Doing Business in the

United Arab Emirates 2017

Doing Business
in the United Arab Emirates
2017
 Doing Business in the United Arab Emirates

Table of Contents
Introduction.............................................................................................................................................. 1
History, Geography and Economy .......................................................................................................... 3
Legal Landscape ..................................................................................................................................... 5
1. Legal System ................................................................................................................ 6
2. Judicial System ............................................................................................................. 6
3. Restrictions on Foreign Investment .............................................................................. 7
4. Choice of Law and Dispute Resolution ......................................................................... 7
5. Taxation and VAT ......................................................................................................... 8
6. Customs duties ............................................................................................................. 9
7. Import/Export Controls .................................................................................................. 9
8. Anti-Bribery and Corruption ........................................................................................ 10
9. Competition Law ......................................................................................................... 11
10. Data Protection and Privacy ....................................................................................... 12
11. Intellectual Property Rights ......................................................................................... 13
12. Government Procurement ........................................................................................... 14
13. Money Laundering ...................................................................................................... 14
14. Bankruptcy .................................................................................................................. 15
15. Capital Markets ........................................................................................................... 16
Foreign Investment Models ................................................................................................................... 17
1. Restrictions on Foreign Investments and Anti-Fronting Regulations .......................... 18
2. Overview on Foreign Investment Models.................................................................... 18
Real Estate ............................................................................................................................................ 25
1. Freehold Ownership by Foreigners............................................................................. 26
2. Leasehold Rights ........................................................................................................ 27
Employment .......................................................................................................................................... 29
1. Emiratisation ............................................................................................................... 30
2. Pre-Hire Background/Reference Checks Permitted or Required ............................... 30
3. Employment Contract.................................................................................................. 31
4. Term and Termination/Gratuity ................................................................................... 31
5. Working Days/Working Hours ..................................................................................... 34
6. Compensation/Benefits ............................................................................................... 34
7. Leave .......................................................................................................................... 35
Annex (1) — Common Onshore Legal Vehicles ................................................................................... 36
Annex (2) — Types of Legal Vehicles in the JAFZA ............................................................................. 40
Annex (3) — Common Legal Vehicles in the DIFC .............................................................................. 43

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 Doing Business in the United Arab Emirates

Glossary

ADGM the Abu Dhabi Global Market

ADX the Abu Dhabi Stock Exchange

Commercial Agency Law Federal Commercial Agency Law No. 18 of 1981, as amended

Companies Law Federal Commercial Companies Law No. 2 of 2015

Competition Law Federal Law No. 4 of 2012 regulating competition

DED the Department of Economic Development

DFM the Dubai Financial Market

DFSA the Dubai Financial Services Authority

DIFC the Dubai International Finance Centre

DMCC the Dubai Multi Commodities Centre

ESCA the Emirates Securities and Commodity Authority

FATCA Foreign Account Tax Compliant Act of the United States

FZCO a Free Zone Company

FZE a Free Zone Establishment

GCC the Gulf Cooperation Council

JAFZA the Jebel Ali Free Zone

Labor Law Federal Labour Law No. 8 of 1980, as amended

LLC a limited liability company

MHRE Ministry of Human Resources and Emiratisation

MOC the Ministry of Economy

Penal Code Federal Penal Law No. 3 of 1987, as amended

PJSC a public joint stock company

Private Company a private joint stock company

Procurement Law Decree of the Minister of Finance No. 20 of 2000 Concerning

Government Procurement

RERA the Real Estate Regulatory Agency

UAE the United Arab Emirates

WIPO the World Intellectual Property Organization

 Doing Business in the United Arab Emirates

Introduction
Baker McKenzie Habib Al Mulla is pleased to introduce the 2017 edition of “Guide to Doing Business
in the United Arab Emirates.” Drawing on our unparalleled experience in the Middle East, this manual
is intended to offer a simple but comprehensive guide to understanding the legal framework and
environment for doing business in the UAE.

This guide does not attempt to provide an exhaustive analysis of every aspect of doing business in
the UAE. Rather it has been compiled to assist those seeking an up-to-date overview of the current
investment climate and the most important laws regulating foreign direct investment and commercial
activities in the UAE.

This guide is organized in chapters addressing various important topics, including the history,
geography and economy of the UAE, the legal landscape, foreign investment models, real estate
ownership and leasehold and employment, along with tables that help users evaluate the available
legal vehicles that may potentially be used to enter the UAE market.

Our lawyers, who are experts in each of these topics, have contributed their skills and experience in
the preparation of this guide so that investors can take full advantage of the business opportunities
available to them in the UAE.

Baker McKenzie Habib Al Mulla, a member firm of Baker McKenzie International, has a significant and
long-standing presence in the UAE market, and has the largest litigation team in the UAE, offering a
comprehensive range of legal services to companies and foreign investors. We look forward to
assisting you.

Baker McKenzie Habib Al Mulla | 1

History, Geography
and Economy
The UAE 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, lying at the southwest of the country, and
Oman, situated at the north and southeast of the UAE. The country also lies between the Arabian Gulf
and the Gulf of Oman.

Arabic culture is part of everyday life in the UAE and it influences the country’s business norms. The
country is largely open to foreigners and strives to create an environment that is favorable to foreign
investment and economic growth, and which promotes tolerance, diversity and multiculturalism.

The population of the UAE is estimated to be 9.4 million. Approximately 80% of the population is
composed of expatriates, with a large percentage residing in Dubai. Arabic is the country’s official
language—however, English is generally used in business and everyday life. Hindu, Urdu and Persian
1
are also widely spoken. The majority of the population is Muslim.

The UAE is a dynamic hub for global commerce and has won the right to host the World Expo in
Dubai in 2020. This will be the first time that the World Expo is staged in the Middle East, North Africa
or South Asia.

The UAE has a petroleum-reliant economy with roughly a third of the country’s gross domestic
2
product (GDP) being derived from its output of oil and gas. The oil wealth accumulated by the
country over the past 25 years has helped fund and stimulate much of its current social and economic
development. However, in recent years the UAE has embarked on a largely successful effort to
diversify into other economic sectors, with tourism being one of its primary focuses. The UAE attracts
millions of tourists every year with a variety of attractions, such as the Dubai Shopping Festival and
the annual Omega Dubai Desert Classic golf tournament. The UAE is also quickly becoming a
worldwide commercial hub, as indicated by numerous multinational companies relocating their
regional headquarters to the country. The main driving force behind this economic and commercial
expansion is the UAE’s shift towards increasingly liberal economic policies, particularly the creation of
economic and financial free zones.

The UAE has no foreign exchange controls and the currency of the UAE, the dirham, is pegged to the
US dollar at a rate of AED 3.67 to USD 1. There are no restrictions or levies on the repatriation of
capital and profits by foreign investors outside the UAE. At the present time, the UAE does not impose
corporate or personal income tax, except on oil concessions and branches of foreign banks.

At a regional level, the GCC countries have been embarking on fiscal reforms in response to recent
low oil price developments. Hence, the UAE is in the process of introducing, initially, a value added
tax, and potentially a corporate income tax. It was announced in February 2016 that the rate of the
value added tax will be 5% and that the UAE will implement it by 1 January 2018. However, there are
no clear guidelines on how and when corporate income tax would be implemented.

1
Source: CIA World Factbook.
2
Source: CIA World Factbook.

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Legal Landscape
1. Legal System
As a federation, the UAE is governed by a constitution that regulates, among other things, the
distribution of legislative powers between the federation (the federal capital is Abu Dhabi) and the
individual emirates.

Under the UAE Constitution, federal laws have supremacy over the laws of individual emirates.
However, individual emirates are permitted to enact their own legislation in areas other than those
exclusively reserved to the federation. Individual emirates can also legislate on matters where the
federation has not yet exercised its legislative powers. Federal laws, with the exception of property
law, generally govern civil and commercial transactions.

The UAE’s legal system is founded upon (i) civil law principles, most of which are heavily influenced
by Egyptian law (which in turn is influenced by French law) and (ii) Islamic Shari’a.

Legislation is divided into a number of major codes that provide the general principles of law, including
civil, commercial, civil procedure, companies, intellectual property, immigration, maritime, industrial,
banking and employment law.

There is no system of precedent in the UAE. However, judgments of higher courts are binding on
lower courts and provide useful guidance of future judicial interpretation.

2. Judicial System
There is a combination of federal and emirate-level courts with parallel local jurisdictions, depending
on which system the emirate has opted for.

Each emirate is entitled to either establish its own judiciary or merge with the federal court system.
The judicial systems of Sharjah, Ajman, Fujairah and Umm al-Quwain have merged into the UAE
Federal Judicial Authority, while Dubai, Ras al-Khaimah and Abu Dhabi, have retained their own
distinct and autonomous local judicial systems.

In terms of judicial hierarchy, both the UAE federal and local judicial systems are divided into courts of
first instance, courts of appeal and courts of cassation.

The UAE Federal Supreme Court, which has its seat in Abu Dhabi, is the highest court in the federal
judicial system. This court is also commonly referred to as the (UAE) Supreme Court of Cassation,
and acts as, among other things, a constitutional court and the court of cassation for those emirates
that have merged into the federal system, in addition to settling disputes between the different
emirates.

On the other hand, 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.

In addition to the federal and local courts, the DIFC (the financial free zone based in Dubai) has its
own courts, which are known as the DIFC Courts.

DIFC Courts have jurisdiction over civil and commercial matters concerning contracts that were
concluded or performed within the DIFC, the insolvency of DIFC corporate entities, and over civil or
commercial disputes between parties who have opted to submit to these courts.

More recently, the ADGM Courts have been set up and modelled on the English judicial system.

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 Doing Business in the United Arab Emirates

3. Restrictions on Foreign Investment

One of the key aspects of the restrictions on foreign investments in the UAE is illustrated in the
Companies Law, mandating that corporate entities must be at least 51% owned by a UAE national or
by an entity that is wholly owned by UAE nationals.

In addition, certain types of commercial activities can be carried out exclusively by UAE nationals or
entities wholly owned by UAE nationals, such as the activity of commercial agencies and the supply of
labor.

However, GCC nationals and entities wholly owned by GCC nationals are not subject to the foreign
investment restrictions applied in the UAE and are permitted to carry out most of the activities
outlawed by the policies, except for a very short list of prohibited activities exclusively reserved to
UAE nationals.

