronic authentication certificates or other verification services, but there is the possibility that it might be construed more widely to include other persons who are entrusted with electronic data, such as employers. Employee access to data There are no specific provisions in UAE law entitling an employee to request copies of, or access, to data held about them.
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A guide to doing business in the UAE
Monitoring There are no specific provisions in UAE law entitling an employer to monitor employee email, internet and telephone usage and use CCTV within the workplace. The UAE Constitution states that freedom of communication by post, telegraph or other means of communication and secrecy shall be guaranteed in accordance with the law. In addition, the UAE Penal Code establishes criminal offences in relation to the disclosure or use of "secrets" (including the inception or disclosure of correspondence or telephone conversations). Transmission of data to third parties There are no specific provisions in UAE law dealing with the transmission of personal data to third parties either within the UAE or elsewhere. However, circumstances in which electronic personal information may be accessed or disclosed are also restricted by a number of laws in the UAE.
A guide to doing business in the UAE
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Land/real estate
law jurisdictions a musataha is similar to a "ground lease" or a "bare lease".
The basis of UAE real estate law and the real estate rights available within the UAE is found in the Civil Code. The Civil Code does not address important areas such as the registration of the transfer of land or property rights and other interests. Accordingly, the majority of the Emirates have passed their own local laws in relation to these (and other) areas, in order to supplement the Federal law. Although it is not always apparent where the distinction between Federal and Emirate law lies, these local laws have had an important role in developing the regulation of real estate in the UAE.
Usufruct (Intifa)
In a real estate context it is therefore important to consider not only the applicable Federal laws, but also the specific laws that will apply at the Emirate level (which will depend on the location of the real estate). It is also important to note that certain free zones in the UAE, such as the DIFC and to a certain extent the Jebel Ali Free Zone, have bespoke laws which apply to real estate situated within those free zones.
Real estate rights As noted above, the Civil Code sets out and describes the types of real estate rights that are available in the UAE. These are: Absolute ownership This is the right to own real estate outright, without restriction as to time, and is akin to the common law concept of "freehold" title. An absolute owner of land will own the area of land, together with the rights benefiting the land and any improvements constructed upon such land, but will be subject to matters affecting the land, such as easements. Musataha A right of musataha confers both a right to occupy another person's land for a period (under the Civil Code the maximum period is 50 years but under some Emirate laws this term is renewable), as well as a right to build on or alter the land that is the subject of the right. Any improvements erected by the musateh (the grantee) will legally be owned by the musateh during the term of the musataha and ownership of the land interest is bifurcated from the right to build on or alter the land. A right of musataha is sometimes described in the UAE as a "development lease". In common
This is the right to use and occupy real estate belonging to another person for a period (under Emirate laws the maximum term is 99 years, which is renewable). The right needs to be exercised in accordance with the terms of the instrument granting the right, therefore there may be restrictions on how the real estate may be used. Accordingly, a right of usufruct shares a number of characteristics with a long-term lease. Each of the Emirates has passed its own laws restricting, to varying extents, the ability of "foreigners" to obtain the above rights over real estate within those Emirates.
Leases The above three rights are all rights in rem, ie they confer upon the holder a right in the relevant property, and this right "runs with" or attaches to the property. Under the Civil Code, leases (which are described in the Civil Code as "hire contracts") only confer upon tenants a personal contractual right, as opposed to granting any actual right in the relevant property. Consequently, as a lease is a personal contract, the rights under it are only enforceable against the counterparty and are not directly enforceable against third parties. This is in marked contrast to other jurisdictions where a lease is itself a property right. Notwithstanding the position under the Civil Code, changes to the law and policy in Abu Dhabi and Dubai, respectively, have resulted in leases over a certain duration being treated as rights in rem – 25 years in Abu Dhabi and 10 years in Dubai.
Registration of rights and interests Registration Generally speaking, under Abu Dhabi law, any title to or right in real estate must be registered at the Abu Dhabi 1 Land Registration Department (the LRD). An unregistered dealing with any such title or right will be binding and enforceable as between the contracting parties but not enforceable against third parties. The position in Dubai is stricter in that unless such dealing is registered at the Dubai Land Department (the DLD) it is invalid. 1
There is an on-line tenancy registration system called "Tawtheeq" which is now increasingly being used by landlords and tenants but this system is only intended for leases of four years or less.
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A guide to doing business in the UAE
In Abu Dhabi, recent changes to the law appear to now require that all leases must be registered, whereas previously only leases over four years in length needed to be registered. In Dubai, leases over 10 years in length must be registered at the DLD and leases of less than 10 years need to be registered with the Real Estate Regulatory Authority. The information on the registers maintained at the various land departments is not publically searchable. Generally, only interested parties and judicial authorities have access to this information. Dubai's interim register In 2008, the DLD established an interim real estate register (Interim Register) for Dubai property developers to record all "off-plan" sales of real estate. An "off-plan" sale is one where the property has yet to be built, so the buyer is purchasing on the basis of the plans of the property. The applicable law states that any "off-plan" sale which is not recorded on the Interim Register will be void. A registered "off-plan" contract can be mortgaged, despite only being a personal contract. Once construction of the property is complete and the transaction has been concluded, application must be made to "transfer" the registration to the DLD's "full" Real Estate Register. The fees to register dealings with "off-plan" property on the Interim Register are generally the same as those applicable in respect of the Real Estate Register and purchasers should not be expected to pay twice.
Foreign ownership restrictions Abu Dhabi UAE nationals UAE nationals and companies wholly-owned by them are permitted to own (as well as obtain inferior usufruct or musataha rights in) all types of real estate anywhere in Abu Dhabi. Certain Abu Dhabi entities which have an element of foreign shareholding may, by special exemption from the Abu Dhabi government, be granted "UAE national status" for this purpose. These exempted entities are therefore also permitted to own real estate throughout Abu Dhabi. As far as we are aware, only Aldar Properties PJSC (which has recently merged with Sorouh Real Estate PJSC), which is Abu Dhabi's largest listed property developer, currently holds such an exemption. We understand that certain utility companies have also been granted exemptions, but the extent of those are unclear. The exemptions have largely not been published.
GCC nationals The ability of GCC nationals (and companies wholly-owned by them) to acquire real estate rights is limited to certain designated areas, known as "Investment Zones", which include the following developments: Al Reem Island, Al Maryah Island, Saadiyat Island, Yas Island, Al Raha Beach and Masdar City. In these zones, GCC nationals may own land outright and may also be granted usufruct and musataha rights over land and usufruct rights in buildings and apartments. Foreign nationals "Foreign" nationals (ie individuals not falling into the above categories) and companies owned in any part by them are not permitted to own land in Abu Dhabi. They may own apartments or "floors" within buildings in "Investment Zones", but not the land that those buildings are situated on. They may, however, be granted usufruct, musataha and long-term lease rights over land in "Investment Zones". In addition, a foreign national may, for a term of less than 25 years, lease anywhere in Abu Dhabi (ie not a "long-term lease"). A company with any foreign shareholding will be considered a foreign national, and will therefore be subject to these restrictions, unless it receives an exemption as outlined above. In determining the eligibility of a company to acquire a right over real estate in Abu Dhabi, the LRD will look through the ownership chain to determine the nationality of the ultimate shareholders of that company. According to a recent announcement by the Abu Dhabi Municipality, foreigners will now be permitted to own land in the Investment Zones in Abu Dhabi but this has not yet been implemented in any legislation and further details are required. Dubai The law relating to foreign ownership of property is less restrictive in Dubai than it is in Abu Dhabi. There are only two tiers of property ownership in Dubai (in contrast to Abu Dhabi's three), which are: UAE nationals, GCC nationals and PJSCs These parties are permitted to own land and obtain real estate rights in property anywhere in Dubai. Foreign nationals Foreign nationals (and companies with any shareholding) are permitted to own real estate or acquire usufruct rights in
A guide to doing business in the UAE
real estate, but only within certain "Designated Areas". There are currently over 20 "Designated Areas" in Dubai, which include most Nakheel and Emaar master communities (eg the Palm Jumeirah and Downtown Dubai), as well as most (but not all) of Dubai's free zones. The DLD implemented a new policy with effect from 1 January 2011 concerning the types of foreign national entities which are permitted to hold title to land in Dubai's "Designated Areas". Previously, entities incorporated offshore, in jurisdictions such as the Cayman Islands, the British Virgin Islands, etc., were able to hold title to land in these areas. However, the policy now provides that offshore companies may only hold real estate through a Jebel Ali Free Zone entity or registered branch. Verbally, the DLD has also confirmed that offshore companies could also hold interests through the Dubai International Financial Centre and the Dubai Technology and Media Free Zone (TECOM) entities. Companies registered in free zones outside Dubai would not be able to hold real estate in Dubai directly. Other Emirates The restrictions on foreign ownership of real estate vary in the other five Emirates. There are generally no restrictions on the ownership of real estate by UAE nationals. GCC nationals are also typically unrestricted; however, in some Emirates, the Ruler's consent is required. Foreign nationals are usually either prohibited from owning real estate or limited to owning buildings and apartments or real estate within designated areas. In Fujairah there is no applicable law pertaining to ownership, while in the other four Emirates the position is usually based on a mixture of law and policy.
