A legal guide to setting up a company and conducting business in Abu Dhabi

 

Founded in December 1971 as a federation between six of its seven constituent entities, the UAE includes the emirates of Abu Dhabi (the capital city), Dubai, Sharjah, Ajman, Fujairah and Umm Al Quwain. The emirate of Ras Al Khaimah joined the federation the following year. The UAE is governed by the UAE Constitution, which permits each emirate to have its own legislative body and judicial authority. Accordingly, there are both federal courts and local courts in each individual emirate that uphold the constitution.

Abu Dhabi courts apply UAE federal law, as well as the emirate’s unique legal framework. Although the procedures and laws applied by the courts of the individual emirates are similar, there are differences as a result of the federal system. Therefore, it is essential to understand the local laws, as well as the federal law. It should also be understood that the UAE is an Islamic state. Article 7 of the UAE Constitution states that Islamic sharia law shall be the main source of legislation in the country. As a result, there are a number of differences between local commercial and legal concepts, and those underlying, for example, the European-based commercial and legal environment.

The Judiciary

The UAE is, essentially, a civil law jurisdiction with its roots in the Egyptian, French and Roman legal systems. Common law principles, such as adopting previous court judgments as binding legal precedents, are therefore not generally recognised. Where case reports are available, judgments delivered by higher courts do tend to be used as guidance by lower courts, although – as there is no official system of case reporting – judges have a great deal of flexibility in regards to decision making.

Traditionally, each emirate operated a two-tier court system, providing a Court of First Instance and a Court of Appeal. The federal court structure introduces a third tier, the Supreme Court, which hears final appeals, conducts judicial review proceedings and presides over disputes between the individual emirates. The emirates of Abu Dhabi, Dubai and Ras Al Khaimah now have local court structures, whereas the remaining emirates have continued to apply the federal court structure. As with many other jurisdictions, the courts are separated into those that rule on civil matters and those that rule on criminal matters. Matters of personal status are dealt with separately, under sharia law in sharia courts that work alongside civil and criminal courts.

Jurisdiction of the Courts

The general rule is that the parties to a contract are free to choose the governing law and forum for dispute resolution under a contract. It is common for foreign parties that are contracting with Abu Dhabi entities to propose that foreign law should apply to their agreements and that foreign courts should have jurisdiction to hear any dispute arising from the resultant contractual relationship. In applying the UAE rules of jurisdiction as provided for in Federal Law No. 11 of 1992 (Law of Civil Procedure) the UAE’s courts are resolute in enforcing their jurisdiction under that law to hear a case filed before them, regardless of any contractual jurisdiction clause granting the hearing of a dispute to foreign courts. This position is different if the contract provides for disputes to be referred to arbitration. The UAE courts usually enforce these provisions, and the Law of Civil Procedure contains provisions enabling the court to stay a civil claim filed in respect of a contract containing an arbitration clause, provided that the defendant pleads the arbitration clause at the first hearing of the claim.

Appeals

After a judgment has been delivered by a Court of First Instance in Abu Dhabi, a party has the right to appeal to the Civil Court of Appeal on factual and/or legal grounds within 30 days. Parties may only appeal on specific points of law to the Court of Cassation, the highest court in Abu Dhabi, which is usually composed of a panel of five judges. An appeal to the Court of Cassation must be filed within 30 days from the date that the parties were notified of the judgment of the Court of Appeal. All decisions issued by the Court of Cassation are final.

Arbitration

While Abu Dhabi has an established legal system and court structure that deals with both civil and criminal matters, arbitration has emerged as a popular means of alternative commercial dispute resolution as international trade and investment continues apace. The Law of Civil Procedure deals specifically with arbitration, including factors that affect the appointment of the arbitral tribunal and the validity of the arbitration award.

The Federal Law No. 6 promulgating the UAE’s much anticipated new Federal Arbitration Law was enacted in 2018. It provides a more detailed framework for arbitration, introducing concepts that are consistent with internationally accepted practice. The law is in large part based on the widely adopted UN Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, a template law drafted by UNCITRAL. It applies to any arbitration conducted in the UAE and to international commercial arbitrations where parties have agreed that the case shall be subject to UAE law. The law replaces the limiting provisions of Articles 203 to 218 of the Federal Code of Civil Procedures No. 13 of 1992. It is a significant move towards the UAE bringing its arbitration procedures and practices in line with international standards.

