Abu Dhabi City is the capital of the UAE, which was founded in December 1971 as a federation between six of its seven constituent emirates, namely, Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah and Umm Al Quwain. The emirate of Ras Al Khaimah (RAK) joined the following year. The federation 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 which uphold the constitution in the individual emirates. The Abu Dhabi courts apply UAE federal law, which is enacted by the UAE federal legislative body, as well as the laws of the emirate of Abu Dhabi. Although the legal procedures and laws applied by the courts of the individual emirates are similar, there are differences as a result of the federal system. It is therefore essential to understand the local as well as the federal law. It should also be appreciated that the UAE is an Islamic state. Article 7 of the constitution states that Islamic sharia law shall be the main source of legislation in the UAE. As a result, there are a number of differences between local commercial and legal concepts, and those underlying, for example, the European 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, however, 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 making their decisions. Advocates must be locally qualified, and must prove their appointment as the client’s representative by submitting to the court an official power of attorney, notarised by a notary public. 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. Abu Dhabi, Dubai and RAK now have a local court structure alone, whereas the remaining emirates continue to apply the federal court structure.
In common with most other jurisdictions, the courts are separated into those which rule on civil matters, and those which rule on criminal matters. Matters of personal status are dealt with separately, under sharia law, in the sharia courts which work alongside the civil and criminal courts. The Sharia Court is the Islamic court in the UAE and is primarily responsible for civil matters between Muslims and has exclusive jurisdiction to hear family disputes.
JURISDICTION OF THE COURTS: The general rule is that the parties to a contract are free to choose the governing law and dispute resolution forum for resolving disputes under a contract. It is common for foreign parties 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 (the Law of Civil Procedure) the UAE courts are resolute in claiming the jurisdiction to hear any case filed before them, regardless of any foreign jurisdiction clause granting the hearing of those disputes to foreign courts.
The Law of Civil Procedure provides, for example, that the courts shall have jurisdiction to hear an action lodged against a foreign party which has no place of residence in the state if the action involves monies in the state or a contract to be performed in the state. Furthermore, the Abu Dhabi courts will not enforce any provision of a contract which relates to a choice of foreign law that is contrary to sharia, public order or morals, or to any law of, or applicable in, Abu Dhabi.
The position is different if the contract in question provides for disputes to be referred to arbitration. The UAE courts usually recognise and enforce this type of provision, 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 the Court of First Instance in Abu Dhabi, a party has the right to appeal to the Civil Court of Appeal on factual or legal grounds within 30 days. It is also possible for a party to introduce additional evidence to the Court of Appeal, or to request that additional witnesses be called to testify.
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 of the date that the parties were notified of the judgment of the Court of Appeal. All decisions of the Court of Cassation are final. The Court of Cassation will not only act as an appellate court with respect to the decisions of lower courts but can also supervise the lower courts to ensure they are applying and interpreting the law correctly.
ARBITRATION: Though Abu Dhabi has an established legal system and court structure that deals with both civil and criminal matters, as international trade and investment continue apace, arbitration has emerged as a popular means of alternative commercial dispute resolution. The Law of Civil Procedure deals specifically with arbitration, including factors affecting the appointment of the arbitral tribunal and the validity of the arbitration award.
It is contemplated that a new federal arbitration law (the Federal Arbitration Law), yet to be enacted, will update the Law of Civil Procedure and provide a more detailed framework for arbitration, introducing concepts consistent with internationally accepted practice. The law is largely based on the widely adopted UNCITRAL Model Law (the Model Law), a template law drafted by the UN Committee on International Trade Law. It will apply both to arbitrations which take place in the UAE and to international commercial arbitration where parties have agreed that the arbitration shall be subject to UAE law.
The Federal Arbitration Law will ensure that the practical needs of the arbitrating parties, their lawyers and the arbitrators are met, and a number of provisions have been included with the intention of facilitating the procedure for the enforcement of both domestic and foreign arbitral awards. Additionally, there will be an arbitration office established in the Ministry of Economy to monitor international developments in arbitration and to submit proposals for improvements to the minister.
The Federal Arbitration Law has, however, experienced a significant number of delays, and the most recent draft, which was released in February 2012, has yet to finish undergoing a consultation process. Consequently, it is not expected to be implemented in the immediate future.
