PART A: OVERVIEW

1. INTRODUCTION

We are delighted to present the 2023 edition of the “United Arab Emirates: Ease of Doing Business”.

This guide provides a comprehensive overview of the investment climate, laws, and regulations that govern commercial activities in the United Arab Emirates (“UAE”). It covers a range of topics, including the history, geography, and economy of the UAE, foreign investment models, real estate ownership and leasehold, and employment regulations.

As a rapidly growing economy and a leading business, trade, and financial hub, the UAE offers numerous opportunities for investors and entrepreneurs from around the world.

We have compiled this guide to help you navigate the legal and regulatory framework of the UAE and make informed decisions about your business operations in the country. Our team of experienced lawyers has contributed to the preparation of this guide and is available to answer any questions you may have about the topics covered in this publication.

We hope that this guide will be a valuable resource for you and your business as you explore the many opportunities available in the UAE.

Prepared by Aqib Khan and Shoeb Saher

2. UNITED ARAB EMIRATES AS A BUSINESS DESTINATION

The United Arab Emirates is a constitutional federation formed on 2 December 1971 between the seven Emirates of Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Umm al-Quwain and Ras al Khaimah. Formerly a part of the British protectorate known as the “Trucial States” or “Trucial Oman,” the emirates gained autonomy when the British withdrew from the Gulf region in 1971.

The UAE is strategically located in the Arabian Peninsula and covers an area of approximately 82,880 square kilometers. It shares borders with Saudi Arabia to the southwest and Oman to the north and southeast. The country also lies between the Arabian Gulf and the Gulf of Oman.

Arabic culture is woven into the fabric of everyday life in the UAE and influences the country’s business norms. The country welcomes foreigners and has created an environment favourable to foreign investment and economic growth, promoting tolerance, diversity, and multiculturalism.

With a population of 10.2 million, the UAE has a large expatriate community, with approximately 88.5% of the population consisting of foreigners, many of whom reside in Dubai. While Arabic is the official language, English is widely used in business and everyday life, along with Hindi, Urdu, and Persian. The majority of the population is Muslim.

The UAE has a petroleum-reliant economy, but successful efforts at economic diversification have reduced the portion of Gross Domestic Product (“GDP”) from the oil and gas sector to 30%. The UAE has prioritized the energy transition and is the first Gulf state to set a “net-zero” emissions target. The oil wealth accumulated by the country has helped fund and stimulate much of its current social and economic development.

The UAE has become a major tourist destination, attracting millions of visitors every year with a variety of attractions, such as the Dubai Shopping Festival. The country is also quickly becoming a global commercial hub, with numerous multinational companies relocating their regional headquarters to the UAE.

The UAE’s shift towards digital transformation and increasingly liberal economic policies, particularly promoting foreign direct investment and free zones, has been the main driving force behind this economic and commercial expansion. The country has no foreign exchange controls, and its currency, the dirham, is pegged to the US dollar. There are no restrictions or levies on the repatriation of capital and profits by foreign investors outside the UAE. At present, the UAE does not impose personal income tax, except on oil concessions and branches of foreign banks.

Overall, the UAE’s strategic location, favourable business environment, and commitment to economic diversification make it an ideal place to do business.

3. LEGAL FRAMEWORK

3.1 LEGAL SYSTEM

The UAE operates under a civil law system that is heavily influenced by Islamic law. The legal system is based on a combination of codified law, including federal laws and local laws issued by each emirate, as well as Islamic Sharia law.

The UAE Constitution governs the distribution of legislative powers between the federation and the individual seven emirates. Under the UAE Constitution, federal laws have supremacy over the laws of individual emirates, except in areas where the emirates have been granted exclusive jurisdiction. Individual emirates are permitted to enact their own legislation in areas other than those exclusively reserved to the federation.

Legislation is divided into a number of major laws that provide the general principles of law, including civil, criminal, commercial, civil procedure, companies, intellectual property, immigration, maritime, industrial, banking, and employment. However, there is no system of precedent in the UAE. Although judgments of higher courts are of persuasive impact, they are not binding on lower courts.

3.2 JUDICIAL SYSTEM

The United Arab Emirates operates a dual court system, consisting of both federal and local courts. Each emirate has the option to establish its own judiciary or merge with the federal court system.

Federal and Local Courts: The judicial systems of Sharjah, Ajman, Fujairah, and Umm al-Quwain have merged into the UAE Federal Judicial Authority. Meanwhile, Dubai, Ras al-Khaimah, and Abu Dhabi have retained their own distinct and autonomous local judicial systems. Both the federal and local judicial systems are divided into Courts of First Instance, Courts of Appeal, and Courts of Cassation (local) or the Federal Supreme Court (federal).

The Federal Supreme Court: The UAE Federal Supreme Court, also known as the UAE Supreme Court of Cassation, is the highest court in the federal judicial system. It acts as a constitutional court and the court of cassation for the emirates that have merged into the federal system, in addition to settling disputes between the different emirates.

The Federal Supreme Court was established in 1973, and its jurisdiction was expanded in 1996 to include constitutional matters. It consists of a president and a number of judges, and its decisions are final and binding.

The UAE Federal Judicial Authority was established in 1978 by Federal Law No. 10. It is responsible for the administration of justice in the federal courts, and also oversees the appointment and training of judges

Local Judicial Systems: The local judicial systems of the Emirates of Dubai, Abu Dhabi, and Ras al-Khaimah have their own courts of cassation, entirely separate and distinct from the Supreme Court of Cassation.

Dubai International Financial Centre (“DIFC”) and Abu Dhabi Global Market (“ADGM”): In addition to the federal and local courts, Dubai Law No. 16 of 2011 established the DIFC Courts as a separate judicial system for the Dubai International Financial Centre and The Abu Dhabi Global Market Courts were established in 2015 under the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015.

The DIFC and the ADGM, both financial free zones, have their own courts modelled on the English judicial system. The DIFC Courts have jurisdiction over all civil and commercial disputes arising out of the DIFC, as well as any civil and commercial claims in respect of which parties have opted into the DIFC Court, while the ADGM Courts have jurisdiction over civil and commercial disputes arising within the ADGM.

PART B: KEY LAWS AND REGULATIONS GOVERNING BUSINESS

4. TAXATION AND VAT

CORPORATE TAX

On December 9, 2022, the UAE Ministry of Finance issued Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“UAE CT Law“). The new law will come into effect for accounting periods starting on or after June 1, 2023. The following are the key aspects of the new tax laws and regulations:

Qualifying Free Zone Persons:

Under the UAE CT Law, UAE free zone entities (known as “Qualifying Free Zone Persons“) will be subject to 0% corporate tax on their Qualifying Income and 9% on non-Qualifying Income. However, Qualifying Income has not been defined yet, and certain conditions must be met to qualify as a Qualifying Free Zone Person.

Other Businesses:

Other businesses operating in the UAE will be subject to 9% corporate tax on their taxable income exceeding a threshold, which is expected to be AED 375,000. Taxable income below this threshold will not be taxed. The UAE CT Law provides for exemptions for government entities, extractive businesses, qualifying public benefit entities, and qualifying investment funds.

Tax Filing:

All businesses classified as a Taxable Person, including UAE free zone entities, must register for UAE CT and file corporate tax returns. The deadline for filing corporate tax returns is nine months after the end of the accounting period.

Participation Exemption and Dividend Income:

Under the UAE CT Law, the receipt of UAE-sourced dividend income is not taxable. Capital gains derived by entities, except UAE free zone entities, will be subject to tax unless the participation exemption is available. The participation exemption requires a 5% ownership for 12 months, and the subsidiary has been taxed at a rate of at least 9%.

EMIRATE LEVEL TAX DECREES

The existing Emirate level tax decrees, which focus on upstream oil and gas activities and branches of foreign banks, are expected to remain in place. Entities subject to tax under an Emirate level tax decree will also be subject to tax under the UAE CT regime.

TRANSFER PRICING

Under the UAE CT Law, taxpayers will be required to follow the arm’s length principle for all transactions and arrangements with related parties. This necessitates the charging of appropriate transfer prices for related-party transactions. The transfer pricing methods specified in the UAE CT Law align with the Organization for Economic Co-operation and Development (“OECD”) Transfer Pricing Guidelines.

Taxpayers must document and report how the arm’s length principle is applied to related-party transactions. Reporting is done through a disclosure form filed with the tax return, and for certain taxpayers, through transfer pricing documentation in the form of a master file and a local file, which should be submitted upon request. The UAE CT Law does not specify the financial threshold for preparing such documentation or its contents. The requirements for transfer pricing documentation are expected to be consistent with the OECD Transfer Pricing Guidelines and established through subsequent cabinet decisions.

VALUE-ADDED TAX (“VAT”)

The UAE Federal Tax Authority (“FTA”) was established in October 2016 to implement and administer taxes in the UAE. Currently, the UAE imposes two types of taxes – Value Added Tax (VAT) and excise tax. In this text, we will focus on VAT and its implementation in the UAE.

VAT Legislation:

The Ministry of Finance issued the Federal Law No. 8 of 2017 (“Value Added Tax Law”) and the Cabinet Decision No. 46 of 2017 (“VAT Executive Regulations”) on 23 August 2017 and 26 November 2017, respectively, in anticipation of the implementation of VAT. The two documents together form the VAT legislation enacted in the UAE. Since its first issuance, the Value Added Tax Law underwent a single amendment on 26 September 2022 (effective from 1 January 2023) while the VAT Executive Regulations underwent multiple amendments on 4 June 2020, 11 March 2021 and 28 September 2021.

Implementation of VAT:

On 1 January 2018, VAT became effective at the standard rate of 5%. VAT is a tax on consumption and will be chargeable on the supply of goods and services at 5% unless an exemption or zero rating provision applies. Where taxpayers only make supplies subject to VAT at 5%, they will be entitled to full input tax recovery on any VAT incurred on expenses.

Exemptions and Zero Rating:

The VAT legislation provides for a number of exemptions, including the supplies of life insurance, financial services that are not provided for an explicit fee, residential buildings, bare land, and local passenger transport. Taxpayers that make exempt supplies do not have a right to input tax recovery, and any VAT incurred on expenses will become a VAT cost to them. The VAT legislation also provides for supplies subject to the zero rate of VAT, including the export of services and goods, preventive and basic healthcare services, and educational services. Taxpayers that make zero-rated supplies are eligible for input tax recovery, and the VAT incurred on expenses will not become a VAT cost to them. Where taxpayers make both exempt and taxable supplies, being supplies subject to VAT at 0% or 5% respectively, the taxpayer is entitled to partial input tax recovery.

Designated Zones:

The supply of goods within a number of free zones (which qualify as Designated Zones for VAT purposes) is outside the scope of VAT if certain conditions are met. However, the supply of services within a Designated Zone will still be subject to VAT in the UAE.

Registration for VAT:

Any person who carries on a business activity in the UAE and makes taxable supplies and other qualifying supplies in excess of AED 375,000 (c. USD 100,000) within a 12-month period is required to register for VAT in the UAE within 30 business days of exceeding the mandatory registration threshold.

EXCISE TAX

At a federal level, excise tax was introduced on 1 October 2017 in the UAE. The excise tax in the UAE is levied on certain goods at the following rates:

· Carbonated drinks: 50%

· Energy drinks: 100%

· Tobacco and tobacco products: 100%

Certain emirates, including Dubai, impose additional taxes on goods and services such as hotels and restaurants. The municipality fee for hotels in Dubai was reduced from 10% to 7% effective 1 July 2018.

OTHER TAXES

Personal Income Tax:

There is currently no personal income tax in the UAE. However, individuals who are residents of the UAE are subject to social security contributions, which are paid by both the employer and employee.

Housing Fee:

A 5% housing fee is charged on the annual rent of residential property in the UAE, payable by the tenant. The fee is collected by the Dubai Land Department or the relevant municipality.

Real Estate Transfer Tax:

Real estate transfer tax, also known as property or land tax, is not levied in the UAE. However, registration fees and other charges may apply when buying or selling property.

FATCA & CRS

FATCA: The Foreign Account Tax Compliance Act (“FATCA”) is a US federal law that requires foreign financial institutions to report information about US account holders to the US Internal Revenue Service (“IRS”). The UAE has entered into an intergovernmental agreement with the US to implement FATCA in the country.

CRS: The Common Reporting Standard (“CRS”) is an international agreement that requires financial institutions to report information about foreign account holders to their home country’s tax authority. The UAE has signed the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information and implemented CRS in the country.

ECONOMIC SUBSTANCE REGULATIONS

The UAE implemented Economic Substance Regulations in 2019, requiring licensees engaged in “Relevant Activities” to demonstrate sufficient substance in the UAE. Annual filing requirements include a notification within six months and a report within 12 months after the end of the financial year.

