Legislation concerning investment and business in Sharjah and the UAE

 

The UAE is made up of seven emirates – Abu Dhabi, Dubai, Sharjah, Ajman, Ras Al Khaimah, Fujairah and Umm Al Quwain – and adopts a federal system of government. The federation is governed by a constitution, which regulates the respective powers of the federal government as well as the local government of each emirate member; noting that the constitution is considered as the paramount law of the land, which all laws of each emirate must be based on, confirm or defer to.

According to the constitution of the UAE, each emirate has the power to regulate all local matters that are not subject to or reserved for the federal government’s legislation. In view of that, the emirate of Sharjah has the power to enact its own local legislation for any local matters, save those which are reserved to the federation. Sharjah therefore retains the power and authority to regulate and supervise the operation of commercial activities that take place within the emirate.

Judicial System

The legal structure in the UAE is essentially made up of two main systems: the federal judiciary at the national level and the local judicial departments at the local government level. Under the constitution, each emirate is entitled to either establish its own distinct and autonomous local judicial systems or merge with the federal court system. Sharjah’s judicial system has merged with the UAE federal judicial authority.

Sharjah follows a uniform rule regarding legal procedures. Thus, Sharjah’s legal and judicial structure consists of the Court of First Instance, the Court of Appeals and the Court of Cassation.

It is also important to note that the doctrine of precedence is not being applied in the UAE. This simply means that when judges make rulings in cases, they are not bound by past judicial decisions, and as such, they have the full discretion and flexibility in resolving issues on a case-by-case basis.

Given that Sharjah is a growing destination for international commerce, the following are the possible means of forming a corporation in Sharjah, in accordance with the New Commercial Companies Law No. 2 of 2015:

• Partnership;

• Limited partnership;

• Limited liability;

• Public joint-stock; and

• Private joint-stock. With the exception of the partnership and the limited partnership categories of corporation – in which all acting partners must be UAE nationals – any company that is incorporated in the country must have a UAE national partner or partnering parties that hold a minimum of 51% of the capital of the company. Moreover, there are certain “nationalised” commercial activities that can only be formed, organised and managed by UAE nationals. Investors CORPORATION LAW: Undeniably, the emirate of Sharjah has become one of the most rapidly developing venues for local and international commerce and investment, with it being an active hub of commerce for both local and international investors and companies. A company that wishes to join the lucrative market in Sharjah may choose to establish its operations through the Sharjah Economic Development Department or through Sharjah’s distinct free zones.

Although Sharjah is one of the most rapidly developing destinations for international investment, there are certain nationalised commercial activities that can only be formed, organised and managed by UAE nationals and businesspeople of the GCC are most welcome to invest, form, organise and operate almost any type of enterprise in the UAE, with the exception of a very short list of prohibited activities that are exclusively reserved for UAE nationals.

Public Sector Procurement

Law No. 8 of 2017 on Purchases, Tenders, Biddings and Warehouses in Sharjah governs the emirate’s public sector procurement. The purpose of the law, among others, is to ensure the simplification of public procurement procedures and transparency, as well as to achieve equality and competition among suppliers.

The law requires that in order for a contractor or supplier to participate in the bidding process, it must have a legally established presence in Sharjah as well as possession of all the documents and/or licences that are needed to operate a business in Sharjah. This law is similar to Financial Order No. 16 of 1975, or Public Tenders Law, which is the federal regulation of conditions of purchases, tenders and contracts. The main difference between the two is that the latter applies to the federal government’s projects and requires contractors or suppliers to have some level of UAE national participation. For instance, companies participating in the bidding process must have at least 51% equity share of a UAE national.

Foreign Investment

The federal government has the intention to implement a foreign investment law, which would help to reduce some of the regulatory and administrative requirements to set up a corporation in the UAE. The planned law is aimed at attracting more foreign investments into the country, so that free zones are not the only vehicle for foreign investment.

The scope of the law will include procedure, licensing, tax exemptions and other advantages. However, the introduction date of the foreign investment law has not yet been defined. The current system for foreign investment in the UAE takes the structure of free zones, which in turn promotes an attractive environment for investors and businesspeople. Sharjah has established five free zones:

• Hamriyah Free Zone Authority Sharjah;

• Sharjah Airport Free Zone Authority;

• USA Regional Trade Center Free Zone;

• Sharjah Publishing City Free Zone; and

• Sharjah Media City These free zones offer common business incentives, namely:

• 100% tax-free environment;

• 100% company ownership;

• 100% exemption from all commercial levies;

• 100% repatriation of capital and profits;

• 0% import and re-export duties; and

• 0% personal income tax. However, the licence for operation issued by the respective free zone is only valid within the free zone’s territory.