It is important to be aware that it is not possible for any Abu Dhabi or UAE government department to enter into any agreement to arbitrate, unless special consent is provided by the government. While the ambition of arbitration is generally to remove the determination of a dispute from the courts, there are certain functions that the Abu Dhabi and/or UAE courts will need to perform in relation to arbitrations conducted in Abu Dhabi, such as making orders to assist the arbitral process, dealing with any challenges to an arbitral award once issued and, most importantly, ratifying the award so that it is capable of being enforced against the losing party’s assets. The latter does mean that a final resolution of a dispute arbitrated in Abu Dhabi cannot be achieved without the involvement of the UAE courts.

Pursuant to UAE Federal Decree No. 43 of 2006, the UAE acceded to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which is the leading commercial law treaty on the enforcement of foreign arbitral awards. As a result, arbitral awards issued in the UAE should now enjoy automatic recognition across the other 143 member states that are signatories to the New York Convention, and they should therefore be enforced outside the UAE on a reciprocal basis, without a re-examination of the merits behind the relevant dispute.

The New York Convention has been applied by both the Abu Dhabi and Dubai Courts of Cassation to uphold foreign arbitral awards. However, in 2013 in the case of Construction Company International Ministry of Irrigation of the Government of Sudan, the Dubai Court of Cassation refused to enforce a foreign arbitral award against Sudan’s Ministry of Irrigation. The Dubai Court of Cassation held that the Court did not have jurisdiction under the UAE Civil Procedure Code. Recent cases have shown a marked effort to reinforce the recognition of foreign arbitral awards.

ADCCAC

The Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) is the leading arbitration centre for settling disputes in Abu Dhabi, but arbitration is also conducted locally under the rules of bodies such as the International Chamber of Commerce and the London Court of International Arbitration, among others. In October 2013 ADCCAC introduced new procedural rules that are widely considered to have brought ADCCAC in line with other international arbitration centres. Key provisions include details of a request for arbitration, the process for appointing arbitrators, a fee table, express confidentiality obligations and limitation of liability of the arbitrators. There has also been a significant rise in ADCCAC arbitrations since the new rules were introduced.

Establishment Options

The purchasing of “shelf companies” is not a concept that currently exists in the UAE. Broadly speaking, the basic criteria for a foreign company wishing to actively do business in Abu Dhabi is that an appropriate association ( typically on an emirate-by-emirate basis) with a UAE national or company 100% so owned be established. While the territory of such associations may always be extended, it can be very difficult subsequently to limit it, and it is often the case that a national or his or her company is most effective only in his home emirate. There are four options currently available to the inward investor to carry on business in Abu Dhabi:

• Participation in a local corporate entity, which is typically a limited liability company (LLC);

• Establishment of a branch or representative office of the foreign entity;

• Appointment of a commercial agent or distributor, where the principal stays at home, so to speak; and

• Establishment in a free zone. Each option involves a different method of operation from the foreign company’s point of view, the first three requiring an association with a UAE national or a company wholly owned by UAE nationals.

It should also be appreciated, particularly with regard to an agency and, to some extent, an independent licensed branch, that the local associate is afforded, by legislation and/or practice, a high degree of security of tenure. In practice, therefore, regardless of the terms of the relevant agreement, it is extremely difficult to bring such relationships to an end other than by mutual consent of the parties.

In determining which of the above options is most appropriate, any inward foreign investor should carefully consider with professional advisers and other consultants experienced in UAE business, inter alia, the scope and nature of the intended business relationship; the nature of its proposed activities, which will be relevant with regard to licensing requirements; how much control is desired to be maintained by the foreign investor; and the time and expense that is likely to be involved in setting up the chosen entity.

It should also be appreciated that irrespective of the type of relationship or method of operation, the associate will usually have, in effect, the right to be the exclusive associate of the foreign company in the territory of the relationship. The new commercial companies law, Federal Law No. 2 of 2015 concerning Commercial Companies (Companies Law), went into force on July 1, 2015. The new law replaced Federal Law No. 8 of 1984 concerning Commercial Companies, known as the Old CCL. While the new law does introduce new concepts and approaches, most of the features of the previous law have been maintained.

Local Corporate Entity

There are currently five types of commercial entity, as recognised by the Companies Law. They include: joint liability company; simple commandite company; LLC; private joint stock company; and public joint stock company. It should be noted that the principal corporate vehicle through which inward investors establish a presence in Abu Dhabi and the UAE more generally is the LLC.

LLC

Under the Companies Law, it remains the case that at least 51% of the shares in LLCs must be held by UAE nationals or by companies that are wholly owned by UAE nationals. In recognition of the majority local ownership and local incorporation, LLCs are regarded for many purposes as local companies in Abu Dhabi. There are certain fields of activity (e.g. those falling within what the authorities regard as industrial) that are open only to local companies. In certain sectors, preferences operate in favour of local firms, and some contracts are open only to local companies.