5. CUSTOMS DUTIES

Customs duty is a tax imposed on imported goods into the UAE in accordance with Federal Decree-Law No. 15 of 2022, which ratifies the Common Customs Law of the Cooperation Council for the Arab States of the Gulf and its Implementing Regulation. Understanding the customs duty structure in the UAE is important for businesses involved in international trade.

Tariff Structure and Calculation of Customs Duty:

Customs duty in the UAE is calculated based on a tariff structure that is regularly updated. The general customs duty rate is a flat 5% (with a zero tariff applied to some goods), which is mainly based on the transaction value of imported goods. In cases where the transaction value method is not feasible, other methods may apply. It is important to note that tobacco and alcohol are subject to a higher customs duty.

Exemptions from Customs Duties:

Certain imports are exempt from customs duties in the UAE. These include goods in transit, goods imported by foreigners or UAE nationals residing abroad for personal and household use, goods imported for military and internal security use, goods imported for the purposes of diplomatic missions, and goods imported by charity associations. However, in each case, imports must meet specific conditions to qualify for the exemption.

Free Trade Agreements:

– As a member state of the Gulf Cooperation Council (“GCC”), the UAE has free trade agreements with the European Free Trade Association (“EFTA”) and Singapore. The UAE also has a free trade agreement with Israel and is a party to the Greater Arab Free Trade Area Agreement (“GAFTA”), which covers 17 Arab countries.

Customs Duties in Free Zones:

– Imports into UAE free zones are not subject to customs duties, and free zone companies must maintain proper inventory management systems for imports, exports, and other entries or exits of goods.

Exports from the UAE:

– There are no customs duties imposed on exports from the UAE. Businesses involved in exporting from the UAE should comply with the relevant regulations and procedures, including obtaining the necessary export licenses and complying with documentation requirements.

6. IMPORT/EXPORT CONTROLS

The Commodities Import and Export Federal Law No. 13 of 2007 allows the UAE authorities to impose bans or restrictions on the exporting, importing, re-exporting, transiting, or transshipping of commodities under certain circumstances. These circumstances include situations where the commodities pose a threat to public safety, hygiene, the environment, natural resources, national security, or where such restrictions are required to align with UAE foreign policy. Importing goods into the UAE depends upon the nature of goods to be imported, the licensed activity of the importer, and the purpose of importing the goods. Additionally, specific restrictions and licensing requirements apply to the import and sale of certain types of goods.

Banned Goods:

There are several goods that are banned from import or export in the UAE. These include all kinds of narcotic drugs, goods from boycotted countries, crude ivory and rhinoceros horn, gambling tools and machinery, three-layered fishing nets, used or reconditioned tires, radiation-polluted substances, and forged or duplicate currency. Additionally, printed publications, oil paintings, photographs, pictures, cards, books, magazines, stony sculptures, and mannequins that contradict Islamic teachings, decency or deliberately imply immorality or turmoil are prohibited. Cooked and homemade foods are also banned.

Strategic Goods:

The UAE has strict rules around the exportation or re-exportation of strategic goods, such as arms, military hardware, chemical and biological materials, and dual-use items. These goods cannot be exported without a specific license and approvals from competent authorities.

Type Approval and Content Approval:

Certain electronic and wireless devices must be “type approved” by the Telecommunications Regulatory Authority (“TRA”) before importation and sale in the UAE. Importers must register as “approved dealers” with the TRA to import these types of devices. All books, magazines, printed publications, DVDs, and other media items must undergo content approval from the National Media Council (“NMC”) before importation and distribution in the UAE. A license from the NMC is also required for digital content and media delivered over local domains.

Parallel Imports:

There is a general restriction on parallel imports of products if these products are exclusively imported through a registered commercial agent. Parallel imports by a third party can only be made with the written permission of the registered commercial agent or, in very specific cases; permission from the authorities must be obtained.

Israeli Boycott Repeal Law:

Following the signing of the Abraham Accords – Treaty of Peace, Diplomatic Relations and Full Normalization on 15 September 2020 with effective date on 16 August 2020, the UAE issued the Israeli Boycott Repeal Law (Federal Decree Law No. 4 of 2020) to abolish the Federal Law No. 15 of 1972 on the Boycott of the State of Israel (“Boycott Law”). The Israeli Boycott Repeal Law repealed all restrictions previously imposed under the Boycott Law and any other UAE law, allowing the entry, possession, and trade of Israeli goods of all kinds in the UAE.

Lifting of Restrictions against Qatar:

In January 2021, following the signing of the “Al-Ula Declaration,” which ended a three-and-a-half-year period of restrictions against Qatar, the UAE took steps to reopen all land, sea, and air corridors for inbound and outbound movement to and from Qatar. Relevant authorities in the UAE issued directives and circulars to this effect.

7. ANTI-BRIBERY AND CORRUPTION

The UAE does not have a standalone law dedicated to anti-bribery and corruption. However, the Federal Law on Crimes and Penalties No. 31 of 2021 (“Penal Code”) contains provisions related to anti-bribery and corruption to align with international standards. The Penal Code applies to both public officials and employees of private companies.

Categories of Individuals Subject to Anti-bribery Provisions:

The following categories of individuals are subject to the anti-bribery provisions of the Penal Code:

i. Public officials, including directors, managers, and all employees of public authorities, public corporations, partially owned federal or local state entities, arbitrators, court-appointed experts, and investigators.

ii. Persons assigned to public service.

iii. Foreign public officials and officials of international organizations.

iv. Private companies or establishments and employees of such entities.

Scope of Bribery:

The scope of a bribe covers any situation where a person requests, accepts, or is promised a gift, benefit, or unmerited gratuity, either directly or indirectly, to influence them to act in a certain way or refrain from acting in a certain way in relation to their function or duties.

Direct and Indirect Forms of Bribery:

A bribe-related crime is committed if a person requests, accepts, or has been given a promise, directly or indirectly, to receive a gift, benefit, or unmerited gratuity to influence that person to act in a way or refrain from acting in a certain way in relation to their function or duties. The crime of bribery occurs even if the person receiving the bribe does not intend to perform the act for which the bribe was offered or if the bribe is requested or accepted after the performance of the act.

Offering a Bribe:

It is also a crime for an individual to offer to any of the abovementioned categories of individuals a donation or advantage of any kind, or a promise of anything of value, in order to incite the official to commit an act in violation of their duties, regardless of whether the bribe was declined or accepted.

8. COMPETITION LAW

The UAE has implemented competition laws and regulations to promote and safeguard competition, restrain restrictive business practices, and ensure fair and competitive prices in the UAE market. The competition regime in the UAE is regulated by the following laws and regulations:

i. Federal Law No. 4 of 2012 (the “Competition Law”) as the principal legislation for competition regulation in the UAE

ii. Executive Regulation No. 37 of 2014 as the implementing regulations of the Competition Law

iii. Cabinet Resolutions No. 13 of 2016 and No. 22 of 2016 to clarify important areas of the Competition Law such as relevant market share thresholds.

The Ministry of Economy’s Department of Competition and the Competition Regulation Committee are the principal regulators responsible for implementing the Competition Law.

SCOPE OF THE COMPETITION LAW IN THE UAE:

The Competition Law in the UAE applies to all businesses operating within the country, including foreign entities that conduct business directly or indirectly and may affect the competition environment. However, the law excludes federal and local government entities, government-controlled entities, and small and medium-sized enterprises (SMEs).

Definition of SMEs:

According to Cabinet Resolution No. 22 of 2016, SMEs are defined as enterprises having up to 200 employees in the trading and services sectors, 250 employees in the industrial sector, and an annual turnover not exceeding AED 250 million in the industrial and trading sectors and AED 200 million in the services sector. It is important to note that turnover is calculated based on the group of companies, not just the establishment involved in the transaction.

Exemptions from the Competition Law:

The Competition Law exempts establishments operating in certain sectors from its provisions. These sectors include telecommunications, financial services, cultural activities (readable, audio, and visual), pharmaceuticals, utilities, waste disposal, transportation, oil and gas, and postal services.

Regulation of Economic Activity:

The Competition Law in the UAE regulates three key areas of economic activity: transactions leading to concentrations between businesses, restrictive agreements, and actions that constitute an abuse of a dominant position. Businesses operating within the UAE should be aware of the Competition Law’s scope and provisions to ensure compliance with its requirements.

MERGER CONTROL

Prior Approval and Notification Requirement:

Commercial transactions such as joint ventures, mergers, or acquisitions that may lead to an economic concentration require pre-notification and prior approval. An economic concentration refers to any act that results in the total or partial transfer of property, usufruct rights, stocks, shares, or obligations from one establishment to another, which empowers the establishment or group of establishments to control another establishment or group.

Notification Criteria:

According to Cabinet Resolution No. 13 of 2016, an economic concentration is notifiable if the combined market share of the establishments involved exceeds 40% of the total transactions in the relevant market of interchangeable goods or services, based on their price, characteristics, and usage in a particular geographic area. The term “total transactions” may refer to the combined annual turnover of all parties to the transaction, although it is not clearly defined in the Competition Law.

Notification Process:

Under the Competition Law, a written notification must be submitted jointly by the establishments engaged in the economic concentration to the Ministry of Economy (“MOE”) at least 30 days from the date of concluding a draft agreement contemplating the economic concentration.

Penalties for Non-Compliance:

Failure to file the notification can result in fines of 2% to 5% of the merging entities’ annual total turnover of goods or services (subject to the relevant market) realized within the last financial year. If it is impossible to determine the total turnover of the merging entities, a fine ranging from AED 500,000 to AED 5 million may apply. The obligation to apply for and obtain clearance lies with both entities, and the penalty applies to both merging entities. The authority’s method of calculating the penalty is not yet clear, and there have been no published precedents on this matter to date.

Implementing Transaction Prior to Approval:

Implementing the relevant transaction prior to the grant of approval issued by the Minister can result in a fine ranging from AED 50,000 to AED 500,000, and clearance may be revoked if the applicant fails to implement its remedial undertakings. The Competition Law also provides an umbrella penalty of a fine of AED 10,000 to AED 100,000 for breaching any of its provisions. The fines stated above will be doubled in case of repetition.

Additional Penalties:

In addition to the fines mentioned above, the court may order the closing down of the violator’s business for a period between three to six months and/or order the publication of the verdict in two local newspapers.

RESTRICTIVE AGREEMENTS

Under the Competition Law, there is no distinction between vertical and horizontal agreements. A general prohibition is provided for, which encompasses both types of arrangements. The Competition Law prohibits restrictive agreements between establishments, whether they are legal entities or individuals, whose “subject” or “objective” is to “prejudice, limit, or prevent competition.” Thus, all agreements or arrangements that may restrict or prevent competition are prohibited. This includes written and/or oral agreements, arrangements, alliances, and practices, whether they are implied or expressed, formal or informal.

Non-Exhaustive List of Agreements that Restrict Competition:

The Competition Law sets out a non-exhaustive list of agreements that are considered to restrict competition, which includes:

i. Agreements that entail direct or indirect price fixing

ii. Agreements that entail fixing the conditions of buying, selling or performing services

iii. Colluding in tenders or offers

iv. Agreements to suspend or limit the production, development, distribution, or marketing of any other aspects of investment

v. Colluding to refuse to deal with a certain entity or stopping or impeding a certain entity from carrying out its activity

vi. Agreements to limit the supply or withdrawal of goods or services from the relevant market, including the unlawful concealment or storage, or creating a sudden oversupply that may lead to unreal prices

vii. Agreements to divide markets or assign clients based on geographic areas, distribution centres, quality of clients, seasons and periods, or any other basis that may negatively affect competition

viii. Taking any measure to limit market entrance or exclude an entity from the market or to hinder joining existing agreements or coalitions.

Mandatory Prior Notification for Exemption:

In order to obtain an exemption for concluding a restrictive agreement that would otherwise be prohibited, prior notification to the Department of Competition is mandatory. There is no applicable time limit. However, the application must be submitted by both parties to the agreement prior to concluding the restrictive agreement.

Penalties for Violations:

The penalty for concluding a restrictive agreement in breach of the provisions of the Competition Law is a fine ranging from AED 500,000 to AED 5 million. In addition, personal criminal liability for violations of the Competition Law can be attached to a director or manager in the event they had criminal intent. From a civil perspective, a director or manager could be liable towards the company, the shareholders, and third parties for damages or costs that arise from acts of fraud, gross error, abuse of power, mismanagement, violation of any of the applicable laws, violation of the company’s memorandum of association, or the terms of his/her appointment. The offending entity may also be liable towards third parties for damages they may have suffered as a result of the anti-competition behavior that is prohibited under the Competition Law.

Consequences of Violations:

Lastly, the court could order the closing down of the violator’s business for a period between three to six months and/or order the publication of the verdict in two local newspapers.

