1. What is the legal system in your
jurisdiction based on (for example, civil law, common law or a mixture of
both)?
The UAE is an Islamic state and Islamic Sharia law is the main source of
legislation under Article 7 of the UAE Constitution. The rules and principles
of Islamic jurisprudence are relied on in the understanding, construction and
interpretation of the provisions of the Civil Code. In addition, under Article
75 of Federal Law No. 10 of 1973, the Supreme Court must apply the provisions
of Sharia law, federal laws and other rules of custom and principles of natural
law and comparative law insofar as they are not inconsistent with the provisions
of Sharia law.
The UAE is a federal state and laws are promulgated at various levels, all
of which may cover the same issue or topic with differing impact. Federal laws
override the individual laws passed by the seven Emirates within the Union.
There are also carve outs for free zones within the seven Emirates, with
laws which are passed by the relevant Emirate but limited to the area within
the free zone.
The most prominent free zone is the Dubai International Financial Centre
(DIFC), an international offshore financial center, which came about as an
effort to bridge the gap between the world's major financial centers. It has
its own:
ü
Financial
services regulator, the Dubai Financial Services Authority (DFSA).
ü
Exchange,
the Dubai International Financial Exchange (DIFX).
ü
Legislation
based primarily on common law principles.
DIFC Court.
All financial services activities within DIFC are regulated. Authorised firms
are categorised depending on the activities allowed under their licence. There
are also unregulated firms, mainly single family offices, company service
providers, real estate developers and retail shops, as well as registered
entities such as law firms and accountancy practices.
The companies in the rest of the UAE are monitored by different regulators,
depending on their activity.
In general, any economic entity (of any nature), whether within or outside
of DIFC, must be licensed. In addition, depending on the nature of the
activity, it may also need to be regulated. The nature of the licence defines
the activities that the company can engage in when conducting its business.
This contrasts with the wide range of activities in which a company can engage
in most common law jurisdictions.
Business vehicles
2. What are the main forms of business
vehicle used in your jurisdiction?
What are the advantages and
disadvantages of each vehicle?
There are a number of options available for setting up a business in the UAE.
Under the Commercial Companies Law (Federal Law No. 8 of 1984 Concerning Commercial
Companies as amended by Federal Law No 1 of 1984 and Federal Law No 13 of 1988,
Federal Law No. 15 of 1998) (CCL), foreign investors are only permitted to hold
up to 49% equity ownership in UAE companies, meaning 51% of the shares must be
held at all times by one or more UAE nationals.
The limited liability company (LLC) is the most popular method of
establishing a commercial company in the UAE, unless the business involves
banking, insurance and investment activities conducted on behalf of third parties,
where a public joint stock company is required.
The LLC requires a minimum of two and a maximum of 50 members, and minimum
capitalisation of AED300,000. Management of the LLC is vested in the managers
(up to five natural persons) who may or may not be UAE nationals.
Other commercial structures regulated under the CCL are general
partnerships, simple limited partnerships, joint participation, public joint
stock company, private joint stock company and partnerships limited with
shares, most of which, except for the private and public joint stock companies,
are not readily used.
Foreign companies may also obtain the approval of the concerned authorities
and open a branch of the company in the UAE, provided that the company has a
UAE national as an agent.
In addition to registering under the CCL, it is possible to register in one
of the many free zones. Within the free zones, foreign nationals can own 100%
of the share capital of the free zone entity, without the support of a UAE
national that is required under all entities available under the CCL. The free
zones are situated throughout the UAE, many within Dubai and numerous others
throughout the other Emirates. In total, there are over 25 free zones, some
specifically for certain industry sectors, such as Dubai Internet City which is
solely for the IT industry. The more popular free zones besides DIFC include
Jebel Ali Free Zone, Dubai Multi Commodities Centre and Dubai Media City.
Establishing a presence from abroad
3. What are the most common options for foreign companies establishing a
business presence in your jurisdiction?
The most common options for foreign companies establishing a business is either
a limited liability company (LLC) or a free zone entity.