A draft foreign investment law is under discussion to decrease the restrictions on foreign investment
and permit foreign ownership of companies operating in certain strategic sectors outside of the free
zone, with an aim to encourage both innovation and the transfer of technology in the industrial sector.
The exact scope of the law, as well as the timeframe for its introduction, are not yet clear.

At the present time, the UAE implements a legal framework of free zones which foster an attractive
environment for businesses by offering companies—primarily 100% foreign-owned companies—
incentives such as zero tax rates on their income and exemption from foreign exchange controls.
However, free zone companies are subject to a number of restrictions and are only permitted to
conduct their activities within the vicinity of the respective free zone. Such free zones include
economic free zones, such as the JAFZA, and financial free zones, such as the DIFC and, more
recently, the ADGM. These restrictions should be carefully considered by investors when evaluating
whether incorporating a company in a free zone is consistent with their objectives.

4. Choice of Law and Dispute Resolution

Generally, parties entering into contracts in the UAE are entitled to opt for a foreign law, commonly
English law, to govern the relationship, except for certain types of matters, such as real rights (ie,
matters pertaining to a property located in the UAE), employment contracts or registered commercial
agency, and contracts concluded with UAE government entities for public order considerations.

This choice will be upheld by local courts to the extent that the foreign law provisions do not contradict
Islamic Shari’a, public order or the morals of the UAE. However, the party invoking the foreign law
before a UAE court has the burden of proving such foreign law to the court. The court, at its
discretion, may decide to apply UAE law if the party invoking the application of the foreign law fails to
prove it and determine its effects.

Moreover, parties in the UAE can generally agree to submit disputes to a court in the UAE, to the
DIFC, potentially to the ADGM, to a foreign court or to arbitration.

In principle, foreign law judgments are enforceable in the UAE, but in practice, enforcement has
proven to be cumbersome and complex to achieve. In an effort to facilitate the enforcement of foreign
judgments, the UAE has entered into numerous treaties with other countries which govern the
reciprocal enforcement of foreign judgments, including the Riyadh Arab Agreement for Judicial
Cooperation Convention of 1983, the GCC Convention of 1996 and other similar bilateral treaties with
France, China, India and Egypt.

With regard to the enforcement of foreign arbitral awards, 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 provides for the enforcement of foreign arbitral awards in the UAE. There are a
number of domestic arbitration forums in the UAE, notably the Dubai International Arbitration Centre,

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the Abu Dhabi Commercial Conciliation Arbitration Centre and the arbitration center founded by the
DIFC and the London College of International Arbitration, known as the DIFC-LCIA Arbitration Centre.
Parties may also select a foreign arbitration center such as the International Court of Arbitration of the
International Chamber of Commerce or the United Nations Commission on International Trade Law.

The majority of disputes are arbitrable in the UAE, subject to limited exceptions such as registered
commercial agency disputes, labor disputes, and family and inheritance matters. In addition, disputes
under contracts with UAE government are normally referred to a UAE court, except in certain
emirates, eg, Dubai, where parties may opt for arbitration.

There is controversy surrounding the arbitrability of real estate-related disputes. Real estate is an area
that 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.

5. Taxation and VAT

The UAE does not currently have a federal tax system. Individual emirates have passed their own tax
decrees dealing with corporate income tax but to date the relevant tax legislation has not been
enforced and corporate income tax is only imposed on oil companies and branches of foreign banks.

There is currently no sales tax or value added tax in the UAE. However, the GCC countries
announced in February 2016 that a unified value added tax at the rate of 5% will be imposed by 1
January 2018 or 1 January 2019, depending on the readiness of the respective GCC country, and
draft legislation is underway. The Federal Tax Authority was established in October 2016, which is a
new government body responsible for the implementation of value added tax across the UAE.

Dubai and certain other emirates impose taxes on certain goods and services, including alcoholic
beverages and hotel and restaurant bills. For instance, all sales of hotels are subject to a municipality
fee of 10%.

There are no personal income taxes in the UAE. Only government employees are required to pay
social insurance contributions. However, it is worth noting that individuals may be subject to other fees
or levies. For instance, the Dubai Municipality applies a housing fee amounting to 5% of the annual
rental value of property leased by Dubai residents, payable alongside the water and electricity bill.

There are no capital gains taxes levied on the sale of shares. Real estate transfer tax, referred to as
“registration fees,” is levied on the transfer of ownership of real estate in the UAE (including where
there is an indirect transfer in a company holding real estate in the UAE). The amount varies
depending on the emirate and the location of the real estate. In Dubai, the transfer tax is currently 4%,
although the DIFC charges 5%.

The UAE has entered into an extensive network of treaties to ensure the avoidance of double
taxation.

Moreover, the UAE became a FATCA partner in 2015 and signed an intergovernmental agreement
with the United States setting out guidelines for the application of FATCA by financial institutions
regulated by the UAE Central Bank, the Insurance Authority, the ESCA and the DIFC.

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 Doing Business in the United Arab Emirates

6. Customs duties
The UAE applies customs duty at a flat rate of 5% of the total value of the cost, insurance and freight.
Tobacco and alcohol are subject to a higher customs duty.

The UAE has ratified the GCC unified customs duty law under which all imports within a GCC country,
including imports from a free zone into the mainland, are subject to a customs duty at a flat rate of
5%.

Certain imports are not subject to customs duties, such as goods in transit, goods imported by
foreigners or by 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. In each such case, imports have to fulfil a number of conditions to
qualify for the exemption.

With an aim to reduce and remove tariffs, the UAE through the GCC has signed numerous free trade
agreements, including the Greater Arab Free Trade Area Agreement (GAFTA).

7. Import/Export Controls
The Commodities Import and Export Federal Law No. 13 of 2007 permits UAE authorities to ban or
restrict the exporting, importing, re-exporting, transiting or transhipping of commodities in the event
that (i) such commodities pose a threat to public safety or hygiene, the environment, natural resources
or national security, or (ii) the foreign policy of the UAE requires any such restrictions. In addition,
importing goods into the UAE depends upon (i) the licensed activity of the importer, (ii) the nature of
goods to be imported, and (iii) the purpose of importing the goods.

There are also specific restrictions and licensing requirements that apply to the import and sale of
certain types of goods.

One example is the ban on the exportation or re-exportation of strategic goods, including arms and
military hardware, chemical and biological materials, and dual-use items.

Many wireless or electronic devices must be “type approved” by the Telecommunications Regulatory
Authority before they can be imported and sold in the UAE, and importers are required to register as
“approved dealers” with the TRA in order to import these types of devices. Likewise, all books,
magazines, printed publications, DVDs and other media items must first be submitted to the National
Media Council for prior content approval, and a license is required from the NMC to import and
distribute such types of media in the UAE. However, the extent to which these same rules apply to
digital content and media delivered over the internet is unclear.

Another example of restrictions is the list of “banned” items published on the official website of the
Emirate of Dubai:

• All kinds of narcotic drugs (hashish, cocaine, heroin, poppy seeds, hallucination pills, etc.)

• Goods intended to be imported from boycotted countries

• Goods of Israeli origin or bearing Israeli trademarks or logos

• Crude ivory and rhinoceros horn

• Gambling tools and machineries

• Three layers fishing nets

• Original engravings, prints, lithographs, sculptures and statues in any material

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• Used, reconditioned and inlaid tires

• Radiation-polluted substances

• Printed publications, oil paintings, photographs, pictures, cards, books, magazines, stony
sculptures and mannequins which contradict Islamic teachings or decency, or which
deliberately imply immorality or turmoil

• Any other goods, the importation of which is prohibited under the authority of UAE customs
laws or any other laws in the country

• Forged and duplicate currency

• Cooked and home-made foods

Moreover, 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,
provided that permission is obtained from the authorities.

As indicated by the official list of banned items above, the UAE, being a member of the Arab League
and the GCC, has a boycotting policy toward Israel. In 1995, the UAE renounced both the “secondary
boycott” and the “tertiary boycott” and currently only applies the “primary boycott.” Under the “primary
boycott,” the UAE refuses to deal (i) with or in goods or services from Israel or of Israeli origin, and (ii)
with the State of Israel and its citizens.

This is a complex and evolving regulatory area which should be discussed in greater detail with one of
our legal experts.

8. Anti-Bribery and Corruption

The UAE does not have a standalone anti-bribery or corruption law. However, different laws contain
several provisions dealing with anti-bribery/corruption in the public and private sectors. Most of these
provisions are found in the Penal Code.

The Penal Code incriminates a public official who solicits or accepts a donation or advantage of any
kind, or a promise of anything of value, which incites them to be negligent in the proper carrying out of
their function or to commit an act in violation of their function or to perform an act that is not part of
their function.

Likewise, it is a crime for an individual to offer a public official 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 public official declines or accepts the bribe. However, a person who bribes
a public official may be cleared of liability if they reveal the crime to a judicial or administrative
authority before it is discovered.

The Penal Code was significantly amended by virtue of Law No. 7 of 2016, which brought the UAE’s
anti-bribery regime in line with international practices. Although the legislation remains less detailed
than that of many other jurisdictions, a number of important changes were introduced:

• Foreign public officials and officials of international organizations are now caught by the anti-
bribery provisions of the Penal Code.

• The scope of a bribe has been expanded to capture both “direct” and “indirect” bribes. The
new amendments expressly stipulate (in relation to public and private bribes) that a bribe-
related crime is committed if a person requests, accepts or has been given a promise, directly

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 Doing Business in the United Arab Emirates

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/duties.

• Provisions relating to commercial private bribes have been clarified. The receiver of a private
bribe is broadly defined as any person entrusted with the management of a private
establishment or vehicle, as well as any employee (in any capacity) of any such private
establishment or vehicle. Formerly, the provisions only applied to members of the board of
directors of a private company, institution, cooperative association or public benefit
association, as well as managers and employees of such entities.

• The definition of “public officials” has been amended to encompass members of the judicial
authority, members of security authorities, chairs, directors, managers and all employees of
public authorities, public corporations, as well as totally or partially owned federal or local
state entities.

9. Competition Law
In a significant development for the UAE’s competition regime, the Cabinet in Resolution No. 13 of
2016 the “Resolution”) defined relevant market share thresholds which will enable implementation of
the Competition Law.

Prior to the issuance of the Resolution, the Competition Law had very little impact on the conduct of
business activities and transactions in the UAE due to the absence of any operational implementing
regulations.