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Ownership structures that comply with the foreign ownership restrictions A long-term lease is one of the methods that is used in the UAE to ensure compliance with the foreign ownership restrictions. Foreign entities wishing to obtain an interest in real estate in a restricted area (ie an area which does not permit foreign ownership) sometimes do so by way of long-term lease. However, changes to the law and policy in Abu Dhabi and Dubai have meant that leases over a certain length of term are now considered property rights (which foreign nationals are prohibited from obtaining outside of certain designated areas). These changes are designed to prevent foreign entities from circumventing the restrictions in this way. Accordingly, consideration must be given as to the length of the term of a long-term lease granted for this purpose, in order to avoid potential breaches of the restrictions. An Islamic structure known as a mudaraba arrangement is another method which is sometimes employed by foreign national entities wishing to invest in real estate in the UAE. Broadly speaking, this arrangement involves the foreign entity "partnering" with a UAE company whose shareholding permits it to acquire ownership of the relevant real estate. The foreign entity provides funds to the UAE company for investment in accordance with an agreed investment plan, and the revenues derived from the assets purchased are split in accordance with a pre-agreed profit sharing ratio.
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A guide to doing business in the UAE
Legal environment
the final appeal will be to the Federal Supreme Court also located in Abu Dhabi).
The UAE has a civil law system and its laws draw heavily on the laws of other Arab countries, in particular Egypt.
In addition, in a number of the Emirates there are quasijudicial bodies dealing with the resolution of disputes in specified areas of law or in relation to specific entities (such as rental disputes and commercial agency disputes and special committees for Dubai World and Zabeel Investments). The DIFC also has an independent court system based on an international model to hear civil cases, which are subject to separate laws and procedural rules.
Federal court system The Constitution provides for a Federal court system, but acknowledges the right of each constituent Emirate to maintain an independent legislative body and judicial authority. Currently, the Emirates of Ajman, Fujairah, Sharjah and Umm Al Quwain have joined the Federal court system. The Emirates of Dubai, Ras Al Khaimah and (since 2007) Abu Dhabi maintain separate court systems. Federal laws that apply to all seven Emirates govern rules of evidence and court procedure. The Federal court system comprises a Court of First Instance in each Emirate and a two-tier appeal system. The Federal Courts of First Instance are trial courts and located in each major city. Decisions of one of the Federal Courts of First Instance may be appealed to one of the Courts of Appeal in the Emirate in question, and a further appeal on matters of law can then be made to the Court of Cassation in Abu Dhabi (known as the Court of Cassation, Federal Supreme Court or, on occasion, Union Supreme Court). The Federal Supreme Court hears any dispute between the individual Emirates, as well as disputes between the Emirates and the Federal Government. It is also ultimately responsible for the interpretation of the Constitution and of the constitutionality of all legislation issued at either Federal or Emirate level. The types of courts, which make up the legal framework for each Emirate within the Federal Court system, are: (i) the civil courts; (ii) the Shari'a courts; and (iii) the criminal courts. Generally, the civil courts have exclusive jurisdiction over civil, commercial, company, insurance, banking and maritime matters. The Shari'a courts on the other hand have exclusive jurisdiction in connection with all family law matters. Both courts have non-exclusive jurisdiction in respect of criminal proceedings; although in practice, civil courts usually hear most criminal matters.
Other domestic court systems The Emirates of Dubai and Abu Dhabi have their own Courts of Cassation that operate independently from the Federal Supreme Court (as mentioned above, in all Emirates other than Dubai, Abu Dhabi and Ras Al Khaimah,
The judgments of the local courts have no binding or persuasive effect on the Federal courts of the UAE and their persuasive effect is normally limited to their own jurisdiction (for example, decisions of the Dubai Court of Cassation may be persuasive on the Dubai Court of Appeal and the Dubai Court of First Instance). Likewise, the decisions of the Federal Supreme Court are not usually persuasive in the local courts.
Precedent and interpretation of UAE legislation There is no concept of binding judicial precedent or formal system of court reporting in the UAE, although an informal system of precedent does operate in the Federal Supreme Court (which covers Ajman, Fujairah, Sharjah and Umm Al Quwain), the Dubai Court of Cassation (which covers Dubai), the Ras Al Khaimah Court of Cassation (which covers Ras Al Khaimah) and the Abu Dhabi Court System (which covers Abu Dhabi). Therefore, the decisions of a court in one case will have no binding authority in respect of another case. Such decisions may, however, be persuasive and indicative of how the courts may react in cases with similar issues and disputes. Accordingly, given that each case is fact dependent, it is difficult to reach a conclusive interpretation on the laws of the UAE or to predict how the UAE courts would view a specific project or any of its transactional agreements and their particular provisions. The courts should, in theory, follow a set pattern when interpreting the laws of the UAE. Federal Law No. 18 of 1993 (as amended) (Commercial Code) governs commercial transactions and further provides that in the absence of a provision (ie of a specific law) regarding a specific matter, the following sources in the following order may be referred to:
other laws and regulations relating to commercial matters (especially local custom)
A guide to doing business in the UAE
if there is no specific law or relevant local commercial custom, the provisions pertaining to civil matters in general (as set out in the Civil Code) shall apply to the extent that they are not in conflict with the general principles of the commercial activity in question
the Civil Code in turn provides that Islamic Shari'a is a reference source in the absence of a provision in the Civil Code in respect of any particular matter.
The Civil Code exists alongside the Commercial Code. The Commercial Code provides that the Civil Code will apply to commercial as well as civil transactions other than insofar as it contradicts the provisions of other laws and commercial practices.
Arbitration in the UAE Overview At present, there is no law in the UAE (outside the DIFC) that deals exclusively with arbitration or alternative dispute resolution in the UAE. Rather, arbitration in onshore UAE is governed by Articles 203 to 218 of the UAE Civil Procedure Law. There are three prominent domestic arbitration centres within the UAE. They are the Dubai International Arbitration Centre (DIAC), the Dubai International Financial Centre – London Court of International Arbitration Centre (DIFC-LCIA) and the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC). There are other centres for arbitration in the Emirates, such as in Ras Al Khaimah and Sharjah, but these centres are of lesser prominence. The DIAC is based in Dubai and administers arbitrations under the DIAC Arbitration Rules 2007. The DIAC also serves as an appointment or challenging authority in ad hoc arbitral proceedings. The default seat of arbitration under the DIAC Rules is Dubai, although the parties are of course free to determine the seat in their arbitration agreement. With respect to the language, unless otherwise agreed by the parties the initial language will be that of the arbitration agreement. The Tribunal then enjoys the power to determine the language(s) of the arbitration having regard to the observations of the parties and all relevant circumstances of the case. The DIFC-LCIA Arbitration Centre is based in the DIFC and administers arbitrations under the DIFC-LCIA International Rules of Arbitration 2008 (in association with the London based LCIA). It also serves as an appointment or challenging authority in ad hoc arbitral proceedings. Absent a choice from the parties, the default seat of arbitration is
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the DIFC. Like the DIAC Rules, absent party choice, the initial language of the arbitration will be that of the arbitration agreement. The Tribunal may then determine the language(s) of the arbitration after taking into account the initial language of the arbitration and any other matter it considers appropriate in the circumstances of the case. ADCCAC administers arbitrations under the ADCCAC Procedural Regulations of Arbitration, which came into force on 1 October 2013. The place of the arbitration will be Abu Dhabi and the language will be Arabic unless otherwise specified by the parties. Choice of arbitration The parties to an agreement may agree to refer a dispute relating to that agreement to arbitration. Such an agreement must be clear and in writing. Best practice dictates that the arbitration agreement should specify a particular arbitral institution (unless the parties wish for the arbitration to be ad hoc), a place or "legal seat" of the arbitration, the number of arbitrators, the language of the arbitration and the governing law which will apply to the merits of the dispute being referred to arbitration. Evidence must be provided that the parties have knowledge of the arbitration clause which is normally implied when a party has signed an agreement. Accordingly, a court may not uphold an arbitration clause which is printed as a standard clause in fine print in terms and conditions or at the back of an invoice or delivery note unless specific attention is drawn to that clause, and the terms and conditions are signed. UAE Joint stock companies are prohibited from entering into an arbitration agreement without express power in their articles of association or a resolution of the shareholders. No contract entered into with the Government of Dubai, its departments or corporations, may stipulate arbitration outside Dubai, or the application of any laws or procedures other than those of Dubai. Any provision to the contrary is void and shall not be binding on the Government. It is possible for His Highness Sheikh Mohammad bin Rashid Al-Maktoum to disapply the aforementioned restrictions. There is also an Executive Council Resolution from 1985 which, on the face of it, provides that no foreign arbitration provisions will be enforceable in any contracts with Abu Dhabi government departments and that any dispute should be referred to the UAE courts.
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A guide to doing business in the UAE
Procedure If no particular arbitration procedure has been specified in the contract, then the rules followed by arbitrators tend to be a combination of local practice, standard principles and, possibly, the rules of a well-known institution. Where the parties agree to arbitrate under the rules of a particular institution, then those rules will be adopted and followed. There are no requirements for the arbitrators to be UAE nationals or that the proceedings must be conducted in Arabic. These aspects will therefore depend on the agreement entered into between the parties. Jurisdiction UAE courts will not hear an action if the parties have agreed to refer it to arbitration in the UAE or abroad. Generally, any agreement to refer a dispute to arbitration must be brought to the court's attention at the first hearing of the case. If the court's jurisdiction is not challenged at this first hearing, the courts will assume that the parties have waived their rights to refer the matter to arbitration. If the litigation proceedings are challenged, the court will stay the proceedings unless there is a reason for the court to invalidate the arbitration clause. An arbitrator must deliver the award within six months of the first hearing; otherwise the parties may ask the court to deal with the dispute. It is open to the parties to agree to extend the six-month period. The arbitration award The arbitral award once it is passed will become binding on the parties and will not be subject to appeal. In the UAE, an arbitral award must be ratified by the court before enforcement. This normally will be made by an application to the court by way of an action requesting the court to ratify the award for the purpose of enforcing the same. Typical of most jurisdictions, the UAE courts cannot consider the merits of the arbitrator's findings and an application to nullify an award must be on purely procedural grounds which are outlined in Article 216 of the UAE Civil Procedure Law. A party may apply to the court to nullify an award at the same time as the court is looking into validating an award. Therefore, in the UAE (in contrast to other jurisdictions) the validation or nullification of an arbitral award becomes effectively the subject of a separate legal action. This is an often-practised tactic by defendants who wish to nullify an award on the basis of procedural errors. The claimant will not be able to enforce the arbitral award until it is converted into a final judgment confirming the validity of the original award. This process can often delay the enforcement of an
award anywhere between six months to several years. However, this may now only apply to domestic arbitration awards (ie arbitration awards issued in the UAE) as ratification of non-UAE arbitral awards are likely to be dealt with under the New York Convention.