ABUSE OF DOMINANT POSITION

Market dominance refers to having a market share that exceeds 40% of the total transactions in a relevant market of goods or services that are interchangeable based on their price, characteristics, and usage, in a particular geographic area. As per the Cabinet Resolution No. 13 of 2016, a dominant position can be established by defining the relevant market and measuring the market share in terms of value of sales, essentially turnover.

Abusive Conduct under Competition Law:

Under the Competition Law, any behavior that prejudices, limits, or prevents competition is considered abusive conduct. The following conduct is included but not limited to:

i. Imposing, directly or indirectly, prices or conditions for the reselling of goods or services

ii. Selling a commodity or performing a service with a price that is less than the actual cost, with the aim of hindering competitive establishments from entering the relevant market, excluding them from such market, or causing them losses that prevent them from continuing their activities

iii. Discriminating among clients in identical contracts in relation to the prices or terms of the contract

iv. Obliging a client to not deal with a competitive party

v. The total or partial rejection of carrying out a transaction in accordance with standard market practices

vi. The unjustified refusal to deal in goods or services in a manner that leads to imposing unreal prices

vii. Making the conclusion of an agreement conditional on the other party accepting an obligation to deal in other goods or services that are, by their nature or commercial use, unrelated to the original agreement

viii. Intentionally publishing incorrect information

ix. Altering the supply of goods to create artificial scarcity or abundance of supply

x. Penalties for Abusive Conduct without Obtaining an Exemption from MOE: The penalties for abusing a dominant position without obtaining an exemption from the Ministry of Economy (“MOE”) are the same as those for restrictive agreements noted above. It is essential to comply with the competition law and avoid abusive conduct to maintain a fair and healthy market competition environment.

ENFORCEMENT AND PENALTIES

The Ministry of Economy’s Department of Competition and the Competition Regulation Committee are responsible for enforcing the Competition Law. These regulatory bodies hold significant power to investigate alleged anti-competitive practices, such as the authority to enter premises, seize documents, and conduct interviews.

Upon establishing a violation of the Competition Law, the regulators may impose severe penalties that can lead to financial losses and other consequences. These penalties include fines of up to 5% of the violating entity’s annual turnover of goods or services, realized within the last financial year, and subject to the relevant market.

In addition to monetary fines, regulators may also issue orders to cease and desist from the anti-competitive practice, divestiture of assets, and disqualification from bidding on public tenders. Such measures ensure that violators face severe consequences for their actions and create an environment that supports fair competition in the market.

9. GOVERNMENT PROCUREMENT

Foreign companies seeking to submit bids for tenders issued by public authorities in the UAE should seek legal advice prior to submitting proposals and assuming binding commitments. The UAE has implemented procurement laws and regulations at both the federal and local levels to govern public procurement activities and ensure transparency and fairness in the process.

Federal Government Procurement:

The federal government procurement is governed by Cabinet Resolution No. 4 of 2019, which outlines the requirements for contracts executed with the UAE Federal Government, ministries, and federal agencies. For public-private partnerships involving federal entities, Resolution 1/1 of 2017 on the procedures manual for partnership between federal entities and the private sector sets out the relevant rules and regulations.

Local Government Procurement:

The Emirates of Abu Dhabi, Dubai, and Sharjah have enacted standalone procurement laws applicable to tenders issued by local public authorities. Generally, local procurement laws are similar to federal procurement regulations, although some matters may be addressed differently in each regulation. Dubai and Abu Dhabi also have their own public-private partnership laws, No. 22 of 2015 and No. 2 of 2019, respectively, which regulate partnerships between the public and private sectors in the respective emirates.

Procurement by Specific Public Authorities:

Certain public authorities have specific legislation governing their procurement and tendering activities. For example, procurement for the UAE Armed Forces is governed by special procurement rules.

Standard Procurement Documentation:

Most public authorities have a set of standard procurement documentation for contracting work, services, and supplies, among others. Bid bonds, performance bonds, and other guarantees issued by a bank operating in the UAE are typically required in government procurements.

Governing Law and Dispute Resolution:

In procurement contracts with governmental or quasi-governmental entities, UAE law applies if the parties do not agree otherwise. Referring disputes to an arbitration seated in the relevant emirate may encourage the government or quasi-government entity to agree to the insertion of an arbitration clause in the agreement.

10. MONEY LAUNDERING

The United Arab Emirates has a comprehensive framework in place for combating money laundering and terrorist financing, which has been aligned more closely with the Financial Action Task Force (“FATF”) Recommendations. The framework includes the following key legislation and regulations:

i. Federal Law No. 20 of 2018 on Anti-Money Laundering, Combating the Financing of Terrorism and the Financing of Illegal Organizations (“AML Law”)

ii. Federal Law No. 7 of 2014 on Combating Terrorism Crimes (“CT Law”)

iii. Cabinet Resolution No. 10 of 2019 (“AML Resolution”) which outlines the measures and requirements for implementing the AML Law

iv. Decree No. 74 of 2020 in relation to Targeted Financial Sanctions and the establishment of the Executive Office for Control and Non-Proliferation (“EOCN”)

v. Regulations made by relevant UAE authorities and regulators, such as the UAE Central Bank, the Securities and Commodities Authority (“SCA”), and the UAE Insurance Authority, which implement the AML Law and AML Resolution.

The AML Legislation applies to all financial institutions in the UAE, as well as certain “Designated Non-Financial Business and Professions” (“DNFBPs”) such as dealers in precious metals, accountants, lawyers, and real estate brokers.

Risk-Based Approach (“RBA”)

The AML Law and AML Resolution follow the “Risk-Based Approach”, which is provided for under the FATF Recommendations. Under the RBA, each client is classified according to the level of money laundering risk they present. The level of scrutiny during the mandatory customer due diligence process will depend on the client’s assessed risk level, with higher risk clients subject to a more rigorous level of scrutiny.

Politically Exposed Persons (“PEPs”)

The AML Resolution recognizes the status of foreign and domestic “Politically Exposed Persons”. Foreign PEPs are deemed to present a high money laundering risk, while the level of risk for domestic PEPs is assessed on a case-by-case basis.

Suspicious Activity Reports (“SARs”)

There is a requirement under the AML Law to submit a Suspicious Activity Report (“SAR”) to the Financial Intelligence Unit (“FIU”) at the UAE Central Bank whenever a person suspects money laundering activity. Financial institutions and DNFBPs are required to keep all SAR and money laundering related information confidential. Tipping off any information in relation to the filing of an SAR or an ongoing AML investigation to any person is a crime punishable by imprisonment and/or a fine.

Sanctions Compliance

The AML Law, CT Law, and regulations also require compliance with the regulations made by the relevant UAE authorities in relation to the United Nations Security Council resolutions on sanctions. The EOCN website (https://www.uaeiec.gov.ae/en-us/un-page) lists the domestic and UN designated persons which financial institutions and DNFBPs must consult regularly before on boarding any client. There is also a possibility to present a grievance if a person believes they are wrongfully listed.

FINANCIAL FREE ZONES’ AML FRAMEWORKS

The AML Legislation also applies in the UAE financial free zones, where UAE commercial and civil laws are not applicable. The financial regulators at the financial free zones have established their own detailed and sophisticated AML regimes that align with the FATF Recommendations, the AML Legislation, and international standards and best practices:

i. In the Dubai International Financial Centre (“DIFC”), the Dubai Financial Services Authority (“DFSA”) administers the Anti-Money Laundering, Counter-Terrorist Financing, and Sanctions Module of the DFSA Rulebook.

ii. In the Abu Dhabi Global Market (‘ADGM”), the Financial Services Regulatory Authority (FSRA) is responsible for overseeing the AML framework. The ADGM has also established a Financial Crime Prevention Unit (“FCPU”) to support the FSRA in its supervisory role and to ensure compliance with the AML regulations.

The UAE has a comprehensive and robust AML framework in place that is aligned with international standards and best practices. The RBA is a key feature of the framework, which enables financial institutions and DNFBPs to prioritize their AML efforts and resources based on the assessed level of risk. The framework also includes specific measures for dealing with PEPs and sanctions compliance, as well as separate regimes for the financial free zones. Overall, the UAE’s AML framework is aimed at ensuring the integrity of the financial system and protecting it from the risk of money laundering and terrorist financing activities.

11. BANKRUPTCY LAW

The UAE introduced the Federal Law No. 8 of 2016 on Bankruptcy, which came into effect at the end of 2016. This was the first stand-alone bankruptcy legislation in the UAE, although a bankruptcy regime had been in place since 1993 under the Commercial Transactions Code (“CTC”).

The Bankruptcy Law introduced several key concepts, including:

i. Financial Reorganization Committee: A “financial reorganization committee” has been set up to supervise the reorganization of regulated institutions and too big to fail companies in distress but not yet insolvent or undergoing a court process. The committee was established in 2018 and comprises the Central Bank, ESCA, and representatives of the Emirates of Abu Dhabi, Dubai, and Sharjah. The Deputy Minister of Finance chairs the committee.

ii. Preventive Composition: Preventive composition, which predated the Bankruptcy Law, is still a possible pathway for distressed businesses. However, the conditions to opt for preventive composition have been relaxed. The debtor may initiate a composition if they are not in default for more than 30 business days or are not in a “debited financial position.” The ability to settle 50% of the debt is no longer a condition for the composition plan to be approved.

iii. Bankruptcy Proceedings: A creditor whose receivables amount to AED 100,000 or more may commence bankruptcy proceedings against the debtor. If bankruptcy proceedings are initiated, debt restructuring may be opted for. While this is also a court-supervised process, debt restructuring may be initiated with the debtor’s consent if the bankruptcy trustee deems that the debt restructuring will enable a higher recovery compared to the recovery under a normal bankruptcy process entailing the sale of business.

iv. Suspension of Dishonoured Checks: Crimes of dishonoured checks will be suspended if a preventive composition plan or a debt-restructuring plan is approved. In this case, the check holder becomes one of the unsecured creditors.

v. Seeking New Financings: The provisions adopted in the Bankruptcy Law are more flexible compared to those of the CTC. The trustee may request the court to approve seeking new financings, secured or unsecured, necessary for the continuance of the debtor’s business. Additionally, any approved new financings will rank above the debts of unsecured creditors.

vi. Trustees: Trustees will be nominated by debtors and have been significantly empowered under the Bankruptcy Law. This may potentially reduce the courts’ involvement and lead to a smoother and more efficient process. A trustee may also be a corporate entity.

vii. Scope of Application: The scope of application of the Bankruptcy Law is broader than the CTC. All commercial companies (except for financial free zones that are subject to special bankruptcy regulations, such as the DIFC and ADGM), traders/merchants, and civil partnerships (set up pursuant to the Civil Transactions Code) are subject to the Bankruptcy Law. Individuals remain out of the scope of the Bankruptcy Law, as there has been a law issued in 2019 governing the insolvency of individual consumers.

viii. Directors’ Liability: Directors’ liability will remain as is, meaning directors whose actions have caused losses continue to be jointly liable for the debts of the company if the assets of the debtor are not sufficient to cover 20% of its debts, provided they have been found liable under the provisions of the commercial companies law. Likewise, the suspect period will remain unchanged, meaning any transaction entered into within two years before the issuance of bankruptcy proceedings (the suspect period) is void or voidable.

ix. Amendments to the Bankruptcy Law: The UAE amended the Bankruptcy Law in 2020 to introduce the concept of exceptional circumstances, such as pandemics and other natural disasters. This allows distressed persons to be granted relief from filing for insolvency during such periods and permits debtors to reach out-of-court settlements with their creditors. The amendments also include provisions for simplified and expedited restructuring procedures for small and medium-sized enterprises (SMEs). In addition, the amendments introduced a mechanism for the settlement of debts through mediation, which can be used to reach agreements with creditors and avoid bankruptcy proceedings.

x. Future Developments: The UAE Ministry of Finance is currently working with World Bank experts to draft a new Bankruptcy Law that aims to simplify and streamline the existing law. The draft law is expected to be issued for public consultation in March 2023, and it is expected that the law will be issued in late 2023. The new law is expected to introduce further improvements to the bankruptcy regime in the UAE, including measures to enhance the efficiency of bankruptcy proceedings, reduce the time and cost of bankruptcy proceedings, and improve the protection of the rights of creditors and debtors.

12. EXCHANGES IN THE UAE

The United Arab Emirates is home to several exchanges, which are regulated by the relevant authorities. These exchanges operate within or outside financial free zones and offer different types of trading platforms.