The key areas covered by the Resolution are:

• A “dominant position” is created if the market share of the respective establishments exceeds
40% of the “transactions in the relevant market.” The Competition Law prohibits the abuse of
a dominant position that prejudices, limits or prevents competition.

• An “economic concentration” is created if the market share of the combined establishments

exceeds 40% of total “transactions in the relevant market.” The Competition Law provides that
a notification must be made to the MOE in writing at least 30 days prior to completion of an
economic concentration. Clearance will be deemed granted after the expiry of 90 days from
the date of submission of a complete application. This 90-day period may be extended by an
additional 45 days at the discretion of the MOE.

• “Weak-impact agreements” are now defined as agreements where the combined market
share of the parties subject to the agreement does not exceed 10% of the total transactions of
the relevant market. Weak-impact agreements are not considered restrictive and are
permitted under the Competition Law.

• The Resolution does not indicate how “transactions in the relevant market” will be assessed,
although based on the application of the European regulations on which much of the
Competition Law is based, we expect it will be a combination of both sales volume and value
in the relevant market.

The Competition Law stipulates that federal and local government entities or government-controlled
entities (which the Resolution has defined as government ownership of 50% or more) as well as small
and medium-sized enterprises (SMEs) are exempt from its application. SMEs have recently been
defined in Cabinet Resolution No. 22 of 2016 as enterprises having up to 200 employees (in the
trading and services sectors) or 250 employees (in the industrial sector), and annual turnover not
exceeding AED 250 million (in the industrial and trading sectors) and AED 200 million (in the services
sector). Turnover is calculated on the basis of the group of companies, not just the establishment that
is party to the transaction.

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Additionally, establishments operating in the following sectors are exempt from the provisions of the
Competition Law: telecommunications, financial services, cultural activities (readable, audio and
visual), pharmaceutical, utilities, waste disposal, transportation, oil and gas, and postal services.

The Resolution came into force on 1 August 2016.

10. Data Protection and Privacy

Unlike other jurisdictions, the UAE has no comprehensive data protection or privacy legislation.
However, data protection and privacy are addressed in a number of laws. Primarily, the UAE
Constitution guarantees both freedom and secrecy of communication.

The Penal Code also includes a number of provisions that deal with privacy and secrecy. For
instance, the Penal Code prohibits individuals who are entrusted with confidential information in the
context of their profession, craft, circumstance or art from disclosing such confidential information or
from using it for personal benefit or for a third party’s benefit, unless the disclosure or use of such
confidential information is required or permitted by law or has the consent of the owner of such
confidential information. Moreover, the Penal Code generally prohibits violation of the privacy of
individuals.

Federal Law No. 1 of 2006 on Electronic Commerce and Transactions imposes criminal sanctions on
the disclosure of any information included in electronic files, documents or communications that a
person has obtained pursuant to the powers conferred under the said law.

The DIFC and the ADGM have issued their own data protection laws, being financial free zones
benefiting from a certain level of autonomy in commercial and civil legislation. In addition, the Dubai
Healthcare City, another free zone, has adopted special regulations on data protection addressing the
collection, use, disclosure and transfer of healthcare data.

In 2012, the UAE adopted the federal Electronic Crimes Law No. 5 of 2012, which protects the privacy
of online information, including data, details of electronic payments and bank account and electronic
cards data.

Another aspect of the privacy protection afforded in the UAE is the recent Anti-discrimination and Anti-
hatred Federal Decree by Law No. 2 of 2015, which incriminates any form of discrimination on the
basis of religion, caste, creed, doctrine, race, color or ethnic origin in addition to any acts that stoke
religious hatred or offend religion through any form of expression, including speech, the written word
and online media. Corporate entities and individuals are both addressed by this law and sanctions,
ranging from imprisonment to significant fines, may be imposed.

In December 2015, Dubai published a data sharing law, Law No. 26 of 2015, allowing the exchange of
data, open data and shared data between Dubai government authorities and data providers, which
potentially includes private sector businesses. The Law’s intentions include helping Dubai work
toward achieving its plan of becoming a smart city by 2021 and encouraging innovation, with the
objective of positively impacting the economy. The definition of “data provider” is very broad and
encompasses persons who produce, own, publish or exchange any data related to Dubai. However,
there is no clarity as to which entities or persons will be required to share data with the Dubai
government. In accordance with this law, data providers are required to take all necessary measures
to preserve the privacy and confidentiality of any such data they manage. Implementing regulations
that define the complete scope of this recently issued law are yet to be issued.

Given that violations of privacy and disclosure of personal or family information are criminally
punishable in the UAE, it is recommended to seek the explicit consent of the concerned persons for
the use of any of their personal information or data.

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 Doing Business in the United Arab Emirates

11. Intellectual Property Rights

There are five distinct intellectual property rights that are recognized in the UAE: (i) trademarks; (ii)
copyrights; (iii) patents; (iv) protection of industrial designs; and (v) confidential information. The MOE
is the competent authority in charge of regulating and supervising all matters relating to intellectual
property rights.

The UAE does not have a comprehensive intellectual property law, but a number of laws are in place
governing the different types of intellectual property rights: the Trademark Federal Law No. 37 of
1992, as amended, which regulates the protection of trademarks and trade names, the Federal Law
No. 7 of 2002 on Author’s Rights and Neighboring Rights, and the Federal Industrial Property Law No.
17 of 2002, as amended.

The UAE is also a member of the GCC and, therefore, applies the GCC unified patent law. There is a
new unified draft GCC trademark law in the pipeline. Moreover, the UAE is a party to a number of
international treaties, including the following:

• The Convention Establishing the WIPO 1967

• WIPO Berne Convention for the Protection of Literary and Artistic Works 1971 (Berne
Convention)

• WIPO Rome Convention for the Protection of Performers, Producers of Phonograms and
Broadcasting Organizations 1961 (Rome Convention)

• WIPO Copyright Treaty 1996

• Paris Convention

• World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property

Rights 1994 (RIPS)

Therefore, intellectual property rights can have a national, GCC-wide or global application, depending
on the extent of the protections pursued.

A new Commercial Fraud Law aimed at combating counterfeit goods and other commercial fraud was
issued in December 2016, replacing the previous commercial fraud legislation. The new law is
intended to enhance the enforcement mechanisms of existing intellectual property rights.

The law imposes tougher penalties on counterfeiters (the maximum penalty under the new law is a jail
term of up to two years and a fine of as much as AED 1 million) and further enhances brand owners’
rights (it is now an offense to possess counterfeits, even where the intellectual property holder is
unable to prove that the counterfeiter intends to sell them). The Commercial Fraud Law reserves the
maximum penalties for pharmaceutical and food products, but even those who deal in counterfeit
goods outside of these categories may be fined up to AED 250,000. The authorities are also
empowered to close stores that sell counterfeit goods, and repeat offenders may have their trade
licenses cancelled.

The law covers fraud in goods, contractual jobs and services offered by businesses across the UAE,
including free zone companies.

Baker McKenzie Habib Al Mulla | 13

12. Government Procurement
Foreign companies considering submitting bids for tenders issued by public authorities in the UAE
ought to seek proper legal advice prior to submitting their proposals and agreeing to assume binding
commitments.

At the federal level, the Procurement Law and the Cabinet Resolution No. 32 of 2014 set out
requirements for contracts to be executed with the UAE Federal Government, ministries and federal
agencies.

At the local level, Abu Dhabi, Dubai and Sharjah have enacted standalone procurement laws
applicable to the tenders issued by local public authorities. Generally speaking, local procurement
laws are substantially similar to the overall Procurement Law, although some matters are addressed
differently in each law.

In addition, certain public authorities have specific legislation governing their procurement and
tendering activities. For instance, procurements for the UAE Armed Forces are governed by special
procurement rules.

A foreign entity must identify whether the applicable public authority will accept bids submitted by
companies not wholly owned by UAE nationals or by companies in which UAE nationals own a
minimum of only 51% of the share capital.

Most public authorities have a set of standard procurement documentation for the provision of
contracting work, services and supplies, among others. Providing bid bonds, performance bonds and
other guarantees issued by a bank operating in the UAE is typical in government procurements.

In procurement contracts with governmental or quasi-governmental entities, UAE law applies if parties
do not agree otherwise. Referring the disputes to an arbitration seated in the relevant emirate may
persuade the governmental and or quasi-governmental entity to agree on the insertion of an
arbitration clause in the agreement. More recently, an opinion issued by the Dubai Supreme
Legislative Committee, published on the official website of the DIFC, adopted the view that the DIFC
is part of the Dubai courts, and hence government entities may agree on the submission of disputes
to DIFC courts. This opinion is very recent and there is no clarity on the potential challenges to this
opinion or to the position of the Dubai courts in this respect.

Dubai has issued Law No. 22 of 2015 regulating partnership between the public and the private sector
in the emirate of Dubai. Although a number of projects in the UAE, and more specifically in Dubai,
have already been either designed or completed using this investment model, there was no legal
framework in place regulating this model. This step aims to raise the confidence of investors and
financing institutions in Dubai’s legal system and confirm that the public private partnership model will
be used more frequently in Dubai. A number of secondary laws or regulations are yet to be issued.

13. Money Laundering

The UAE has a wide range of regulations in place to combat money laundering. Provisions in this
regard are included in the Penal Code, Federal Law No. 4 of 2002 Concerning the Incrimination of
Money Laundering, as amended, its executive regulations issued by the Cabinet of Ministers
Resolution No. 38 of 2014 and various directives of the UAE Central Bank. The anti-money laundering
measures adopted by the UAE comply with the standards of the Global Financial Task Force, the
intergovernmental policy making body established in 1989 responsible for promoting and
implementing the international standards and measures for combating money laundering, terrorist
financing and other related threats to the integrity of the international financial system.

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 Doing Business in the United Arab Emirates

The DIFC and the ADGM are subject to all provisions of the UAE’s anti-money laundering legislation.
In addition, the DFSA issued the Anti-Money Laundering, Counter Terrorist Financing and Sanctions
Module in 2013, applicable in the DIFC, which requires its member firms to establish and maintain
effective policies, procedures, systems and controls to prevent opportunities for money laundering in
the firms’ activities. It also contains certain requirements regarding the appointment of a money
laundering reporting officer and the establishment of “know-your-customer” requirements, as well as
systems for detecting and reporting suspicious transactions.