Recognition and enforcement of non-UAE arbitral awards (other than the DIFC) In July 2006, the UAE ratified its accession to the New York Convention. By this ratification, the UAE joined its GCC neighbours Oman, Bahrain, Qatar and Saudi Arabia who have already ratified the New York Convention. It entered into force in the UAE on 19 November 2006. The New York Convention provides for the recognition and enforcement of non-UAE arbitral awards in over 135 countries worldwide, subject to a limited number of defences. It applies to "non-UAE" arbitral awards, which are defined as "arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought", as well as those that are "not considered as domestic awards" in the State where enforcement is sought. The New York Convention is based on two important principles; first, that of recognising the importance of arbitral agreements, and second, any review of the arbitral award is limited to specified grounds only. It is hoped that this will substantially simplify the "validation" of arbitral awards by the UAE Courts, but it remains to be seen how the New York Convention provisions will be interpreted and applied in practice. The New York Convention sets out limited grounds on which recognition and enforcement of an arbitral award may be refused. It provides, for example, that recognition and enforcement of a non-UAE award may be refused by the court of its own motion in the country where enforcement is sought where the court finds that the subject matter of the dispute is not capable of being settled by arbitration or recognition and enforcement would be contrary to public policy. The New York Convention specifically prohibits the imposition of substantially more onerous conditions on the recognition and enforcement of non-UAE arbitral awards than are imposed on the enforcement of domestic arbitral awards. It does not affect the validity of any multilateral or bilateral agreement on enforcement of awards, or the rights available to an enforcing party, under local law in the country of enforcement.
A guide to doing business in the UAE
While the ratification of the New York Convention is to be welcomed, it still remains to be seen how easy it will be in practice to enforce non-UAE arbitral awards in the UAE. As a note of caution, in some of the other Gulf countries (eg Saudi Arabia), where the New York Convention does apply in theory, it is still very difficult to enforce foreign arbitral awards in practice. However, this important development should be considered when drafting dispute resolution mechanisms in contracts. The uncertainty regarding the interpretation and application of the New York Convention provisions by the UAE courts is further reinforced by the lack of a system of binding judicial precedent in the UAE and the independent existence of different Emirates within the UAE, some with their own court systems, whose rulings may have no more than persuasive force cross border. There is therefore no guarantee that the UAE courts will take the same approach in similar proceedings in the future.
In circumstances where there is no treaty/convention, for UAE courts to enforce a non-UAE judgment it is not sufficient that the non-UAE court had jurisdiction in accordance with its own jurisdictional criteria. The following terms and conditions for the enforcement and implementation of non-UAE judgments (and arbitral awards) must be met:
there is an overriding requirement to show reciprocity of enforcement between the UAE and the country in which the non-UAE judgment or order has been granted
the UAE courts themselves must not have jurisdiction in the proceedings in which the non-UAE judgment has been issued and the relevant court issuing the judgment had jurisdiction according to the law governing that court. If both the non-UAE and the UAE courts would have had jurisdiction in accordance with each court's respective jurisdictional criteria, then the UAE courts will not enforce the non-UAE judgment
the non-UAE courts must have had the requisite jurisdiction under the applicable international rules prescribed by the law governing any relevant court to hear the dispute
the judgment or order must have been issued by a competent court under the laws of the court in which it was issued
the parties to the proceedings in relation to which the judgment was issued gave due notice of the proceedings, were properly summoned to appear and did duly appear before the non-UAE court
the judgment is final under the law governing the relevant court
the judgment does not conflict with any existing UAE judgment
the judgment does not breach UAE public policy, order, morals, or Islamic Shari'a.
Enforcement in the UAE The key issue in determining whether a foreign judgment will be enforced in the UAE is reciprocity. In order to enforce the foreign judgment, it is necessary to demonstrate to the UAE court that a judgment from the UAE would be enforced by the foreign court. Such reciprocity is most easily demonstrated where a treaty or convention on enforcement exists between the UAE and the foreign jurisdiction. The UAE is a party to a number of bilateral and multilateral treaties/conventions. The UAE has reciprocal enforcement agreements in place with the GCC States on the recognition and on the enforcement of judgments and arbitral awards, France and India and co-operative arrangements with other countries, including Syria, Egypt, Jordan, Tunisia, Algeria, Sudan, Somalia, Djibouti, Palestine, Lebanon, Libya, Morocco, Mauritania and Yemen. Generally, in the absence of a bilateral treaty/other convention, non-UAE judgments are not automatically enforced, as the procedure for enforcement of non-UAE judgments is restrictive and heavily qualified. Even in cases where a treaty/convention is in existence, enforcement difficulties are likely to arise because of conditions contained therein and powers given to judicial authorities to look into conditions and evaluate them, although the provisions of the treaty will be applied before local law.
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If the above conditions have been satisfied, the non-UAE judgment may be enforced directly by court order in the UAE. In the event that the relevant UAE court is not satisfied with any matter listed above, then it is likely that the unsuccessful party will file a fresh claim. The procedure for enforcement is the same as that for an ordinary court action; an enforcement order application is brought before the Court of First Instance within whose jurisdiction enforcement is required. The application must be accompanied by the non-UAE judgment (duly notarised, legalised and consularised before the UAE embassy or
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A guide to doing business in the UAE
consulate in the country where it was issued). Reciprocity of enforcement evidence is usually provided in the form of an affidavit from an independent lawyer in the relevant country. A hearing date is then fixed at which both parties will be summoned before the court to hear the objection. Any objection suspends enforcement proceedings until the court either dismisses the objection or terminates the enforcement process.
Practical implications of pursuing an action/enforcing a foreign award or judgment in the UAE It is very difficult to predict the time it will take in practice to bring successfully an action/enforce a foreign arbitral award or foreign judgment in the UAE courts. The complexity of the case, the level of engagement of the courts and the other party will, in practice, determine the time taken. Requirements for documents to be translated into Arabic also add to time (and cost). In this respect, UAE law does not mandate a standard disclosure and inspection process. Therefore each party is only required to produce the documentary evidence upon which it seeks to rely. For evidence to be admissible within the UAE courts, all documentation must be in Arabic and/or duly translated. The Arabic translation, if submitted, is deemed to be the definitive and binding version for the purposes of all proceedings before such courts. Equally, foreign judgments must be translated into Arabic, legalised and ratified by the relevant UAE court before being enforced. All translations carried out for the purpose of submission before the UAE courts must be prepared and certified by a translator suitably licensed by the UAE Ministry of Justice (who, in addition, may be required to affix his official stamp, which will require notarisation). In addition, certain documents may need to be notarised, legalised and authenticated before they can be enforceable or admissible in evidence before a UAE court. If a substantive action (ie a case) is brought in the UAE, or if a party seeks to enforce a foreign arbitral award or judgment, the action will proceed via a series of documentary pleadings. Only once the judge considers he has enough information before him will the case be reserved for judgment – this means that there may be upwards of five or six rounds of pleadings prior to judgment. The same process is followed at Court of Appeal level (where new evidence can be introduced and the basis of an appeal can be law or fact) and the Court of Cassation level (no new evidence and appeals restricted to points of law).
In all but the simplest of cases, the Court of First Instance (and possibly the Court of Appeal) will appoint an expert to review the pleadings and evidence submitted by the parties. The expert will then produce a report outlining his conclusions. The report is not binding on the Court of First Instance, but in practice it is highly persuasive. This process can be intensive, often taking months. If any document is executed in the UAE pursuant to a power of attorney, to be valid and enforceable in the UAE, the power of attorney must be notarised (no document can be notarised unless it is in Arabic whether or not there is also text in another language) and, if executed outside the UAE, must be legalised and authenticated. Only UAE lawyers (that is, UAE national lawyers and lawyers from certain other GCC countries who must satisfy specified criteria before a licence is issued) have rights of audience in the UAE. There will therefore be a need to appoint a local law firm in order to bring an action/seek enforcement of a foreign judgment.
A guide to doing business in the UAE
Product liability
Repair, replace and refund
The UAE has not enacted specific product liability legislation; however, relevant provisions are contained in various Federal laws and regulations, in particular:
If a product or its spare parts are found to be defective, the supplier will be held liable and will be required to take one of the following actions (taking into account the nature of the defect and the period for remedying such defect):
Federal Law No. 24 of 2006 concerning Consumer Protection (Consumer Protection Law)
Cabinet Resolution No. 12 of 2007 concerning the Executive Regulation of Federal Law No. 24 of 2006 concerning Consumer Protection (Consumer Protection Regulations)
the Civil Code
the Commercial Transactions Code
Suppression of Fraud Regulations – 4 of 1979 – has provisions relating to false adversting.
The Consumer Protection regime is administered by the Consumer Protection Directorate at the Ministry of Economy (Directorate).