There is no minimum share capital requirement for an LLC. However, local authorities may still impose minimum capital requirements for specific types of business and the share capital must always be fully paid up. There is no concept of unissued, as against issued shares, and only one class of share is permitted.

Existing partners in an LLC are given a first option to purchase shares being offered by another partner to a third party. In reality this is a right of pre-emption, which cannot effectively be waived, and which tends to benefit the local shareholder as a foreign partner holding 49% may not increase his stake beyond that 49%. Generally, the liability of a partner is limited to the extent of his holding, but in certain circumstances, such as if a resolution contravening the Companies Law is passed, additional liability may accrue.

It is possible to agree within the LLC’s constitution that profits are to be shared other than in proportion to shareholdings; for example, where one of the parties provides particular expertise or assumes responsibility for the management of the LLC. It is likely that there will be greater focus on anti-avoidance provisions and on penalising those who attempt to side-slip majority-ownership rights.

In addition to satisfying requirements laid out by both the federal Ministry of Economy (MoE) and Abu Dhabi Department of Economic Development (ADDED), depending on the proposed activities of a LLC, additional approvals from other government departments or ministries may also be required. The following should be noted in respect to LLCs under the new Companies Law of 2015:

• The maximum number of shareholders remains capped at 50;

• The limit on the number of managers has been removed;

• Pre-emption rights are retained, as is the statutory one class of share;

• An LLC may be established by a single shareholder;

• The valuation of shares can now be assessed by an independent, ADDED-approved consultant with financial expertise;

• A mechanism for pledging shares in an LLC has been introduced. Pledges are deemed valid against the LLC and third parties upon registration in the Commercial Registry of the competent authority of each emirate; and

• Where agreed, profits may be distributed other than in proportion to shareholdings.

Public & Private Joint Stock Firms

Companies wishing to operate in business sectors involving insurance, banking or investment of funds for third parties may only be established in the emirate of Abu Dhabi as a public joint stock company (PuJSC). A PuJSC limits the liability of its shareholders to the par value of their shareholding and its shares can be offered to the public. A foreign investor’s choice to incorporate a joint stock company is likely to revolve around the proposed company’s activities. An entity wishing to engage in investment banking must be a joint stock company. Investors may also wish to have flexibility regarding a future stock market listing, and the conversion process to a PuJSC is simpler for an existing private joint stock company (PJSC) than for an LLC.

Branch or Representative Office

The establishment of a branch or representative office is an option that involves the establishment of an independently licensed branch office of the foreign company holding in its own right a separate registration with the authorities. To establish a branch in the emirate of Abu Dhabi, a foreign company must appoint a local service agent, colloquially referred to as a sponsor. It is possible for sponsors to be active, by, for example, providing promotional services, but more often than not the role is limited to assisting in and facilitating the required registration and administration formalities. Sponsors are entitled to a fee even if inactive. If the sponsor is required to provide services additional to the basic registration, visa assistance and or the like, they are generally permitted to do so but they may well seek to negotiate an additional fee. A fee is generally freely negotiable and may be, for example, a fixed annual amount, a percentage of profit or turnover, however defined, or a combination.

A sponsor does not play any role in the management of a branch, nor is he or she involved in negotiating contracts on behalf of the branch office. It must be appreciated that branches are not regarded as local companies. The name of the branch must be that of its parent company with the addition of “Abu Dhabi Branch”. Once a branch office is registered, it may carry on business in its own name. It is permitted, for example, to enter into contracts in its own name, employ its own personnel and to obtain visas for them. However, a branch is not permitted to trade, and certain matters, in particular the import of goods, equipment or plants, may require the assistance of the sponsor. Although a branch office is able to enter into contracts in its own right, it can only engage in the same activities as its parent. The parent company is required, as part of the registration process, to guarantee the liabilities of the branch office. The termination of a sponsorship generally involves a negotiated settlement between the foreign company and the sponsor, culminating in the payment of compensation. The choice of sponsor is thus important. Representative offices are not legally distinguishable from a branch office of a foreign company and are established in a similar manner, but they may not contract in their own right and hence fulfil more of a promotional function on behalf of the parent entity.

Commercial Agency

Perhaps the simplest way for a foreign company to carry out business in, or with, Abu Dhabi is by the appointment of a registered trade agent. This type of appointment is regulated by Federal Law No. 18 of 1981, as amended, regarding commercial agencies, known as the Trade Agencies Law (TAL). No real distinction is made between a commercial representative and a distributor, so the expression “agent” is interpreted to apply equally to a main distributor and to a representative, as well as to a commercial agent. The expression “agent” is therefore used here in this broader sense.