An LLC can be compared to a joint venture, in that the foreign company, or
individual, enters into a relationship with a UAE national, or company owned by
one or more UAE nationals (Local Partner), to carry on business. For the
majority of businesses the foreign company, or individual, can only legally own
49% of the business with the Local Partner legally holding 51%. The memorandum
of association (memorandum) sets out the relationship between the parties. The
foreign national can be given certain preferred rights under the memorandum;
such as being entitled to 80% of the profits and the ability to appoint the
manager of the LLC.
In the majority of cases, the LLC is formed and the local partner is paid an
agreed fee each year under a side agreement which states that, in consideration
of the fee, the local partner will legally hold the 51% of the company but the
foreign company will beneficially hold 100% of the share capital of the LLC.
Foreign companies have become comfortable with the use of such side agreements,
although their enforceability has not been conclusively tested in the courts.
Establishing a business in one of the UAE's numerous free zones is a common
option for foreign companies. To date the free zones have been successful in
attracting a large number of foreign companies and foreign direct investment.
Advantages in setting up in a free zone include:
100% foreign ownership.
100% repatriation of capital and profits.
100% import and export tax exemptions.
No corporate taxes for 50 years.
No personal income tax.
Each free zone has its own independent free zone authority, responsible for
issuing free zone operating licenses and assisting companies with establishing
their business in the free zone.
Foreign companies can either register a new company in the form of a Free
Zone Establishment (FZE) or simply establish a representative office or branch
of their existing or parent company based within the UAE or abroad.
An FZE is a limited liability company governed by the rules and regulations
of the free zone in which it is established. Under Federal Law No. 15 of 1998,
except for acquiring nationality in the UAE, the provisions of the CCL do not
apply to FZEs, provided that the free zones have special provisions regulating
such companies.
It is, however, to be noted that there are restrictions on doing business
with other free zones and in areas not covered by free zones within the UAE
(onshore). These restrictions vary in scope and nature.
4. How can an overseas company trade
directly in your jurisdiction?
Any company incorporated outside the UAE can engage in commercial and
professional activities through the following legal forms:
-Branch, or a representative office, of a foreign company.
-Limited liability company (see Question 2).
-Private or public shareholding company.
A branch of a foreign company can conduct selected commercial and professional
activities, but, for example, cannot import goods into Dubai; this will be
managed by a local trader or commercial agency. The branch office must have an
independent budget, its own profit/loss statements and must appoint a
UAE-accredited auditor. A branch must also have a local service agent, who must
be a UAE national or a company owned by one or more UAE nationals.
A representative office is not a business structure in its own right but is
rather a business activity that a branch can conduct. It can promote and market
the parent company's business, but not conduct business operations. A
representative office also requires a local service agent.
A private shareholding company is a partnership of at least three
individuals. This type of company can be created for any commercial or
industrial type of business, although professional activities are not allowed
under this legal form.
A public shareholding company is a company whose capital is divided into
transferable shares of equal value. It must have a minimum capital of AED10
million.
The business name cannot include the name of any of the shareholders, with
the exception of patents registered in the name of a shareholder or if the
business uses a store that has the name of a shareholder. The phrase
"Public Shareholding Company" must be included in the business name.
5. What are the formalities for setting
up a partnership?
For a general partnership, the general principles include that:
A general partnership is an arrangement between two or more partners whereby
each of the partners is jointly and severally liable to the extent of all their
assets for the company's liabilities.
Only UAE nationals are allowed to be partners in a general partnership.
All partners are considered to be agents of each other, and the bankruptcy of
any partner leads to the bankruptcy of all the partners.
The company shares cannot be represented in negotiable certificates.
Partners are severally and personally responsible for the company's obligations
and any agreement to the contrary is not enforceable against third parties.
Company administration is undertaken by all partners, unless the company
contract or an independent contract assigns the administration to a partner or
to a non-partner party.
For a simple limited partnership:
The partnership is formed by one or more general partners who are liable for
the business liabilities to the extent of all their assets, and one or more
limited partners liable for the business liabilities to the extent of their
respective shares in the capital only.
Only UAE nationals are allowed to be general partners.