Exchanges Located Outside Financial Free Zones:

The following exchanges are located in the UAE, outside the financial free zones, and are licensed and regulated by the Securities and Commodities Authority (SCA):

i. Dubai Financial Market (“DFM’): This is a securities exchange located in the Emirate of Dubai.

ii. Abu Dhabi Exchange (“ADX”): This is a securities exchange located in the Emirate of Abu Dhabi.

iii. Dubai Global Commodities Exchange (“DGCX”): This is a commodities exchange located in the Dubai Multi Commodity Centre (“DMCC”) free zone in the Emirate of Dubai.

Exchanges Located in the DIFC:

The following exchanges are located in the Dubai International Financial Centre (DIFC) and are licensed and regulated by the Dubai Financial Services Authority (DFSA):

i. Dubai Mercantile Exchange (“DME”): This is an energy-focused commodities exchange.

ii. NASDAQ Dubai: This is a securities exchange.

Exchanges Located in the ADGM:

The following exchanges are located in the Abu Dhabi Global Market (“ADGM”):

i. ICE Murban Futures: This exchange is focused on crude oil trading.

ii. AirCarbon Exchange: This exchange is focused on the trading of carbon credits.

iii. Crypto-exchanges: There are several licensed crypto-exchanges operating within the ADGM.

Rules and Regulations:

Each exchange has its own set of member rules, which are in line with the requirements of the relevant regulator. Members of the exchanges are subject to the rules of the exchange, as well as those of the regulator in relation to the offering of securities, the listing of securities, market disclosures, regulatory notifications, takeovers, and insider dealing and market abuse.

Self-Regulated Organizations:

In 2020, the UAE Cabinet granted the UAE Exchanges Self-Regulated Organizations status. This means that these exchanges will act as listing authorities under the ultimate supervision of the SCA.

13. INTELLECTUAL PROPERTY REGULATIONS

Intellectual Property (“IP”) is a crucial aspect of doing business in the UAE, a rapidly developing country with a strong focus on innovation and entrepreneurship. The UAE has enacted several laws and regulations to govern IP rights (“IPRs”) to ensure businesses operating in the country have the necessary legal protections for their IP.

Types of IPRs:

The main IPRs recognized in the UAE are patents, trademarks, copyrights, geographical indications, industrial designs, trade names, trade secrets, domain names and plant variety rights. Some of these IPRs are protected through registration with the competent authorities in the UAE.

Laws governing IPRs: The primary legislation that governs IPRs in the UAE is comprised of the following laws:

i. Federal Decree-Law No. 36 of 2021 on Trademarks:

The law governs the registration and protection of trademarks and geographic indications in the UAE. Trademarks can include logos, slogans, sounds, smells, holograms, 3-dimension trademarks, and brand names used in commercial activities. The law sets out the requirements for trademark registration and the procedures for enforcing trademark rights in the country.

ii. Federal Decree-Law No. 38 of 2021 on Copyrights and Neighbouring Rights:

The law provides protection for literary and artistic works, such as books, music, and software. It sets out the conditions under which these works can be protected, the rights of authors and owners, and the penalties for infringement.

iii. Federal Law No. 11 of 2021 on the Regulation and Protection of Industrial Property Rights:

The law provides protection for the ornamental or aesthetic aspects of products, such as their shape and appearance. It sets out the conditions under which industrial designs and models can be protected and the rights of owners.

iv. DIFC Intellectual Property Law No. 4 of 2019 (“DIFC IP Law”):

The law recognizes IPRs registered in the UAE under the relevant federal laws and provides regulations for the full spectrum of IPRs, including patents, utility certificates, industrial designs, copyright, trademarks, trade names and trade secrets. The DIFC IP Law introduces concepts such as IP ownership in employment relationships, well-known trademarks, trademark licensing, conflicts between trademarks and trade names, trademark fair use, and copyright ownership.

Protection of Domain Names: Domain names (.ae) are protected in the UAE by the modified Uniform Domain-Name Dispute-Resolution Policy.

Other laws and provisions: Moreover, the Commercial Transactions Code, Penal Code, Civil Code, and Labour Law contain provisions relating to the protection of know-how and trade names. The Commercial Fraud Law enhances brand owners’ rights by imposing strict penalties on those in possession of counterfeits for the purpose of sale.

Enforcement of IPRs: IPRs in the UAE are protected on a federal level. However, the enforcement of these rights is carried out on a local level and therefore separately handled by the respective authorities in each Emirate. The UAE has federal courts, local courts (Abu Dhabi, Dubai, and Ras Al Khaimah), and specialized courts in the DIFC and the ADGM that have jurisdiction over IP disputes. DIFC and ADGM courts systems follow common law principles and have the power to enforce their decisions within the UAE and internationally. The decisions of DIFC and ADGM courts can be appealed to the federal courts.

The Madrid System: The Madrid System offers a streamlined approach for trademark owners to secure protection for their marks across multiple countries. In 2021, the UAE joined the Madrid System, making it possible for trademark owners in the UAE to file a single application and pay a single set fee to obtain trademark protection in up to 124 countries. This provides a cost-effective and efficient way for businesses in the UAE to expand their international presence while protecting their trademarks.

Protecting IPRs in the metaverse and AI:

The metaverse, a virtual universe that is estimated to reach a market value of USD 5 trillion by 2030, has attracted the attention of businesses and entrepreneurs worldwide. To establish itself as a leading hub in the metaverse economy, the Emirate of Dubai has taken proactive measures by setting up the Virtual Assets Regulatory Authority (“VARA”) and announcing its Metaverse Strategy.

In this context, it is important for companies interested in the metaverse to protect their intellectual property rights (IPRs) to ensure their long-term success. Here are some key steps that businesses should take:

i. Register Trademarks and Logos:

Registering trademarks and logos is an essential step in protecting a company’s IPRs. This can be achieved by conducting clearance searches and registering the marks, including their Arabic versions, with the UAE Trademark Office. The office recognizes the significance of metaverse-related goods and services, accepting terms in Classes 9, 35, 41, and 42 for trademark registration. Having a trademark registration in place is crucial for companies to defend against potential infringers.

ii. Consider Copyright Protection:

Copyright protection should also be taken into consideration, especially when it comes to territorial issues and the risk of infringement. Companies should ensure that their original and creative works, such as music compositions, photographs, or written works generated by AI systems, meet the requirements for copyright protection in the UAE.

iii. Understand IP Laws in the UAE and AI Systems:

The UAE’s IP laws apply to AI systems and their outputs in the same way as other forms of IP. If a company develops and owns an AI system, it may seek to protect its rights through patents, copyrights, or trade secrets. Understanding the legal and regulatory framework for AI in the UAE is crucial for companies to protect their AI-related IPRs.

The UAE is rapidly adopting AI technology, and the government is actively working on establishing the legal and regulatory framework for AI. By taking proactive measures to protect their IPRs in the metaverse and AI systems, businesses can ensure their long-term success in the fast-growing metaverse economy.

14. DATA PROTECTION AND PRIVACY REGULATIONS

Data protection and privacy laws are important for the protection of personal information and privacy. The UAE government has published Federal Law No. 45 of 2021 on Personal Data Protection (“PDPL”) to regulate the processing of personal data in the UAE. This law came into effect on 2 January 2022, but a grace period is currently in effect and will continue until the publication of the PDPL Executive Regulations, which were expected to be published by 28 May 2022. The Emirates Data Office will be responsible for enforcing the PDPL once it becomes operational. In the meantime, the Telecommunications and Digital Government Regulatory Authority (“TDRA”) will enforce the PDPL

Scope of the PDPL:

The PDPL has extra-territorial effect and applies to UAE entities operating in, or which conduct data processing in the UAE, and all foreign entities that collect or process the personal data of UAE data subjects. However, the PDPL does not apply to the Dubai International Financial Centre (“DIFC”) and Abu Dhabi Global Market (“ADGM”).

Key Differences with the GDPR:

While the PDPL shares many core principles and definitions with the European General Data Protection Regulation (“GDPR”), there are some key differences. The default position under the PDPL is that the consent of the data subject is required to process personal data, unless an alternative legal basis applies. The PDPL also lacks an equivalent to the “legitimate interests” ground of the GDPR.

Cross-Border Data Transfers:

Under the PDPL, cross-border transfers of personal data are deemed legitimate where they are made to a jurisdiction that has adopted personal data protection legislation, provided the legislation reflects the most important provisions, measures, controls, conditions, and rules for protecting the privacy and confidentiality of personal data, as well as honouring the rights afforded to data subjects by the PDPL and provisions relating to the enforcement of the relevant requirements by a regulatory or judicial authority. The transfers will also be lawful where they are made to a country with which the UAE has signed a multi-lateral or bilateral agreement for the protection of personal data. Transfers to non-adequate jurisdictions will still be permitted in certain circumstances, such as for exercising or defending rights before judicial authorities or for the protection of public interest.

Sector-Specific Regulations:

In addition to the PDPL, data protection and privacy provisions are contained in other UAE laws, regulations, and policies. Some of these regulations apply exclusively to certain sectors or technologies, such as the healthcare and banking sectors. Processing of personal data related to health and banking/credit personal data, which is subject to separate legislation, are expressly excluded from the scope of the PDPL’s application. The responsibility for the enforcement of these regulations is shared among different regulators.

Cybercrime Law:

Federal Law No. 34 of 2021 (“Cybercrime Law”) also includes provisions that create an offense for breach of privacy in a digital context and criminalizes certain activities relating to personal data, such as unauthorized access to an individual’s personal data using information technology.

Data Sharing Law and Health Data Law:

In December 2015, the Government of Dubai implemented a data sharing law that mandates the exchange of data “relating” to Dubai between Dubai government entities and data providers, including private sector businesses operating in Dubai free zones, as determined by the regulator, the Dubai Data Establishment. The aim of the law is to gather more data from stakeholders across the Emirate to improve analytics, which in turn supports economic growth in the region.

In 2019, the Federal Law No. 2 of 2019 (“Health Data Law”) was introduced to regulate the use of information technology and communications in the healthcare sector. The Health Data Law restricts the transfer and processing of health data outside the UAE’s geographic boundaries, where such data relates to patients or healthcare services delivery within the UAE. The only exception to this general restriction is where the relevant emirate-level health authority, in coordination with the Ministry of Health and Prevention, issues a resolution. Ministerial Resolution No. 51 of 2021 (“Data Export Resolution”) provides legal bases to legitimize the export of health data. However, it has become apparent that health sector regulators in the Emirate of Dubai and Abu Dhabi intend to follow their independent supplementary processes when assessing cross-border transfers of health data or processing of health data on a cross-border basis.

Internet of Things (IoT) Solutions, E-payment, and Outsourcing Regulations:

Meanwhile, the Telecommunications Regulatory Authority (TDRA) has implemented a policy to regulate the provision of Internet of Things (IoT) solutions. In 2020, the Central Bank replaced historic legislation regulating e-payment services with a more comprehensive Stored Value Facilities Regulation, followed by a new Outsourcing Law and associated Standards in 2021. Both legislations contain data regulatory requirements.

Data Protection Laws in Free Zones:

The Dubai International Financial Centre (“DIFC”) and Abu Dhabi Global Market (“ADGM”) have autonomy in implementing commercial and civil legislation and have their own data protection laws. These laws apply within their geographic boundaries and to companies operating from their free zones. Both the DIFC and ADGM have overhauled their data protection laws in 2022 and 2021, respectively, to bring them closer in line with the GDPR. There are ongoing projects to further refine these frameworks. Additionally, the Dubai Healthcare City, another free zone, has adopted specific regulations on data protection addressing the collection, use, disclosure, and transfer of patient health data. These regulations should be read in conjunction with onshore legislation regulating the processing of health data.

15. CHOICE OF LAW AND DISPUTE RESOLUTION

When entering into contracts in the UAE, parties have the option to choose a foreign law to govern their relationship, except for specific matters such as real rights, employment contracts, and contracts with UAE government entities. The choice of foreign law will be upheld by local courts, provided it does not contradict Islamic Sharia, public order, or morals of the UAE. Parties may also agree to submit disputes to a court in the UAE, DIFC, ADGM, or to a foreign court or arbitration.

FOREIGN JUDGMENTS:

To facilitate the enforcement of foreign judgments, the UAE has entered into various treaties with other countries, including the Riyadh Arab Agreement for Judicial Cooperation Convention of 1983, the GCC Convention of 1996, and bilateral treaties with France, China, India, and Egypt. The enforcement of foreign judgments is permissible before the local courts if they are final and binding.

ARBITRATION:

The UAE has enacted the new Arbitration Law under Federal Law No. 6 of 2018 (“UAE Arbitration Law”), which is in line with the United Nations Commission on International Trade Law (“UNCITRAL”) Model Arbitration Law. The UAE has a number of domestic arbitration forums, such as the Dubai International Arbitration Centre (“DIAC”) and the Abu Dhabi Commercial Conciliation Arbitration Centre (“ADCCAC”). Parties may also choose a foreign arbitration center, such as the London Court of International Arbitration (“LCIA”), International Court of Arbitration of the International Chamber of Commerce, or the United Nations Commission on International Trade Law.

