A Q&A guide to doing business in United Arab Emirates.
This Q&A gives an overview of the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.
To compare answers across multiple jurisdictions, visit the Doing business In... Country Q&A Tool.
This article is part of the PLC multi-jurisdictional guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/about/doingbusinessin-mjg.
The United Arab Emirates (UAE) is a civil law jurisdiction. The Federal Constitution apportions powers between the federal government (based in Abu Dhabi) and the seven constituent emirates. Certain areas are regulated federally (such as immigration and labour), some at the emirate level (such as natural resources within each emirate, including petroleum), and some are regulated at both the federal and emirate levels (such as company formation and registration).
A foreign company can establish a presence in the UAE by setting up a branch or forming a company.
A branch of a foreign company must have a sponsor (called a national agent). Branch sponsors have no ownership rights in the branch. The sponsor must be a UAE national or a company wholly owned by UAE nationals. A UAE company must be at least 51% owned by UAE nationals, with the following general exceptions:
Certain sole proprietorships and professional partnerships can be wholly foreign-owned.
A UAE company can be 100% owned by nationals of the Gulf Co-operation Council (GCC) nations, the other GCC members being Bahrain, Kuwait, Oman, Qatar and Saudi Arabia.
In each case, the branch or company must obtain a licence from the federal and/or municipal authorities to carry on its proposed activities.
For activities of national interest, such as those relating to telecommunications or petroleum, there may be restrictions on foreign ownership and/or additional licensing requirements. In addition, certain industries are subject to additional regulation, such as banking, insurance and investment.
There are no currency exchange controls and no restrictions on the remittance of funds, except for restrictions on transactions involving Israeli parties or currency.
The UAE has established various free zones, each of which is regulated by the relevant free zone authority. Free zones are subject to their own respective company laws, independent of the company law of the UAE. Foreign companies are permitted to establish branches or incorporate wholly-owned subsidiaries in each of the free zones, without the need to appoint a UAE national sponsor or have any UAE national ownership (see Question 2).
Free zones attempt to distinguish themselves by appealing to a particular type of business and offering an environment attractive to those businesses in terms of infrastructure, location and other factors such as guaranteed tax holidays. Even outside the free zones, there is no corporate or personal income tax (except on foreign banks and courier companies operating in the UAE) (see Question 15).
The most common form of business vehicle used by foreign companies is the limited liability company (LLC).
An LLC is formed by a memorandum of association (memorandum) entered into by all the shareholders of the LLC. The LLC must be registered with the federal Ministry of Economy (MoE) and licensed by the appropriate emirate level authority. Once all necessary documentation is in order, the registration and licensing process takes about ten working days, or longer if the subject licence requires the approval of an additional regulatory body (for example, additional approvals from the Dubai Municipality are required to license a contracting company).
The requirement for an LLC to have a minimum amount of share capital was recently abolished. The law now provides that an LLC should have a capital that is sufficient to achieve its purpose of incorporation. In practice the level of the capital will need to be approved by the appropriate emirate authority.
In-kind contributions are accepted as payment for shares in an LLC, but are subject to certain requirements concerning certification of the value of such contributions.
Restrictions on rights attaching to shares. An LLC cannot issue transferable shares or bonds, or resort to public subscriptions (these activities are reserved for public joint stock companies). Federal Law No. 8 of 1984 regarding Commercial Companies, as amended (Companies Law) sets out the rights and restrictions on shares of an LLC.
An LLC must have no fewer than two and no more than 50 shareholders. UAE nationals or companies wholly owned by UAE nationals must own at least 51% of an LLC's shares at all times, unless the LLC is 100% owned by GCC nationals (see Question 2).
An LLC must be managed by a minimum of one and a maximum of five managers. A manager can be one of the shareholders or any other person. Where an LLC has more than one manager, its meetings are regulated by the LLC's memorandum, subject to which the manager(s) have full power to manage the LLC and make binding decisions on its behalf. If the LLC has more than seven shareholders, the memorandum must provide for a supervisory board of at least three shareholders. The supervisory board:
Can examine the LLC's books and documents.