The simple limited partnership is a partnership for all partners and is subject
to partnership rules, including:
the simple liability contract must include in addition to the other data,
the name of each limited partner, his surname, nationality, date of birth,
country, capital share and capital contribution;
-the limited partner is only liable towards the company's debtors to the amount
of his capital share;
-a limited partner cannot intervene in the company administration-related
issues related to others even if authorised to do so. Instead, he can obtain a
copy of the loss/profit accounts and the balance sheet and check the validity
of the data by reviewing the company's records and documents by himself or by a
representative from any of the partners or others, as long as this does not
harm the company. If the limited partner violates this ban, he becomes responsible
for all the obligations resulting from the business;
-the limited partner may be liable for all the company's obligations if the
business administration he carried out leads others to believe that he is one
of the ultimate actual partners, in which case the rules and regulations of the
actual partners will apply to the limited partner;
-if the limited partners carried out any of the banned administration business
based on an explicit or implicit authorisation from the partners, such partners
will be held jointly responsible with him for the obligations resulting from
such acts;
the limited partnership must issue resolutions with the consensus of all
partners and limited partners, unless the memorandum of association
specifically provides that resolutions may be passed by a majority of the
partners, the majority being either by way of numbers or capital contribution,
as stated in the memorandum of association;
-resolutions to amend the company contract cannot be passed unless duly
approved by all partners and limited partners.
6. What are the formalities for setting up a joint venture?
A limited liability company formed under the provisions of the CCL has many
similarities with a "joint venture" in other jurisdictions.
Onshore companies
Onshore joint ventures are established by a joint venture agreement and must
be registered. A foreign national or a foreign company can both enter into
joint ventures in onshore UAE, subject to certain qualifications discussed
below. The terms of agreement and association are set out in a standard
memorandum of association issued by the Department of Economic Development
(DED), which is signed before a notary public. The documentary requirements for
initial approval are as follows:
Registration and licensing application, as well as proof of reserved trade
name.
Photocopy of applicant's passport (together with residence permit/visa details
for non-GCC (Gulf Co-operation Council) states' nationals).
Photocopy of applicant's naturalisation identification for UAE nationals only.
No-objection letter from the applicant's current sponsor for non-GCC nationals.
Photocopy of the director's passport, and no-objection letter from the
director's current sponsor.
Approval issued by other government authorities according to the type of
activity.
The company's board of directors resolution to subscribe to the new company if
the partner is an existing corporate entity in UAE or abroad (the resolution
must be attested by UAE embassy/consulate or by a GCC state embassy/consulate
and UAE Ministry of Foreign Affairs, and duly translated into Arabic).
Once the above documents have been submitted, the second step involves
submission of:
An initial approval receipt.
All documents provided under the initial approval stage above.
A photocopy of the office lease including the plot number.
An original photocopy of the memorandum of association duly authenticated by a
notary public.
The contract of the limited liability company (LLC).
If the partner is an existing corporate entity in UAE or abroad the memorandum
of association and the commercial register certificate must be attested by UAE
embassy/consulate or by a GCC state embassy/consulate and UAE Ministry of
Foreign Affairs, and duly translated into Arabic.
All applications for establishing an LLC "onshore" are filed with
the DED. According to current UAE laws, a UAE national must own and control 51%
of the shares in the LLC whereas non-nationals can own no more than 49%.
However, this requirement is relaxed for those companies that are wholly owned
by GCC nationals who are exempt from the above requirement.
Typically, the partners in a joint venture enter into a formal shareholders'
agreement. However, such an agreement must be consistent with UAE law and the
registered memorandum of association. If there are inconsistencies between the
two, such provisions are unenforceable. This is generally how joint ventures
are carried out within the UAE.
Free zones
Each free zone entity has its own rules and regulations, which are generally
less onerous, for incorporating companies in the respective free zones. It is
not necessary to have a UAE national as a partner to incorporate a company in
the free zone; they can be 100% owned by non-UAE nationals.
Unincorporated joint ventures
Unincorporated joint ventures are often used for short term operations. Two
or more parties can form a private unlimited company so that the company that
is licensed to carry out a certain business may do so on behalf of the other
company which does not possess a licence (section 56, CCL).