It is important to be aware that it will not be possible for any Abu Dhabi or UAE government department to enter into any agreement to arbitrate unless special consent is provided by the government. The Abu Dhabi Commercial Conciliation and Arbitration Centre offers arbitration services under its own rules, but arbitration is also conducted locally under the rules of bodies such as the International Chamber of Commerce, the London Court of International Arbitration and other international arbitration bodies.
FOREIGN ARBITRAL AWARDS: While the aim of arbitration is generally to remove the determination of a dispute from the courts, there are certain functions that the Abu Dhabi and UAE courts will need to perform in relation to arbitrations conducted in Abu Dhabi. These functions include 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 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 (the 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 to the New York Convention, and should therefore be enforced outside the UAE on a reciprocal basis, without requiring a re-examination of the facts behind the relevant dispute. Being a member state further augments the country’s efforts to attract foreign investors, for whom the ability to arbitrate (and have foreign arbitral awards recognised and enforced) can be an important factor when considering whether to expand their business in this region.
BUSINESS ESTABLISHMENT OPTIONS: In other jurisdictions, often the fastest and easiest way for an investor to set up a business in a foreign country is by purchasing a “shelf” company. No such concept currently exists in the UAE. Broadly speaking, there are four options currently available to the inward investor to carry out business in Abu Dhabi: 1. Participation in a local corporate entity;
2. Establishment of a branch or representative office;
3. Establishment in a free zone; and 4. Appointment of a commercial agent or distributor. In determining which of these options is most appropriate, an inward investor should consider, inter alia, the scope and nature of the intended business relationship, the nature of its proposed activities (this is relevant with regard to licensing requirements), how much control the investor desires to maintain, and the time and expense that is likely to be involved in setting up the chosen entity. It should 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.
A proposed new Commercial Companies Law (the New Companies Law), which has been under discussion for some time, was approved on May 28, 2013 by the UAE Federal National Council. The New Companies Law still awaits ratification by the Supreme Council, signature by the President and publication in the UAE federal official gazette before entering into force. Once enacted, the New Companies Law will remain applicable to companies incorporated in the UAE and to certain foreign and free zone incorporated entities, making a number of changes to the regulations governing the operations of such businesses in the UAE with the intention of further stimulating the local investment environment.
1. PARTICIPATION IN A LOCAL CORPORATE ENTITY: undefined There are currently seven types of commercial entity recognised by Federal Law 8 of 1984 (Commercial Companies Law):
• Limited liability company;
• Private joint stock company (PJSC);
• Public joint stock company (PuJSC);
• Joint participation;
• Partnership limited by shares;
• Simple limited partnership; and
• General partnership. It should be noted that only UAE nationals are permitted to be partners in any of the last three entities.
1.1 LIMITED LIABILITY COMPANY (LLC): In Abu Dhabi, LLCs are the most popular commercial entity for inward investors due to their flexible management structure and ease of formation. There is no board of directors as such; rather, the partners (shareholders) are entitled to appoint a manager or a board of managers of up to five members to administer the LLC for a fixed or unlimited term. LLCs are licensed by the local authorities and are generally categorised as trading, contracting or service companies.
Under the current Commercial Companies Law, LLCs must have between two and 50 partners and at least 51% of the shares must be held by UAE nationals or by companies wholly owned by UAE nationals. In recognition of the majority local ownership, LLCs are regarded for many purposes as local companies in Abu Dhabi. Certain fields of activity (e.g., those falling within what the authorities regard as “industrial”) are open only to local companies. In certain sectors preferences operate in favour of local companies, and indeed some contracts are open to local companies only. These preferences can make the LLC an attractive option for an investor whose business is in a particularly competitive sector of the market.
Shares in an LLC may not be publicly traded and existing partners are given a “first option” to purchase shares being offered by another partner to a third party (in reality this only works to the advantage of the local shareholder, as a foreign partner holding 49% may not increase his stake beyond that). Generally the liability of a partner is limited to the extent of his holding, but in certain circumstances (for example, if a resolution contravening the Commercial Companies Law is passed) additional liability may accrue.
There is no minimum share capital requirement for an LLC. However, local authorities may still impose such minimum requirements for specific types of business and the share capital must be fully paid up.
Under the New Companies Law the number of partners in an LLC will be raised to a maximum of 75 and the limit on the number of managers will be removed. Pre-emption rights will be retained.
