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Doing Business in UAETROWERS & HAMLINS CONDUCTING BUSINESS IN THE UNITED ARAB EMIRATES
IntroductionThe United Arab Emirates offers major business opportunities in the Middle East. Since its formation in 1971, the country has undergone a period of rapid and wide-ranging economic and social development. This has been reflected in the enactment of a large body of commercial legislation at both federal and local levels. The UAE is a federation of seven Emirates, each with its own Ruler. These are Abu Dhabi, Dubai, Sharjah, Fujairah, Ajman, Ras Al Khaimah and Umm Al Quwain. The city of Abu Dhabi is the federal capital and the city of Dubai is the main trading centre. To begin doing business in the UAE, it is necessary to comply with the laws governing business activity, including the Commercial Companies Law, the Commercial Register Law, the Commercial Agencies Law and the wide-ranging Civil and Commercial Codes. If a company intends to trade or invest in the UAE, it is essential to obtain the correct authorisations and licences. In addition it is important to be properly advised as to the requirements which apply in each particular Emirate. Federal legislation applies throughout the UAE but many areas of commercial activity must also take account of legislation promulgated by the governments of the individual Emirates. Under federal legislation, the following options are available for conducting business in the UAE: · Participation in a local company or other commercial entity · Establishment of a branch office · Establishment of a branch or subsidiary in one of the Free Zones of the UAE · Appointment of a commercial agent. Which of the above options is the most appropriate will usually depend upon the nature of the activities proposed to be undertaken and it may be that a combination of the options outlined is appropriate for your particular business. Registration formalities vary according to the business vehicle adopted and the procedural requirements of the relevant Emirate. Some general guidelines are set out in the following sections. Federal legislation appears in the UAE Official Gazette, published monthly in Arabic. The Governments of Abu Dhabi and Dubai also issue their own Official Gazettes containing local decrees and orders. 1. Establishment of a local company or other commercial entityIn terms of the federal Commercial Companies Law, there are seven forms of commercial entity: • general partnership • simple limited partnership • partnership limited by shares • joint participation (contractual joint venture) • limited liability company (LLC) • private joint stock company • public joint stock company. Which is the most appropriate for you? It will often be an LLC, but not necessarily so. There is no such thing as an "off the shelf" company in the UAE. Every commercial entity must be specifically established. This is neither a simple nor a speedy process. Legal support is advisable as to all aspects of establishing a UAE company or other commercial entity including, for example, its capitalisation and level of foreign participation. Foreign participation is generally limited to 49% and is not allowed in general partnerships in any event. Establishment of a UAE company or other commercial entity is generally confirmed, at federal level, by registration in the Commercial Register, evidenced by a certificate. Businesses must generally also obtain a local business licence from the Government of the relevant Emirate and membership of the relevant Chamber of Commerce & Industry before commencing trading. It is often desirable for the shareholders in a company to define and protect their interests through a separately negotiated shareholders' agreement, in addition to the usual form of constitutive contract or articles of association. A shareholders' agreement should deal with questions such as how the respective roles of the owners in the management and how major decisions (such as increases in capital, acquisitions and disposals, and other critical matters) be made. It may also be appropriate to have agreements incorporating arrangements for the provision of technical and others services to the company, service contracts for key staff, and licensing arrangements for know-how and other forms of intellectual property. 2. Establishment of a branch officeThe Commercial Companies Law ("CCL") allows foreign companies to establish a branch office in the UAE. The scope of activities permitted to be undertaken by branch offices varies from Emirate to Emirate although generally a broad range of commercial trading activities can be undertaken. In Dubai, in addition to the CCL branch office, there is also provision for a "representative office": which may be formed to conduct representative, marketing and other promotional activities but is not permitted to trade. A foreign company which wishes to establish a branch in the UAE must be sponsored by a UAE national or by a locally registered company which is wholly-owned by UAE nationals. The sponsor is known as the National Agent. A formal National Agency Agreement is required, in which the National Agent undertakes to sponsor and assist the foreign company, in return for a fee. It is not advisable for a National Agency Agreement to be signed without legal advice having been taken. Again, commercial registration, a business licence, and membership of the local Chamber of Commerce & Industry are all required. 3. Using the Free Zones of the UAEThe UAE has free zones in most of the individual Emirates. The free zone in Fujairah, together with the other ports on the east coast of the UAE, gives access to the UAE without the need to enter the Arabian Gulf. The Jebel Ali Free Zone (JAFZ), located in the Emirate of Dubai, is by far the largest of the UAE's free zones contains the world's largest man-made port and is now home to more than one thousand companies. Dubai has a number of specialist free zones such as Dubai Internet City, Dubai Media City and Dubai Healthcare City. Although not strictly classified as a free zone, Dubai International Finance Centre bears various common features. The free zones, which operate through an exemption to the Commercial Companies Law, offer a variety of valuable benefits to businesses and a degree of flexibility, including: 100% foreign ownership for special single or multi-shareholder free zone limited liability companies. • no National Agent required for branch offices of foreign companies • no customs duties on imports and re-exports (except re-exports into onshore UAE) • special assistance in obtaining work permits for staff • guaranteed exemptions from corporate taxes. Again, details of the incentives and facilities available, together with registration, minimum capitalisation and other requirements vary between free zones, and specific advice should be taken. 