Commercial Arbitration Services

Commercial arbitration services are a type of alternative dispute resolution (ADR) that can be used to replace the conventional way of litigating in court. Parties to a commercial transaction may agree to this ADR, which is a faster way of resolving their disputes and has an uncomplicated and flexible procedure. Although Sharjah follows a legal system to resolve legal issues, it also has endeavoured to provide commercial arbitration services. Hence, by virtue of Emiri Decree No. 6 of 2009, Sharjah International Commercial Arbitration Centre (known as Tahkeem) was established in order to accommodate commercial arbitrations.

Since its formation and establishment in 2009, the centre had continued to improve, evolve and progress in both the local and international levels of arbitration. In early 2018 Tahkeem received three certificates, namely:

• ISO Quality Management 9001;

• ISO Environment Management 14001; and

• OHSAS 18001 Certification for Occupational Health and Safety Management System.

Competition Law

Generally, competition laws are intended to make sure that there is fair competition between businesses, in addition to eliminating and preventing monopolies within the commercial sector. To this end, Sharjah adheres to Federal Law No. 4 of 2012 on the Regulation of Competition, which is aimed at protecting and enhancing competition, as well as fighting monopoly practices by providing a motivating environment for establishments to ensure efficiency, competition and that consumers’ interests are protected. Additionally, the law seeks to reach a sustainable development for the UAE and maintain a competitive market that is governed by market mechanisms in accordance with the principle of economic freedom.

With this law, Sharjah’s commercial sector is secured against any illegal activities resulting in unfair competition and monopolies. The law provides that this shall apply to all establishments with regard to their economic activities in the UAE, exploitation of the intellectual property rights inside and outside the UAE, as well as economic activities conducted outside the UAE that affect competition there – save those economic activities that are governed by a separate regulation such as banking and financing activities. It is also worth noting that the law prohibits restrictive agreements, taking advantage of a dominant position and economic concentrations. It also regulates the mergers of companies. Violation of the provisions of the law may result in:

• Heavy fines that can range from Dh500,000 ($136,000) to Dh5m ($1.4m);

• Suspension of business operations for a certain period;

• Criminal prosecution; and

• Other penalties.

Consumer Protection Law

Federal Law No. 24 of 2006 on Consumer Protection laid down the basic rights of a consumer and the responsibilities of sellers and producers situated in Sharjah. The law enumerated the rights of consumers. To state it as a whole:

• Right of protection against products, production operations, or services causing harm to health or safety;

• Right to be provided with the facts that assists them in proper purchases and consumption;

• Right to select from among a number of alternative goods and services at competitive prices and with quality control;

• Right to have his opinion heard, his interests represented before official and non-official bodies, and his opinions considered in developing goods and services;

• Right to satisfy his basic needs of basic goods and services, such as food, clothing, shelter, health care and education;

• Right of compensation and fair settlement of his lawful claims, including compensation for inferior or unsatisfactory goods or services, or any practices harming consumers;

• Right to be educated and to acquire the knowledge and skills necessary to carefully select goods or services; to be aware of his basic rights and responsibilities and how to avail of the same through sustainable awareness programmes; and

• Right to live in a proper environment. Meanwhile, the obligations of sellers and producers, in sum, are to comply with all government regulations being implemented regarding producing and selling, on top of valuing and satisfying the rights of consumers.

Bankcruptcy Law

Two of the most fundamental purposes of bankruptcy laws across different jurisdictions are to give a debtor a chance to have a fresh financial start and to treat creditors on an equal footing. Federal Law Decree No. 9 of 2016 on Bankruptcy, known as the Bankruptcy Law, is no different.

The law, which took effect on December 29, 2016, intends to adequately protect the interests of both the creditor and the debtor in the case of bankruptcy. To do so, it provides various means to treat bankruptcy cases, as well as the liquidation of debtors’ assets. This law created a new regulatory body, known as the Committee of Financial Restructuring. Among other functions, the entity’s main objectives are:

• To supervise all financial restructuring proceedings;

• To approve a list of experts in the field of bankruptcy and financial restructuring; and

• To appoint trustees in financial restructuring proceedings. The Bankruptcy Law will exclusively apply to the following:

• Companies established under the New Commercial Companies Law;

• Companies that are partly or fully owned by the federal or the local government;

• Companies and institutions established in free zones that are not governed by existing bankruptcy laws;

• Individuals who are classified as a “trader”; and

• Civil companies. It is worth noting that “non-trader” individuals are not covered by the law, and it is unlikely that a personal bankruptcy law will be introduced soon.

Bribery & Corruption

The UAE is a signatory of the UN Convention against Corruption, an initiative that was created to prevent and fight corruption, as well as to ensure the integrity and accountability of civil servants. The UAE has no centralised law regulating bribery and corruption, but has taken numerous steps to resolve such issues.

The law that primarily regulates issues involving bribery and corruption in Sharjah is Federal Law No. 3 of 1987, known as the UAE Penal Code. This law is also supported by the UAE’s constitution and several pieces of legislation, such as:

• The Companies Law;

• The Commercial Transaction Law;

• The Human Resources Law; and

• The Anti Money Laundering Law. The UAE Penal Code prohibits and penalises public servants and persons in charge of a public service who have asked or accepted, either for themselves or for others, any grant or privilege of any kind or a promise thereof in return for performing or abstaining from conducting an act in breach of the duties of their office.