The ADGM Financial Services Regulatory Authority has also issued a module in 2015 applicable in
the ADGM. The ADGM Financial Services Regulatory Authority has jurisdiction for the detection,
prevention and avoidance of these activities within the ADGM. The Anti-Money Laundering and
Sanctions Rulebook sets out the anti-money laundering requirements.

14. Bankruptcy
The UAE has adopted Federal Bankruptcy Law No. 8 of 2016 (Bankruptcy Law), which came into
force at the end of December 2016. While the Bankruptcy Law is the first stand-alone bankruptcy
legislation, the UAE has in fact operated a (rarely used) bankruptcy regime since 1993, laid down by
the Commercial Transactions Code (CTC).

During the drafting process, the Bankruptcy Law was publicized as a law drawing on the best
bankruptcy protection laws around the globe, with the aim of facilitating doing business in the UAE
and boosting credit markets. Such an impact is yet to be seen, and a thorough assessment will largely
depend on how local courts apply the legislation and the infrastructure necessary for efficient and
effective implementation.

The Bankruptcy Law introduced the following key changes to the existing regime:

• The Bankruptcy Law introduced a framework for an out-of-court financial reorganization

process. A “financial reorganization committee” will be established by the Council of Ministers
entrusted with supervising the reorganization of regulated financial institutions in distress.

• Preventive composition (which predated the Bankruptcy Law) remains a possible pathway for
businesses in distress. However, the conditions to opt for preventive composition have been
relaxed. The ability to settle 50% of the debt is no longer a condition for the composition plan
to be approved. Any debtor that is not in default for more than 30 business days or is not in a
“debited financial position” may initiate a composition.

• A creditor whose receivables amount to AED 100,000 or more may commence bankruptcy
proceedings against the debtor. The CTC, on the other hand, did not include a threshold for
commencing bankruptcy proceedings.

• If bankruptcy proceedings are initiated, debt restructuring is considered and 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.

• Crimes of dishonored cheques are suspended if a preventive composition plan or a debt-

restructuring plan is approved. In this case, the cheque holder becomes one of the unsecured
creditors.

• The ability to seek new financings is reinforced. 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

Baker McKenzie Habib Al Mulla | 15

 debtor’s business. Additionally, any approved new financings will rank above the debts of
unsecured creditors.

• Trustees are 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.

• 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, and the Civil Transactions Code continues to govern individuals
unable to repay their debts.

• Directors’ liability remains 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. Likewise, the suspect period remains unchanged,
meaning any transaction entered into within two years before the issuance of bankruptcy
proceedings (the suspect period) is void or voidable.

15. Capital Markets

Financial markets in the UAE are relatively young and are constantly developing their infrastructure.
Securities may be traded and listed in the UAE in the DFM, ADX or NASDAQ Dubai. The DFM and
ADX are regulated by the ESCA, while NASDAQ Dubai is an international exchange located in the
DIFC and regulated by the DFSA. Companies listed on any of the above markets must comply with
the rules of the relevant market, in addition to the rules of the regulator.

The regulations of the ESCA regulate listing requirements and implement customary disclosure and
transparency requirements, such as reporting material incidents. In addition, certain notifications and
disclosures are required if the ownership of a shareholder will reach 5% or more of the securities of a
listed company on the DFM/ADX and upon each 1% increment after the 5% or 10% of the securities
of a parent, subsidiary or affiliate of a listed company on the DFM/ADX. Takeover rules and approvals
apply if a shareholder’s ownership, together with any of its related parties, exceeds 50% or more of a
listed company’s share capital.

Any shareholder, together with any of its related parties, holding 30% or more of the share capital of a
listed company that wishes to acquire any additional shares must submit a tender offer to the ESCA.
In turn, the ESCA has the right to reject the tender offer if it is deemed to affect the interest of the
market or the national economy.

The ESCA has issued a number of significant regulations including new corporate governance rules,
Private Equity Funds Regulations, Real Estate Funds Regulations, Venture Capital Fund Regulations,
and Marketing and Promotion Regulations.

On the other hand, the Markets Law 2004 and the DFSA Rulebook govern transactions and listings
conducted in NASDAQ Dubai and prescribe a number of disclosure requirements and takeover rules.

By way of example, directors and other connected persons are required to file regular reports to the
DFSA and to the company on the occurrence of certain events, including (i) the appointment or
removal of directors, (ii) any increments in the voting rights by 1% or more, and (iii) any transaction
with a party holding 5% or more of the voting rights of the company.

The Takeover Rules Module of the DFSA Rulebook requires a person who acquires 30% or more of a
listed company’s voting rights to make a mandatory takeover bid for the whole company. This
provision is largely based on its UK equivalent.

16 | Baker McKenzie Habib Al Mulla

Foreign Investment
Models
1. Restrictions on Foreign Investments and Anti-Fronting Regulations
At a very general level, foreign investors intending to commence business activities in the UAE have
the option of setting up a presence either “onshore” or in one of the available “free zones” that have
been established throughout the UAE.

For an onshore (also termed as a “mainland”) presence, ie, outside of a free zone, foreign parties
must partner with a UAE national (either an individual or a company fully owned by UAE nationals)
who must hold at least 51% of the shares in the onshore company. Although the liberalization of
foreign ownership restrictions was anticipated by many commentators, the Companies Law (replacing
a former commercial companies law No. 8 of 1984) which came into effect in July 2015 maintained
this requirement for onshore companies.

As a result of this restriction on foreign ownership, it is customary to include protections for the
minority party within the registered constitutive documents of the onshore company. Such protections
can include (i) supermajority voting, (ii) a reservation of management control, and (iii) a
disproportionate allocation of profits. In addition, shareholder agreements and other arrangements
that supplement the registered constitutive documents may offer additional protection to the minority
shareholder.

Civil companies, which undertake “professional” or “consultancy” activities, such as law firms or
architecture, engineering and accounting firms, can be 100% foreign-owned. However, shareholding
in such companies is normally limited to individuals and is, therefore, of limited interest for large-scale
capital-intensive operations.

By contrast, setting up a presence in a free zone does not require partnering with a national
shareholder: 100% foreign ownership is permitted. However, there are restrictions on what a free
zone company can do outside of the free zone where it is established.

Certain investors may also enter the market through a distributorship or commercial agency,
depending on the nature of the contemplated activity, rather than through a direct investment.
Commercial agencies, if registered, are heavily regulated and may only be conducted by UAE
nationals or companies that are 100% owned by UAE nationals/entities.

Furthermore, the national ownership requirement was strengthened through the issuance of the Anti-
Fronting Law in November 2004. The Anti-Fronting Law states that a foreign shareholder may not
“undertake any economic or professional activity which it is not permitted to carry out under the
effective laws and decrees of the UAE, whether undertaken on its own account or in venture with
others; or enabling it to evade obligations applicable to it.” The enforcement of this law was deferred
until 31 December 2009, after which no further clarifications on the implementation or further deferral
of the Anti-Fronting Law have been provided. Therefore, and despite the market practice of entering
into side agreements to mitigate the business risk associated to the local ownership requirements,
investors are advised to affiliate with a genuine partner in the UAE, when possible.

2. Overview on Foreign Investment Models

2.1 Onshore Corporate Structures
“Onshore” entities refer to those entities set up on the mainland of the UAE, ie, not in a free zone, and
are permitted to carry out business in the respective emirate in which they are registered. As
described above, the participation of UAE nationals (or entities which are 100% owned by UAE
nationals) is required to establish a business with an onshore corporate structure. LLCs, PJSCs and
branch or representative offices are examples of onshore corporate structures. Onshore corporate
structures are governed by the Companies Law.

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 Doing Business in the United Arab Emirates

Form/type The most widely used vehicle is the LLC. Branches and representative offices
may also be set up in the UAE.

Choosing the most appropriate form of company depends on the purpose of

the company and on the contemplated business activities. Set out in
Annex (1) are the most common types of corporate structures used to set up
business operations “onshore” in the UAE and their salient features. There are
subtle differences regarding the incorporation process of legal vehicles in the
different emirates.

Local Participation The level of UAE participation required for “onshore” business structures in
the UAE varies. It can either be a local service agent for a branch office or
representative office of a foreign company, or a local shareholder holding a
minimum of 51% national ownership of companies such as an LLC. However,
nationals of any GCC state and GCC entity can own 100% of the share capital
of a UAE company provided that such company, having GCC ownership, does
not engage in certain activities that may be undertaken only by companies
100% owned by UAE nationals such as commercial agencies, labor supply,
services for elderly or disabled persons, cultural activities and print and
publishing houses.

Objects The activities that businesses can carry out in the UAE are restricted to those
listed on the local entity’s license issued by the DED in the relevant emirate.
For instance, the government of Dubai adopts a standard classification guide
in which all permitted economic activities are listed. If the required activity is
not included in the guide, it is possible in some instances to apply for a new
purpose-defined activity. However, such an application will be subject to the
consent of DED and can be time-consuming. In addition, there are certain
types of activities that require additional special licenses from a particular
licensing authority, such as medical services, telecommunication and
education.

Incorporation The following documents are required to set up a new legal entity in the UAE:
Documents
• In the case of a corporate founding shareholder, articles of association
and certificate of incorporation, notarized and legalized by the UAE
consulate or embassy in the country where it was issued

• In the case of a corporate founding shareholder, a board or shareholder

resolution approving the establishment of a new company and appointing
a signatory to represent it, notarized and legalized by the UAE consulate
or embassy in the country where it was issued

• In the case of an individual founding shareholder, a copy of his/her

passport for expatriates or a copy of the family card for UAE nationals

• Copy of the passport of the appointed general manager(s)/directors of the

company to be incorporated

• Memorandum and articles of association of the new company

• Lease agreement for premises

Additional incorporation documents may be required depending on the type of

legal entity or the contemplated activity.

Baker McKenzie Habib Al Mulla | 19

Incorporation Procedures to incorporate an entity in the UAE differ slightly, depending on
Process the nature of the entity to be incorporated and the emirate in which the entity
will be based. The DED of the relevant emirate is the authority responsible for
the incorporation of legal entities in the UAE. The initial approval process
would typically involve the following:

• Approval and reservation of the proposed company name

• Initial approval of the proposed business activities for which the company
is to be licensed

• Security clearance of the individual shareholders and general

manager(s)/director to be appointed

The process of registering a branch/representative office is similar to the

process of incorporating an entity, except for the following two elements:

• The parent/owning entity must enter into a local service agency

agreement

• Constitutional documents are not required since the branch is not a

separate legal entity.