4. Appointment of a Commercial AgentA foreign business may decide that it does not wish to invest in establishing a local commercial entity or a branch office in the UAE if, for example, it simply intends to export goods or services to the UAE. In this situation an agent, distributor or franchisee (which must be 100% UAE) can be appointed. The Commercial Agencies Law regulates these arrangements. There are certain express requirements as to the content of any agency agreement. It is possible for UAE commercial agents to register agency agreements with the Ministry of Commerce and this gives rise to certain rights and obligations. Prior to signing an agency agreement, it is important to understand clearly the scope of the agency, the available means of terminating the agreement, and the precise effect of registration. Although agency is usually on a sole basis, it is possible for a foreign principal to have more than one agent registered in the UAE, as it is possible to appoint a different agent in each Emirate for the same goods or services, and a different agent for different goods and services. In practice, it is quite common to divide the UAE into two territories, being Abu Dhabi on the one hand, and Dubai and the Northern Emirates on the other. Considerable care is necessary in the preparation of commercial agency agreements, and in relation to registration, in order to ensure their commercial effectiveness. 5. Real Estate (Dubai)In the UAE, the legal background and the way in which real estate property transactions are dealt with are very different to those in the UK and other jurisdictions. The Emirate of Dubai has established its own specific land ownership policies, although there is no actual "Land Law" or "Law of Property" enshrining these. A significant number of residential developments are currently being marketed to all nationalities on a "freehold" basis. However, ownership of land in Dubai (and the UAE) continues generally to be restricted to UAE nationals, or, to a lesser extent, to nationals of other GCC countries. There are important issues which arise from the ownership of land, including with regard to inheritance. 6. Other relevant legislation and regulationsOnce you have started to transact business in the UAE, various other laws and regulations will be relevant. Some examples include: Employment legislation There are legislative and other requirements governing the employment of Emirati and expatriate labour in the UAE. These relate to such matters as labour clearances and also impose certain rights and obligations on both the employer and the employee. To some extent, these differ as between expatriate employees who are brought into the country by your company and those who are employed locally. Enforcement of your commercial rights The UAE has civil courts, which deal specifically with civil and commercial matters and are governed by strict rules of procedure. The courts of Dubai do not form part of the federal court system but do apply the federal Civil Procedures Code. Although contracts prepared in languages other than Arabic are enforceable before the courts, all pleadings and supporting documentation must be prepared in or translated into Arabic. There is a right of appeal against judgments in certain circumstances. Specific advice should be taken on the potential length and cost of any action prior to commencing proceedings in the UAE. In addition, arbitration should be considered as an alternative means of dispute resolution. For example, the Chambers of Commerce & Industry in both Abu Dhabi and Dubai have established commercial arbitration center's. Government contracts Companies doing business with official bodies should note that there are strict regulations affecting government contracts. Also, government bodies operate various standard forms of contract, such as construction and consultancy contracts, which follow international practice but are adapted for local usage. Standard forms of contract also vary between the different Emirates. Trademarks, patent and copyright During the early 1990's the federal government promulgated three pieces of legislation: the Trademark Law, the Patent Law and the Copyright Law. The Ministry of Economy and Commerce is responsible for maintaining the Register of Trademarks, the Ministry of Information is the competent authority in relation to copyright proceedings. The Ministry of Finance and Industry is responsible for registering patents A new Federal Intellectual Property Law was promulgated in mid-2002 which provides intellectual property rights comparable with accepted international standards. The law regulates copyrights and patents and sets out the scope of protection, rights and penalties imposed on offenders. The works covered by the law include books, pamphlets, articles and other written works, computer software and applications, database and other relevant computer programmes as may be decided by a competent authority. Public lectures, speeches, dramatic and musical works (including audio-visual works) are also covered by the law as are architectural, graphic and engineering designs, sculptures and paintings. Up to date advice should be sought in relation to the protection of intellectual property rights as the 2002 law is still in the early stages of implementation. Immigration Sponsorship by a company of expatriate personnel and visitors to the UAE imposes obligations on that company, and its authorised representatives or managers, as to the conduct of such persons. There are various regulations concerning the issue, renewal and cancellation of visas and labour cards. Great care must be taken not to infringe such regulations and suitable employees must be carefully selected to respect the customs and laws of the UAE. Environment Both federal and individual Emirate legislation regulates the protection of the environment in the UAE. The important aspects of environmental legislation have been clarified during 2002 by a number of Executive Orders. Accordingly, both new and current business undertakings should review their activities to ascertain whether further action, which may include the necessity to hold government issued licences, is required to comply with the new regulations. 7. Commercial lawThe UAE Commercial Code has been in effect since 1993 and is a wide ranging law, which directly affects every commercial organisation conducting business in the UAE. The Commercial Code covers such matters as the regulation of commercial activities, including preparation of commercial contracts, and obligations and assumptions that will apply in the absence of express agreement to the contrary. The Code is also relevant such things as sale of business assets, registration of mortgages, carriage of goods and persons (including liabilities attaching to carriers and agents), agency and commercial representatives, banking operations, commercial pledges and guarantees, bills of exchange and cheques, and business bankruptcy. There are pitfalls for the unwary but also important and useful provisions, which can be taken advantage of by those who structure their business arrangements appropriately. 8. Professional AdviceThis information has been provided by Trowers & Hamlins, a City of London and International law firm of solicitors, which has practised in the UAE since 1991. This introduction is intended to provide an outline of the current legal position as at January 2005 and specific legal advice should always be sought on individual matters. If any further information is required, please contact Nick White or Helen Barrett at the address below: Trowers & Hamlins 7th Floor Rais Hassan Saadi Building Mankhool Road PO Box 23092 Dubai, United Arab Emirates Telephone: +971 4 351 9201 Fax: +971 4 351 9205 Email: nwhite@trowers.com / hbarrett@trowers.com/ dubai@trowers.com |
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