Due to the UAE licensing requirements, all joint ventures must include a
vehicle that has the appropriate licence to carry out the business activities
either from the DED or a free zone authority.
7. Are trusts available in your
jurisdiction?
Trusts do not exist as such under UAE Law, although there are Islamic trusts,
governed by Sharia law. Trusts as vehicles for beneficial owners are not
available in the UAE with the exception of the DIFC Free Zone. DIFC does
recognise trust principles, which will be familiar to common law lawyers.
Forming a private company
8. How is a private limited liability company or equivalent corporate
vehicle most commonly used by foreign companies to establish a business in your
jurisdiction formed?
Regulatory framework
A limited liability company (LLC) can be formed under the provisions of the
CCL.
Onshore. The LLC is the most commonly used vehicle for incorporating an
onshore company, in accordance with the CCL. The incorporation process is
regulated by the Department of Economic Development (DED). This is a two-step
process. The first step is choosing the business activity of the LLC. There are
over 2,000 business activities available and the selection may have an effect
on the minimum share capital requirements and the ownership structure. LLCs can
conduct any industrial or commercial business, but cannot engage in
professional businesses other than banking, insurance or investment. LLCs
cannot practice law, auditing, accountancy or any other type of consulting
service.
Free zone. Each free zone has its own set of requirements, rules and
regulations for registering a company. The requirements depend on whether the
owners of the new company are individuals or whether it is a corporate entity.
Other considerations for registering in a free zone are:
Office space requirements.
The number of visas needed.
The activity of the company.
Once these are ascertained, the appropriate free zone can be approached and the
requirements, rules and regulations can be ascertained for setting up an
appropriate business vehicle.
The most commonly used vehicle in a free zone is a company limited by shares
or a LLC.
For more information on the regulatory authorities, see box: The regulatory
authorities.
Tailor-made or shelf company
All companies whether those formed under the CCL or within a free zone are
formed on a tailor-made basis. It is not possible to purchase a shelf company.
Formation process
Onshore. To register an LLC under the CCL and obtain a licence from the DED
is a two-stage process:
Initial approval. The documents required
include:
the registration and licensing application, as well as proof of reserved
trade name. This involves an online application with the DED;
copy of applicant's passport;
copy of the director's passport;
approval issued by other government authorities according to the type of
activity;
the company's board of directors resolution to subscribe to the new company if
the partner is an existing corporate entity in UAE or abroad (the resolution
must be attested by UAE embassy/consulate or by a GCC state embassy/consulate
and UAE Ministry of Foreign Affairs, and duly translated into Arabic).
Documents required after getting the initial approval include:
initial approval receipt (plus all documents submitted for initial
approval);
photocopy of office lease including the plot number;
original photocopy of the memorandum of association duly authenticated by the
notary public.
If the partner is an existing corporate entity in UAE or abroad the
memorandum of association and the commercial register certificate must be
attested by UAE embassy/consulate or by a GCC state embassy/consulate and UAE
Ministry of Foreign Affairs, and duly translated into Arabic).
The fees depend on the business activity of the LLC. All fees are paid to
the concerned local government office.
Free zone. To register within a free zone, once the free zone is decided on,
the specific requirements for registration will depend on the rules of that
particular free zone.
Fees vary from free zone to free zone, with the more established free zones,
such as Jebel Ali Free Zone and DMCC/JLT Free Zone being more expensive than
free zones incorporating virtual offices in other Emirates, such as Fujairah
and Ras Al Khaimah.
Free zones have been created on an industry specific basis, for instance a
software service provider that wishes to incorporate a company in a free zone
would have to establish a company in Dubai Internet City. The trade licence
issued to a company will vary as the trade licence defines the business
activity that a company may engage in.
Company constitution
The main document for constitution of a limited liability company, formed
under the CCL, is the memorandum of association. The memorandum of association
is a document that regulates a company's external activities. The memorandum of
association records, among other things, the company's name, the company's
headquarters, the purpose for which the company was established, the names of
its shareholders including their nationality and place of residence, the number
of shares held by them, the names of the directors, the company's commencement
and expiry dates and other key financial and legal information.