The trade agency route may initially be cheaper for foreign companies wishing to test the market, because it avoids the need to establish a physical presence in the emirate, thereby avoiding the need to procure any separate registrations, since the business will be carried on under the agent’s trade licence.

Other than any initial costs, the principal’s only recurring expense will be the amount of commission payable to the trade agent (the official agent is entitled to commission on all transactions in its territory, even if those transactions have not been concluded as a result of the efforts or involvement of the agent). A foreign principal may appoint an official agent for the UAE as a whole or may appoint agents on an emirate-by-emirate basis. In either case, the agent’s appointment is generally an exclusive one, although the official agent does have the right to appoint sub-agents in the territory. Under the TAL, only UAE nationals or companies wholly owned by UAE nationals are entitled to act as official agents.

A foreign principal may not terminate or refuse to renew the agency unless they can show “a material reason justifying its termination or nonrenewal”. If the principal is unable to display a “material reason” justifying the termination or non-renewal, the principal may well be required to pay compensation to the agent on termination of the agreement. The TAL now provides that a dispute must be taken to a committee established to hear disputes arising in respect of commercial agencies before it can proceed to court. An agency agreement which is not registered in the Commercial Agent’s Register maintained by the federal MoE will not, in principle, be recognised or enforced. An agency cannot be re-entered in the Commercial Agents Register in the name of another agent unless the parties have mutually agreed to abrogate it or a court verdict has been issued terminating the agency.

Free Zone Entities

The principal merit of a free zone entity is that 100% of the shares can be held by a foreign entity, there is no need to involve a local sponsor or shareholder, the firm enjoys tax exemptions and it is freely able to repatriate profits. The business is not subject to import duties and so may have a regional role in relation to, for example, import, export, manufacture or assembly and distribution. A number of free zones provide guaranteed exemptions from corporate taxation for up to 50 years, which can be renewed. The procedure for setting up a presence, obtaining a business licence and procuring visas for a workforce is generally quicker and more streamlined within any free zone. Each free zone caters to the specific needs of a particular industry. In many instances a free zone presence entitles a company to carry out business activities only within that free zone, so the option requires careful consideration.

Media Zone

The twofour54 free zone was established pursuant to Law No. 12 of 2007, concerning the establishment of the Abu Dhabi Media Zone Authority. It has been developed as a media and content creation free zone and offers an advantageous geographical location, an integrated environment, and appropriate infrastructure for local, regional and international investors seeking to carry out media-related business activities in the MENA region.

ADAFZ

The Abu Dhabi Airport Free Zone (ADAFZ) is being established by Skycity, a subsidiary of Abu Dhabi Airports, pursuant to Abu Dhabi Executive Council Resolution No. 61 of 2010, which has granted free zone status to the properties owned by Abu Dhabi Airports within Abu Dhabi International Airport (ADIA), Al Ain International Airport and Al Bateen Executive Jet Airport. Situated within the boundaries of the ADIA, ADAFZ is being developed to allow a range of business sectors to operate, subject to compliance with health codes and environmental standards. In line with other free zones in the UAE, the benefits of operating within ADAFZ will include 100% foreign ownership, 100% corporate tax exemption, 100% import and export duty exemption, and a one-stop shop for administration services.

Green Zone

Masdar City is an arcology project consisting of a planned city, which is being built by Masdar, a subsidiary of Mubadala Investment Company, under the sponsorship of the government of Abu Dhabi. Once completed it will be a model of sustainable urban development, and the world’s first carbon-neutral, zero-waste city. It is the first special economic zone to be established for clean technology and renewable energy companies. Masdar City is a purpose-built city focusing on academic research, development and operations for companies, entrepreneurs and financiers based on renewable energy and related technologies. It is now estimated to be completed between 2020 and 2025, while Masdar City’s population is expected to grow to some 10,000 in the coming three to five years.

Global Zone

Federal Decree No. 15 of 2013 established the Abu Dhabi Global Market (ADGM) as a financial free zone in Abu Dhabi located on Al Maryah Island. The ADGM has its own judicial and legal system and is exempt from UAE federal civil and commercial laws and, where applicable, Abu Dhabi local law.

The ADGM has published a wide array of regulations and guidance relating to subjects such as setting up in the ADGM and the requirements of the Financial Services Regulatory Authority if seeking to undertake certain activities within the jurisdiction.

With the zone’s focus on asset management, the ADGM is expected to continue to attract businesses such as commercial and investment banks, foreign exchange and commodities traders, brokerages, investment and pension funds, financial consultancies, insurance and reinsurance providers, Islamic financial firms and related financial, accounting and professional service providers.