A pledge over shares in an LLC is specifically provided for in the New Companies Law and will be deemed valid against the company and third parties upon its registration in the commercial registry of the competent authority of each emirate. Pledges are a common form of security in the UAE and it is contemplated that this clarity will assist in the raising of debt finance by owners of LLCs conducting business in the country and enhance the security package that can be offered to financiers, thus adding another level of comfort to foreign investors in respect of their shareholding relationship with local registered owners.
Profits will continue to be permitted to be distributed 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.
A non-compete provision is included in the New Companies Law under which a manager of a company is not permitted to hold a management position in a competing company nor to operate any business in competition with the business of the company in question simultaneously. A manager who defaults on this provision will be discharged and required to compensate the company accordingly.
1.2 PUBLIC & PRIVATE JOINT STOCK COMPANIES: undefined Should the company operate in business sectors involving insurance, banking or investment of funds for third parties, they may only be established in the emirate of Abu Dhabi as a 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. For example, an entity wishing to engage in investment banking must be a joint stock company. Also, PJSCs may invest funds on behalf of third parties, whereas LLCs are prohibited from doing so under the Commercial Companies Law. 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 PuJSC than for an LLC.
Currently PuJSCs require a minimum share capital of Dh10m ($2.72m), which is divided into equal negotiable shares on incorporation. There must be also be a minimum of 10 founding members, and the board of directors must contain at least three, and no more than 12, members. Founding members must subscribe to 20-45% of the share capital.
A PJSC must have a minimum share capital of Dh2m ($544,400), and the nominal share value is to be paid up on incorporation. There must be a minimum number of three founding members and a maximum of 50 shareholders.
Under the New Companies Law a PuJSC will require a minimum share capital of Dh30m ($8.17m) divided into equal negotiable shares. The concept of authorised share capital will be introduced, the amount of which may not exceed twice the value of the issued share capital. The minimum number of founding members will be reduced to five, and the upper limit on the number of board members will be removed.
In an attempt to encourage initial public offerings (IPOs), while also reducing the risk of loss of control, the New Companies Law will provide that founders may own a greater stake in their company by holding a minimum of 30% and a maximum of 70% of the capital of the company. Contrary to expectations the New Companies Law does not facilitate or permit sell-downs by existing shareholders. It was hoped that this would be drafted into the new law to bring the UAE into line with most developed markets and to further encourage IPOs.
Other than the provisions under the New Companies Law relating to public subscription of shares, the new provisions under the New Companies Law also apply to PJSCs.
Under the New Companies Law a PJSC will require a minimum share capital of Dh 5m ($1.36m), and the nominal share value is to be paid up on incorporation. The maximum number of shareholders will be increased from 50 to 200.
2. ESTABLISHMENT OF A REPRESENTATIVE OFFICE: undefined This option involves the establishment of an independently licensed branch office of the foreign company holding in its own right a separate registration with the authorities. Although the UAE Commercial Companies Law confirms the availability of this type of structure, it does not deal with it in any detail and, to a large extent therefore, existing practices in the individual emirates (largely emiri decrees) continue to govern.
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 (for example, by 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 so on, they are generally permitted to do so but they may well seek to negotiate an additional fee. A fee may be a fixed annual amount, a percentage of profit or turnover, however defined, or a combination of these.
A sponsor does not play any role in the management of a branch and is not involved in negotiating contracts on behalf of the branch. 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 out 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. Certain matters, however, in particular the importation 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 is nevertheless not considered to be separate from its parent company and can therefore 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 sponsors is therefore an important one.
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.
3. FREE ZONE ENTITIES: Although some of the UAE’s best-known free zones are in Dubai, in recent years there has been an increased drive in Abu Dhabi to develop free zones so as to better compete with international business centres, such as the Dubai International Finance Centre (DIFC), in attracting diversified investment from the private sector.
The principal merits of a free zone entity are that a company’s shares can be held 100% by a foreign entity (thus there is no need to involve a local sponsor or shareholder), the company enjoys tax exemptions and it is freely able to repatriate profits. It 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 also generally quicker and more streamlined. Each free zone caters to the specific needs of a particular industry. In many instances a free zone presence entitles a firm to carry out business solely within that free zone, so the option requires careful consideration.
3.1 MEDIA ZONE: The twofour54 free zone was established pursuant to Law No. 12 of 2007, which concerns 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 and state-of-the-art environment, and first-rate infrastructure for local, regional and international investors seeking to carry out media-related business activities in the Middle East and North Africa region.