There is no set or standard form of memorandum of association and this must
be drafted by a law firm or the DED provide a service for preparing a
memorandum of association.
Within each free zone, the company's shareholders sign the company's
memorandum of association, which are in a standard form for each free zone and
are not generally amended in any way.
Financial reporting
9. What financial reports must the
company submit each year?
For a limited liability company (LLC) registered under the CCL, there is no
requirement to file any accounts with any authority, until it is to be closed
or liquidated where an auditor must submit audited accounts.
Generally, there is no requirement to file accounts within the free zones.
One exception is Dubai Multi Commodities Centre (DMCC) free zone, where audited
accounts must be submitted annually.
If the overseas company has a branch in the UAE, there is no UAE filing
requirement and the branch accounts must comply with the overseas company law.
Trading disclosure
10. What are the statutory trading
disclosure and publication requirements for private companies?
For a limited liability company (LLC) registered under the CCL, the company
must keep at its headquarters a record of:
The names, nationalities, professions of the shareholders.
The number and value of shares owned by each of the shareholders.
All actions involving shares and the dates on which they were undertaken.
All LLCs must display their name and sign at their premises and include full
details including address, name and licence number on their letterhead and
invoices. There is no such requirement for websites.
The LLC's name must include the phrase "Limited Liability
Company", in addition to a statement showing the company's capital.
11. How do companies execute contracts
or deeds?
Contracts are executed by company seal and/or signature by the manager,
director or authorised signatory.
A number of important documents, such as the memorandum of association and a
power of attorney must be signed before the notary public.
Any change in the company's constitutional documents arising out of any
change in the persons holding shares also requires the documents to be
notarised before presenting them to the Department of Economic Development to
effect the changes.
Membership
12. Are there any restrictions on the
minimum and maximum number of members?
A limited liability company (LLC) must have no more than 50 members and no less
than two (CCL).
The rules vary between the free zones. Generally, there is no restriction on
the number of members.
Minimum capital requirements
13. Is there a minimum investment
amount or minimum share capital requirement for company formation?
For a limited liability company (LLC) formed under the CCL, the minimum capital
requirement depends on the business activity of the company and must be
sufficient to achieve the company's corporate purpose (Article 227, CCL).
For a company registered in a free zone, the minimal capital requirement
varies between the free zones.
14. Are there restrictions on the transfer of shares in private companies?
For a limited liability company (LLC) registered under the CCL, the
shareholders can transfer their shares to one of the other shareholders
(Article 230, CCL). A shareholder can also transfer shares to a
non-shareholder. However, existing shareholders have a right of pre-emption
over the shares to be transferred, at the price specified in the notice given
to the directors by the shareholder looking to relinquish his shares (Article
231, CCL). If more than one existing shareholder wishes to purchase the shares
the shares are divided between the purchasing shareholders in the proportions
in which they hold shares (Article 232, CCL ).
There are no restrictions on transfer of shares within the free zones.
Shareholders and voting rights
15. What protections are there for
minority shareholders under local law? Can additional protections be given?
Part 10 of the DIFC Companies Law provides protections for minority
shareholders in takeovers. For example, a minority shareholder has a right to
be bought out by an offeror where, as a result of a takeover offer, the offeror
has acquired at least 90% of all shares in the company.
There are no express provisions for the protection of minority shareholders
under UAE Law.
There is no concept of unlimited liability in the UAE in the context of
companies.
16. Are there any statutory restrictions
on quorum or voting requirements at shareholder meetings? Do quorum or voting
rights need to be proportionate to shareholdings?
Under DIFC Law, at a general meeting of the company two shareholders personally
present or represented by proxy represent a quorum. At any meeting of the
holders of any class of shares other than an adjourned meeting, persons holding
at least one-third in share value of that class of shares will represent a
quorum.
Under UAE Law 50% of the voting rights based on paid up share capital is
considered a quorum for shareholders' meetings.