Moreover, additional incorporation approvals are sought from MOE for the
registration of branch/representative offices.

2.2 Free Zone Corporate Structures

Free zones foster an attractive environment for businesses as they offer foreign investors, among
others, the following:

• 100% foreign ownership

• Zero tax rates on corporate income for up to 50 years (the tax exemption may vary slightly
between the different free zones)

• No foreign exchange controls

• No restriction on capital repatriation

• No currency restrictions

• No import or re-export duties (except for products entering the UAE or GCC)

There are two types of free zones in the UAE: financial free zones and economic free zones.
Currently, the only two financial free zones are the DIFC and the ADGM. The table below outlines the
differences between the DIFC, as the most established financial free zone to date, and economic free
zones. There are a large number of free zones located in each emirate out of which fourteen
economic free zones are in Dubai, including the JAFZA, Dubai Airport Free Zone, Dubai Creative
Clusters, DMCC and Dubai South.

(a) Economic Free Zones

Economic free zones are industry specific. Below is a brief overview of some of the special economic
free zones in Dubai.

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 Doing Business in the United Arab Emirates

The JAFZA is one of the fastest-growing free zones in the region focused on light manufacturing,
warehousing and logistics. It has access to well-developed port facilities and is frequently used as a
base for regional operators throughout the GCC and the broader Middle East and North Africa region.
The licenses available in the JAFZA are categorized as follows: trading activities; services activities;
e-commerce license; 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 have introduced for the first time the option of listing
shares on the stock exchange by setting up (or converting an existing presence into) a public listing
company.

Dubai Creative Clusters were formed to foster Dubai’s creative and innovative industries, including
Dubai Design District, Dubai Science Park, Dubai Knowledge Village, Dubai Academic City, Dubai
Media City, Dubai Studio City, Dubai Internet City, International Media Production Zone and Dubai
Outsource Zone. In February 2017, a new set of rules and companies regulations have come into
force with respect to Dubai Creative Clusters, whereby all existing companies must adjust their legal
positions within one year.

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

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. Al Maktoum
International Airport and the World Expo 2020 site are located in Dubai South.

Free zone companies are not allowed to carry out business outside the particular free zone. If a free
zone company wishes to perform activities outside the particular free zone, or maintain a separate
presence onshore in the UAE, it will need to set up either a branch office (which cannot carry out any
trading activities) or a new company onshore (in which a free zone company can only own 49% of its
share capital), and it is subject to obtaining the necessary licenses from the relevant federal or
emirate authorities.

Free zones are entitled to adopt their own regulations to govern a number of very limited areas. In
practice, most free zones adopt special company regulations. However, the Companies Law will apply
to entities registered in the free zones, but only with respect to matters that are not specifically
governed by regulations adopted by the free zone. Free zone regulations may also adopt special
regulations in respect of employment and labor matters, which often apply in conjunction with, and are
sometimes subordinate to, the Labor Law.

By way of illustration, Annex (2) outlines the common types of corporate vehicles available to set up
business operations in the JAFZA, being one of the first and most established free zones in the UAE.

(b) DIFC

The DIFC was established in 2004 as a global financial center within Dubai with the aim of attracting
global and regional financial institutions, companies and service providers. The main sectors of focus
in the DIFC are the following:

• Regulated services such as:

o Banking and brokerage services

o Insurance and reinsurance

o Islamic finance

o Wealth management

Baker McKenzie Habib Al Mulla | 21

• Non-regulated, ancillary services such as:

o Professional services (eg, legal and auditing firms)

o Global corporates

o Retailers (business and lifestyle facilities)

Any entity in the DIFC wishing to offer regulated services must obtain the relevant license from the
DFSA, which is the sole independent regulatory authority for financial services in the DIFC. A
regulated entity in the DIFC (referred to as an “Authorized Firm” by the DFSA) must comply with
certain regulations applicable to its prudential category in relation to paid-up capital, authorized
personnel, conduct of business and annual reporting.

DIFC companies are not allowed to carry out business outside 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 is exempt from the civil and commercial laws of the UAE and operates largely as a self-
regulated common law jurisdiction. However, UAE criminal laws and specific federal regulation,
including the regulations on anti-money laundering, apply in the DIFC.

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

The Ruler of Dubai amended the DIFC Judicial Authority Law in 2011, 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.

The most common types of corporate vehicles available to set up business operations in the DIFC are
described in Annex (3).

2.3 Commercial Agency, Distribution and Franchise

The Commercial Agency Law defines a commercial agency as any arrangement whereby the
principal (commonly the foreign investor) is represented by an agent to “distribute, sell, offer or
provide goods or services within the UAE for a commission or profit.”

The MOE is the authority empowered to regulate commercial agencies and it has taken the position
that franchise agreements are also subject to the Commercial Agency Law.

The UAE laws do not distinguish between distribution arrangements and commercial agencies.

(a) Registration and Exclusivity

The Commercial Agency Law requires all commercial agencies to be registered with the MOE. To be
registered as a commercial agency with the MOE, commercial agents must be UAE nationals or
companies incorporated in the UAE owned entirely by UAE nationals. The Commercial Agency Law
provides that a commercial agent must be exclusive for the applicable territory and product line(s)
covered by the agency agreement. Consistent with this rule, a principal could appoint a separate

22 | Baker McKenzie Habib Al Mulla

 Doing Business in the United Arab Emirates

agent for each emirate or combination of emirates, or for different product lines, or for both different
emirates and product lines.

To bolster this exclusivity requirement, 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 efforts exerted by the commercial agent.

In principle, exclusivity (either for the UAE as a whole or for individual emirates) is a prerequisite to
register a commercial agency agreement with MOE.

(b) Legal Protection — Registered Agents

The Commercial Agency Law provides a certain level of protection for commercial agents that hold a
registered commercial agency agreement demonstrated in the following aspects:

• Registration enables the agent to block parallel imports, including imports from free trade
zones, into the UAE. However, the scope of blocked parallel imports is reduced in relation to
certain categories of goods (eg, certain food products) if the categories of products are
identified in UAE cabinet decisions.

• The rules governing the termination of a registered commercial agency for convenience, ie,
without cause, and the non-renewal of an expired definite term registered commercial agency
are very stringent. As a matter of public policy, it is not possible to contract out of the
provisions of the Commercial Agency Law governing the termination and non-renewal of
registered commercial agencies, and any agreement to the contrary is unenforceable.

Having said that, termination and non-renewal of a registered commercial agency may only
occur in the following events:

(i) The termination of a commercial agency agreement of an indefinite term has been
mutually and amicably agreed between the parties

(ii) The non-renewal of an expired term commercial agency or the early termination of a
definite term commercial agency has been mutually and amicably agreed between
the parties

(iii) The special committee within the MOE deems that the reasons for the termination
request or the non-renewal request are justified

(iv) The decision of the special committee within the MOE has been appealed before a
UAE court within 30 days of its notification to the parties and a final court judgment
has been issued which rules that the commercial agency must be deregistered based
on evidenced reasons justifying such termination or non-renewal

If the termination or the non-renewal is not justified, the registered commercial agent will be
entitled to receive compensation. The calculation of the compensation is based on a number
of considerations, including the duration of the commercial agency relationship, the capital
investment (personnel recruitment and salaries, lease of office and warehouse space,
advertising, purchase of inventory, etc.) as well as the commercial agent’s reasonable
expectation of future profits from the commercial agency.

• The Commercial Agency Law gives exclusive jurisdiction to the UAE courts to hear any
dispute which might arise between the principal and the commercial agent relating to a
registered commercial agency agreement and any agreement to the contrary is not
enforceable.

Baker McKenzie Habib Al Mulla | 23

Given that registration provides commercial agents with significant protections against principals, it is
common that foreign investors refrain, where possible, from registering commercial agency
arrangements in the UAE. However, it is also common for government agencies to include a
requirement in their respective procurement policies to only purchase products from a registered
agent whenever possible. This policy puts an unregistered agent at a potential disadvantage when
competing for government contracts with a registered agent.

24 | Baker McKenzie Habib Al Mulla

Real Estate
Ownership/Leasehold
Real estate ownership and leasehold rights are regulated at the level of each emirate. In particular,
the DIFC and the ADGM each have special real property legislation governing real estate located in
their proximity.

Freehold ownership by foreign investors is restricted and restrictions vary depending on the emirate. It
3 4
is more common to grant foreign investors with “usufruct rights” and “musataha rights,” which are in
rem rights.

The salient features of ownership and leasing rights in Dubai and Abu Dhabi are addressed
hereinafter.

1. Freehold Ownership by Foreigners

1.1 Dubai
The Dubai Real Estate Registration Law No. 7 of 2006 stipulates that the right to own a “Real
Property Right” in Dubai is limited to UAE citizens and nationals of GCC countries. In addition,
companies wholly owned by qualified nationals, as well as PJSCs, also have the right to own a “Real
Property Right” in Dubai.

Non-UAE/GCC persons may be granted the right to freehold ownership without restrictions, or to
usufruct, musataha or long leasehold rights over real property for a period not exceeding 99 years in
“designated areas” of Dubai.

“Real Property Rights” are defined as in rem rights over real property, as opposed to being purely
contractual rights, and include musataha and usufruct rights. All “Real Property Rights” are required to
be registered, regardless of the term length.

1.2 Abu Dhabi

The Abu Dhabi Real Estate Ownership Law No. 19 of 2005, as amended in 2007, stipulates that only
UAE nationals or companies wholly owned by UAE nationals are entitled to own real estate property
in Abu Dhabi. On the other hand, GCC nationals and companies wholly owned by GCC nationals are
permitted to own real property located in “Investment Areas.”

Non-UAE/GCC nationals may (i) own improvements constructed on the land, excluding the land in the
Investment Areas, (ii) be granted long-term usufruct rights for a period not exceeding 99 years, or
long-term musataha rights for a period not exceeding 50 years, over real property in the Investment
Areas, and (iii) be granted long-term leases (ie, exceeding 25 years) in the Investment Areas.

All real rights, including rights of usufruct and musataha, are required to be registered, regardless of
the term length.