THE DIAC AND THE LCIA:

i. In September 2021, the Dubai Government issued Decree No. 34 of 2021, abolishing the Dubai International Financial Centre Arbitration Institute (which administered DIFC-LCIA Arbitrations), as well as the Emirates Maritime Arbitration Centre (“EMAC”). All assets, liabilities, rights, and obligations of the DIFC-LCIA and EMAC were transferred to DIAC.

ii. The LCIA will administer all cases duly registered and assigned a case number by the DIFC-LCIA on or before 20 March 2022.

iii. DIAC will register and administer all arbitrations, mediations, and other ADR proceedings referring to the DIFC-LCIA rules, which were commenced on or after 21 March 2022 (unless the parties agree otherwise).

The New DIAC Rules

iv. According to Decree No. 34 of 2021, DIFC-LCIA arbitration agreements entered into before 20 September 2021 are still valid. However, starting from 21 March 2022, any party seeking to initiate proceedings under a DIFC-LCIA dispute resolution agreement must commence such proceedings with DIAC, unless the parties amend the existing arbitration agreement or execute a new one. These cases will be administered under the new 2022 DIAC Rules (“new DIAC Rules”). It is crucial for parties to be aware of these changes and seek legal guidance to ensure compliance with the new regulations.

v. The new DIAC Rules confirm the DIFC as the default seat of arbitration in the absence of choice by the parties. This means that arbitrations will be governed by the DIFC Arbitration Law, and the DIFC Courts will have supervisory jurisdiction over the relevant arbitrations. To enforce an award, an application can be made to the DIFC Courts, and any awards recognized by the DIFC may be enforced within the DIFC as well as onshore Dubai, pursuant to the Judicial Authority Law No. 12 of 2004.

vi. Enforcement of Foreign Arbitral Awards

The enforcement of foreign arbitral awards is governed by the Executive Regulations set out in the Civil Procedure Code. These Executive Regulations expressly state that the enforcement of foreign orders or awards would be permissible before the local courts, insofar as they are final and binding. The UAE is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Convention,” which further provides for the enforcement of foreign arbitral awards in the UAE

vii. Arbitrability Of Disputes In The UAE

The majority of disputes are arbitrable in the UAE, subject to limited exceptions. These exceptions include, but are not limited to, registered commercial agency disputes, registration of off-plan real estate units, labour disputes, long-term rental disputes, and disputes related to public policy matters. Public policy matters are defined under Article 3 of the UAE Civil Code and include provisions relating to personal status [marriage, inheritance, lineage], systems of governance, freedom of trade, circulation of wealth, private ownership, and other rules and foundations on which society is based, provided that these provisions are not inconsistent with the imperative provisions and principles of Islamic Sharia. Disputes under contracts with the UAE government are normally referred to a UAE court, except in certain emirates, such as Dubai, where parties may opt for arbitration subject to the approval of the Ruler of Dubai.

viii. Controversy Surrounding Real Estate-Related Disputes

There is controversy surrounding the arbitrability of real estate-related disputes. Real estate has been regarded by UAE courts as a public order matter since it relates to wealth and individual ownership. However, on other occasions, the courts have ruled that disputes related to the non-performance of contractual obligations under a real estate sale and purchase agreement may be subject to arbitration, while disputes related to the registration or non-registration of real estate property may not be resolved through arbitration. This is because it involves rules of individual ownership and the circulation of wealth, which UAE courts have regarded as matters of public policy and therefore subject to the exclusive jurisdiction of the courts.

ix. Establishment of the SCCA Branch in the DIFC

In a recent development in November 2022, the Saudi Center for Commercial Arbitration (“SCCA”) established a branch based in the DIFC, which is its first office outside the Kingdom of Saudi Arabia. The SCCA branch started operating on 2 February 2023, offering a comprehensive suite of alternative dispute resolution (ADR) services to local and international companies operating in the UAE and the wider Middle East.

16. RESTRICTIONS ON FOREIGN INVESTMENT

The UAE offers a vibrant business environment that attracts foreign investment. However, foreign investors must comply with certain regulations when investing in the UAE. In this article, we will explore the restrictions on foreign investment in the UAE.

Business License Requirements:

Every corporate entity in the UAE must obtain a business license to conduct business in the jurisdiction in which it operates. The business license will specify the business activities that the corporate entity is authorized to undertake. The corporate entity must select the activities it wishes to conduct from a list of activities available in each jurisdiction. The entity may not engage in business activities other than the ones for which it has been licensed.

Establishment in Mainland or Free Zones:

Corporate entities can be established in the mainland/onshore or in one of the free zones. Each Emirate has its own licensing authority that licenses and regulates companies incorporated in that Emirate. In addition, there are over 40 free zones in the UAE, each regulated by a separate free zone authority, with different sets of regulations and rules governing them.

Foreign Investment Restrictions under the Old Law:

Under the previous Commercial Companies Law No. 2 of 2015, any foreign investor wanting to do business in the UAE mainland and set up a company, would need to partner with a local UAE national or UAE-owned entity, which would own 51% of the share capital of the mainland company.

Foreign Investment Restrictions under the New Law:

The new Federal Commercial Companies Law No. 32 of 2021 (“CCL”) now governs the incorporation of companies and other legal forms onshore in the UAE and prescribes the foreign investment restrictions that apply to such incorporations. The CCL replaces the general investment restriction which was prescribed under the old law by placing the responsibility of determining the required percentages of UAE ownership on the Department of Economic Development in each Emirate (the Department of Economy and Tourism in Dubai) in certain strategic sectors.

Permissible 100% Foreign Investment:

The Department of Economic Development in Abu Dhabi and the Department of Economy and Tourism in Dubai have each issued a list of activities in which 100% foreign investment would be permissible. The activities listed include trading, agriculture, industrial, services, contracting, transportation, and others. It is worth noting that the positive list issued by the Department of Economy and Tourism in Dubai contains industrial, agriculture, contracting, and some services activities, in addition to the majority of trading activities, representing a substantial step forward for foreign direct investment in the retail/trading sector in Dubai.

Activities with Strategic Impact:

The UAE Cabinet has issued Resolution No. 55 of 2021, which identifies a list of activities with strategic impact. This resolution grants third-party regulatory authorities the power to determine the following:

i. The percentage of national participation and/or foreign investor’s participation in the share capital

ii. The percentage of national participation and/or foreign investor’s participation in membership of the board of directors (if applicable)

iii. Any other conditions or controls deemed appropriate by the relevant authority.

The activities included in the List of Activities with Strategic Impact are as follows:

i. Security and Defense Activities and Activities of Military nature (regulated by the Ministry of Defense and Ministry of Interior)

ii. Banks, Exchange Houses, Finance Companies, and Insurance Activities (regulated by the Central Bank)

iii. Money Printing (regulated by the Central Bank)

iv. Telecoms (regulated by the Public Authority for the Regulation of the Telecommunications Sector and the Digital Government)

v. Pilgrimage (Hajj) and Umra Activities (regulated by the Public Authority for Islamic Affairs and Endowments)

vi. Quran Memorization Centers (regulated by the Public Authority for Islamic Affairs and Endowments).

GCC Nationals and Wholly Owned GCC Entities:

Gulf Cooperation Council (GCC) nationals and entities wholly owned by GCC nationals are not subject to the foreign investment restrictions applied in the UAE.

Single Person Limited Liability Companies:

Given the lifting of the general foreign investment restrictions in the UAE, many companies have been converted to single person limited liability companies wholly owned by foreign entities. The UAE has, therefore, issued Cabinet Decision No. 77 of 2022 (Concerning Limited Liability Companies) which regulates the procedures for establishing and managing single shareholder companies.

Free Zones:

It is important to note that free zones in the UAE operate under separate regulations and rules, which often offer greater flexibility and benefits for foreign investors. Free zones also offer 100% foreign ownership and provide a range of incentives such as tax exemptions, no customs duties, and streamlined business setup procedures. However, companies operating in free zones are restricted from conducting business outside of the free zone unless they have a local agent or distributor.

17. FOREIGN INVESTMENT MODELS

Foreign investors who wish to begin their business activities in the UAE have two options: setting up a presence onshore or in one of the free zones. In this article, we will discuss the two models in detail.

Onshore Corporate (Mainland) Presence:

For an onshore presence, foreign investors can establish a company that will be governed by the Commercial Companies Law (“CCL”). There are two types of companies most commonly used by investors:

i. Single Person Limited Liability Company: This Company is suitable for investors who want to carry out activities falling under the positive list of activities in a particular Emirate.

ii. Limited Liability Company: This Company requires two or more shareholders and is generally used when a UAE partner is required to hold a certain percentage of the shareholding.

Free Zone Presence:

Corporate entities incorporated in free zones are governed by the free zone companies regulations, and other rules and regulations of the respective free zone. However, if these regulations are silent, the CCL may apply in limited circumstances provided that the regulations of the free zone do not prohibit the application of the CCL. There are no foreign investment restrictions in free zones, but there are restrictions on what a free zone company can do outside of the free zone where it is established.

Distributorship or Commercial Agency:

Certain investors may enter the market through a distributorship or commercial agency instead of a direct investment, depending on the nature of the contemplated activity. Commercial agencies are heavily regulated and may only be conducted by Emirati natural persons, public legal persons, private legal persons owned by public legal persons, private legal persons fully owned by Emirati natural persons, or public joint-stock companies incorporated in the UAE with at least 51% of Emirati capital contribution. However, the new Commercial Agencies Law, Federal Law No. 3 of 2022, allows for the first time international companies that are not owned by Emirati nationals to act as commercial agents for their products, provided that such products are not the subject of a commercial agency.

17.1 ONSHORE CORPORATE STRUCTURES

Foreign Direct Investment:

The UAE’s foreign investment rules are supplemented by the business activity licensing system. However, certain business activities are subject to regulation by third-party regulators. In addition to the activities listed under the List of Activities with Strategic Impact, there are certain activities governed by sector-specific legislation. For instance, the sale and distribution of pharmaceuticals and medical devices are heavily regulated by the Ministry of Health and Prevention and require a percentage of UAE national ownership in practice. Nonetheless, foreign investors can wholly own trading in medical devices and wholesale trading in medicines (drugstore) in Dubai and Abu Dhabi, as these activities are approved for 100% foreign ownership.

Promulgation of Federal Law No. 4 of 2022:

The UAE government recently passed Federal Law No. 4 of 2022, amending some provisions of Federal Law No. 8 of 2019 related to Medical Products, Pharmacy Profession, and Pharmaceutical Establishments. This law grants local authorities the right to determine the percentage of Emirati ownership in the share capital or board of directors/managers of companies they regulate. As a result, the requirement for UAE national ownership may be relaxed soon for certain activities governed by sector-specific legislation.

Branch Incorporation:

Foreign investors can also consider incorporating a branch onshore in the UAE. The branch operates as an extension of the parent company and does not have a separate legal identity distinct from its parent company. However, a branch of a foreign company cannot engage in trading activities in the UAE mainland and can only provide services or professional activities.

ONSHORE COMPANY UNDER THE CCL: SETTING UP BUSINESS OPERATIONS

The United Arab Emirates (UAE) is a popular destination for foreign investors seeking to establish their businesses in the region. As a result of the restrictions on foreign ownership in certain activities that do not fall under the lists of activities which fully grant ownership to foreign investors in onshore companies, it is customary to include protections for the minority party within the registered constitutive documents of the onshore company. In this guide, we provide an overview of the most common corporate structures used to set up business operations “onshore” in the UAE, the local participation required, the activities that businesses can carry out, the incorporation documents required, and the incorporation process.

Form/Type of Company:

The Limited Liability Company (LLC) and Single Shareholder LLC are the most widely used vehicles for onshore companies in the United Arab Emirates (UAE), while branches and representative offices may also be established. The selection of the appropriate company structure depends on the intended business activities and objectives. Annex (1) provides a list of the most common types of corporate structures utilized to establish onshore business operations in the UAE, along with their key features. It is worth noting that the process of incorporating legal entities may vary depending on the emirate.

Local Participation:

The degree of UAE participation mandated for onshore business structures in the UAE is contingent upon the sector and activities of the company. In the case of foreign company branches that already exist or will be established onshore in the UAE, there is generally no requirement to appoint a local service agent, except for specific instances where professional activities are involved.

Objects of Business:

Businesses operating in the UAE are bound by the activities listed on their local entity’s license, as issued by the Department of Economic Development (DED) in the relevant emirate. The Government of Dubai has established a standard classification guide that contains all permissible economic activities. In cases where the desired activity is not included in the guide, it may be possible to apply for a new purpose-defined activity, subject to the approval of the DED. This process, however, can be time-consuming. Nonetheless, the DED demonstrates flexibility in including additional activities on its list to support foreign investment in new businesses in the UAE.