17. Are specific voting majorities
required by law for any corporate actions (for example, increasing share
capital, changing the company's constitution, appointing and removing
directors, and so on)?
Special resolutions (75% of votes) are required under DIFC Law for some
corporate actions such as increasing share capital and liquidation.
There is no such requirement under UAE law.
18. Can voting majorities required by law be disapplied to protect a minority
shareholder (for example, through class rights or weighted voting)?
Voting majorities cannot be disapplied. However, there are provisions under the
DIFC law to protect minority shareholders (see Question 15).
Secretary restrictions
19. What are the conditions or
restrictions on establishing a business in specific industry sectors? Are there
industry sectors in which it is not permitted to establish a business?
In the UAE, the business activity of the company is limited to the nature of
the trade licence that has been obtained. The law in the UAE and also in free
zones provides for a list of business activities and sectors which are permitted.
There are a number of rules under the CCL relating to establishing a
business in the form of a limited liability company (LLC). For example, LLCs
can conduct any industrial or commercial business, but not professional
activities other than banking, insurance or investment. For example, LLCs
cannot practice law, auditing, accountancy or any other type of consulting
service. The business activity that the foreign company is anticipating
entering the UAE market with should therefore be carefully considered.
Similarly in free zones, the nature of the activity permitted will depend on
the regulations of the free zone.
Foreign investment restrictions
20. Are there any restrictions on
foreign shareholders?
A foreign shareholder can hold no more than 49% of the issued share capital In
an LLC formed under the CCL. The standard rule can be varied for certain
business activities, for example, in a real estate company a foreign national
cannot own any of the share capital.
There is no such restriction in the free zones.
21. Are there any exchange control or
currency regulations?
Currently there are no exchange control or currency restrictions except for
restrictions in relation to transactions involving Israel or Israeli citizens.
22. Are there restrictions on foreign
ownership or occupation of real estate, or on foreign guarantees or security
for ownership or occupation?
Only four Emirates allow foreign ownership of real property:
Dubai.
Abu Dhabi.
Ajman.
Ras Al Khaimah.
However, ownership by foreigners in these emirates is restricted to designated
areas.
Foreign ownership is restricted to the buildings on the land and does not
include the land itself.
Directors
23. Are there any general
restrictions or requirements on the appointment of directors?
In relation to companies under CCL in the UAE, directors must not have been
convicted of a criminal offence involving dishonesty or immorality, and cannot
be directors of more than five companies in the UAE. The chairman of the board
must be a UAE national.
Under DIFC Law, the following are not entitled to be directors:
-Individuals under 18 years of age.
-Individuals who are disqualified from holding directorships (for example,
having been convicted of a criminal offence, guilty of insider trading and so
on).
-Undischarged bankrupts.
-Legal entities.
Board composition
24. What are the legal requirements
for the composition of a company's board of directors?
Structure
Within the UAE, in both the free zones and limited liability companies
(LLCs) registered under the provisions of the CCL, great emphasis is put on the
manager of the entity. The manager:
Has his name appear on the trade license.
Have full powers to carry out management affairs of the company.
Has the right to bind the entity in the eyes of all third parties who the
entity deals with.
It is possible to have up to five managers. If there is more than one manager,
the memorandum of association may provide for the formation of a managers
panel.
In addition to the standard board of directors, when the number of
shareholders exceeds seven, a supervisory board consisting of at least three of
the shareholders must be put in place (Article 240, CCL).
This supervisory board can, among other things:
Examine the company's books.
Take stock of cash or goods.
Require the managers at any time to submit reports about their management.
The supervisory board is not usually accountable for the actions of the
directors.
Number of directors or members
The management of the LLC under the CCL can be undertaken by up to five
managers. Unless otherwise specified in the manager's contract, his tenure
lasts for the duration of the company or until removed by a unanimous board
resolution.
There is no restriction in the free zones.
Employees' representation
Employees do not have a right to representation in either a LLC formed under
the CCL or in any company formed in a free zone.
Reregistering as a public company
25. What are the requirements for a
business to reregister as a public company?