Product liability The Consumer Protection Regulations protect consumers from damage or harm arising from the use of a "commodity" which is defective. A defect can be caused by the design or manufacturing process of the product or as a result of not warning the consumer about inherent dangers in the product. Suppliers (which would include the manufacturer) must ensure that consumers are properly educated in how to use the products and are aware of any inherent or latent dangers. Under the product liability regime, a supplier may be liable for any damage or harm resulting from use of a defective product, providing spare parts in relation to the defective product and providing any guarantees which have been agreed or advertised.
Risks related to defective products Recall When? The Consumer Protection Regulations contain "recovery" provisions which require a supplier to issue a recall of the product in the following circumstances:
repair the defective product
replace the defective product
refund the defective product.
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Provided that the consumer takes into account the nature of the defect and the period for remedying such defect, the consumer has the right to select the action to be taken to remedy such defect. The supplier is also required to provide a substitute product while any defect is being remedied. In addition to the costs of remedying the defect, the supplier is liable to a minimum fine of AED1,000 in relation to the defective product and if the supplier fails to indicate the hazards of using the product to the consumer, thereby causing harm, he will be liable to a minimum fine of AED10,000.
discovery of a defect in the product (this is a very wide definition which includes design and manufacturing faults, non-compliance with standards, guarantee or the specifications that are advertised by the supplier)
existence of reports or studies proving the existence of a defect in the product
complaints received from consumers in relation to the existence of a defect in the product
issuance of a notice from the Ministry of Economy
existence of recovery operations of the same product abroad (ie a global recall of the product)
non-compliance of the product with adopted standards in the UAE.
The recall provisions contained in the Consumer Protection Regulations are very wide and, on a strict reading, would appear to capture customer complaints, warranty claims and minor defects in just one product, rather than a major design fault which impacts the majority of products. However, based on our understanding of product recalls which have taken place in the UAE, the approach adopted in practice in determining whether to institute a recall is likely to be based on the following considerations:
the reasonable likelihood that the defect will affect all or a material proportion of the products (ie the fault is
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A guide to doing business in the UAE
either inherent in the products or there is a reasonable chance that it will appear in all the products)
the defects would put the health and safety of consumers at risk.
Procedure The supplier must announce the recall in two daily newspapers at least twice (one of which must be in Arabic) and on the Ministry of Economy website within a period of 24 hours from issuing the recall. The advertisement must measure not less than 15cm by 15cm and must include the following information:
name and address of supplier
description of product, including trademark and country of origin
description of the defect
instructions for consumers on how to minimise the risk of harm occurring
instructions for consumers to be followed to repair and replace the product or to receive a refund.
The Directorate reserves the right to specify further measures in relation to advertising the recall. The supplier must notify the Directorate within 14 days of any recall being initiated and provide the following details:
details of the product, including supplier and country of origin
a colour photo of the product and defective part
an accurate description of the defective product and cause(s) of such defect
quantity sold and quantity recalled
description of the harm which could be caused to consumers
the procedures which will be taken to recall the product
the means for announcing the recall, including period and times for such announcement
procedures to be taken by the supplier in relation to the defective product
expected period for remedying the defect of each product.
We understand that the Ministry of Economy has issued a policy statement in relation to motor vehicle recalls requiring all notifications to the Directorate to be made within 24 hours of a recall being issued. While the regulations provide for the timeframe for the notification to the Directorate, they do not provide a timeframe for the recall itself to be initiated following
discovery of a defect. It would, however, be prudent to take action as soon as practicable following discovery of the defect as the Ministry of Economy does have authority to initiate a recall on behalf of the supplier. In this instance all costs of the procedures will be met by the supplier. In the case of a recall the supplier must replace, repair or refund the cost of the product or defective part of the product for free, regardless of any guarantee or warranty period. In addition, the supplier must cover all costs relating to transporting the product or sending technicians to replace or repair the product. The Abu Dhabi Quality and Conformity Council has launched a public portal, "Manaa", to promote, control and monitor consumer safety in Abu Dhabi (website: www.qcc.abudhabi.ae/English/MediaCenter/News/Pages/M anaa.aspx). The Manaa portal is an interactive product recall and incident reporting system which identifies products that have been recalled. We also understand that the Dubai Department of Economic Development is in the process of launching a similar website. Penalties If the supplier fails to recall a product while knowing there is a defect in the product, it will be deemed to have committed commercial fraud under the Suppression of Cheating and Fraudulence in Commercial Transactions Law and will be liable to a prison sentence of up to two years and a maximum fine of AED10,000. The supplier will also be liable under the Consumer Protection Law for a minimum fine of AED1,000 in relation to the defective product and if the supplier fails to indicate the hazards of using the product to the consumer, thereby causing harm, he will liable for a minimum fine of AED10,000. In addition, the Ministry has the authority to suspend the trading of the business for up to a week if it does not comply with the Consumer Protection Law and may refer the issue to the courts to impose a permanent closure of the business.
Other product liability matters The Dubai Department of Economic Development has published policies relating to consumer protection. Such policies require suppliers to provide spare parts for a period of five years from the date of purchase. The supplier must also clarify the replacement policy in the outlet by prominently displaying it in Arabic and in any other foreign language.
A guide to doing business in the UAE
Intellectual property rights Since the initial adoption of laws relating to intellectual property rights in 1992, the UAE has adopted laws regulating trademarks, patents and industrial designs and copyrights. The legal framework is developing and the relevant government departments can take a long time to process applications to register intellectual property rights. The Emirates Intellectual Property Association was established to provide information and awareness to the public about intellectual property rights. The offices for regulating intellectual property rights in the UAE include:
the Ministry of Information and Culture (Copyright Department)
the Ministry of Economy (the Industrial Property Authority deals with patents and the Trademark Department deals with trademarks) (IP Authority).
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The UAE is a member of, or has acceded to, the following treaties and conventions which relate to intellectual property rights:
WIPO Convention
Convention Establishing the World Intellectual Property Organisation
Paris Convention for the Protection of Industrial Property
Berne Convention for the Protection of Literary and Artistic Works
Patent Cooperation Treaty (PCT)
Agreement establishing the WTO
WTO – Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement)
Convention for the Safeguarding of the Intangible Cultural Heritage
Convention on the Protection and Promotion of the Diversity of Cultural Expressions 2005
WIPO Copyright Treaty
WIPO Performances and Phonograms Treaty.
Key legislation
Federal Law No. 37 of 1992 concerning Trademarks (amended by Federal Law No. 19 of 2000 and Federal Law No. 8 of 2002) (UAE Trademarks Law)
Ministerial Decision No. 6 of 1993 issuing the Executive Regulations for Federal Law No. 37 of 1992 concerning Trademarks (amended by Ministerial Decision No. 165 of 2001) (UAE Trademarks Regulations)
Federal Law No. 17 of 2002 Regulating and Protecting Industrial Property Rights For Patents and Industrial Designs & Models (amended by Federal Law No. 31 of 2006) (UAE Patent Law)
Federal Law No. 7 of 2002 in Respect of Author Copyrights & Parallel Rights (amended by Federal Law No. 32 of 2006) (UAE Copyright Law).
International treaties There is no requirement to register intellectual property rights in the UAE if such rights have already been registered in another country. Enforcement of such rights may be obtained where the country in question has acceded to treaties or conventions to which the UAE is an intellectual property party. However, by registering such rights in the UAE an intellectual property owner can ease the manner in which enforcement is conducted.
Trademarks Overview Under the UAE Trademarks Law, a trademark is anything which takes a distinctive form, whether names, words, signatures, letters, figures, drawings, symbols, titles, tax stamps, seals, pictures, inscriptions, advertisements or packs or any other mark or a combination thereof, which is used or is intended to be used, either in distinguishing goods, products or services. A number of symbols such as public emblems, flags, official symbols, symbols of the Red Crescent or the Red Cross and marks that mislead or contain false information cannot be registered. Registration and protection Trademarks must be registered in the publicly accessible Trademark Register at the Trademark Department of the Ministry of Economy. The UAE laws do not provide protection for unregistered trademarks. A trademark may be registered in more than one class of product or products in accordance with the International Classification of Goods and Services under the Nice Agreement. However, to register a trademark in more than one class, separate applications must be submitted for each class.
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A guide to doing business in the UAE
The Trademark Department can restrict or amend a registration application in order to prevent confusion with a previously registered trademark. The Ministry of Economy will consider and make a decision on a trademark application within 30 days of submission. If an application is suspended or rejected, the applicant can lodge an appeal with the Trademark Department within 30 days from such suspension or notification. If the Trademark Department accepts the application, it will publish a circular relating to the trademark before completing the registration. Any objections to a registration will be heard by the Trademark Department. A party that has registered a trademark is considered the exclusive owner of such mark. The ownership of the trademark cannot be disputed if it has been in continuous use by the owner for at least five years after its registration date with no party challenging the validity of registration. The owner of a registered trademark will be able to prevent third parties from using identical or similar marks. A registration is valid for 10 years and may be renewed for further periods of 10 years. Transfer of ownership and licensing The owner of a registered trademark may, in accordance with a written and attested agreement, give a licence to one or more persons to use the trademark for all or some of the products or services. An assignment, mortgage or licence agreement shall not be binding unless it is entered in the Trademark Register and published. Infringement and penalties Imprisonment and a fine of up to AED5,000 can be imposed for counterfeiting or imitating a registered trademark to mislead the public, make fraudulent use, register a trademark belonging to another person knowingly or misusing it or selling or distributing knowingly products bearing a counterfeit trademark. Further, imprisonment and a minimum fine of AED5,000 (not to exceed AED10,000) can be imposed for using trademarks without consent or falsely indicating a mark to be registered. A second time offender will, in addition to the above, also risk closure of its business for a period ranging from 15 days to six months. A party suffering damage can bring a civil action against the infringing party to seek compensation. Before initiating a
claim, the owner of the trademark can seek the following preventive measures from the court:
the preparation by the defendant of a detailed descriptive inventory of the articles and tools intended to be used or actually used in committing a violation of the Trademark Law
the seizure of the relevant goods after the claimant submits a financial deposit to indemnify the defendant for the value of the goods.