Certain activities require additional special licenses from specific licensing authorities, such as those related to medical services, telecommunications, and education.

Incorporation Documents Required:

The process of setting up a new legal entity in the UAE requires the submission of several documents. The following are the essential documents required for the incorporation of a new company in the UAE:

1. Corporate Founding Shareholder:

– Articles of association

– Certificate of incorporation

– Board or shareholder resolution approving the establishment of a new company and appointing a signatory to represent it All documents must be notarized and legalized by the UAE consulate or embassy in the country where it was issued.

2. Individual Founding Shareholder:

– Copy of passport for expatriates or copy of passport, Emirates ID, and family card for UAE nationals

3. Appointed General Manager(s)/Directors:

– Copy of their passport(s)

4. Memorandum and Articles of Association:

– These documents detail the objectives, activities, and internal governance structure of the company.

5. Lease Agreement:

– This document shows proof of office space in the relevant emirate and an Ejari Certificate or its equivalent in the emirate where the company will be registered.

Additional documentation may be required, depending on the type of legal entity or the activities planned by the company. It is advisable to consult with a legal advisor or business setup consultant to ensure that all required documents are obtained and prepared accurately and in a timely manner.

Incorporation Process:

Incorporating an onshore entity in the UAE involves a process that varies depending on the type of entity and the emirate where it will be established. The Department of Economic Development (DED) of the respective emirate is responsible for the incorporation of legal entities in the UAE. The initial approval process would typically include the following steps:

i. Approval and reservation of the proposed company name: The name of the company to be incorporated must be unique and not already registered with the DED. The name reservation can be done online, and it is valid for 60 days.

ii. Initial approval of the proposed business activities: The company’s proposed business activities must be reviewed and approved by the DED. The DED will check if the proposed activities are allowed by the company’s license and the UAE’s laws and regulations.

iii. Security clearance of shareholders and general managers: All individual shareholders and general managers appointed to the company must undergo a security clearance process. The clearance involves a background check, and it is necessary to obtain a security clearance certificate.

The process of registering an onshore branch or representative office is similar to the process of incorporating an onshore entity, with some additional requirements, including:

i. Notarized and legalized constitutional documents: The parent company must provide notarized and legalized constitutional documents and a resolution to approve the registration of the branch.

ii. Appointment of a licensed auditor: The branch must appoint a licensed auditor to operate in the UAE.

iii. Opening a bank account and issuing a bank guarantee: A bank account must be opened in the UAE during the registration process of the branch, and a bank guarantee of AED 50,000 must be issued in favour of the Ministry of Economy (MOE).

iv. Appointment of a local service agent: The branch must appoint a local service agent, where applicable, based on the activity of the branch.

Additionally, branch/representative offices require additional approvals from the MOE for their registration.

17.2 FREE ZONE CORPORATE STRUCTURES

Benefits of Free Zones for Businesses in the UAE:

Free zones in the UAE provide a favourable environment for businesses, particularly foreign investors. These zones offer a range of benefits that include:

i. 100% Foreign Ownership:

Companies incorporated in the free zones are eligible for 100% foreign ownership. This means that foreign investors can have complete control over their business entities.

ii. Zero Corporate Tax:

Free zones in the UAE offer zero tax rates on corporate income for up to 50 years, subject to certain conditions. The tax exemption may vary slightly between different free zones and is generally calculated from the date of setting up the free zone authority. However, there are some clarifications required regarding the application of the UAE CT Law to free zone entities.

iii. No Foreign Exchange Controls:

Free zones have no restrictions on foreign exchange controls, allowing businesses to freely transfer funds in and out of the country.

iv. Capital Repatriation:

Free zones also offer no restrictions on capital repatriation, meaning that businesses can repatriate their capital and profits to their home country without any hindrances.

v. No Currency Restrictions:

There are no currency restrictions in free zones, which makes it easy for businesses to carry out international transactions in various currencies.

vi. No Import or Re-export Duties:

Free zones do not impose any import or re-export duties, except for products entering the UAE or GCC.

TYPES OF FREE ZONES IN THE UAE

There are two types of free zones in the UAE: financial free zones and economic free zones.

1. Financial free zones: The two financial free zones in the UAE are the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). The differences between the DIFC and several economic free zones are outlined in the tables provided in the annex.

2. Economic free zones: A large number of economic free zones are located in each emirate, with most of them being in Dubai. These include:

– Jebel Ali Free Zone (JAFZ)

– Dubai Integrated Economic Zones Authority (DIEZ)

– Various clusters regulated under the Dubai Development Authority (DDA)

– Dubai Multi Commodities Centre (DMCC)

– Dubai South

Regulations in Free Zones:

Free zones are entitled to adopt their own regulations to govern a limited number of areas. However, the Companies and Commercial Law (CCL) applies to entities registered in the free zones with respect to matters that are not specifically governed by regulations adopted by the free zone and provided that the free zone regulations allow the application of the CCL. Additionally, the financial free zones have their own employment laws that apply to employees sponsored by companies incorporated in the financial free zones, while the UAE labour Law is applicable to employees in other economic free zones.

Dual Licensing Concept:

Several free zones in the UAE have adopted the dual licensing concept. Under this concept, a company registered in a free zone can set up a branch (or a subsidiary in limited free zones) onshore but occupy the same office as the free zone entity. This allows businesses to save on office rent expenses. However, companies need to apply for a license from the Dubai Economic Department (DED) for an onshore branch/subsidiary and secure approval from the relevant free zone to accept the dual licensing scheme.

Limitations of Free Zones:

Free zone companies are only permitted to conduct business with companies incorporated in the same free zone or with companies incorporated outside the UAE. If a free zone company wishes to perform activities within mainland UAE, it will need to establish an onshore presence in the UAE by either setting up a branch office (which cannot carry out any trading activities) or a new company (subject to any applicable foreign ownership restrictions), subject to obtaining the necessary licenses from the relevant federal and/or emirate authorities.

ECONOMIC FREE ZONES

Economic free zones are designated areas in the UAE that offer incentives and benefits to businesses operating within specific industries. Here is a brief overview of some of the economic free zones in Dubai:

– Jebel Ali Free Zone (JAFZ):

Regulated by JAFZA, the Jebel Ali Free Zone is one of the fastest-growing free zones in the region. It is focused on light manufacturing, warehousing, and logistics and has access to well-developed port facilities. JAFZA is frequently used as a base for regional operators throughout the GCC and the broader Middle East and North Africa region.

The licenses offered by JAFZA are categorized as follows: trading activities; services activities; e-commerce activities; industrial activities; and national industrial activities (designed for manufacturing companies in which GCC nationals must own no less than 50% of the share capital). In 2017, a new set of JAFZA companies regulations and rules introduced the option of listing shares on the stock exchange by setting up (or converting an existing presence into) a public listing company. Annex (2) outlines the common types of corporate vehicles available to set up business operations in the JAFZA.

– Dubai Design District Authority (DDA):

The DDA was formed to foster Dubai’s creative and innovative industries by regulating various clusters including Dubai Design District, Dubai Science Park, Dubai Knowledge Park, Dubai Academic City, Dubai Media City, Dubai Studio City, Dubai Internet City, International Media Production Zone, and Dubai Outsource Zone.

In 2016, a new set of rules and companies regulations came into force with respect to the DDA, whereby all existing companies were required to adjust their legal positions within one year.

– Dubai Multi Commodities Centre (DMCC):

The DMCC is another free zone specializing in the trade of a wide range of commodities focused around the gold, diamond, agro-commodities, pearl, precious metals, and tea industries.

To allow ease and flexibility to companies currently carrying out, or intending to carry out, business from the DMCC, the DMCC introduced the new DMCCA Company Regulations 2020 together with a set of new Employment Rules, Licensing Rules, and Officers Rules which were made effective on 2 January 2021. The DMCCA also introduced new Community Regulations as well as Health, Safety, and Environment Regulations.

– Dubai South:

Dubai South (previously known as Dubai World Central) is a relatively new economic free zone established in 2014 and is mandated to embody the vision of Dubai Plan 2021. The Al Maktoum International Airport and the World Expo 2020 site are located in Dubai South.

DUBAI INTERNATIONAL FINANCIAL CENTRE (“DIFC”)

The Dubai International Financial Centre (DIFC) was established in 2004 with the goal of becoming a leading global financial center in Dubai. The center aims to attract international and regional financial institutions, companies, and service providers. Recently, the Dubai Law No. (5) of 2021 Concerning the Dubai International Financial Centre was issued to replace the original DIFC law of 2004. The new law aims to broaden the scope of DIFC’s responsibilities and ensure its operational, financial, and administrative independence. Additionally, DIFC proposed amendments to the Employment Law, Data Protection Law, and Insolvency Regulations in March 2021 to enhance its regulatory framework and align it with international best practices.

Sectors of Focus:

The DIFC focuses on two main sectors:

i. Regulated services, which include banking and brokerage services, insurance and reinsurance, Islamic finance, and wealth management.

ii. Non-regulated, ancillary services, such as professional services (e.g., legal and auditing firms), global corporates, and retailers (business and lifestyle facilities).

Regulations and Licensing:

Any entity that wants to offer regulated services in the DIFC must obtain the relevant license from the Dubai Financial Services Authority (DFSA). The DFSA is the sole independent regulatory authority for financial services in the DIFC. Regulated entities (also known as “Authorized Firms“) must comply with certain regulations related to paid-up capital, authorized personnel, conduct of business, and annual reporting.

Operating in the DIFC:

If a DIFC company wishes to perform activities outside the DIFC or maintain a separate presence onshore in the UAE, it will need to set up either a branch office or a new company onshore and obtain the necessary licenses from the relevant federal or emirate authorities.

The DIFC operates as a self-regulated common law jurisdiction and is exempt from the civil and commercial laws of the UAE. However, UAE criminal laws and specific federal regulations, including the regulations on anti-money laundering, apply in the DIFC.

DIFC Courts:

The DIFC Courts have jurisdiction over civil and commercial matters related to contracts concluded or performed within the DIFC, unless the parties select a different jurisdiction. Matters related to the insolvency of DIFC corporate entities are also subject to the jurisdiction of the DIFC Courts. Criminal matters related to the DIFC fall within the exclusive competence of the UAE courts, governed by federal laws.

In 2011, the Ruler of Dubai amended the DIFC Judicial Authority Law, allowing parties without any nexus to the DIFC to opt for the submission of their dispute to the DIFC Courts. Moreover, this amendment has incorporated the terms of the protocol signed between the DIFC Courts and the Dubai Courts, by which judgments of either of the two jurisdictions are recognized and automatically enforced in the other jurisdiction.

Corporate Vehicles:

The DIFC offers several types of corporate vehicles for setting up business operations in the center, as described in Annex (3).

17.3 COMMERCIAL AGENCY AND DISTRIBUTION

Commercial agency and distribution arrangements are a common method for foreign investors to enter the UAE market. These arrangements allow the principal to be represented by an agent who distributes, sells, offers, or provides goods or services in the UAE for a commission or profit. In this article, we will discuss the key considerations for commercial agency and distribution arrangements in the UAE.

The Commercial Agency Law:

The Federal Commercial Agency Law No. 3 of 2022 (“Commercial Agency Law”) requires all commercial agencies to be registered with the Ministry of Economy (MOE). The MOE has taken the position that franchise agreements are also subject to the Commercial Agency Law. It is important to note that the UAE laws do not distinguish between distribution arrangements and commercial agencies.

REGISTRATION OF COMMERCIAL AGENCIES

The Commercial Agency Law mandates that all commercial agencies operating in the UAE must be registered with the Ministry of Economy (MOE). In addition, it is worth noting that franchise agreements are subject to the same law as commercial agencies, according to the MOE’s interpretation. It is important to understand that UAE law does not differentiate between distribution arrangements and commercial agencies.

Exclusivity Requirement:

When a commercial agent is registered with the MOE, they must be exclusive for the applicable territory and product line(s) covered by the agency agreement. This exclusivity requirement means that a principal can appoint a separate agent for each emirate or combination of emirates, different product lines, or both different emirates and product lines. Moreover, the Commercial Agency Law entitles a commercial agent to receive a commission for sales made by the principal or a third party within the agent’s specified territory of the product line(s) covered under the agency agreement, even if such sales are not resulting from the agent’s efforts.