Membership
A public company must have at least ten founding members and management must
be vested in a board of directors with chairman and majority directors who are
UAE nationals. 51% of shares must be held by UAE nationals. Founder members
must hold at least 20% of the capital but not more than 45% of the capital. The
founders must select from among themselves a committee comprising not less than
three and not more than five members to undertake the foundation procedures
with the concerned authorities.
The management of a public company is vested in a board of directors
comprised in accordance with the memorandum of association, which will state:
The number of the directors (not less than three and not more than 12
directors).
Their term of office (not exceeding three years).
Share capital
A public company has its capital divided into transferable shares of equal
value and the respective shareholder is only liable to the extent of his own
share capital The company capital must be adequate to achieve the objectives of
its incorporation, and must be at least AED10 million.
Tax
26. What main taxes are businesses
subject to in your jurisdiction?
The UAE does not levy any form of tax.
27. What are the circumstances under which a business becomes liable to pay tax
in your jurisdiction?
The UAE does not levy any form of tax.
28. What is the tax position when
profits are remitted abroad?
As there is no tax regime, the UAE has no restrictions or regulations on
foreign exchange. Capital, profits, interest, and royalty payments may be
repatriated freely.
29. What thin-capitalisation rules and
transfer pricing rules apply?
In the absence of a tax regime, thin capitalisation and transfer pricing are
not issues that are covered by the UAE regulatory regime.
Grants and tax incentives
30. Are grants or tax incentives
available for companies establishing a business in your jurisdiction?
The UAE does not levy any form of tax.
Employment
31. What are the main laws regulating
employment relationships?
UAE
Employment matters in the UAE are governed by Federal Law No. 8 of 1980
Regulating Employment Relations as amended by Federal Laws No. 24 of 1981,
No.15 of 1985 and No.12 of 1986 (Employment Law). This is a Federal piece of
legislation and therefore applicable to all the Emirates of the UAE, which in
turn is enforced by the Ministry.
Under the Employment Law, the Arabic language must be used for all
employment records, contracts, files, data and so on, and for all instructions
and circulars issued by the employer to his employees. A copy of the employment
contract in a secondary language is allowed for an employee whose first
language is not Arabic. However, if there is a dispute between the two versions
of the contract, the contract in the Arabic language will prevail.
The Employment Law applies to all staff and employees working in the UAE,
irrespective of whether they are UAE nationals or expatriates. Certain
categories of individuals are exempted from the Employment Law, including:
Staff and workers employed by the federal government, government departments of
the member emirates.
The employees of municipalities, public bodies, federal and local public
institutions, and federal and local governmental projects.
Members of the armed forces, police and security units.
Domestic servants.
Agricultural workers and persons engaged in agriculture (this exemption does
not include persons who are employed in corporations which process agricultural
products and/or those who are permanently engaged in the operation or repair of
machines required for agriculture).
A partner in a business is not considered an employee and is therefore not
required to obtain an employment card from the UAE. However, employees working
on a commission basis are considered as employees even if they are partners in
the entity they are working for.
The Employment Law covers all aspects of the employer-employee relationship
including:
Employment contracts.
Restrictions on the employment of juveniles and women.
Maintenance of records and files.
Wages.
Working hours.
Leave.
Safety and protection of employees.
Medical and social care.
Codes of discipline.
Termination of employment contracts.
End of service benefits.
Compensation for occupational diseases.
Labour inspections.
Penalties.
Employment related accidents, injuries and death.
An employee who is subject to the Employment Law is entitled to fixed minimum
notice periods and fixed maximum working hours except for managerial level
staff. Overtime payment is defined and the employee will be compensated for
overtime at an inflated rate. The employee is given the option of payment in
lieu at an inflated rate for working on a public holiday. In addition, for both
the employee and the employer, the Employment Law is clearer on compensation
for termination without due notice, on termination of an employee without
notice for misbehaviour and on the possible scope of non-competition
obligations imposed on an employee on termination.
The UAE does not allow the formation of trade unions.
In addition, mandatory rules of law apply in relation to termination and
compensation regardless of any choice of law in an individual's employment
contract. The general rule is to have a written employment contract as it
provides certainty as to the terms of the employment according to the
prevailing laws. However, oral employment contracts are also valid with
adequate proof of its terms, which may be established by all admissible means
of evidence.