Patents and utility certificates Overview Patentable material may be protected by filing a patent application with the IP Authority which will issue a protection document in the form of either a patent or a utility certificate. The material must have a degree of novelty and inventiveness, scientific basis and industrial application. Patents are not issued for research, biological methods of production of plants or animals, methods of diagnosis, theories and hypotheses, plans or rules applicable to authentic intellectual activities or material prejudicial to public order if exploited. Utility certificates are issued for industrially exploitable inventions which do not have adequate inventive qualities to be granted a patent. If all other requirements of registration are met, a party that files an application for a patent or utility certificate will have priority over those who follow. If patentable material is created on a contractual basis or pursuant to an employment agreement, any rights to such patentable material shall devolve to the employer unless otherwise agreed. The rights to patentable material devolve to the inventor and their legal successors. Registration The name of the creator of the patentable material must be mentioned in the patent or utility certificate unless otherwise stated. An application may include a demand to consider priority of entrustment to another application previously submitted in a state that is a party to an agreement or convention with the UAE. If an application is dismissed, a period of 60 days will be granted during which the applicant can file an objection to the dismissal with the Complaints Committee of the Ministry of Economy. The patent
A guide to doing business in the UAE
certificate will be handed over to the applicant after 60 days if no objection is filed. The UAE is a signatory to the PCT, which allows a patent registered in the UAE to be registered in other member countries of the PCT. Protection is given to patents that are registered in member countries of the PCT. Transfer of ownership and licensing A party can transfer a patent or a utility certificate before the patent or utility certificate is granted. The transfer of a patent or a utility certificate must be made in writing and be signed by the contracting parties before the IP Authority and then must be attested before the notary public. Any assignment must be registered in the designated register. Term and enforcement The term of a patent is 20 years from the date of filing the application and 10 years from the date of filing an application in relation to a utility certificate. The holder of a patent or utility certificate will be required to pay any annual fee to register the patent or utility certificate. If a party fails to pay the registration fee within six months from the initial due date, the patent certificate will be rendered void. The owner of the patent is entitled to prevent third parties from using the process or any product generated as a result of the use of the patent, and from using, retaining or importing any resultant product without permission from the patent owner. In the UAE, if a party has, in good faith, manufactured or utilised a patented product or process at the time another party has lodged the protection application, such party shall have the right to continue manufacturing regardless of whether the third party has been granted a patent or utility certificate.
Know-how Practical know-how is statutorily protected against unauthorised utilisation, disclosure and publication by third parties so long as it is not placed in the public domain. To receive the benefit of protection, measures should be taken by the owner to keep the know-how confidential. Although it is unlawful to use, disclose or publish know-how without consent of the owner, if identical or similar know-how is obtained by a person by lawful means it can be used or disclosed to others without any consent from its owner.
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Industrial designs and industrial drawings Industrial designs or models (IDM) will not be subject to protection unless registered with the IP Authority for which it should be novel and innovative, capable of being used as an industrial product and not cause prejudice to public order or violate morals. Protection is provided for 10 years from the date of submission of protection application. Protection provides the right to prevent third parties from using the IDM for manufacturing or importing a related product or its use or sale.
Copyright Overview Items can be copyrighted and protected by depositing such copyrighted material with the Ministry of Economy but failure to deposit does not prejudice protection. The items which are subject to copyright include printed works, computer software and its applications, databases and similar works, lectures, musical works, audio-visual works of art, architectural works, works of fine art, photographic works, applied or plastic arts, diagrams, geographical maps and derivative works of art. Concepts, procedures, techniques, mathematical theories, or abstract principles and facts will not be subject to protection. Protection will not cover official documents, news bulletins and similar work and works of art in the public domain. Only the author and his successor or the copyright holder may authorise the exploitation of the copyrighted work in any manner whatsoever. The author and his successors may assign to a third party all or part of their rights to exploit commercially the copyright provided that the assignment is in writing and its purpose, duration and territory are set out in the agreement. Term of protection An author's rights to commercial exploitation shall be protected during the author's lifetime and extend for 50 years commencing on the first day of the calendar year following the author's demise or the demise of the last surviving joint-author in the case of joint authors. Protection relating to applied works of art lapses after 25 years and for broadcasting authorities after 20 years,
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A guide to doing business in the UAE
commencing on the first day of the calendar year following the year of first publication.
If a party committing an offence is a corporate person, a court can order its closure for not more than three months.
Any person can apply to the Copyright Department of the Ministry of Economy for a mandatory licence for copying or translating, or both, any work protected under the UAE Copyright Law after the lapse of three years from the date of publication in the case of an application for translation. Copyright holders may assign their respective rights to commercial exploitation to specialised professional associations which undertake the management of such rights.
A court can take the following actions:
Penalties and enforcement
There is no dedicated regime protecting trade secrets in the UAE.
An aggrieved party can petition the court to suspend the publication, attach or seize copies and seize the proceeds of any unlawful use of a copyright. Parties that infringe copyright or other rights to commercial exploitation or sell, rent-out or deal in any work of art, performance, audio-record, or broadcast programmes shall be subject to imprisonment of not less than two months and the payment of a fine of not less than AED10,000. Parties that unlawfully produce or import any work, unlawfully obstruct or impede any protection to technology, download or save any software without a licence, shall be subject to imprisonment of not less than three months and the payment of a fine of not less than AED50,000 and not more than AED500,000.
order the seizure and destruction of goods which infringe a copyright
order the seizure of equipment and tools which are used exclusively in committing an infringement
order the closure of the establishment where the infringement took place.
Trade secrets
The Civil Code imposes an obligation on employees to keep industrial secrets of the employer, including upon termination of such employment, confidential. Further, criminal liability would be imposed on such employee if he causes the information to be disclosed.
A guide to doing business in the UAE
Investment policies The UAE is keen to promote foreign investment and has established numerous free zones to facilitate this.
Foreign direct investment The Commercial Companies Law requires at least 51% of the shares in a UAE company to be owned by UAE nationals or companies owned by UAE nationals. In some circumstances some or all of the UAE ownership requirement may be satisfied by nationals of other GCC countries (or companies owned by them). It is anticipated that a new Foreign Investment Law may be issued which may provide a framework for relaxing the foreign ownership restrictions in certain market sectors. The timing for publication is currently unclear. Free zone entities are generally not subject to the foreign ownership restrictions. As noted earlier, non-GCC nationals or companies partly or wholly-owned by non-GCC nationals are not permitted to own real property in the UAE outside of certain areas designated for foreign ownership by a decree of the Ruler of the relevant Emirate. Most foreign residents and foreign businesses lease their homes and office spaces. Entities operating outside the free zones are permitted to lease space in the UAE upon registration as a locally incorporated entity or as a branch or representative office. For entities operating within the free zones, registration as a free zone entity requires, in most cases, a lease or purchase of freehold from the free zone's real estate authority.
UAE free zones Free zones are geographical areas in the UAE that are intended to promote inward investment and provide a market-oriented legal and regulatory alternative to the non-free zone regime that exists elsewhere in the UAE. Free zones may adopt their own rules and regulations, although, with the exception of the DIFC, they generally remain subject to UAE Federal laws. The free zones are, however, able to exclude provisions of the UAE Commercial Companies Law (in particular, the restrictions on foreign ownership of companies) and offer investors a single point of contact for establishment and licensing.
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The main benefits of free zones include 100% foreign ownership and exemptions from taxes and custom duties. Land and property may be leased for a specified period of time under fully transferable renewable leases and ownership of land is possible for a 99-year period. The free zones also facilitate speed and ease of establishing a presence. The principal disadvantage of free zones is that companies established in a free zone are unable to conduct business outside the relevant free zone in the UAE other than through a registered commercial agent, representative or distributor licensed by the relevant UAE authorities or without a licence from the relevant UAE authorities. Examples of some of the larger free zones include the DIFC, the Jebel Ali Free Zone, Dubai Internet City, Dubai Media City, Dubai Healthcare City and the Dubai Airport Free Zone (all of which are located in Dubai) and Masdar Free Zone, Abu Dhabi Global Market and Abu Dhabi Airports Free Zone (all of which are located in Abu Dhabi).
Commercial agencies If a foreign entity wishes to carry out business in the UAE without establishing a physical presence, it may enter into a distribution or agency relationship with a licensed UAE national or company wholly owned by a UAE national. In the UAE, commercial agency and distribution arrangements are governed by the Commercial Agencies Law (Federal Law No. 18 of 1981) as amended (CAL). The rights of the parties to a distribution/agency agreement will depend upon whether the agreement is registered as a commercial agency with the Ministry of Economy pursuant to the CAL. In order to be registered:
the agent/distributor should be a UAE national or a company wholly-owned by UAE nationals
the agreement should state that it is given to the agent/distributor on an exclusive basis
the agreement should be governed by UAE law and should be subject to the jurisdiction of the UAE courts
the agreement should be prepared in Arabic (or in English/Arabic dual format) and notarised
the agreement should provide for registration, or the consent of the principal to registration should be obtained in a separate letter.
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A guide to doing business in the UAE
On a strict interpretation of the CAL it could be argued that unregistered distribution agency agreements are not valid. However, from our experience of practice in the UAE, unregistered agreements are regarded as valid even if they are not registered with the Ministry of Economy, and the usual principles of UAE contract law would be applied to them.