Blocking of Parallel Imports:

Registration of commercial agencies also enables the agent to block parallel imports, including those from free trade zones, into the UAE. However, the scope of blocked parallel imports is reduced in relation to certain categories of goods (e.g., certain food products) if the categories of products are identified in UAE cabinet decisions. In principle, exclusivity (either for the UAE as a whole or for individual emirates) is a prerequisite for registering a commercial agency agreement with the MOE

ELIGIBILITY FOR COMMERCIAL AGENCY

Commercial agency activities can be carried out by national natural persons, public legal persons, private legal persons owned by public legal persons, private legal persons fully owned by national natural persons, public joint-stock companies incorporated in the UAE with at least 51% of national capital contribution, or international companies that are not owned by UAE nationals for their products provided that such products are not the subject of a commercial agency.

CONTRACT TERM, EXPIRATION AND EARLY TERMINATION

Contract Term for Display Buildings, Commodity Stores, or Maintenance or Repair Facilities:

If a commercial agency agreement requires the agent to establish display buildings, commodity stores, or maintenance or repair facilities, the minimum contract term is five years, unless otherwise agreed upon by the parties.

Compensation for Expiration of Agency Agreement:

A commercial agency agreement can expire at the end of its term, but the agent may be entitled to compensation for damages resulting from the expiration of the agreement, unless expressly stipulated otherwise.

Early Termination and Compensation:

Either the agent or the principal may terminate the commercial agency agreement before its term, but a termination notice must be served by the terminating party at least one year before the termination date or before the lapse of half of the agreement term, whichever comes first. In case of early termination, the agent may still challenge the termination before the Commercial Agency Committee and claim compensation for damages. The agent must prove that its efforts have contributed to the product’s success and led to an increase in customers.

Registration and Protection for Commercial Agents:

Commercial agency registration provides significant protections for agents against principals. However, some local distributors may abuse the government requirement of purchasing products only from registered agents to impose registration on their principal and secure additional rights. It is advisable for principals to obtain legal advice to determine the seriousness of such requests.

18. REAL ESTATE: OWNERSHIP AND LEASEHOLD RIGHTS

Real estate ownership and leasehold rights in the United Arab Emirates are governed by the laws and regulations of each emirate. In this regard, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) have their own real property legislation that applies to the real estate located within their jurisdiction.

Restrictions on Foreign Freehold Ownership:

Foreign ownership of freehold property in the UAE is restricted, and the restrictions vary depending on the emirate. In most cases, foreign investors are granted “usufruct or musataha” rights, which are in rem rights over the property.

Usufruct Rights:

Usufruct is a real right attached to the land that gives its holder similar rights to those of an absolute owner, including the right to sell and mortgage the property. However, it is held for a limited term, usually 99 years.

Musataha Rights:

Musataha is similar to freehold ownership but only for a limited period, typically 50 years as per the UAE Civil Code. It gives the holder surface or supports rights over the land, allowing them to be the outright owner of the buildings constructed on the land during the period of the musataha. The holder can also mortgage their interest in the musataha right.

18.1 FREEHOLD OWNERSHIP BY FOREIGNERS

Freehold Ownership by Foreigners in Dubai:

The Dubai Real Estate Registration Law No. 7 of 2006 stipulates that freehold ownership in Dubai is restricted to UAE citizens, nationals of GCC countries, companies wholly owned by qualified nationals, and PJSCs. Non-UAE/GCC individuals and entities can be granted the right to freehold ownership or usufruct, musataha, or long leasehold rights for a period not exceeding 99 years in designated areas of Dubai. All real property rights, including musataha and usufruct rights, must be registered.

Freehold Ownership by Foreigners in Abu Dhabi:

The Abu Dhabi Real Estate Ownership Law No. 19 of 2005, as amended, restricts ownership of real estate property to UAE nationals or companies wholly owned by UAE nationals, except in investment areas where foreign investors are permitted to own property. All real rights, including rights of usufruct and musataha, must be registered, regardless of the term length.

18.2 LEASEHOLD RIGHTS

Leasehold rights are important legal concepts for those who wish to lease property in Dubai and Abu Dhabi. In both locations, the laws governing leasehold rights are complex and require a detailed understanding of the legal framework.

Dubai Leasehold Rights:

(a) Termination:

Under Dubai’s Landlords and Tenants Law No. 26 of 2007, as amended by Law No. 33 of 2008, landlords and tenants can agree to lease terms in a contract, except for certain prescribed rights under the law. While leases in Dubai are generally short-term (e.g., one year) to protect the tenant, there are statutory protections in place to allow a tenant to renew a lease in certain circumstances, subject to a rent cap.

However, landlords can terminate a lease by giving notice in the following instances:

i. Demolition for Reconstruction: If the landlord intends to demolish the property for reconstruction, provided that the necessary licenses for such reconstruction have been obtained.

ii. Renovation: If the landlord wishes to renovate the property, but only if the renovations cannot be completed while the tenant is occupying the property and this fact has been certified by the Dubai Municipality.

iii. Personal Use: If the landlord wishes to recover the property for their next of kin of first degree to use it personally, provided that the landlord can prove they do not have an equivalent property suitable for residency. In such cases, the property cannot be leased for two years if it is residential, or for three years if it is non-residential, unless the Real Estate Regulatory Agency (RERA) reduces this period. If the landlord fails to observe this restriction, the tenant may claim damages.

iv. Sale: If the landlord wishes to sell the property.

In all cases, the landlord must give the tenant at least 12 months’ notice not to renew, stating the applicable reason. Such notice must be sent through a notary public or by registered mail.

(b) Rent Increase Regulations:

In Dubai, landlords must provide tenants with a minimum of 90 days’ notice prior to the expiry of a lease, if they intend to increase rent for the renewal period, unless otherwise agreed upon. Additionally, a statutory rent cap exists to protect tenants against unreasonable rent hikes. The rent cap is calculated by comparing the property rental value with the average market rental rate for similar properties in the area. The rental index, regularly updated by the Real Estate Regulatory Agency (‘RERA”), determines the average market rental rate.

To assist tenants in understanding potential rent increases for lease renewals, RERA offers a rental increase calculator on their website. The current thresholds for the rent cap are as follows:

i. If the rental value is less than 10% below the average market rental rate, the landlord cannot increase the rent.

ii. If the rental value is between 11% and 20% below the average market rental rate, the landlord may increase the rent by a maximum of 5%.

iii. If the rental value is between 21% and 30% below the average market rental rate, the landlord may increase the rent by a maximum of 10%.

iv. If the rental value is between 31% and 40% below the average market rental rate, the landlord may increase the rent by a maximum of 15%.

v. If the rental value is more than 40% below the average market rental rate, the landlord may increase the rent by a maximum of 20%.

It is important for both landlords and tenants to understand their rights and obligations regarding rent increases and to seek legal advice if necessary.

(c) Registration

(i) Long-term Lease:

The Dubai Land Department recognizes that leases with duration of 10 years or more, called long-term lease contracts, constitute Real Property Rights similar to the rights of musataha and usufruct, which are in rem rights. Therefore, besides being subject to the foreign ownership restrictions mentioned earlier, long-term lease contracts require registration with the Dubai Land Department.

Currently, the registration fee for registering a long-term lease contract is 4% of the contract value. This amount is the total of the rental value charged to the tenant for the lease’s duration. Failure to register a long-term lease contract renders it invalid.

(ii) Short-term Lease:

Leases with duration of less than 10 years, known as short-term lease contracts, do not require registration with the Dubai Land Department. Nevertheless, short-term lease contracts must be registered with the Real Estate Regulatory Agency (RERA). To simplify the process, RERA has an online registration portal called Ejari. The cost to register a short-term lease contract on the Ejari system is roughly AED 200.

Contrary to leasehold rights, rights of usufruct and musataha must be registered, regardless of the term’s length. This means that there is no “exemption” from registration at the Dubai Land Department if a short-term right of usufruct or musataha is granted.

Abu Dhabi Leasehold Rights:

Abu Dhabi Leasing Law No. 20 of 2006 governs the leasing of properties for residential, commercial, industrial, and freelance business purposes in Abu Dhabi, except for agricultural or undeveloped land. Here are the details regarding termination and registration of long-term and short-term lease contracts in Abu Dhabi:

(a) Termination:

Under Abu Dhabi Leasing Law, a tenant may terminate a lease contract at any time by giving the landlord written notice. The notice period should be agreed upon by the parties and not be less than 30 days.

(b) Registration:

(i) Long-term lease:

Non-UAE or GCC nationals are allowed to be granted leases for over 25 years in Investment Areas only. Leases with a term of over four years must be registered with the Tamleeq system, with registration fees typically 1% of the first year’s rent for leases over 4 years but less than 25 years, and 4% of the value of consideration for leases over 25 years. Failure to register a long-term lease contract makes it invalid only vis-à-vis third parties. Any leasehold interest located within the Abu Dhabi Global Market must be registered with the Abu Dhabi Global Market Land Registrar, with registration fees of AED 100 per year for a lease term of less than 10 years (including any renewals). A lease term of 10 years or more (including any renewals) shall impose a registration fee of 2% of the total value of the contract.

(ii) Short-term lease:

A short-term lease of less than four years can be registered on the Tawtheeq system. The lease must be on the standard Abu Dhabi Municipality form, be in Arabic or dual language, and have the key information in respect of the lease (e.g., property details, parties, term, and rent). The cost to register a short-term lease contract on the Tawtheeq system is AED 100 per registration of each new lease or renewal of a lease.

19. EMPLOYMENT

The UAE private sector employment relationships are primarily governed by the Federal Labor Law No. 33 of 2021 and its implementing regulations, as amended (“Labor Law”), along with its accompanying resolutions and decrees. It is important to note that economic free zones may have their own employment regulations that must also be taken into account. However, it is pertinent to mention that the Labor Law does not apply in the DIFC or the ADGM, as these regions have their own autonomous civil and commercial legislation, including labor laws.

Dispute resolution for employment disputes in the UAE is handled by competent UAE courts, with the exception of DIFC and ADGM-based employers, which have their own court systems in place.

The following are some of the prominent features of the Labor Law, (does not encompass any specific regulations of free zones):

19.1 EMIRATISATION

The UAE’s Emiratisation initiative aims to increase the number of UAE nationals working in the private sector. To support this initiative, various ministerial decrees have been published setting out specific requirements for private companies regarding the recruitment, employment, and termination of UAE nationals.

Emiratisation Quotas:

Effective from June 2022, a Ministerial Decision requires all companies with 50 or more employees to increase the number of UAE nationals in their workforce by 2% each year until a target Emiratisation level of 10% is achieved by 2026. Failure to meet these quotas will result in fines and penalties, as well as potential account blocks with the Ministry of Human Resources and Emiratisation (“MOHRE”). Prolonged failure to meet Emiratisation requirements could also lead to the company being reclassified by MOHRE, resulting in higher work permit application costs.

19.2 PRE-HIRE BACKGROUND/REFERENCE CHECKS PERMITTED OR REQUIRED

In the UAE private sector, non-UAE nationals must obtain a work permit and residence visa to legally work and reside in the country. These permissions are generally obtained through the employer, which must have an entity established in the UAE. This section discusses the requirements and recommendations related to pre-hire background/reference checks for job candidates in the UAE.

Work Permit and Residence Visa Requirements:

To work and reside legally in the UAE, non-UAE nationals must obtain a work permit and residence visa. The employer typically sponsors and facilitates the visa and work permit applications for their employees. However, there are some exceptions for certain groups of individuals, such as GCC nationals who do not require residence visas, and those who are eligible for self-sponsorship through the golden visa program.

Conditional Offers of Employment:

It is recommended that offers of employment be conditional upon the individual obtaining the necessary residence visa and work permit. This is to ensure that the employer is not liable for any costs or risks associated with the employee’s inability to obtain the required permissions.

Education Requirements:

Under the Labor Law, certain levels of education are required for individuals to hold certain job classifications. Job candidates must provide all relevant education certificates, which must be attested to by the UAE Ministry of Foreign Affairs, as part of the process to obtain the required work permit on behalf of the employee.

Pre-Hire Medical Check:

A pre-hire medical check is a government prerequisite for residency in the UAE, and all expatriates must undergo a medical test, which typically includes a blood test and an X-ray.

Residency Visa and Work Permit Renewals:

Residency visas and work permits must be periodically renewed, with the standard term being two years.

19.3 EMPLOYMENT CONTRACT

In the UAE private sector, the process of hiring a new employee requires the execution and submission of a standard form offer letter to obtain the necessary governmental approvals. The terms of the offer letter must reflect the terms of the final employment contract that will be executed at a later stage. The employment relationship in the UAE private sector is governed primarily by the Federal Labor Law No. 33 of 2021 and its implementing regulations (Cabinet Decision No. 1 of 2022), as amended (“Labor Law”) together with its accompanying resolutions and decrees.

Template Employment Contract:

As part of the process of obtaining the work permit, a template employment contract issued by the MOHRE (or relevant free zone authority if the employer is established in a free zone) must be signed by the parties and submitted to the MOHRE (or free zone authority). The template employment contract includes basic employment terms and is drafted in English and Arabic.