Can require the managers to submit reports on their management.
Supervises the LLC's budget, its annual reports and the distribution of profits.
Submits its own reports to the general assembly of shareholders.
An LLC must hold a general assembly of the shareholders at least annually, or at any other time demanded by the supervisory board or by shareholders holding at least 25% of the LLC's capital. Resolutions of the general assembly must be adopted by shareholders representing at least 50% of the LLC's capital, unless the memorandum provides for a greater majority.
A manager can be one of the shareholders or any other person.
The managers of an LLC are liable to the LLC, the shareholders and third parties for:
All acts of fraud.
Abuses of power.
Violations of the Companies Law (or regulations under it).
Errors in management.
Any provisions that purport to provide otherwise are void.
The liability of a shareholder in an LLC is generally limited to the value of its shareholding.
An LLC must keep a record of the names, nationalities and domiciles of its shareholders and their respective share values, at the headquarters of the LLC. An LLC must maintain financial records, which must be audited by a licensed auditor. Although these audited financial statements are required to be filed with the MoE, at present this requirement is not implemented.
UAE Federal Law No. 8 of 1980 Regulating Labour Relations (Labour Law) regulates most employment relationships in the UAE.
The Labour Law applies to all employees working in the UAE, including foreign employees working in the UAE. However, it does not apply to:
UAE national employees who are employed abroad.
Employees of UAE companies working abroad.
Government sector.
Domestic servants.
Agricultural workers.
The Labour Law imposes minimum standards on termination of employment, working hours, vacation time and safety standards, among other things, which cannot be contracted out of. All employers in the UAE (other than those in exempt categories or in free zones) must register with the Federal Ministry of Labour and Social Affairs (MoL).
Trade unions and collective bargaining are not currently permitted, and for both UAE nationals and non-nationals, employee grievances are handled through a conciliation process administered by the MoL.
A written employment contract is required and the minimum standards provided in the Labour Law apply regardless of contrary contractual provisions or choice of law clause in the contract.
Employment visas are required for foreign nationals to work in the UAE. The entire process costs about AED7,500 (as at 1 November 2011, US$1 was about AED3.7) and takes four to five weeks.
For a foreign national to obtain residency in the UAE:
The foreign national must enter into an employment contract with an employer that is duly licensed in the UAE.
Employment contracts with MoL-registered employers must be on the form prescribed by the MoL and registered with it.
Employees are not entitled to management representation or to be consulted in relation to corporate transactions.
The Labour Law provides for a 30-day minimum notice period for dismissal for legitimate reasons and pay in lieu of notice is an acceptable alternative. What constitutes a legitimate reason is not defined, but generally the reason for termination must relate to the employee's work.
In a wrongful dismissal, the employer can be ordered by the court to pay compensation of up to three months' base salary to the employee. Employee grievances are handled through a conciliation process administered by the MoL.
There are no specific regulations regarding redundancies and mass layoffs.
Tax residency is not clearly defined under UAE law as there is no enforced income tax legislation.
The UAE does not impose any personal income taxes on either UAE national or non-UAE national employees.
A statutory pension contribution of 5% of the salary is payable by UAE national employees. Non-UAE national employees do not make any social security contributions.
There is no concept of tax residency as teh UAE does not impose income tax (see Question 12).
A statutory pension contribution of 12.5% of the salary is payable by the employer in relation to employees who are UAE nationals.
Tax residency is not clearly defined under UAE law, as there is no corporate income tax legislation.
No corporate income tax is imposed at the federal or emirate level, except in relation to branches of foreign banks (at the emirate level) and courier companies (at the federal level). Emirate-level taxes are imposed on the petroleum concession holders at rates specifically negotiated in the relevant concession agreements.