The Competition Law applies to enterprises, being any natural or legal person or consortium of such persons, engaging in economic activity or holding intellectual property rights in the UAE. Where economic activity occurs outside the UAE but has the ability to affect competition in the UAE, these practices and agreements will also be subject to the Competition Law.
Registration provides the agent with certain statutory protections, making it extremely difficult, in practice, for the principal to terminate or fail to renew a registered agreement without the payment of compensation. Even if a material reason exists for termination, the Commercial Agency Committee is still likely to award compensation to the agent.
The Competition Law prohibits activity constituting an abuse of dominant market position and restrictive agreements above a certain de minimis threshold and regulates economic activity (including mergers and acquisitions) which will result in an enterprise attaining a dominant market position.
The CAL also provides that a principal may not import any products into the territory covered by the agency agreement either directly or indirectly if the agreement is registered with the Ministry of Economy.
An enterprise will be considered to have a dominant position in a market where its total number of transactions in that market exceeds a certain percentage of all transactions undertaken in that market. The UAE Competition Law does not indicate what that percentage threshold is and this is expected to be communicated by the Cabinet in due course. The Cabinet is also empowered to reduce or increase this percentage threshold depending on prevailing economic circumstances.
Preferential policies and incentives for foreign investment While the UAE has pursued an open and progressive economic agenda aimed at attracting foreign investment and reducing reliance on oil resources and income, there remain a number of restrictions on foreign investment as discussed more fully in other sections of this guide. The establishment of free zones and ongoing discussions relating to possible relaxation of the foreign ownership restrictions do point towards more economic freedom for foreign investors wishing to establish themselves in the UAE, although the timing of this remains uncertain.
Anti-trust The UAE enacted a Competition Law (Federal Law No. 4 of 2012 concerning the regulation of Competition (Competition Law)) in December 2012, which came into force on 23 February 2013. Prior to the Competition Law there were no specific laws or provisions in existing laws that dealt comprehensively with the issue of anti-competitive behaviour in the UAE. While the UAE Competition Law is now in effect, the key implementing regulations (which, among other matters, establish the UAE's competition regulator and set the relevant thresholds) have not yet been introduced. In practice, this means that it is not currently possible for a party, or its advisers, to state with certainty the impact of the Competition Law.
Dominant position
The Competition Law does not prohibit an enterprise from occupying a dominant market position – this may be achieved legitimately by having a superior product or providing a superior customer service. What is prohibited is using market dominance to act independently of competitors, customers, suppliers and, ultimately, the final consumer in a way that prejudices, limits or prevents competition. Where a firm having a dominant position in the market acts in a manner which is anti-competitive to maintain or increase its market share, then it will be considered to be abusing its dominant market position. The UAE Competition Law prohibits such behaviour as it damages true competition between firms, exploits consumers, and makes it unnecessary for the dominant firm to compete with other firms on merit. Activity that may be considered abuse of a dominant market position can include:
Predatory pricing: where a firm deliberately drives down the prices of products and services to below market costs to drive competitors out of the market or restrict competitors from entering a market. Where prices are set below average variable costs, this is likely to indicate predatory pricing.
A guide to doing business in the UAE
Indirect resale price maintenance: where a firm indirectly fixes the resale price of products and services to the dealer's consumers including, for example, by setting a fixed distribution margin or maximum level of rebate. The supplier is imposing conditions on the buying and selling of products and services.
Trade restraints: obliging a dealer or customer not to deal with a competitor, denying a dealer or customer access to products and services or not permitting access on standard commercial terms and discriminating between different types of clients as to the prices of products and services.
Ancillary restraints: restraints imposed on a legitimate trade activity. An ancillary restraint does not constitute the primary obligations of an agreement (eg exclusive geographical distribution) but is directly related to the functioning of the objectives of the agreement (eg conditions of sale in those exclusive geographical territories).
Price manipulation: removing, decreasing or increasing the supply of products and services or disseminating incorrect price information to maintain an artificial price for products and services.
Restrictive agreements The Competition Law provides examples of what may be considered a restrictive agreement:
Direct resale price maintenance: agreements between the supplier and dealer which directly fix the resale price of products and services to the dealer's consumers.
Collusion in bids: agreements with other firms which can prejudice the outcome of a process whereby bids are submitted. This may include agreeing in advance the value of bids to be submitted, or the lowest bid to be submitted. Agreements between firms as to which tenders are bid for with a view to allocating value contracts between them will also fall under this head.
Essential facilities: agreements which limit the availability of a facility or infrastructure which is necessary to reach customers and/or required to enable competitors to carry on their business. Where such facilities are difficult or prohibitively costly to reproduce and agreements limit the availability of such facilities and infrastructure, such agreements are likely to be considered anti-competitive. Exclusive distribution: agreements whereby one firm grants exclusive rights to another firm in respect of its
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products and services. This may include exclusive geographical distribution rights. Typically, competition in this regard is maintained by inter-product competition as opposed to competition between suppliers. However, it may be worth reviewing these agreements to ensure that they do not contain any ancillary restraints.
Other distribution agreements: agreements which prescribe the level of products and services offered in a particular market. Where the oversupply or undersupply of products or services to a market is done with a view to affecting the price of the products or services, then this is likely to be considered anti-competitive.
Barriers to entry: factors which prevent or hinder companies from entering a specific market. Entry barriers may result, for instance, from a particular market structure or the behaviour of incumbent firms (eg prohibiting new entrants from engaging in existing trade organisations or coalitions).
Merger and acquisition control The Competition Law requires any activity which will result in an enterprise attaining a dominant market position (such as a merger or acquisition) to obtain the prior approval of the Ministry of Economy. Again, what will be considered a dominant market position will be determined by the Cabinet and subject to change. If approval is not sought, an enterprise may be subject to a fine representing between 2% and 5% of annual revenues of the business undertaken in the resultant dominant position. If annual revenues cannot be determined, a financial penalty of between AED5,000 and AED5 million may be imposed. As mentioned above, the key implementing regulations have not yet been introduced. Accordingly, when considering whether to notify or not it is not currently possible, for a party to a transaction, or its advisors, to state with certainty that a notification requirement arises. Under such circumstances, companies will regularly pursue one of two options:
take the view that the law is not yet in force, and decide not to contact the authorities or otherwise request an informal assessment of the deal
approach relevant governmental ministries (most likely the UAE Ministry of Economy) to seek an informal review process.
The merits of the latter option lie primarily in maintaining a reputation as a good corporate citizen and in building
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A guide to doing business in the UAE
relationships with governmental contacts who will later be responsible for the formal notification process, once implemented. The downsides are uncertainty as to process and timing, the scope of information that might need to be provided, and the inevitable difficulties of trying to manage a review that is not subject to any statutory timeframe or agreed boundaries. As to potential jurisdictional thresholds that might be adopted, the UAE, like the Saudi Arabian regime, includes a market share-based threshold. It is conceivable that the UAE may adopt the same approach as Saudi Arabia, using a market share threshold of 50%. Penalties If an enterprise continues to engage in anti-competitive activity or be a party to restrictive agreements then it may be subject to a fine of between AED5,000 and AED5 million. Where an enterprise continues to violate the provisions of the Competition Law then the fine can be doubled. In the severest cases, the court may order the enterprise to shut down operations for a period of between three and six months and cause notice of such to be published in two local newspapers. The penalties are therefore severe and have the potential to inflict severe reputational damage.
Anti-dumping The UAE acceded to the World Trade Organisation (WTO) in 1997 and signed an agreement on anti-dumping, which was adopted in the Uruguay Round. The GCC has since developed a unified anti-dumping law to protect against dumping of products by all other non-GCC nations which are members of the WTO. The UAE ratified this agreement in Federal Decree No. (7) of 2005 concerning the GCC Unified Law on Anti-dumping, Countervailing Measures and Safeguards (Anti-dumping Law). Application The Anti-dumping Law is intended to combat practices which cause or threaten to cause damage to the market in the GCC and targets the following three practices:
dumping: the exportation of products into the GCC at an export price lower than their value on the international markets
subsidising: direct or indirect financial contributions to the exporter from the government in the country of origin or from a public authority therein
unjustifiable increase of imports: the importation of non-dumped and non-subsidised products to GCC countries at increasing quantities absolutely or relative
to local production which causes gross damage to the market in the GCC. The Anti-dumping Law applies to countries other than members of the GCC. Complaints Complaints may only be filed by a representative of the relevant industry, the relevant GCC state's Chamber of Commerce or Industry or relevant Ministry and any producer's union or interest group. Complaints should be lodged with the Technical Secretariat of the Permanent Committee. The Permanent Committee is composed of representatives of the governments of each GCC Country. The Permanent Committee is responsible for determining when to initiate or terminate an investigation, implement provisional measures and advise on penalties. The Technical Secretariat performs the administrative functions of the Permanent Committee. In order for the Permanent Committee to undertake an investigation, the complaint must be supported by domestic producers whose output constitutes 50% of the total production of the product or similar products. Provisional measures Provisional measures may be imposed against the products of the country in question. These measures can take the form of provisional customs duties being imposed on the relevant product. These measures will not prevent the importation of the product in question into the GCC. Provisional measures are restricted to a period of four months, which may be extended for a further two months in the case of dumping and subsidising breaches. Penalties An infringement of the Anti-dumping Law will result in the relevant state imposing punitive charges or customs duties against the products being imported from the state in question. The actual amounts will depend on the circumstances. The Ministry of Economy in the UAE currently administers the rules and regulations relating to anti-dumping at UAE level.