The mission statement of twofour54 explains that it is committed to establishing Abu Dhabi as a centre of excellence for media content creation, where businesses involved in film, television, broadcasting, music, digital media, gaming and publishing can create content to international standards in a creative and purpose-built environment.
3.2 THE ABU DHABI AIRPORT FREE ZONE (ADAFZ): undefined ADAFZ is being established by Skycity LLC, a subsidiary of Abu Dhabi Airports PJSC, pursuant to Abu Dhabi Executive Council Resolution No. 61 of 2010, which has granted free zone status to the properties owned by the Abu Dhabi Airport Company PJSC within Abu Dhabi International Airport, Al Ain International Airport and Al Bateen Executive Jet Airports. Situated within the boundaries of the capital city’s international airport, ADAFZ is being developed to allow a broad spectrum of business sectors to operate, subject to compliance with health and environmental standards. It is proposed that, 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 exemption, and “one-stop shop” administration services. In addition, ADAFZ will offer fast and efficient cargo clearance services, international freight forwarding and logistics services, and on-site Customs inspection.
It is envisaged that registration should only take two to five working days after submission of all documents and settlement of required payments (e.g., for lease of rented facilities). Some of the infrastructure for ADAFZ has already been developed and its laws and regulations have been issued.
3.3 GREEN ZONE: Masdar City is a project in arcology, an experimental branch of sustainable urban development, consisting of a planned city that is being built by Masdar, a subsidiary of Mubadala Development Company, under sponsorship of the government of Abu Dhabi. Designed by Foster + Partners, a British architectural firm, and Mott MacDonald, a multidisciplinary consultancy, once completed it will be 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 that deal with renewable energy and related technologies. It will be home to both residents and commuters who will live amid the technical innovations being developed in the city’s labs, research centres and demonstration showcases. It is a test bed for new approaches to the planning, design, engineering, construction and operational challenges involved in creating environmentally sustainable cities. Original completion was scheduled for 2016, but the global financial crisis has pushed the estimated date of completion to between 2020 and 2025.
3.4 INDUSTRIAL ZONE: The Khalifa Industrial Zone Abu Dhabi (Kizad), situated between Abu Dhabi and Jebel Ali, offers 100% foreign ownership, no duties on import-export and the opportunity for investors to set up either a free-zone or an onshore company. Kizad has an excellent container and industrial port, Khalifa Port, along with more than 100 sq km of high-quality infrastructure, including special economic and free zone space dedicated to logistics, industrial, commercial, educational and residential facilities. Kizad will benefit from first-rate multimodal connectivity via sea, air, road and rail networks to ensure easy access to and from the zone. It is due to be completed in 2030 3.5 PROPOSED NEW FINANCIAL ZONE: Abu Dhabi Global Marketplace (ADGM) is currently in process of agreeing and outlining its strategy for a financial free zone (Financial Free Zone) to complement the DIFC and to be located on Al Maryah Island. The broad outline of the market has already been drawn by the Abu Dhabi Executive Council following the issuance of a federal decree in February 2013. Over the course of 2014, the operating model for implementation along with the associated regulation and regulatory frameworks will be prepared by the ADGM. The Financial Free Zone will be governed by a board of directors appointed in August 2013. The board of directors will be given wide-ranging powers over management and governance of the zone, including the power to issue the ADGM’s regulations and rules. The ADGM will incorporate three regulatory pillars through the board’s appointment of:
• A registrar for the Registration Bureau;
• A regulator for the Financial Services Bureau; and
• Members of the courts. There has been little indication as to whether the forthcoming legal framework for ADGM will be based on common law similar to that enacted in the DIFC or whether it will be based on the civil code akin to the laws more generally applicable in the UAE. Given that the ADGM is intended to operate as an independent financial free zone to rival and complement business districts in the GCC, including the DIFC, it may be expected that its laws and regulations will meet the highest international standards and be comparable to those of the DIFC in order to attract investment. Among the businesses ADGM is established to attract are commercial and investment banks, foreign exchange and commodities traders, brokerages, investment and pension funds, financial consultancies, Islamic financial firms, and related financial and professional service providers.
4. COMMERCIAL AGENCY: Perhaps the simplest way for a foreign company to carry out business in, or with a firm in, 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 that the expression “agent” is interpreted to apply equally to a main distributor and to a representative, as well as to a commercial agent. The term is therefore used here in this broader sense. The trade agency is primarily intended for foreign companies wishing simply to sell their products or services in the UAE without active, permanent, local operations of their own. 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 obviating the need to procure any separate registrations, as the business will be carried on under the agent’s trade licence.