Supplementary Employment Contract:

Due to the basic nature of the MOHRE (or free zone authority) template employment contract, it is common practice to execute a supplementary employment contract which includes additional terms that are not reflected in the basic MOHRE or free zone employment contract template. Accordingly, it is common for employees in the UAE to hold two employment contracts: (a) a MOHRE (or free zone) employment contract; and (b) a private employment contract which describes the employment relationship in more detail.

19.4 EMPLOYMENT TERM, TERMINATION AND GRATUITY

In the United Arab Emirates (UAE), employment contracts are typically fixed-term agreements with no limit on their length. Both the employer and the employee can terminate the contract for any legitimate reason, provided they give sufficient notice. In this article, we will discuss the probationary period, the term of the contract, the causes for dismissal by the employer, legitimate causes for termination by the employee, the process for dismissal/termination/disciplinary measures, redundancies, and notice/payment in lieu of notice.

Probationary Period:

In the UAE, probationary periods are common, and the maximum period is six months. During the probationary period, either party can terminate the employment contract by giving 14 days’ notice. However, if the employee resigns to join another UAE employer, he/she must provide the employer with 30 days’ notice, and the new employer must repay the current employer the recruitment costs incurred in on-boarding the employee.

Term:

All employment contracts in the UAE must be fixed term. There is no limit on the length of the term, and the contract may be renewed for equal or shorter periods an unlimited number of times. Any extensions will be considered part of the original term and should be included in calculating the employee’s total period of service.

Summary Causes for Dismissal by the Employer under Article 44:

The employer is permitted to legitimately terminate the employment contract of an employee without notice for the reasons stipulated under Article 44 of the Labor Law after conducting a written investigation with the employee. The following are the summary causes for dismissal:

i. False identity or nationality: If an employee adopts a false identity or nationality, or submits forged documents or certificates, termination may be warranted.

ii. Substantial material loss: If an employee commits an error causing substantial material loss to the employer, the employer must advise the labor department of the incident within seven working days from having knowledge of the same.

iii. Safety violations: If an employee violates instructions concerning the safety of the place of business, termination may be considered, provided that such instructions are displayed in writing in conspicuous places.

iv. Failure to perform basic duties: If an employee fails to perform his/her basic duties under the contract of employment, and persists in violating them despite having undergone a formal investigation and having been warned twice that s/he is at risk of dismissal if the same is repeated, termination may be warranted.

v. Breach of confidentiality: If an employee divulges any company secret related to industry or intellectual property, which resulted in losses to the Company, termination may be considered.

vi. Employment with another company: If the employee starts working for another company without complying with the rules and procedures in the law, termination may be warranted.

vii. Abuse of position: If the employee exploits his/her job position to obtain results and personal gains, termination may be warranted.

viii. Unlawful behavior: If, during working hours, the employee is found drunk or under the influence of drugs or committing an act against public morals in the workplace, termination may be warranted.

ix. Assault: If, in the course of work, the employee commits an assault on the employer, the manager, or any of his/her colleagues, termination may be warranted.

x. Unexcused absences: If the employee is absent without lawful excuse for more than twenty intermittent days or for more than seven successive days during one year, termination may be considered.

It is important for employers to follow the proper procedures and provide evidence to support the grounds for termination to avoid any legal disputes or penalties.

Legitimate Causes for Termination by Employee under Article 45:

An employee is also entitled to terminate the employment contract without notice if any of the grounds related to the employer’s conduct stipulated in Article 45 of the Labor Law are present. The following are legitimate causes for termination by the employee:

i. If the employer has breached its obligations under the employment contract or applicable laws, and the employee has notified the Ministry of Human Resources and Emiratisation (“MOHRE”) 14 working days prior to leaving work. The employer must have been given the opportunity to rectify the breach but failed to do so.

ii. If the employer or its representative has assaulted or harassed the employee, and the employee has reported the incident to the authorities and MOHRE within five working days from the date they are able to do so.

iii. If the employer has failed to fulfill its contractual obligations to the employee, such as paying wages, within 60 days of the due date.

iv. If the employer has assigned the employee to work in a location other than the agreed-upon location, and this has resulted in hardship for the employee.

v. If the employee is exposed to hazards that could endanger their health or safety, and the employer has been informed but has failed to take appropriate action.

vi. If the employer has substantially changed the nature of the employee’s work to the extent that it is no longer consistent with their skills or experience.

Process For Dismissal, Disciplinary Measures And Termination:

Disciplinary measures, including dismissal, may be imposed upon an employee in accordance with the Labor Law. The following procedure must be followed before any disciplinary action is taken:

i. Notification: The employee must be informed in writing of the charge or allegation made against him/her.

ii. Opportunity to Defend: The employee must be given a chance to defend himself/herself against the allegations made. In practice, a meeting is held with the employee in this regard.

iii. Adequate Investigation: The matter must be properly investigated, and the employee must be provided with written reasons for any penalty imposed. The reasons should also be recorded in the employee’s personnel file.

Time Limitations: An allegation cannot be raised after 30 days from the date of discovery of the violation. Similarly, a penalty cannot be imposed after 60 days from the date on which the disciplinary investigation ended.

Disciplinary Penalties: Disciplinary penalties that are permitted under the Labor Law include warning, suspension, fine, forfeiture of promotion, termination with notice, and termination without notice.

Redundancies In Accordance With Labor Lawn

The Labor Law provides for very specific circumstances under which redundancy can be recognized. These include:

i. Permanent closure of the company

ii. Bankruptcy or insolvency of the company

iii. Economic or exceptional reasons that prevent the continuation of the project

It is important to note that in order to rely on (ii) and (iii), the employer must have a court order confirming the bankruptcy or insolvency or an official decision from the concerned authorities confirming that the employer cannot continue operations for exceptional economic reasons.

Reduction in Force outside the Recognized Circumstances:

In cases where a reduction in force does not fall within the aforementioned circumstances, the normal termination framework must be followed. This includes following the proper procedures for dismissal and providing appropriate compensation to the affected employees.

Employers are advised to seek legal advice and comply with the applicable labor laws and regulations to avoid any potential legal challenges.

Notice/Payment in Lieu of Notice

According to the Labor Law, the employer must provide a minimum notice period of 30 days and a maximum of three months for fixed-term contracts. However, an employer may terminate the contract without notice if the employee is dismissed for reasons specified under Article 44 of Section 4(c). It is important to note that notice cannot be waived or reduced. Thus, if an employer does not require the employee to work their notice period, they are obligated to provide payment in lieu of notice.

End-Of-Service Gratuity: Entitlement and Calculation

Employees who have completed at least one year of service and whose contract is terminated or expires are entitled to an end-of-service gratuity. The gratuity amount is equivalent to 21 days’ wage for each of the employee’s first five years of service and 30 days’ wage for each year thereafter, unless the parties have agreed to a higher rate.

Reduction of gratuity entitlement upon resignation:

If the employee resigns from an indefinite period contract that has not yet been converted to a fixed-term contract by December 31, 2023, the gratuity entitlement may be reduced as follows:

i. Employees with more than one year but less than three years of service will be entitled to one-third of the gratuity.

ii. Employees with more than three years but less than five years of service will be entitled to two-thirds of the gratuity.

iii. Employees with more than five years of service will be entitled to the full gratuity payment.

Cap on end-of-service gratuity:

End-of-service gratuities are capped at an amount equivalent to two years’ wages and are proportionately calculated for any partial year worked.

19.5 WORKING DAYS/WORKING HOURS

Maximum Working Hours:

In the UAE, the maximum working hours per day are eight hours, and the maximum working hours per week are 48 hours. However, depending on the industry, special ministerial decrees may allow for different working hours. No employee may work for more than five consecutive hours without a break for work, rest, and prayer. During the holy month of Ramadan, working hours are reduced by two hours per day.

Overtime:

If an employer requires employees to work overtime during the working week, such employees are entitled to be paid 125% of their basic salary for the overtime worked. However, if the employee’s overtime falls between 10:00 pm and 4:00 am, they are entitled to a higher rate of 150% of their basic salary. The maximum amount of overtime allowed per day is two hours, and overtime wages should not be included in employees’ regular compensation, which means that any overtime must be compensated separately.

Exemptions from Working Time Provisions:

The working time provisions do not apply to certain categories of employees, such as those occupying supervisory positions who have the authority to act on behalf of the company.

Weekends:

Employees are entitled to at least one rest day per week, although most companies close over Saturday and Sunday. An employee cannot be required to work more than two consecutive rest days. Moreover, in the event that an employee is required to work on a rest day, that employee is entitled to receive either time off in lieu or normal compensation.

19.6 COMPENSATION/BENEFITS

Minimum Wages, Mandatory Increases:

The Labor Law in the UAE does not specify any minimum wage or mandatory annual salary increase for employees. It is up to the employer to negotiate the salary and benefits package with the employee.

Bonuses, Benefits in Kind:

There is no legal obligation for employers to provide bonuses to their employees. However, many employers do offer bonuses or other benefits in kind, such as accommodation or transportation allowances. Employers located in certain free zones, such as Jebel Ali Free Zone and the Dubai Multi Commodities Centre, are subject to the Wage Protection Scheme (WPS), which requires timely payment of employee salaries via authorized banks, exchange offices, or financial institutions.

Taxes, Social Security, Medical Insurance:

Private sector employees in the UAE are not required to pay any taxes or social security contributions. However, employers are required to register their UAE and GCC national employees with the relevant pension authority. Both Abu Dhabi and Dubai have compulsory health insurance schemes that require employers to provide private health insurance to their employees through approved insurance companies. The Abu Dhabi Health Insurance Law also requires employers to provide health insurance to their employees’ spouses and up to three dependent children.

19.7 LEAVE

Sick Leave:

Employees in the UAE are entitled to a maximum of 90 calendar days of sick leave. The first 15 days of sick leave are fully paid while the next 30 days are subject to half pay. The remaining 45 days are unpaid. However, an employee on probation and for three months thereafter is not entitled to paid sick leave. It is important to note that sick leave cannot be carried over to the following year.

Maternity Leave:

Female employees in the UAE are entitled to 45 calendar days of fully paid maternity leave with an additional 15 days of half pay. If a female employee suffers from a medical condition as a result of birth or pregnancy, she may take an additional 45 days of unpaid “maternity sick” leave, provided the condition is supported by a physician’s note. If the employee gives birth to a disabled child requiring permanent care, the employee will be entitled to an additional 30 days of maternity leave with full pay, followed by a subsequent 30 days without pay. Upon resuming work, a female may take two additional breaks per day (not exceeding one hour in total) for the purpose of nursing the child, up until the child is 6 months old.

Parental Leave:

Both male and female employees in the UAE are entitled to five working days of parental leave upon the birth of a child. This leave can be taken consecutively or inconsecutively within six months of the child’s birth. For female employees, this leave is in addition to statutory maternity leave.

Special Leave:

Bereavement leave is granted to employees in the UAE. If an employee’s spouse dies, they are entitled to five fully paid days of bereavement leave. If a parent, child, grandparent, grandchild, or sibling dies, the employee is entitled to three fully paid days of bereavement leave. Additionally, employees who are enrolled in an accredited educational institution in the UAE and have been employed by their employer for at least two years are entitled to 10 fully paid working days per year to sit for exams. Furthermore, UAE national employees are entitled to sabbatical leave to perform national military/armed forces service, or reserve forces refresher training when called upon by the armed forces. During their sabbatical leave, employees will receive their normal salary.

Annual Leave:

Employees in the UAE are entitled to 30 calendar days of paid vacation per year, excluding the first year of employment. In the first year of employment, an employee accrues two paid days of leave per month if they have been employed for more than six months but less than 12 months. However, in practice, many employers provide all employees with the same holiday entitlement regardless of their length of service.

Official Holidays:

Employees are entitled to official holidays as announced by the UAE Government for the private sector. The holidays usually include the following:

i. Islamic New Year

ii. Gregorian New Year’s Day

iii. Eid al-Fitr iv. Eid al-Adha

iv. Martyrs’ Day vi. National Day

It is important to note that the UAE Government reserves the right to add or remove holidays as needed. However, there are three holidays that remain fixed and are observed by both public and private sectors, these include:

i. Gregorian New Year’s Day on 1st January

ii. Martyrs’ Day on 30th November

iii. National Day on 2nd December

All other holidays are Islamic holidays and depend on the lunar calendar. The actual dates are declared every year, and holidays are announced separately for the public and private sectors.

20. ANNEX 1 — COMMON ONSHORE LEGAL VEHICLES

21. ANNEX 2 — TYPES OF LEGAL VEHICLES IN THE JAFZA

22. ANNEX (3) — COMMON LEGAL VEHICLES IN THE DIFC

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