Industrial Zone

The Khalifa Industrial Zone Abu Dhabi (KIZAD) is situated between Abu Dhabi and Jebel Ali. KIZAD offers 100% foreign ownership, no duties on imports and exports, and the opportunity for investors to set up either a free zone or onshore company. KIZAD includes a world-class container and industrial port (Khalifa Port), along with more than 100 sq km of world-class infrastructure, including special economic and free zone space dedicated to logistics, industrial, commercial, educational and residential facilities. KIZAD has the benefit of multi-modal connectivity via sea, air, road and future rail networks to ensure easy accessibility to and from the industrial zone. KIZAD is due to be completed in 2030.

New Foreign Direct Investment Law

The long-contemplated relaxation of foreign shareholding limits has finally been addressed in the new Foreign Direct Investment Law, Federal Law No. 19 of 2018 (FDI Law). The current 49% shareholding restriction is often the main concern for an inward investor, and the removal of this limitation has been well received by inward investors, providing the impetus for diversification which can be driven by a dynamic private sector. The FDI Law came into force on October 1, 2018. Under the FDI Law, foreigner investors will be able to own up to 100% of the share capital of a local company. This relaxed approach will only be permitted in specific sectors. The sectors will be set out in a “Positive List” (as defined in the FDI Law), which has yet to be published. For the time being, however, foreign investors must continue to rely on one of the existing legal structures available as discussed above if they wish to achieve majority or full ownership of a presence in the UAE. Furthermore, there are certain economic activities that may only be conducted by UAE nationals. These include services related to Hajj, commercial agents and social services including care homes for the disabled, the establishment of newspapers and magazines, and recruitment agencies.

Investment Management 

Efforts to provide greater regulation and protection for investors in UAE investment funds have culminated in the Investment Management Regulations, which came into force in 2014. Regulation of investment and fund management activities in the UAE has now passed to the Securities and Commodities Authority (SCA).

All existing entities carrying on such activities in the UAE, including banks and investment companies, have been required since February 2015 to obtain a new licence from the SCA.

The Investment Management Regulations now enables asset and fund managers domiciled in the Dubai International Financial Centre (DIFC) and regulated by the Dubai Financial Services Authority to participate in investment and fund management in the UAE. DIFC entities applying for an SCA investment management licence will still need to establish an onshore office in order to operate under that licence.

Investment managers must ensure full separation between the investment manager’s accounts and customers’ accounts. All managed assets must be held by a custodian licensed by the SCA or a custodian outside the UAE in respect of foreign assets.

Corporate Governance 

Companies whose securities are listed on a UAE on-shore stock exchange – the Abu Dhabi Securities Exchange or the Dubai Financial Market - other than government entities, finance companies under the control of the central bank and firms listed on foreign financial markets, are required to adopt certain corporate governance rules and to create an internal control system.

A circular issued by the SCA details the requirement that there be a balance on the board between executive, non-executive and independent directors (with a majority of the board to be non-executives and one-third being independent). The board must also establish two permanent committees, namely an audit committee, and a nomination and remuneration committee. Listed companies must also implement an internal control system to assess governance, compliance and financial data. A corporate governance report, the form of which was attached to the circular, must also be submitted to the SCA annually.

Compliance

Listed companies must appoint a compliance officer to verify the scope of compliance by the company and its employees with relevant laws and regulations. The board must also implement a clear policy on dividend distribution in the best interests of the shareholders and the firm, which must be made available in general meetings. The articles of association and internal regulations of each listed company must ensure shareholders are provided with all information necessary to enable them fully and equally to enjoy their rights without discrimination, including the opportunity to take an effective part in deliberations of general meetings and voting on resolutions. In addition, shareholders must be provided with biographies of nominees to the board before voting. Affected companies must implement a code of professional conduct ( applicable to directors, managers, employees and internal auditors), as well as an environment and social policy towards the local community.

Competition Law

UAE Federal Law No. 4 of 2012 Concerning Regulation of Competition (Competition Law) regulates competition, addressing restrictive agreements, the abuse of dominant position and economic concentration. The Competition Law bans restrictive agreements, business and actions that lead to the abuse of a dominant position, controls the operations of economic concentration and targets all activity that may prejudice, limit or prevent competition. However, exclusive distribution agreements are governed by the TAL and are outside the scope of the Competition Law, even if they might otherwise infringe its provisions on restrictive agreements.

The Competition Law is yet to become fully functional and there is also continued uncertainty regarding its application, as further regulations and decisions are still required to prescribe significant aspects of the law including, amongst others, the controls for excluding small and medium establishments and the market share threshold for the definition of dominant position. Certain economic sectors, which are separately regulated, are excluded from the ambit of the Competition Law, including the telecommunications and financial sectors, and postal services.