3
Usufruct is a real right attached to the land which gives its holder usufructuary rights similar to those of an
absolute owner (eg, the right to sell and the right to mortgage), except that it resembles a lease tenure as it is
held for a limited term (ie, 99 years).
4
Musataha is similar to an outright ownership right except that it is only for a limited period, 50 years in
particular, according to the UAE Civil Code. Commonly known as a development lease, musataha gives the
holder surface or supports rights over the land allowing the holder to be the outright owner of the buildings
constructed on the land during the period of the musataha. It also enables the holder to mortgage their interest in
the musataha right.

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 Doing Business in the United Arab Emirates

2. Leasehold Rights
2.1 Dubai
(a) Termination

The Dubai Landlords and Tenants Law No. 26 of 2007, as amended by virtue of Law No. 33 of 2008,
allows the parties to agree the terms of their lease in a contract, other than in relation to certain rights
prescribed by the law. However, as leases are still generally for short periods (eg, one year) to protect
the tenant, a rent cap applies as well as a statutory right so that a tenant may renew a lease if they
elect to, except in certain (limited) circumstances.

Specifically, landlords can give tenants notice not to renew leases in the following instances:

(i) If the landlord wishes to demolish the property for reconstruction, as long as the necessary
licenses for such reconstruction have been obtained

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

(iii) If the landlord wishes to recover the property so that its next of kin of first degree can use it
personally, as long as the landlord can prove that it does not have an equivalent property
suitable for residency. Once proven, the property cannot be offered for lease for two years if it
is a residential property or for three years if it is a non-residential property, unless the RERA
reduces this period. If the landlord does not observe this restriction, the tenant may claim
damages.

(iv) If the landlord wishes to sell the property

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) Increase in rent

If there is an increase in rent for the renewal period, the landlord must give the tenant at least 90 days’
notice before the expiry of the lease, unless the parties agreed otherwise. Additionally, a statutory rent
cap is in place. The rent cap is calculated based on the difference between the property rental value
and the average market rental rate for properties in the applicable area of Dubai. The average market
rental rate is set according to the rent index produced and regularly updated by RERA. At present, the
various thresholds for the rent cap are as follows:

(i) Less than 10% below the average market rental rate — no rent increase is permitted

(ii) Between 11% and 20% below the average market rental rate — a maximum increase in rent
of 5% is permitted

(iii) Between 21% and 30% below the average market rental rate — a maximum increase in rent
of 10% is permitted

(iv) Between 31% and 40% below the average market rental rate — a maximum increase in rent
of 15% is permitted

(v) More than 40% below the average market rental rate — a maximum increase in rent of 20%
is permitted

Baker McKenzie Habib Al Mulla | 27

(c) Registration

(i) Long-term Lease

The Dubai Land Department has adopted the view that leases with a term of 10 years or more, known
as long-term lease contracts, amount to Real Property Rights (similar to rights of musataha and
usufruct, which are in rem rights). Therefore, in addition to being subject to the foreign ownership
restrictions mentioned above, long-term lease contracts require registration with the Dubai Land
Department.

At present, the registration fee for registering a long-term lease contract is 4% of the contract value.
This amount will be the aggregate of the rental value charged to the tenant for the term of the lease.
Not registering a long-term lease contract makes it invalid.

(ii) Short-term lease

Leases with a term of less than 10 years, known as short-term lease contracts, do not require
registration with the Dubai Land Department. However, short-term lease contracts must be registered
with RERA. To facilitate this, RERA has an online registration portal, Ejari. The cost to register a
short-term lease contract on the Ejari system is approximately AED 200.

Unlike leasehold interests, rights of usufruct and musataha are required to be registered, regardless
of the length of the term. 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.

2.2 Abu Dhabi

(a) Termination

In Abu Dhabi, leasing is regulated by the Abu Dhabi Leasing Law No. 20 of 2006, as amended by Law
No. 4 of 2010. This law applies to properties being leased for residential, commercial or industrial
purposes or for freelance business, but not agricultural or undeveloped land.

The law protects tenants from rent increases beyond a defined rent cap. Landlords and tenants are
allowed to fix the rent payable under a lease. If the rent is not fixed, landlords have the right to an
annual increment, which is capped at 5% per annum.

However, in November 2013, a change to these tenant protections came into effect, which has
allowed landlords to refuse lease renewals by giving either (i) two months’ notice prior to the end of
the lease period for residential premises, or (ii) three months’ notice in the case of commercial
premises. It has effectively allowed landlords to refuse lease renewals if the parties do not agree on
the amount of the rent upon renewal.

(b) Registration

(i) Long-term lease

Non-UAE or GCC nationals can be granted leases for a term of over 25 years in Investment Areas
only. Any lease with a term of over four years must be registered. In the case of non-registration, the
long-term lease is still binding between the parties, but not vis-à-vis third parties.

(ii) Short-term lease

A short-term lease of less than four years can be registered on the Tawtheeq system. The present
requirements are that the lease needs to (i) be on the standard Abu Dhabi Municipality form, (ii) be in
Arabic (or dual language), and (iii) have the key information in respect of the lease (eg, property
details, parties, term and rent).

28 | Baker McKenzie Habib Al Mulla

Employment
Employment relationships in the UAE are governed primarily by the Labor Law. Some of the
economic free zones have their own employment regulations in place, which must also be taken into
account.

The Labor Law does not apply in DIFC or the ADGM. The DIFC and ADGM have autonomy with
regard to civil and commercial legislation, including labor laws. The employment laws of the DIFC and
ADGM are beyond the scope of this publication.

The competent UAE courts are the only dispute forums empowered to look into any employment
disputes (excluding DIFC and ADGM-based employers, as the DIFC and ADGM have their own court
systems in place).

Below are some of the key features of the Labor Law (please note that the below does not cover any
specific free zone regulations).

1. Emiratisation
For economic, social and political considerations, the UAE adopts an Emiratisation policy whereby the
private sector is mandated to integrate and employ a number of UAE nationals. This policy is
demonstrated in a number of ministerial decrees requiring private sector establishments to employ
UAE nationals at the following annual rates:

(i) 2% of the workforce of the entities operating in the trading activities, if the total workforce
exceeds 50 employees

(ii) 4% of the workforce of banks

(iii) 5% of the workforce of insurance companies, if the total workforce exceeds 50 employees

(iv) One public relation officer if the total workforce exceeds 100 employees

(v) Establishments operating in the construction and industrial sector with 500 employees or
more are required to appoint an Emirati Health and Safety officer.

(vi) Establishments employing 1,000 employees or more are required to register with the system
of the MHRE online system in order to obtain work permits for employees. This online system
is only accessible by UAE national employees. Pursuant to the resolution, the employer must
designate at least two Emirati employees in these data entry positions.

2. Pre-Hire Background/Reference Checks Permitted or Required

In order for a non-UAE national to legally work for a particular entity and reside in the UAE, they must
obtain a work permit and residence visa. These permissions are obtained through the employer,
which must have an entity established in the UAE. It is recommended that offers of employment are
conditional upon the individual obtaining the residence visa and work permit.

No specific pre-hire background or reference checks are required under the Labor Law. However,
only individuals who hold certain levels of education can be appointed to hold certain job
classifications. All relevant education certificates (which must be attested to the Ministry of Foreign
Affairs in the UAE) have to be provided to the MHRE or to the relevant free zone authority as part of
the process to obtain the requisite work permit on behalf of the employee.

Further, 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 visas and work permits must be periodically renewed.

30 | Baker McKenzie Habib Al Mulla

 Doing Business in the United Arab Emirates

3. Employment Contract
The submission of an employment offer letter to the MHRE, signed by both the employer and the
employee, has become a prerequisite for the issuance of the preliminary approval to sponsor a
foreign employee in the UAE for onshore employers.

Hence, the hiring of any new employee, whether from within the UAE or abroad, requires executing
an offer letter and submitting it to the authorities in order to obtain the necessary governmental
approvals for hiring such an employee. The terms of the offer letter must reflect the terms of the final
employment contract that will be executed at a later stage.

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

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

4. Term and Termination/Gratuity

4.1 Probationary Period
Probationary periods are common in the UAE. The maximum period of probation is six months.
During or at the end of the probationary period, the employer may terminate the employee’s
employment without notice or severance pay. The probationary period is included in the calculation of
the employee’s total period of service.

4.2 Term
Employment contracts may be either for a fixed (limited) time or for an unlimited period of time.

(i) Fixed-term contracts — A recently issued regulation of the MHRE requires that fixed-term
contracts do not exceed a two-year term. In the free zones, terms of three years are
permitted. The contract can be renewed by mutual agreement at the end of the fixed term for
equal or shorter periods. Any extensions will be considered part of the original term and,
therefore, should be included in calculating the employee’s total period of service.

Within the first term of the contract if either party wishes to terminate before the expiry date,
compensation must be paid to the non-terminating party. In this regard the employer is
obliged to pay the employee compensation of three months’ salary (or the salary due for the
remainder of the contract if less). The employee is obliged to pay the company compensation
of 1.5 month’s salary (or the salary due for the remainder of the contract if less).

After renewal of the fixed-term contract, either party may terminate the employment on notice.
The notice clause can be for a minimum of one month and a maximum of three months. If the
contract does not contain a notice provision, three months will be automatically applied. The
terminating party must also compensate the other party to the agreement. Compensation can
be for a minimum of one month and a maximum of three months. If the contract does not
contain a compensation provision, three months will be automatically applied.

Baker McKenzie Habib Al Mulla | 31

(ii) Unlimited term contract — An unlimited term contract is for an indefinite period and is
effective from the date of commencing employment. It can be terminated by either party for a
valid reason at any time by giving the other party a notice in writing, subject to the provisions
of the Labor Law.