DIFC free zone
Although the Employment Law stipulates that it applies to all employees
(other than the ones listed above), in practice employees in the free zones are
subject to the rules and regulations of the particular free zone and maintain
their own employment contracts. However, the Employment Law will still apply
and the provisions in the employment contract must be in accordance with it.
Importantly, free zone employees are sponsored by the relevant free zones and
not by their employers.
Such employees are seconded by the free zones to companies established in
the free zones in return for, among other things, a bank guarantee which is
required to secure the employees' dues and any end of service benefits which
may be payable on termination of their employment contracts. Although the free
zones are technically the employees' sponsor, the employees maintain a right of
action against their employers before the courts.
Employment Law No. 4 of 2005 as amended (DIFC Employment Law) governs the
employer/employee relationship in the DIFC. There are certain differences
between the Employment Law and the DIFC Employment Law, including that:
The DIFC Employment Law does away with the distinction between limited
(fixed-term) contracts and unlimited contracts (broadly, oral contracts for no
specified period) and the different rules that otherwise apply to them. For
instance, there is no reduction in an employee's severance pay for a limited
contract.
Annual leave days consist of working days, they accrue pro rata and are
exclusive of public holidays.
The employee is entitled to 90 days sick leave and is paid at his normal rate
of pay for the full 90 days.
Ramadan hours are stated to apply only to those who are fasting.
No specific day of the week must be taken off as a rest day, which is good for
those companies that would like to co-ordinate with the working week of Western
countries or countries with Sunday as their weekly rest day.
32. What prior approvals (for example,
work permits, visas, and/or residency permits) do foreign nationals require to
work in your jurisdiction?
For immigration purposes, a foreign partner is sponsored by the entity he is a
partner in, as an investor rather than as an employee, and will deal with the
immigration authorities directly rather than through the Labour Office, if his
name is on the business entity's licence, and subject to a minimum investment
requirement in the entity. However, if the partner holds an employee position
in addition to his partner status, he is considered as an employee for the work
he is doing in the company.
When a new business is established, it must be registered with the Ministry
before the employment of staff. The free zones authority sponsoring the
employees refers directly to the immigration authorities and not to the
Ministry. However, the Ministry may still deal with disputes between employees
and their employers in the free zones, unless the free zone authority has a
special ordinance governing the relationship between employee and employer.
An application must be made to the Ministry to employ any foreign employee
in the UAE. The application must be approved by the Ministry before the
employee entering the UAE. New businesses must register or open a file with the
Ministry before they can employ staff (see Question 19). In addition to
obtaining the Ministry's approval to employ non-UAE nationals, certain
immigration procedures need to be followed.
There is also a requirement for certain employers to submit to the Ministry
a bank guarantee as security for end of services benefits and repatriation
costs related to their employees. This procedure is also applicable to
employers in most of the free zones.
Where the intended employee is a UAE national, an employment contract may be
entered into at any time. Employment contracts for non-nationals must be drawn
in the format approved by the Ministry on an application made by the employer.
However, employment contracts for national employees do not need to be in
writing and the terms and conditions of employment may be proved by any means
of proof admissible by law. The Ministry does not issue employment permits for
expatriate employees unless a formal written employment contract is filed with
the Ministry.
Proposals for reform
33. Are there any impending
developments or proposals for reform?
It was announced earlier this year that a new Commercial Companies Law has been
approved.
Essentially the structure established under the existing CCL remains in
place, for example the limitation of foreign investment to 49%, with
incremental changes.
Changes include:
Explicit provision for the creation and registration of a pledge over shares in
an LLC.
Non-pre-emptive issuance of new shares to strategic investors.
Removal of requirement that the value of bonds issued must not exceed a
company's capital.
A statutory objective promoting social responsibility for commercial companies.
A new prohibition on companies providing finance assistance to a shareholder to
enable them to hold securities issued by that company.
Provision for sole shareholder companies.
The new law is expected to promote confidence and economic growth.
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