Dubai, and certain other emirates, impose taxes on some goods and services (including sales of alcoholic beverages, hotel and restaurant bills, and residential leases). However, there is no generally applicable sales tax or VAT in the UAE.
The UAE does not impose income tax on resident or non-resident business vehicles.
Dividends paid to foreign corporate shareholders?
Dividends received from foreign companies?
Interest paid to foreign corporate shareholders?
Intellectual property (IP) royalties paid to foreign corporate shareholders?
The UAE does not impose taxes on dividends (paid or received).
The UAE does not impose taxes on dividends (paid or received).
The UAE does not impose taxes on interest payments.
The UAE does not impose taxes on royalty payments.
No thin capitalisation rules apply in the UAE.
No controlled foreign company rules apply in the UAE.
No transfer pricing rules apply in the UAE.
Under the Arab Gulf Co-operation Council's (AGCC) agreement to impose uniform rates for customs duties, the UAE imposes a uniform 5% customs duty on the import of goods from outside the AGCC. Limited exemptions apply to military and security purchases and some food items.
The UAE is party to more than 40 international tax treaties.
There are currently no competition laws in force in the UAE.
See Question 23.
See Question 23.
The UAE is a member of the General Agreement on Tariffs and Trade, and accordingly all provisions relating to intellectual property, including reciprocity, apply in the UAE. The UAE also has its own legislation regulating intellectual property.
Nature of right. To be patentable, an invention must be:
Novel. Novelty is not described except using the word "new". The Ministry of Finance and Industry examine the application for novelty.
Inventive. The patent must be non-obvious, as judged by the Ministry.
Capable of industrial application. The invention must be practically useful in industry.
Protection. Protection is achieved by registration under Federal Law No. 44 of 1992 Regarding the Regulation and Protection of the Industrial Property of Patents, Designs and Industrial Prototypes (as amended by Federal Law No. 17 of 2002) (Patent Law), which regulates the protection of patents, designs, industrial models and know-how, and is administered by the Ministry of Finance and Industry.
Enforcement. A petition can be made to the Administration of the Industrial Property, a statutory administrative body, for the enforcement of provisions of the Patent Law, appeals from which must be made within 30 days of a decision.
Length of protection. A patent is valid for 20 years. The patent owner must use it or license it within four years from the date of application.
Nature of right. To be registrable in the UAE, a trade mark must be distinguishable and not yet registered by another person. Registrability is at the MoE's discretion.
Protection. Protection is achieved by registration under Federal Law No. 37 of 1992 Regarding Trademarks (as amended by Federal Law No. 8 of 2002) and is administered by the MoE. Applications are submitted to the Trade Control Section of the MoE. The process takes slightly over a year, and costs about AED13,000.
Enforcement. Unauthorised use of a registered trade mark and other related offences are punishable under UAE law. An aggrieved trade mark owner (or licensee) can also bring a civil action for damages. No injunctive relief is available in the UAE courts.
Length of protection. A trade mark registration is valid for ten years from the date of registration and can be renewed.
Nature of right. Industrial designs are defined as any innovative three-dimensional shape that can be used in industry or craft. To be registrable, a design must be:
New.
Innovative.
Usable as an industrial product.
Protection. Protection is achieved by registration under the Patent Law and is administered by the Ministry of Finance and Industry. An application is made to the Administration of Industrial Property for a deed of protection in relation to an industrial design.
Enforcement. Unauthorised use of a registered industrial design, to manufacture or import goods relating to the industrial design, with the intention of selling those goods, is punishable under UAE law. The aggrieved industrial design owner (or licensee) can also bring a civil action for damages. No injunctive relief is available in the UAE courts.
Length of protection. The protection term for a registered design is ten years from the date of filing the application for registration.
Unregistered designs are protected as an unregistered copyright (see below, Copyright).
Nature of right. Copyright can subsist in a wide variety of media, including:
Written.