Bribery is likewise prohibited in the private sector; however, the provisions of these various laws supporting the UAE Penal Code largely apply to the person accepting the bribe, rather than to the person who is initiating or contributing to the commission of the offence.

Property Law

Sharjah Law No. 5 of 2010, also known as the Registration Law, covers the general rules regarding the ownership of lands. The legislation stipulates that the right to own property in Sharjah shall be restricted to nationals of the UAE and nationals of the GCC, as well as to companies and organisations that are wholly owned by any of the foregoing.

There are two exceptions to the above rule. The law provides that the right to own real estate in Sharjah may be granted as follows:

• Ownership with the consent of the ruler and upon the conditions that have been prescribed by the ruler; and

• By inheritance bequeath under decree of distribution or waiver from the owner to one of his first-degree relatives, according to what is prescribed in the executive regulations of this Law. Notwithstanding the restriction of ownership, Sharjah enacted Executive Council Resolution No. 26 of 2014 on Usufruct of Real Estate Properties in the Emirate of Sharjah, referred to as the New Resolution. By legal definition, usufruct is the right of one individual to use and enjoy the property of another, provided its substance is neither impaired nor altered. Thus, Sharjah allows the use of a vacant land or a building to other nationalities, without having the right of disposal for a lease period of 100 years.

The above resolution is a major development in Sharjah in terms of attracting foreign investment. The key developments and guidelines that were created under this resolution are:

• Usufruct rights over the land are valid for a period of 100 years, and the usufructuary shall be entitled to all natural, industrial and civil benefits of the property.

• For regulatory purposes, usufruct leases must be registered with the Sharjah Real Estate Registration Department.

• Foreign developers are permitted to sell usufruct rights to investors, subject to the approval of the ruler of Sharjah.

Labour Law

In Sharjah all matters relating to labour are governed by Federal Law No. 8 of 1980, also known as the UAE Labour Law. The law applies to all employees that are working in Sharjah, whether they are nationals or expatriates.

The Labour Law primarily governs the minimum terms and conditions of employment, wages or salaries, monetary and welfare benefits, as well as occupational, safety and health standards, especially in the private sector. Any provisions set forth in the employment contract that counter with the minimum prescribed by law shall be voided.

On the public side, government and public entity employees are not covered by the law. Instead, public sector employees are covered by a different law that specifically regulates public servants.

In addition to this exception, some provisions of the UAE Labour Law or even the law itself are not applicable to certain free zones that have their own respective employment laws, yet the same is paralleled with the UAE Labour Law.

The UAE Labour Law provides preference for hiring UAE nationals for certain positions. In this regard, Emiratisation in the UAE has been well adopted. As a result, the private sector and even government entities in Sharjah are mandated to utilise and employ UAE nationals.

In more recent developments, the Cabinet Resolution No. (1/8#) of 2017 introduced the condition that a “good conduct and behaviour certificate” must be provided in order for an individual to obtain a work visa in the UAE. This requirement came into effect as of February 4, 2018. The resolution mandates that the prospective employee or applicant provides a certificate of good conduct from his/her home country or the country of his/her residency for the last five years. The resolution behind this new requirement is to maintain security across the county. It is worth nothing that a good conduct and behaviour certificate is not required from those coming to visit the UAE for tourism purposes.

Anti-Discrimination & Hatred Decree

Sharjah accommodates multinational companies and professionals. Having that in mind, Sharjah cannot avoid instances of opposing perspectives, viewpoints and beliefs. Accordingly, Federal Decree Law No. 2 of 2015 on Combating Discrimination and Hatred is in force.

This law prohibits all forms of discrimination on the basis of religion, race or ethnic origin. Under the legislation, any act that creates hatred or is insulting to religion is a criminal offence. Penalties for violation of the various provisions of the law include:

• Imprisonment of not less than six months to more than 10 years; and/or

• Fines that can range from Dh50,000 ($13,600) to Dh2m ($544,000).

Virtual Private Network

The Federal Law No. 12 of 2016 amended the Federal Law No. 5 of 2012 on Combating Information Technology Crimes. This amendment led to a significant increase in the size of the fine imposed on persons who are found guilty of using a fraudulent IP address, whether this is done by using a false address or a third-party address, or by any other means if it is for the purpose of either committing a crime or preventing the discovery of a crime.

Under the previous laws, the old fine could range from Dh150,000 ($40,800) to Dh500,000 ($136,000). Now, under the new legislation, a fine for this crime may range from Dh500,000 ($136,000) to Dh2m ($544,000).

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The Report: Sharjah 2018

Legal Framework & Tax chapter from The Report: Sharjah 2018

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