Public Sector Procurement

Pursuant to the Federal Regulation of Conditions of Purchases, Tenders and Contracts, Financial Order No. 16 of 1975 (Public Tenders Law), and subject to certain exceptions, only UAE nationals, foreign entities represented by a UAE agent or foreign entities with UAE partners (for example, an entity with at least 51% UAE ownership) may bid for public sector tenders for the supply of goods and public works projects governed by the Public Tenders Law. As a result, foreign entities wishing to perform public sector contracts are generally required to have some level of UAE national participation. The general requirement for UAE national participation is not necessarily observed by all government agencies in the context of certain direct sales to the public sector or private tenders in which the government solicits bids directly from relevant manufacturers, particularly where the goods or services are specialised or not widely available. These exceptions arise on a case-by-case basis.

The Public Tenders Law relates to federal government procurement and does not apply to public procurement within individual emirates or purchases and contracts that are conducted by the federal defence forces. Abu Dhabi has a procurement law which is similar to the Federal Public Tenders Law. This requires suppliers to either have commercial agents or be national companies that are registered with the Abu Dhabi municipality, but with differences in requirements of compensation, method and flexibility.

Property Law

Under Abu Dhabi’s property laws, governed by Law No. 19 of 2005, as amended by Law No. 2 of 2007, UAE nationals and legal entities wholly owned by them can own freehold property anywhere within the emirate. GCC nationals and legal entities wholly owned by them may also own freehold property, but only within specifically designated investment zones, such as Al Raha Beach, Al Reem Island, Saadiyat Island and Al Reef Villas. Currently, non-GCC nationals have the right to own property in the investment zones as leaseholders with leases for up to 99 years but no rights to the actual underlying land. However the Abu Dhabi Municipality announced that state-owned firm Aldar Properties has been contracted to build properties in specially designated investment zones where foreign nationals will be permitted a freehold title. Musataha agreements (land development contracts) have already been registered by the Abu Dhabi Municipality. Under Law No. 20 of 2006 (abolished in 2013 and reinstated on December 13, 2016), residential rent increases are limited to 5% per year by way of a rent cap in Abu Dhabi.

Anti-Discrimination & Hatred Decree

Recent federal legislation prohibits all forms of discrimination on the basis of religion, belief, sect, faith, creed, race, colour or ethnic origin. Notably, the law states that a representative, manager or agent of a company will be punished by the same penalties that would apply if she or he had committed the offence themselves if a crime prohibited by the law is committed by any personnel of the company in its name and on its behalf. Penalties are imprisonment and/or a substantial fine.

Labour Law

Labour law matters in Abu Dhabi are governed by Federal Law No. 8 of 1980, as amended and as supplemented by various ministerial decrees, which covers aspects of the employment relationship, including those relating to labour contracts, working hours, wages, leave, safety at work, discipline, termination of employment contracts (although there are no specific provisions directly dealing with redundancy), end of service benefits, compensation for occupational diseases, labour inspections and penalties. The Labour Law applies to all employees working in the UAE, whether nationals or expatriates, although certain categories are exempted from the law, for example, those employed by public bodies to whom other legislation applies. The Labour Law sets the minimum requirements. Thus if the provisions in an employment contract are less favourable than those in the Labour Law, the former will not be enforceable and the Labour Law takes precedence.

Foreign nationals working in Abu Dhabi must hold work and residence permits. A work permit will be issued on the basis of, among other matters, a contract of employment with a locally licensed entity in local form issued by the Ministry of Labour (MoL) covering the basic provisions of the Labour Law. In most instances, expatriate employees will also be issued by their employer with significantly more detailed employment contracts and, to the extent that the employee has greater benefits under the long-form contract, then the latter will be enforced locally.

The ADGM has introduced its own employment regulations that closely follow those of the DIFC and accordingly differ in a number of areas from federal law. From the employee perspective, there is more generous sick leave and maternity leave and, for the first time in the UAE private sector, paternity leave provisions. Anti-discrimination and data protection provisions have been introduced, together with relatively flexible working hour arrangements.

Labour Updates

Ministerial decrees which came into effect in January 2016 are designed to enhance labour relations. Employees must now receive, in MoL format, a formal offer of employment, the terms of which must be reflected in the employee’s contract of employment. Notice periods and procedures on termination of contracts have been adjusted and the circumstances in which a labour ban will be imposed on a former employee have been considerably reduced.