A guide to doing business in the UAE
Company law and corporate governance
A new Commercial Companies Law for the UAE A new Commercial Companies Law is expected to be published in the federal official gazette later this year and come into force three months after publication. The current draft of the new Commercial Companies Law (New CCL) contains certain provisions that will have an impact on the subject matter of this guide if fully enacted. This guide addresses relevant anticipated changes which may alter the current position.
Companies incorporated or established in the UAE are subject to the Commercial Companies Law other than the following, which can be partially or fully exempted:
companies incorporated in any of the UAE's free zones, if the free zone has special provisions regulating these companies (otherwise the Commercial Companies Law prevails)
companies operating in the exploration, extraction, marketing and transportation of oil, or in producing electricity, gas, water, desalination and related activities
any company excluded from the provisions of the Commercial Companies Law by resolutions of the Council of Ministers.
Licensing In order to commence (and continue) trading in the UAE, every legal entity or business must be licensed to conduct the relevant trading activity or activities by the appropriate authorities. In general, the licence is renewable annually. Generally speaking, companies and businesses operating "onshore" in the UAE (ie not in a free zone) will need to be licensed by the Municipality and/or Economic Department of the Emirate in which they are established. In Dubai, the competent authority is the Dubai Department of Economic Development, and in Abu Dhabi it is the Abu Dhabi Department of Economic Development. A trade licence (usually designated as either a commercial, industrial or professional licence, depending on the nature of the activity) may permit the licensee, to a limited extent and depending on the nature of the business, to conduct business activities in other Emirates but it will not generally permit a licensee to establish a place of business in another Emirate (which requires a separate licence). If a company is seeking to tender for government contracts in a particular Emirate, it may be necessary to have established a legal entity in that Emirate, which is duly licensed to conduct the relevant activity. Certain activities are reserved solely for UAE nationals or nationals of other GCC countries. In some sectors (for example, construction), trade licences will only be issued if it can be shown that the company or its
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shareholders have the requisite experience of operating in the relevant sector. In addition, for some activities, such as financial services, education, healthcare and utilities, consents may need to be obtained from Federal institutions. An entity licensed to conduct business in a free zone by the relevant free zone authority may, generally speaking, only conduct business in the free zone or outside the UAE. As a general rule, all entities in the UAE (other than offshore companies within certain free zones) are required to have a physical place of business within the Emirate in which they are licensed and, in the case of entities established in free zones, physically within the relevant free zone.
Forms of entity Common forms It is possible to establish a place of business in the UAE either "onshore" in an Emirate under the Commercial Companies Law or in one of the free zones within an Emirate. The most common forms of entities incorporated under the Commercial Companies Law are limited liability companies, public joint stock companies and private joint stock companies. Free zones are regulated by the relevant free zone authority and generally have their own company laws. Consequently, foreign companies seeking to establish a presence in a free zone do not, generally speaking, need to comply with the restrictions on foreign ownership in the Commercial Companies Law and may establish whollyowned companies. Limited liability company
An LLC is generally the preferred vehicle for foreign investors seeking to establish a presence in the UAE.
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A guide to doing business in the UAE
An LLC may not carry out insurance, banking or investment management activities.
An LLC is a separate legal entity, distinct from its shareholders. It enters into contracts in its own name and is responsible for the performance of the legal obligations in these contracts.
Shares in an LLC may not be issued or offered to the public without first converting the company into a public joint stock company.
Shares in an LLC must be fully paid up on issue and must have a nominal value of at least AED1,000.
There is no specific minimum share capital requirement. An LLC must have sufficient share capital to achieve its purposes, as determined by its shareholders, although the competent authority in each Emirate retains the discretion to prescribe a higher minimum capital threshold for specific types of activities.
Public and private joint stock companies are essentially the same form of legal entity, with the principal exception that only a public joint stock company can apply to have its shares listed on a UAE stock exchange and issue shares or debt securities to the public.
A joint stock company is a separate legal entity distinct from its shareholders. It enters into contracts in its own name and is responsible for the performance of the legal obligations in those contracts.
Joint stock companies must have a minimum share capital of AED10 million (AED30 million under the New CCL) for a public joint stock company and AED2 million (AED5 million under the New CCL) for a private joint stock company.
Shares in joint stock companies must be of an equal nominal value between AED1 and AED100.
A private joint stock company must have at least three shareholders (two shareholders under the New CCL) and a public joint stock company must have at least 10 shareholders (five shareholders under the New CCL).
The liability of shareholders is limited to the amount unpaid on shares held by them (if any).
There are no statutory rights of pre-emption on a transfer in shares in a public joint stock company (PJSC), although pre-emption rights exist in favour of existing shareholders on an issue of new shares. Under the New CCL it will be possible to sell such pre-emption rights to a third party.
A PJSC must allocate 10% of its net profits each year to create a statutory non-distributable reserve until the reserve equals half the company's capital.
Regulations issued by SCA require public joint stock companies to list their shares on a UAE stock exchange within one year of their establishment.
An LLC must have not less than two and not more than 50 shareholders (75 shareholders under the New CCL) (referred to as "partners" in the Commercial Companies Law, although in practice the terms "partner" and "shareholder" are used interchangeably).
Shareholders have statutory rights of pre-emption on any transfer of shares by another shareholder (which cannot be waived in advance).
An LLC is not permitted to issue share certificates and it is the entry on the register maintained by the competent authority in the relevant Emirate that evidences legal ownership.
There is currently no clear legal mechanism by which a shareholder in an LLC may create a pledge over its shares. Under the New CCL, a shareholder in an LLC may pledge its shares; however, there is some uncertainty as to how this will work in practice given that LLCs do not issue share certificates.
The constitutional documents of the LLC may give its shareholders mutual blocking rights by increasing the thresholds at which resolutions may be passed.
Management rights may be vested in a particular shareholder (which may be a foreign shareholder).
Entitlements to distributions can be allocated disproportionately to the shareholdings in the LLC by including a different ratio in the Memorandum of Association (MoA). In Dubai, the authorities have historically permitted a ratio of 80:20 in favour of a
minority shareholder, and in Abu Dhabi a ratio of 90:10 has been permissible. An LLC must allocate 10% of its net profits each year to create a statutory non-distributable reserve until the reserve equals half the company's capital.
Public and private joint stock companies
The table below provides a brief overview of the advantages and disadvantages associated with an LLC and a private joint stock company:
A guide to doing business in the UAE
ADVANTAGES
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Branches of foreign companies
Private Joint Stock Company
Limited Liability Company
Branches of foreign companies are permitted under the Commercial Companies Law.
Commercial banks in the UAE accept pledges over shares in respect of financings
One month to three months for incorporation
Public offerings of shares are permitted if approved by the Emirates Securities and Commodities Authority (following conversion to a public joint stock company)
Less initial capital required and flexible management of the company
The ability to obtain a licence to establish a branch of a foreign company is at the discretion of the authorities in the relevant Emirate and, generally, branches are not permitted to carry out commercial trading (as opposed to professional) activities in the UAE. It is also possible to obtain a more restrictive form of licence to establish a representative office to perform marketing and administrative functions on behalf of a foreign parent.
Less cumbersome share transfer process – no requirement to attend a notary
No statutory lock-up period on transfers of shares
A branch of a foreign company is currently required to appoint a UAE national (or a company wholly-owned by UAE nationals) as its service agent or sponsor. The sponsor will normally be paid an annual fixed fee for his/her services and, except for this fee, is not entitled to share in the profits or to own any assets of the branch or to receive any fees or commissions. This requirement is likely to be removed in the New CCL.
Wider permissible activities (eg banking and insurance)
Only two shareholders required
Branches/representative offices are not separate legal entities.
DISADVANTAGES Joint Stock Company
Limited Liability Company
At least four to six months for incorporation
No clear legal route to pledge shares
Minimum of three shareholders, three board members and minimum 2 capital of AED2 million required. Shareholder meetings must be convened on notice and publically advertised
Pre-emption rights over existing shares under the Commercial Companies Law mean that a transfer of shares requires the cooperation of all shareholders
A majority of the board (including the Chairman) must be UAE nationals
Cannot carry out certain activities (eg banking and insurance)
Statutory lock-up period of two years from incorporation on transfer of shares
Maximum of five directors currently permitted
___________________________ 2
A public joint stock company must have a minimum share capital of AED10 million.
Sole proprietorships A substantial amount of business in the UAE is conducted through sole proprietorships. Generally speaking, only UAE nationals are permitted to obtain a trade licence to conduct commercial (as opposed to professional) activities as a sole proprietor, but in some Emirates this right may be extended to GCC nationals. Entities established in free zones Entities established in free zones may be treated as being "offshore" or outside of the UAE for certain legal purposes. Free zones may adopt their own rules and regulations and can elect to disapply the provisions of the Commercial Companies Law but, with the exception of financial free zones, are otherwise subject to the provisions of UAE Federal law. Entities established in free zones usually take the form of either: (i) a branch of a foreign company; (ii) a sole or multi-shareholder limited liability company more commonly known as a free zone establishment (FZE) or a free zone company (FZCo); or (iii) an offshore company. FZEs and FZCos are generally required to have a minimum share capital of between AED500,000 and AED1 million, although the precise requirements vary from free zone to free zone.
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A guide to doing business in the UAE
An offshore company may generally conduct any business (other than insurance or banking) provided that it does not trade or carry out business in the UAE or with persons resident in the UAE. Certain property purchases and other activities are not regarded as prohibited onshore activities. Less common forms Civil companies In addition to companies that may be incorporated under the Commercial Companies Law, there are three types of civil company that may be established under the Civil Code:
service/professional companies (similar to English partnership arrangements)
speculative venture partnerships (a contract between two or more persons to purchase property on credit, to sell it and to subsequently share in the profits as agreed between them)
"mudaraba" arrangements (a contract whereby one partner contributes capital/property and the other its effort or work in order to make a profit).