In addition to any initial costs incurred in appointing a commercial agent or representative, 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. The official agent does have the right to appoint subagents within the territory. Under the TAL, only UAE nationals or companies wholly owned by UAE nationals are entitled to act as official agents.
The registered agent has the right to prevent goods which bear the relevant trademark from being brought through Customs into Abu Dhabi to a third-party consignee. This can be of benefit to the principal, but conversely it provides the agent with considerable power to restrict and prevent trade in the emirate in the event of a dispute. A foreign principal may not terminate or refuse to renew the agency unless they can show “a material reason justifying its termination or non-renewal”. 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. In the event of a dispute between a principal and agent, either party may approach the courts.
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.
DRAFT FOREIGN INVESTMENT LAW: Significantly, the eagerly anticipated relaxation of foreign shareholding limits that was proposed in the 2011 draft of the New Companies Law, though omitted in the recently approved draft, is now predicted instead to be addressed in a proposed new Foreign Investment Law, a draft of which is widely expected to be circulated in 2014. The current 49% shareholding restriction in place is often the chief concern for inward investors, and so any change in the law which relaxes or removes this limitation should be warmly received by them and encourage the sort of diversification which can be driven by a dynamic private sector. Under the new Foreign Investment Law, it is expected that foreigners may be able to own up to 100% of companies. While it is unlikely that 100% foreign ownership will be permitted across the board, it is thought that sectors including health care, education, and professional and financial services, where there is a genuine demand for additional foreign knowledge and expertise, could be subject to such a substantial relaxation of the ownership restrictions.
Certain economic activities may only be conducted by UAE nationals, including services related to the hajj (Islamic pilgrimage), commercial agents, various social services including special houses of care for the disabled, the establishment of newspapers and magazines, and carrying out activities as a recruitment agency.
As things stand, foreign investors must continue to rely on one of the existing legal structures available if they wish to achieve majority or complete ownership of a business presence in the UAE. These include setting up operations in one of the UAE’s free zones or the establishment of a branch or representative office of a foreign company.
NEW COMMERCIAL ENTITIES: The New Companies Law will, when enacted, specifically recognise and govern four new types of corporate structure, in addition to the existing seven types of commercial entities originally recognised by the Commercial Companies Law. These are: 1. Holding companies 2. Common investment companies 3. Single shareholder structures 4. Company with governmental shareholders 1.1 HOLDING COMPANIES: Under the New Companies Law, a holding company will be limited to holding shares or stocks of joint stock companies or LLCs; providing loans, guarantees and finance to its subsidiaries; acquiring assets required to commence group activities; and acquiring certain industrial and intellectual property (IP) rights for the benefit of its subsidiaries. A holding company will be permitted to be incorporated as either a joint stock company or an LLC.
CORPORATE GOVERNANCE: Companies whose securities are listed on a UAE onshore stock exchange (i.e. the Abu Dhabi Securities Exchange or the Dubai Financial Market) are required to adopt good corporate governance rules to create an internal control system, adopt principles of quality corporate governance, establish an effective framework for the protection of shareholder rights, strengthen transparency within the company and specify the duties of the board.
This requirement is not applicable to PJSCs or entities wholly owned by the federal or local government. The Securities and Commodities Authority (SCA) has also issued a circular regarding corporate governance that introduces mandatory requirements for listed companies (the Circular). Listed companies are required to submit a corporate governance report (the form of which was attached to the Circular) to the SCA on an annual basis.
There must 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 establish two permanent committees, namely an audit committee and a nomination and remuneration committee. Affected companies must also implement an internal control system aimed at assessing risk management measures, the application of governance rules, compliance with relevant laws and reviewing financial information used in the preparation of financial statements.
COMPLIANCE: Listed companies must appoint a compliance officer to verify the scope of compliance by the company and its employees with the relevant laws and regulations. The board must also implement a clear policy on dividend distribution in the best interests of the shareholders and the company, which must be made available in general meetings. The articles of association and internal regulations of each listed company must ensure that shareholders are provided with all information necessary to enable them fully and equally to enjoy their rights without discrimination. Shareholders must also be provided with 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 that is applicable to directors, managers, employees and internal auditors, as well as implement an environment and social policy directed towards the local community.