In September 2016, it was announced that government employees in Abu Dhabi would be entitled to one extra month of paid maternity leave, as well as two additional hours of break per day for one year. New fathers are also entitled to three days’ paternity leave. It remains to be seen if similar changes to maternity and paternity rights will be introduced in the private sector and/or other emirates of the UAE.

In the past, employers faced difficulties in enforcing anti-competition agreements. In an attempt to overcome this issue, the new Ministerial Resolution 297 of 2016 has been introduced, which allows the option of enforcing anti-competition provisions in employment contracts. Where the court finds that an employee is in fact bound by a contractual agreement not to compete with its employer, the Ministry of Human Resources & Emiratisation (MoHRE) may refrain from granting that employee a work permit or revoke an existing work permit issued to the employee for the duration of the anti-competition restriction. The resolution is yet to be tested in the UAE courts, so it is unclear whether it alone can be used to form the basis of a claim in its own right. It may need to form part of a civil claim for monetary damages as mentioned above, or used as a counter-claim where an employee files a labour claim against the employer. The effects of the resolution are further limited by the fact that it does not apply to employment in a UAE free zone or any form of employment not regulated by the Ministry of Labour. This is because the employee in this instance would not require a ministry work permit to join the new company.

Prior to the introduction of Ministerial Resolution No. 31 of 2018 concerning a new employment system under part-time contacts, employers working part-time for a single employer would be restricted from undertaking part-time employment for additional employers without obtaining consent from the MoHRE. This would be granted if the MoHRE received a No Objection Certificate from the primary employer. The effect of Resolution No. 31 is that part-time employees – working at least 20 hours per week but less than 48 hours a week – are allowed to work for multiple MoHRE-registered employers provided they can obtain the respective part-time work permits which would be sponsored by the additional employer. A No Objection Certificate is not required under the resolution. Instead, the primary employer is merely notified of the employee’s additional parttime employment by the MoHRE. In line with the UAE Government’s efforts in shifting the UAE towards a knowledge-based economy, the introduction of Federal Cabinet Resolution No. 56 of 2018 will allow certain professionals the right to remain in the UAE for up to 10 years without a sponsor. These visa rights are subject to the professional satisfying a number of conditions and will only be open to investors, entrepreneurs, students with promising scientific potentials and persons with ‘specialised talents’. Professionals in the latter category include those working in medicine, science, research, as well as creative individuals in the fields of culture and art. However, only investors investing at least Dh10m ($2.7bn) in public investments and professionals with ‘specialised talents’ will be able to apply for a 10 year residence visa, the other listed professionals will only be able to apply for a 5 year residence visa.

Intellectual Property

The UAE is a signatory to multiple international treaties on the recognition and enforcement of intellectual property (IP) rights. IP is recognised domestically in three forms: trademarks, patents and copyright. In each of these areas there is federal law dealing with registration, protection and enforcement matters. Enforcement of trademarks, copyright and industrial property comes under the purview of the relevant MoE Department. Enforcement is assisted by the Ministry of Interior, the Abu Dhabi Municipality, and the criminal investigations department of the Abu Dhabi police.

The registration of a trademark in Abu Dhabi is effected through the trademarks legal department of the MoE, which includes a Trade Mark Registry. Federal law details certain signs that cannot be registered as trademarks, outlines the trademark registration, cancellation and transfer of ownership procedures, and licenses others to use trademarks and penalties for trademark law infringement, together with general provisions. Registration of a trademark affords the owner protection in each of the seven emirates, giving the owner the right to file an action in the court for damages in cases of infringement. The timeframe for filing a trademark up to registration is approximately 12 to 18 months. The period of validity of the trademark is 10 years and renewal should be undertaken six months before the expiry date. Licence agreements should also be recorded in the Trademark Registry, so that they are effective against third parties.

Federal law, now in line with the World Trade Organisation’s agreement on Trade-Related Aspects of IP rights, regulates patent protection in the UAE. Patents will only be granted for new inventions that result from an innovative idea or an innovative improvement to an invention protected by an existing patent. The new invention must also be capable of industrial application. Protection of a patent is for a period of 20 years from the date of filing, while a utility certificate and industrial models are protected for 10 years and know-how is protected for as long as it remains unpublished and out of the public domain.

UAE copyright law gives a right to prevent third parties from copying without consent and infringing works. Protection is given to original works in writing, sound, drawing, image, motion pictures, creative titles or computer software. Translation of original works is also protected. The duration of the protection is for the lifetime of the author plus 50 years after their death, or 50 years from the date of publication in cases of cinematographic works or works of corporate bodies. Works of applied arts are protected for 25 years from the publication date and broadcasts are protected for 20 years from the date of first broadcast. Copyright arises automatically upon the creation of an original work, provided it is not in a category that is excluded from protection, such as works already in the public domain. The works should be filed with the Ministry of Information and Culture.