4.3 Legitimate Causes for Dismissal by the Employer under Article 120
Subject to complying with the process stipulated under Section 4.5, an employer is permitted to
legitimately terminate the employment contract of an employee without notice and without any end-of-
service gratuity for the reasons stipulated under Article 120 of the Labor Law as follows:

(i) Adopting a false identity or nationality or submission of forged documents or certificates

(ii) Dismissal occurring during, or at the end of, the probation period

(iii) Committing a fault that causes substantial material loss to the employer, as long as the
employer notifies the labor department of the incident within 48 hours of learning of such fault

(iv) Breach of the workplace safety instructions, as long as the instructions are clearly displayed
in writing in the workplace or are verbally communicated to illiterate employees

(v) Non-performance of material duties stipulated in the employment contract, and the
continuance of this failure despite formal investigation and the issuance of a dismissal
warning if the non-performance subsists

(vi) Divulging secrets of the workplace

(vii) Conviction of the employee because of a final judgment for an offense involving honor,
honesty or public morals

(viii) Drunkenness or operating under the influence of drugs during the employee’s working hours

(ix) Assaulting the employer, the manager of the employer or any of the employee’s colleagues

(x) Unjustified absence for more than 20 intermittent days or for more than seven successive
days in one year

4.4 Legitimate Causes for Termination by Employee under Article 121

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 121 of the Labor Law are present. These
grounds are as follows:

(i) The employer breaches its obligations prescribed in the employment contract or under the
applicable laws

(ii) The employer or the employer’s representative assaults the employee

4.5 Process for Dismissal/Termination/Disciplinary Measures

The following procedure must be conducted before imposing any disciplinary sanction, including
dismissal, upon an employee:

(i) The employee must be notified in writing of the charge or allegation.

(ii) The employee must be given an opportunity to defend himself/herself against the allegations.
In practice, employees will attend a meeting in this regard.

32 | Baker McKenzie Habib Al Mulla

 Doing Business in the United Arab Emirates

(iii) The matter must be adequately investigated and the employee must be provided with written
reasons for any penalty being imposed, which should also be recorded in the employee’s
personnel file.

An allegation cannot be raised after the lapse of 30 days from the date of discovery of the violation
and a penalty cannot be imposed after the lapse of 60 days from the date on which the investigation
ended and the employee’s guilt was established.

4.6 Redundancies
Redundancies are not recognized under the Labor Law. As such, there are no specific economic
reasons that would justify a termination. Instead, a redundancy process must fall within the existing
termination provisions of the Labor Law.

4.7 Notice/Payment in Lieu of Notice

In accordance with the Labor Law, the minimum notice period for an unlimited contract is 30 days,
with a maximum of three months. In a recent amendment to the labor regulations, limited contracts
are now subject to an identical notice period requirement. The contract can also be terminated by the
employer without notice if the employee is terminated for cause on the grounds outlined under Article
120, as stated in Section 4.3.

Notice cannot be waived or reduced. This means that an employer should pay in lieu of notice if it
does not require employees to work their notice period.

4.8 End-of-Service Gratuity

An employee whose contract is terminated or expires and who has completed at least one year of
service is generally entitled to an end-of-service gratuity. In the absence of any higher rate agreed by
the parties, the end-of-service gratuity is equivalent to 21 days basic wage for each of the employee’s
first five years of service and 30 days’ basic wage for each year thereafter.
5
If the employee resigns and the employment contract is for an indefinite period, the gratuity
entitlement is reduced in the following manner:

(i) If the employee has more than one year but less than three years of service, the employee
will be entitled to one-third of the gratuity.

(ii) If the employee has more than three years but less than five years of service, the employee
will be entitled to two-thirds of the gratuity.

(iii) If the employee has more than five years of service, the employee will be entitled to the full
gratuity payment.

If the employee resigned from an employment contract for a fixed period and has less than five years
of service, they will not be entitled to any gratuity.

End-of-service gratuities are capped at an amount equivalent to two years wages and are
proportionately calculated for any partial year worked. An employee is not entitled to an end-of-service
gratuity if they are dismissed for a reason falling within Article 120 of the Labor Law or do not observe
6
the notice period. Employees employed on fixed-term contracts will also forfeit their end-of-service
gratuity if they resign before the expiry of the term and have less than five years of service.

5
Please note that the reduction does not apply in some of the free zones.
6
Where an employee has five years or more service and is employed on a fixed-term contract end-of-service
will be still be payable even if the employee does not provide notice of termination.

Baker McKenzie Habib Al Mulla | 33

5. Working Days/Working Hours
5.1 Overtime
The maximum working hours per day are set at eight hours or 48 hours per week. Working hours may
differ, depending on the relevant industry, by a special ministerial decree. Working hours are reduced
by two hours during the holy month of Ramadan.

If the employer requires employees to work overtime during the working week, such employees are
entitled to be paid 125% of their salary for the overtime worked. If, however, the employee’s overtime
falls between 9:00 pm and 4:00 am, they are entitled to a higher rate of 150% of their salary.

The maximum amount of overtime allowed per day is two hours, unless the work is necessary to
“prevent substantial loss or serious accident” or to eliminate or alleviate its effects. Overtime wages
should not be included in employees’ regular compensation, which means that any overtime must be
compensated separately.

The working time provisions do not apply to employees holding senior and/or managerial roles. More
specifically, this includes the Chairman of the Board of Directors, the Managing Director,
Departmental Heads and Supervisory staff, provided that such individuals have authority to act on
behalf of the company.

5.2 Weekend
Friday is a specified rest day under the Labor Law. An employee cannot be required to work more
than two consecutive Fridays. Moreover, in the event that an employee is required to work on a
Friday, that employee is entitled to receive either time off in lieu or basic salary for the hours worked
plus a supplement equal to 50% of the employee’s full salary.

6. Compensation/Benefits
6.1 Minimum Wages, Mandatory Increases
There is generally no statutory or minimum wage requirement or mandatory annual salary increase
required in the UAE pursuant to the Labor Law.

6.2 Bonuses, Benefits in Kind

Employers located onshore are subject to the Wage Protection Scheme, which aims to protect
employees via an electronic salary transfer scheme that ensures timely payment of the agreed wage
amount to the employee. According to the WPS guidelines, payments of employee remuneration must
be made via banks, exchange offices and financial institutions which have been approved and
authorized to provide the service.

There are no mandatory legal requirements for bonus payments in the UAE.

6.3 Taxes, Social Security, Medical Insurance

There are no tax or social security payments for private sector employees. Most of the employees in
the UAE are expatriates, who are not entitled to any state pension. However, UAE nationals who have
a “family book,” as well as nationals of GCC countries, are entitled to a pension. Employers must
therefore register their UAE and GCC national employees with the General Pension and Social
Security Authority. Failure to do so will give rise to fines.

Both Abu Dhabi and Dubai have a compulsory health insurance scheme, which obliges employers to
provide private health insurance to their employees through approved health insurance companies.

34 | Baker McKenzie Habib Al Mulla

 Doing Business in the United Arab Emirates

7. Leave
7.1 Sick Leave
Employees are entitled to a maximum of 90 calendar days of sick leave. The first 15 days are fully
paid while the next 30 days are subject to half pay. The remaining 45 days are unpaid. An employee
on probation (and for three months thereafter) is not entitled to paid sick leave.

7.2 Maternity Leave

A female employee is entitled to 45 calendar days of fully paid maternity leave. However, she must
have rendered at least one year’s service. If she has not rendered at least one year of service, she
will be entitled only to half pay during her 45 days of maternity leave. There is no paternity or parental
leave provided for under the Labor Law.

7.3 Special Leave

An employee is entitled to a special period of leave not exceeding 30 days in order to perform the
Hajj. However, this special leave is without pay and may only be used on one occasion throughout the
employee’s employment.

7.4 Annual Leave

Excluding the first year of employment, an employee is entitled to 30 calendar days of paid vacation
per year, which is equivalent to approximately 22 working days (based on a five-day working week). In
the first year of employment, an employee accrues two paid days of leave per month, but only after
the first six months of employment. However, in practice many employers do not put a different
system in place for new recruits and provide all employees with the same holiday entitlement.

The employer is entitled to determine the dates of its employees’ annual leave provided that the days
are not divided into more than two periods.

7.5 Official Holidays

Employees are entitled to paid leave on the following occasions:

(i) Islamic New Year

(ii) Gregorian New Year’s Day

(iii) Birth of the Prophet

(iv) Ascension of the Prophet

(v) Eid al-Fitr (two days)

(vi) Eid al-Adha (three days)

(vii) Martyrs’ Day

(viii) National Day

Except for the Gregorian New Year’s Day on 1 January, Martyrs’ Day on 30 November and National
Day on 2 December, all other holidays are Islamic holidays and vary depending on the lunar calendar.
The actual dates are declared each year and holidays are declared separately for the public and
private sectors.

Baker McKenzie Habib Al Mulla | 35

Annex (1) — Common Onshore Legal Vehicles
Limited Liability Company Private Stock Company Public Joint Stock Company Branch/Representative Office
(LLC) (Private Company) (PJSC)

Number of It is a separate legal entity from It is a separate legal entity from It is a separate legal entity from It is not a separate legal entity
shareholders, its partners. its shareholders. its shareholders. from the parent company and the
nationality and The liability of its shareholders is The liability of its shareholders is The liability of its shareholders is parent company will be liable for
liability limited to their capital limited to their capital limited to their capital the activities of the branch or
contributions. contributions. contributions. representative office.

A UAE national, or a company It can be converted into a PJSC. It can offer shares to the public. It is wholly owned by its parent
wholly owned by UAE nationals, company.
A UAE national, or a company A UAE national, or a company
must hold at least 51% of the wholly owned by UAE nationals, wholly owned by UAE nationals,
shares. Alternatively, it can be must hold at least 51% of the must hold at least 51% of the
100% owned by GCC nationals shares. Alternatively, it can be shares. Alternatively, it can be
(except for certain activities). 100% owned by GCC nationals 100% owned by GCC nationals
It must have at least two partners (except for certain activities). (except for certain activities).
and a maximum of 50 partners. It must have at least two It must have at least five
However, a single partner LLC shareholders and a maximum of shareholders.
may be formed for UAE nationals 200 shareholders. However, a
only. single shareholder Private
Company may be formed by UAE
nationals only.

Minimum Currently, there is no minimum It must have a minimum share It must have a minimum issued There is no capital required for
capital share capital required for an LLC. capital of AED 5 million. share capital of AED 30 million. setting up a branch or a
An LLC must have share capital It cannot offer shares to the The articles of association of the representative office. A bank
sufficient for the realization of the public. Its shares must be of PJSC may determine as guarantee issue of AED 50,000
objectives of the company. The equal value (ie, no less than AED authorized capital an amount not must be issued by a UAE
relevant authorities may, in 1 and no more than AED 100). in excess of two times the issued licensed bank and submitted to
certain instances, require a share capital. Its negotiable the MOE.
minimum capital depending on shares must be of equal value (ie,

36 | Baker McKenzie Habib Al Mulla

 Doing Business in the United Arab Emirates

Limited Liability Company Private Stock Company Public Joint Stock Company Branch/Representative Office
(LLC) (Private Company) (PJSC)
the contemplated activity. The no less than AED 1 and no more
capital shall be composed of than AED 100).
equal shares. The capital is
required to be paid in full at the
time of incorporation and
deposited in a bank in the UAE.
An LLC does not issue share
certificates, but may be converted
into a joint stock company subject
to fulfilling a number of
conditions.
It cannot offer shares to the
public.