COMPETITION LAW: UAE Federal Law No. 4 of 2012 Concerning Regulation of Competition (the Competition Law) regulates competition, addressing the concepts of restrictive agreements, abuse of dominant position, and economic concentration. The Competition Law bans restrictive agreements, prohibits business and actions that lead to the abuse of a dominant position, or that control the operations of economic concentration, and targets all actions that may prejudice, limit or prevent competition.
PUBLIC SECTOR PROCUREMENT: Pursuant to the Federal Regulation of Conditions of Purchases, Tenders and Contracts, Financial Order No. 16 of 1975 (the Public Tenders Law), and subject to certain exceptions, only UAE nationals, foreign entities represented by a UAE agent, or foreign entities with UAE partners (i.e. 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 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 does not apply to purchases and contracts conducted by the federal defence forces or to public procurement within individual emirates. For example, Abu Dhabi has a procurement law, which is similar to that of the UAE Federal Public Tenders Law in that it requires suppliers to have commercial agents or national companies that are registered with the Abu Dhabi Municipality, but with differences in the requirements of compensation, method and flexibility.
PROPERTY: Prior to the enactment of the property laws referred to below, all titles to land in Abu Dhabi historically belonged to the ruling family. Under Abu Dhabi’s property ownership laws (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. Non-GCC nationals have the right to own property in the investment zones but not the rights to the actual underlying land.
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 (the Labour Law, ), 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 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 of individuals are exempted from the law, such as those employed by public bodies. The requirements of the Labour Law are regarded as minimum ones. 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 need work and residence permits. A work permit will be issued on the basis of, among other things, a contract of employment with a locally licensed entity in local form issued by the Ministry of Labour and covering the basic provisions of the Labour Law. In most cases, expatriate employees will also be issued with significantly more detailed employment contracts and, to the extent that that employee has greater benefits under the long-form contract, then the latter will prevail and be enforced locally. Labour-related litigation is adjudicated by the federal and local courts based in Abu Dhabi, although all disputes relating to labour matters must first be referred to the Ministry of Labour. As an Islamic country, most public holidays reflect religious occasions and change their position on the Gregorian calendar each year.
The Ministry of Labour has been working on a draft new Labour Law for some time. The proposed law may introduce a range of new provisions on, among other things, Emiratisation, termination issues, trade unions, working hours, holidays, maternity leave, medical benefits and retirement. It is understood that the new Labour Law would again apply to all employees working in the UAE regardless of whether they are nationals or expatriates, subject to exceptions. There is no clear indication as to when the law will be finalised or promulgated.
INTELLECTUAL PROPERTY: The UAE is a signatory to multiple international treaties on the recognition and enforcement of IP rights. Intellectual property is recognised domestically in three forms: trademarks, patents and copyright. In each of these areas federal law exists dealing with registration, protection and enforcement. Enforcement of trademarks, copyright and intellectual property falls under the purview of the relevant department of the Ministry of Economy. 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 section of the Ministry of Economy. Once the registration process has been completed, the effects of registration apply to the trademark retroactively from the date the application was filed with the trademark registry. The period of protection afforded is 10 years and is subject to renewal. 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 courts for damages in cases of infringement.
Patents are defined in specific terms. They will only be granted to 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 based on scientific principles and be capable of industrial application. A lower level of protection, called a utility certificate, can be granted for new inventions that are industrially applicable but which lack the necessary inventive step to be granted a patent. Protection of a patent is granted for a period of 20 years from the date of filing, while utility certificates 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.
The UAE’s position as a major global trading hub has meant that issues related to counterfeiting and infringement of IP rights have arisen due to the vast amount of goods and trade passing through the region. Several methods are available for enforcing IP rights against violators, including administrative and judicial action. Federal government authorities, and 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 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 specialised expertise.
ANTI-BRIBERY & CORRUPTION: The UAE has ratified the UN Convention against Corruption (the UN Convention). Article 15 of the UN 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 single comprehensive piece of legislation governing corruption and bribery. Bribery-related legislation is contained mainly in the federal constitution, the penal code, the Human Resources Law and the UAE Anti-Money Laundering Law. Together, these constitute an anti-bribery and corruption regime under which infringement is 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. There are also provisions in these laws that prohibit individuals from using their influence to affect the performance or non-performance of public duties by public officers.
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