Several methods are available for enforcing IP rights against violators, including administrative and judicial action. Federal government authorities, as well as local government authorities in several emirates, have jurisdiction to enforce IP laws by raiding shops and warehouses, seizing goods and fining parties found to be in breach of IP laws. Customs authorities also have the right to seize and destroy illegal goods. Owners of IP may wish to file a claim in a court to demand compensation for damages suffered, however, there are no specialist IP courts in the UAE and judges, especially in the lower courts, may not have the specialised expertise to rule in such cases.

Anti-Bribery & Corruption

The UAE has ratified the UN Convention against Corruption. Article 15 of this convention holds that signatory states must adopt legislation in respect of acts of bribery involving public officials. To date the UAE does not have a stand-alone corruption and bribery law. Relevant legislation is contained mainly in the Federal Constitution, Articles 234-239 of the Penal Code (Federal Law No. 3 of 1987 as amended), the Companies Law, the Commercial Transactions Law (Federal Law No. 18 of 1993 as amended), Human Resources Law (Law No. 11 of 2008) and the UAE Anti Money Laundering Law (Law No. 4 of 2002). Together, these constitute an anti-bribery and corruption regime with infringement punishable by imprisonment and fines. The main provisions primarily target any gift or advantage offered to, or sought by, a public official in consideration for the performance or non-performance of their public duties, or acts beyond their public duties.

A new draft Anti-Commercial Fraud Law was endorsed by the UAE Cabinet in 2013 and is intended to replace Federal Law No. 4 of 1979 concerning the Suppression of Fraud and Deception in Commercial Transactions. This new draft law supplements the existing enforcement mechanisms in respect of IP rights, especially trademarks. The law is not yet enacted and there may be further amendments before it is passed into law. An amendment to the 2002 UAE Anti Money Laundering Law came into force in 2014 and significantly expands the scope of money laundering crime in the UAE, and introduces new and more stringent measures to combat financial crimes and money laundering offences. There has been discussion of a potential new Anti-Corruption law since 2015, but legislation has not yet been introduced.

VAT

The UAE introduced VAT on January 1, 2018, along with the five other GCC members. VAT is now imposed in the UAE at a rate of 5% on all goods and services other than basic food, health care and education. Businesses can voluntarily register for VAT if the total value of their taxable supplies made within the UAE over the previous 12 month period exceeds Dh187,500 ($51,037) or if the total value of a business taxable supplies exceeds Dh375,000 ($102,075) over the previous 12-month period, then VAT registration becomes compulsory.

Mortgage on Movable Assets

On December 15, 2016 Federal Law No. 20 of 2016 on Mortgaging of Movable Assets as Security for Debts (New Security Law) was published. The law applies to securities over moveable assets and creates a public security register, the Emirates Movables Collateral. However, moveable assets subject to existing laws or for which a special register already exists will not be subject to the New Security Law, for example a pledge over a vehicle registered with the Department of Transport. Prior to the introduction of the New Security Law, the Civil Code governed the creation of a possessory pledge over moveable assets which, amongst other requirements, required the transfer of possession to the mortgagee or a third party as bailee. Under the New Security Law, there is no such requirement provided the mortgage is registered in the Emirates Movables Collateral register. This will be significant in areas such as trade finance in which arranging for a third party bailee to take possession of the goods was not always possible.

Bankruptcy

The UAE government has attempted to create a robust legal insolvency framework within which all businesses can operate and parties can be sufficiently protected with the introduction of the bankruptcy law, Federal Law No. 9 of 2016 (Bankruptcy Law). The law primarily provides three mechanisms to assist debtors in financial difficulty: protective composition, restructuring and bankruptcy with liquidation proceedings, and voluntary liquidation. The Bankruptcy Law will not apply to companies in the UAE already governed by bankruptcy provisions, such as those in the Abu Dhabi Global Market, a free zone with own insolvency regime.

Penal Code

Changes have recently been made to the UAE Penal Code (Federal Law No. 3 of 1987) by Federal Decree Law No. 7 of 2016. These changes include the use of restorative justice, including cleaning and voluntary work, for minor crimes that otherwise would have been punishable by up to six months in jail or a fine. The new law also provides for tougher penalties for certain crimes, such as acts of terrorism.

OBG would like to thank ReedSmith for its contribution to THE REPORT Abu Dhabi 2019

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The Report: Abu Dhabi 2019

Legal Framework chapter from The Report: Abu Dhabi 2019

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