Verbal.
Musical.
Photographic.
Drawings.
Protection. Copyrights in the UAE are protected under Federal Law No. 7 of 2002 Regarding Copyrights and Neighbouring Rights, which is administered by the Ministry of Information and Culture. Protection arises automatically on the author's creation of the work and registration is not required. However, a copyright can be registered with the Ministry of Information and Culture to provide public notice of the copyright or to establish priority in time. No greater substantive protection is afforded a registered copyright compared to an unregistered copyright.
Enforcement. Unauthorised publication of a copyrighted work in the UAE is a criminal offence punishable by imprisonment and/or fines.
Length of protection. A copyright is protected for the duration of the author's life plus 50 years.
Confidential information is not specifically regulated. However, a person is liable for acts causing harm generally (UAE Federal Law No. 5 of 1985 regarding Civil Transaction), which would include harm caused by unauthorised use or publication of the personal or private information of another.
The UAE Commercial Agencies Law (Federal Law No. 18 of 1981, as amended) regulates the appointment of commercial agents, sales representatives, and distributors. A commercial agency is defined as any arrangement whereby a foreign company is represented by an agent to distribute, sell, offer or provide goods or services within the UAE for a commission or profit.
The Commercial Code (Federal Law No. 18 of 1993) augments the Commercial Agencies Law and establishes the regulatory framework for the various types of permitted commercial agencies. The most common type of agency is the contractual agency, whereby the agent undertakes, on a permanent basis and in a specific area of activity, to instigate and negotiate deals for the principal in return for payment. Distributor contracts are treated as contractual agencies when they involve one agent as the sole distributor.
The primary requirements and characteristics of commercial agencies are:
Commercial agents must be UAE nationals or companies incorporated in the UAE and owned entirely by UAE nationals.
Commercial agents must be registered with the MoE to engage in commercial agency activities. In practice, there are many unregistered commercial agencies held by companies with some foreign ownership.
The agency agreement must be registered for the agent to be protected under the law and to have the agency relationship recognised.
Commercial agents are entitled to an exclusive territory encompassing at least one emirate for the specified products.
Unless otherwise agreed, commercial agents are entitled to receive commissions on sales of the products in their designated territory irrespective of whether these sales are made by or through the agent.
Commercial agents are entitled to prevent products subject to their agency from being imported into the UAE.
Federal Law No. 1 of 2006 regarding Electronic Transactions and Commerce regulates electronic records, documents and signatures relating to electronic transactions, but does not apply to wills, immovable property, negotiable instruments, personal law issues such as marriage or divorce, or documents that must be attested before the notary public. Generally, contracts can be formed by any means of electronic communication. A person can rely on an electronic signature, to the extent such reliance is reasonable in the circumstances.
There are currently no data protection laws in force in the UAE. The Central Bank of the UAE has discretion concerning whether to permit banks registered in the UAE to store customer information outside of the UAE.
The UAE Federal Law No. 5 of 1985 regarding Civil Transactions (Civil Code) contains general provisions imposing liability for harm done to another. These provisions could apply to product liability claims. The Civil Code provides for a distinction between direct and indirect (or consequential) harm, but does not define these terms. It is not possible to contract out of liability for causing direct harm, whereas liability for indirect harm can be limited by contract. In all cases, liability is assessed on the basis of the amount of harm suffered (including loss of profit if it was a natural result of the harmful act).
T +971 4 330 3900
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E bahmed@afridi-angell.com
W www.afridi-angell.com
Qualified. New York Bar Association; International Bar Association; Lahore High Court Association
Areas of practice. Banking and finance; private equity; corporate and commercial; restructuring; shipping and insurance.
Recent transactions
T +971 4 330 3900
F +971 4 330 3800
E saurbh@afridi-angell.com
W www.afridi-angell.com
Qualified. Bar Council of Rajasthan
Areas of practice. Banking and finance; corporate and commercial; real estate.