The limited partners may be foreigners but they are not entitled to have their name incorporated into the name of the partnership.
Incorporation of commonly used corporate entities Shelf company procedure Due to the nature of the incorporation process, there is no shelf company conversion procedure available by which a previously incorporated company with no previous trading history can be transferred to a client. Process and documentation required for incorporation The following formalities must be completed in order to register a new LLC with the UAE authorities:
Approval of the LLC's name and activity must first be obtained from the competent authority in the Emirate in which the LLC is to be established (the Competent Authority). In Dubai, the Competent Authority is the Department of Economic Development and in Abu Dhabi it is the Abu Dhabi Department of Planning & Economy.
The establishment of an LLC carrying out certain types of activity may require the approval of one or more local or Federal Government departments in the form of a "no-objection" confirmation. For example, companies carrying out industrial activities require the approval of the Minister of Industry and construction activities require the approval of the Municipality in the relevant Emirate.
The MoA, which is a standard form document but can be amended to a limited extent, must be prepared in Arabic or dual language English/Arabic.
Once agreed the MoA must be signed by duly authorised representatives of the initial shareholders in the presence of the Court Notary.
Decree companies Decree companies are established by a decree of the Ruler of the relevant Emirate. Following the implementation of the Commercial Companies Law, existing decree companies were required to convert to one of the types of companies permitted under the Commercial Companies Law. The legal status of companies which have not regularised their positions is a matter of some uncertainty (particularly as many of the remaining decree companies have some element of government shareholding). Partnership companies Partnership companies are split into general and limited partnerships. In a general partnership the partners (who must be UAE nationals) are liable jointly and severally to the extent of all their assets for the liabilities of the partnership. A limited partnership consists of one or more general partners (who must be UAE nationals), each of whom is liable for the obligations of the partnership to the full extent of his or their assets, and one or more limited partners liable only to the extent of his or their respective share in the partnership.
A guide to doing business in the UAE
The notarised MoA, together with certain supporting documents, must be submitted to the Competent Authority. The supporting documentation required can change from time to time but will generally include: –
a bank certificate and auditors' certificate confirming deposit of the initial share capital
–
constitutional documents of the shareholders and resolutions authorising the establishment of the LLC (notarised in the country of origin in the case of non-UAE shareholders)
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appointed by the general assembly of shareholders for renewable periods. An LLC is required to have a general manager, who is named on the trade licence and may be one of the directors. The manager may have powers delegated to him/her by the board of directors and/or specified in the company's MoA. The general manager must be a UAE resident or GCC national.
–
a lease in relation to the LLC's office premises
Once a management structure has been chosen, a great degree of flexibility can be given to the management under the MoA, including the ability to change the management, alter procedures and delegate responsibility.
–
any requisite "no-objection" confirmations.
Free zone companies
The LLC must then apply to the Competent Authority for a trade licence by submitting the following documents, together with the applicable fees: –
a prescribed application form
–
the original lease of the LLC's premises
–
a prescribed form for obtaining the requisite Municipality approval of the premises.
Once the trade licence is obtained, the LLC should be registered with the Chamber of Commerce and Industry in the relevant Emirate.
Free zone companies are generally managed by a board of directors consisting of at least two directors. There is no general requirement that directors of free zone companies should be UAE nationals. However, for some free zones, at least two of the directors and the secretary must be resident in the relevant Emirate. Directors generally have the authority to exercise all the powers of the company that are not specifically reserved to the shareholders.
Directors' duties Duty to company
Management of an LLC is carried out by a single board of between one and five directors which has the authority to exercise all powers of the company that are not specifically reserved for the shareholders.
Although not explicitly stated in the Commercial Companies Law, the directors are generally considered to owe duties to the company, not directly to the company's members (ie shareholders). Only the company can enforce these duties in the event of a breach but shareholders can bring derivative claims in the name of the company against directors in certain circumstances.
Directors may be removed by the shareholders in accordance with an LLC's MoA, by unanimous shareholder resolution or court order.
A director must avoid actual or potential conflicts of interest and may not participate in any competing business without shareholder approval (renewable annually).
There is no general requirement that directors should be UAE nationals, although certain companies carrying out industrial activities require a majority of the directors to be UAE nationals.
A director must declare to the other directors any interest in conflict with that of the company in respect of a proposed transaction or arrangement with the company, and is not permitted to vote on a resolution concerning the relevant transaction or arrangement.
Management structure LLCs
There is no statutory requirement that directors be shareholders. An LLC with more than seven shareholders must form a supervisory board containing at least three shareholders,
A director who accepts a bribe from a third party commits a criminal offence punishable by imprisonment for up to five years. No de minimis threshold applies and the offence is committed whether or not the director intended to be influenced by the bribe.
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A guide to doing business in the UAE
Duty to shareholders Any shareholder may bring a derivative action in respect of alleged breaches of duty by directors. A shareholder is not required to hold any minimum number of shares in order to have standing to bring a claim but must notify the company of the intention to initiate proceedings in advance.
registered auditor (appointed by the shareholders), ratified by the general assembly at its annual meeting and filed with the Competent Authority and the Ministry of Economy
the manager(s) of an LLC must convene a general meeting of the shareholders annually within four months of the end of the LLC's financial year; and an LLC must contribute 10% of its annual net profits towards a statutory reserve until such reserve is equivalent to half of the LLC's share capital.
Duty to creditors There is no specific requirement for directors to have regard to the interests of the company's creditors, whether in times of financial difficulties or otherwise. If a company has suspended payment of its debts, the directors must apply to a UAE court for a declaration of bankruptcy within 30 days of the suspension. If the company fails to file within the 30-day period, the directors can be found guilty of the criminal offence of negligent bankruptcy. Liability of directors A director may be personally liable to the company, shareholders and third parties for acts of fraud, power abuse, violations of the Commercial Companies Law or the company's constitutional documents and/or mismanagement. A director may be personally liable for misstatements or information disclosed to licensing and regulatory authorities or otherwise published (such as in offer documents) which cause loss or damage to third parties. Such loss or damage can encompass a broad range of harm, considered by the courts on a case-by-case basis. In the event that the assets of a bankrupt company are insufficient to meet at least 20% of the company's debts, the court overseeing the bankruptcy may direct some or all of the directors to pay some or all of the company's debts where the directors are held to be responsible.
Continuing obligations
Statutory reserved matters The Commercial Companies Law sets out a number of matters that require a certain percentage of shareholders voting in the affirmative to be validly passed. These are set out below. It is permissible for the shareholders to agree to increase the percentage thresholds in the MoA. 100% Shareholders representing 100% of an LLC's share capital must vote in the affirmative in order to:
increase the financial obligations of the shareholders
dissolve the company.
75% Shareholders representing at least 75% of an LLC's share capital must vote in the affirmative in order to:
amend the MoA (including changes to its objects)
increase or decrease the share capital
convert the company to another type or approve the merger or amalgamation with another company.
In practice, these matters require the unanimous approval of all shareholders as the Court Notary requires all shareholders to sign any amendment to the MoA (which is a necessary part of the process to complete the other matters).
Once the company has been incorporated it is necessary to comply with certain ongoing requirements, including the following in relation to an LLC (which is the most common form of company):
50%
appoint auditors
approve balance sheets, profit and loss statements, and distribution of net profits (if any).
an LLC needs to renew its trade licence annually, although for some industry sectors licences of three years may be obtained the manager(s) of an LLC must prepare annual accounts. The accounts should be audited by a locally
Shares representing at least 50% of an LLC's share capital must vote in the affirmative in order to:
A guide to doing business in the UAE
45
Contacts Dubai James Abbott Partner, Litigation, Dispute & Resolution T: +971 43620 608
[email protected]
Tim Plews Partner, Banking & Finance T: +971 4362 0689
[email protected]
Robin Abraham Partner, Banking & Finance T: +971 43620 609
[email protected]
Mike Taylor Partner, Corporate T: +971 50559 5371
[email protected]
Mohammed Al-Shukairy Partner, Corporate T: +971 50708 6365
[email protected]
Stuart Ure Partner, Capital Markets T: +971 43620 659
[email protected]
Peter Avery Partner, Banking & Finance T: +971 4362 0682
[email protected]
Debbie Walker Partner, Banking & Finance T: +971 43620 691
[email protected]
Debashis Dey Partner, Head of Capital Markets, Middle East T: +971 43620 624
[email protected]
Nigel Wellings Partner, Head of Corporate, Middle East T: +971 43620 676
[email protected] Abu Dhabi
Qudeer Latif Partner, Head of Islamic Finance T: +971 43620 675
[email protected]
Sandy Hall Partner, Construction T: +971 2613 2343
[email protected]
Graham Lovett Office Managing Partner, Middle East, Litigation & Dispute Resolution T: +971 43620 625
[email protected]
Mohamed Hamra-Krouha Partner, Banking & Finance T: +971 2613 2370
[email protected]
James McCarthy Partner, Corporate T: +971 43620 628
[email protected]
Rupert Harper Partner, Corporate T: +971 2613 2360
[email protected]
46
A guide to doing business in the UAE
This publication does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice.
Clifford Chance, Building 6, Level 2, The Gate Precinct, Dubai International Financial Centre, P.O. Box 9380, Dubai, United Arab Emirates © Clifford Chance 2014 Clifford Chance LLP is a limited liability partnership registered in England and Wales under number OC323571. Registered office: 10 Upper Bank Street, London, E14 5JJ. We use the word 'partner' to refer to a member of Clifford Chance LLP, or an employee or consultant with equivalent standing and qualifications. Licensed by the DFSA.
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