Permitted It is permitted to undertake a It is permitted to undertake a It is permitted to undertake a Branch offices operating
activities broad range of commercial broad range of commercial broad range of commercial onshore are licensed to conduct
activities (subject to any licensing activities (subject to any licensing activities (subject to any licensing activities that are conducted by
restrictions) except for insurance, restrictions). If commercial restrictions). If commercial the parent or controlling company
banking activities or investing activities, such as insurance, activities, such as insurance, in its jurisdiction of incorporation,
funds on the account of third banking activities or investing banking activities or investing except for a limited number of
parties. funds on the account of third funds on the account of third activities such as trading and any
An LLC with GCC shareholding parties, are to be performed, parties, are to be performed, ancillary activities representing, in
cannot carry out the activities set special authorizations must be special authorizations must be general, the sale and purchase of
out in a negative list. obtained from the relevant federal obtained from the relevant federal products or commodities,
and local authorities. and local authorities. restaurants, coffee shops and
A Private Company with GCC A PJSC with GCC shareholding food catering services, and the
shareholding cannot carry out the cannot carry out the activities set establishment of print and
activities set out in a negative list. out in a negative list. publishing houses, newspapers
and magazines.

Baker McKenzie Habib Al Mulla | 37

 Limited Liability Company Private Stock Company Public Joint Stock Company Branch/Representative Office
(LLC) (Private Company) (PJSC)
Representative offices are
limited to marketing, promotion
and liaison activities only.

Physical Physical office space is required Physical office space is required Physical office space is required Physical office space is required
offices and must be suitable to host all and must be suitable to host the and must be suitable to host all and must be suitable to host all
the employees of the LLC. The employees of the Private the employees of the PJSC. The the employees of the
annual rent of an office depends Company. The annual rent of an annual rent of an office depends branch/representative office. The
on the size and location of the office depends on the size and on the size and location of the annual rent of an office depends
office in Dubai. location of the office in Dubai. office in Dubai. on the size and location of the
office in Dubai.

Management Day-to-day management may be It is managed by a board of It is managed by a board of It must have a general manager
vested in one or more managers directors elected by the general directors elected by the general who is resident in the UAE. The
(ie, directors) as determined by assembly (ie, shareholders). The assembly (ie, a meeting of general manager does not need
the partners, who are not majority of the board of directors shareholders). The majority of the to be a UAE national.
required to be UAE nationals. must be UAE nationals. The board of directors must be UAE
It must have a general manager number of the directors shall not nationals. The number of the
who is resident in the UAE. be less than three and shall not directors shall not be less than
exceed 11. three and shall not exceed 11.
If it has seven or more partners, it
must appoint a Control Council It must have a chairman and a It must have a chairman and a
comprising at least three vice-chairman, who are elected vice-chairman who are elected
partners. through secret ballots and who through secret ballots and who
must be UAE nationals. Two- must be UAE nationals. Two-
Management and control are thirds of the board members must thirds of the board members must
subject to mandatory
own shares in the Private own shares in the PJSC.
requirements of the Companies
Company. A PJSC must have a managing
Law, under which certain matters
are reserved to the general A Private Company must have a director who is not an executive
assembly (ie, a meeting of the managing director, who is not an officer or a general manager of
partners) and some matters executive officer or a general another company.

38 | Baker McKenzie Habib Al Mulla

 Doing Business in the United Arab Emirates

Limited Liability Company Private Stock Company Public Joint Stock Company Branch/Representative Office
(LLC) (Private Company) (PJSC)
require a special resolution. manager of another company. Management and control are
Management and control are subject to mandatory
subject to mandatory requirements of the Companies
requirements of the Companies Law, under which certain matters
Law, under which certain matters are reserved to the general
are reserved to the general assembly (ie, a meeting of the
assembly (ie, a meeting of the shareholders).
shareholders).

Transfer of It has a statutory right of first It has no statutory right of first It has no statutory right of first Not applicable.
shares refusal. refusal. Restrictions apply on refusal. Restrictions apply on
carrying out any transfers to third carrying out any transfers to third
parties until the company parties until the company
publishes the financial statements publishes the financial statements
of one financial year from the of two financial years from the
date of registration at the date of the listing or from the date
Commercial Register. This of registration at the Commercial
restriction also applies for each Register (if it is exempted from
capital increase. Transfers are the listing requirement). Transfers
permissible among other are permissible among other
founding shareholders or legal founding shareholders or legal
heirs. heirs.

Baker McKenzie Habib Al Mulla | 39

Annex (2) — Types of Legal Vehicles in the JAFZA
JAFZA Branch FZCO and FZE JAFZA offshore company JAFZA Public Listed Company
(PLC)

Number of It does not have a separate legal It is an independent legal entity It is an independent legal entity It is an independent legal entity
shareholders personality and is deemed an with limited liability. The liability of with limited liability. The liability of with limited liability. The liability of
and liability extension of the controlling or the shareholders is limited to their the shareholders is limited to their the shareholders is limited to their
parent company. Hence, the capital contribution. capital contribution and there capital contribution and there
controlling or parent company will An FZCO must have at least two must be at least one shareholder. must be at least two
be liable for the acts and liabilities shareholders and a maximum of shareholders.
of a free zone branch. 50 shareholders or partners,
while an FZE is incorporated by a
single shareholder, who can be
either an individual or a corporate
entity.

Minimum There is no specified minimum An FZE and FZCO must have There is no specified minimum There is no specified minimum
capital share capital requirement since a share capital sufficient for the share capital requirement. share capital requirement.
JAFZA branch is an extension of realization of the objectives of the However, in practice the JAFZA However, it must be higher than
the controlling or parent entity. requires offshore companies to the amount sufficient for the
company. have a minimum share capital of activities permitted under its
AED 10,000. license or higher than the amount
of capital required under the laws
of the jurisdiction of the relevant
stock market where the PLC’s
shares are listed.

Permitted The activities of a JAFZA branch It can carry out any of the Typically used as an investment It can carry out any of the
activities must be the same as the permitted activities within the vehicle or holding company. It is permitted activities reflected on
activities of the controlling or confines of the JAFZA without not permitted to conduct business its license within the confines of
parent company. It will only be restrictions that are reflected on operations onshore in the UAE or the JAFZA. It may also conduct
permitted to conduct certain types its license. within the relevant free zone and business outside the UAE subject

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 Doing Business in the United Arab Emirates

JAFZA Branch FZCO and FZE JAFZA offshore company JAFZA Public Listed Company
(PLC)
of business activities within the cannot obtain employee or other to the approval and licensing
confines of the free zone that are types of visas. However, it can requirements of the relevant
reflected on its license. conduct business outside the jurisdiction.
UAE subject to the approval and
licensing requirements of the
relevant jurisdiction. It can freely
enter into contracts with legal
consultants, lawyers, accountants
and auditors. It is permitted to
lease property and use it as its
registered office. It can own real
property in certain limited areas
(such as the Palm Islands or
Jumeirah Islands), any property
owned by Nakheel Company LLC
or any other real property
approved by the relevant
authority.

Physical Must maintain a physical office in Must maintain a physical office in Not required to maintain a Must maintain a physical office in
offices the free zone. The availability of the free zone. The availability of physical presence in the free the free zone. The availability of
space must be verified with the space must be verified with the zone but required to have a space must be verified with the
JAFZA. JAFZA. registered agent, whose address JAFZA.
must be listed as the registered
address for the offshore company
in the place of its incorporation.

Management A JAFZA branch must have a An FZCO and an FZE must have General managers are not A PLC must have a minimum of
general manager. The board of a manager, a director and a typically appointed. Therefore, all two directors, a manager and a
directors or shareholders of the company secretary. The offices of powers of the management rest company secretary. The office of
controlling or parent entity may the director, the manager and with the board of directors. A manager may be held by a

Baker McKenzie Habib Al Mulla | 41

 JAFZA Branch FZCO and FZE JAFZA offshore company JAFZA Public Listed Company
(PLC)
freely determine the powers company secretary may be held JAFZA offshore company must director or the company
delegated to the general manager by a single person. have at least two directors and secretary. The office of director
of the branch. However, from a The constitutional documents one secretary (who may be one cannot be held by a secretary.
practical perspective, the general must determine the voting of the directors). The board may
manager should have sufficient mechanics and duties of the delegate certain powers as it
powers in order to handle day-to- director(s). The manager must sees fit under a power of
day operations, such as bank hold a valid UAE residency and attorney.
account transactions, entering work visa under the sponsorship
into agreements, signing of the FZCO/FZE.
documents before the authorities
If an FZCO/FZE has both a board
and employment of staff, among
of directors and a general
others. The general manager
must hold a valid UAE residency manager, the board would
typically delegate the day-to-day
and work visa under the
powers to the general manager,
sponsorship of the branch.
who may also further delegate
powers to other employees and
representatives of the FZCO/FZE
by a power of attorney.

Transfer of Not applicable to the JAFZA All shareholders of the FZCO or All shareholders of the offshore Transfer of shares must be
shares branch. FZE must consent to the share company must consent to the carried out in accordance with the
transfer for it to be effective. share transfer for it to be laws of the jurisdiction of the
Certain formalities with the effective. Certain formalities with relevant stock market where the
JAFZA are carried out to give the JAFZA are carried out to give PLC’s shares are listed.
effect to any share transfer. effect to any share transfer.
Share certificates must be issued
to each shareholder in an FZE or
FZCO.

42 | Baker McKenzie Habib Al Mulla

 Doing Business in the United Arab Emirates

Annex (3) — Common Legal Vehicles in the DIFC

Company Limited by Shares Limited Liability Company Special Purpose Company Limited Liability Partnership
(CLS) (DIFC LLC) (SPC) (LLP)

Permitted A CLS is the most common entity A DIFC LLC is usually It is a specific purpose corporate An LLP is a partnership entity
activities used for carrying out regulated established to carry out retail vehicle used for financing or typically used by lawyers,
financial services, consultancy commercial businesses such as investment structures. An SPC is auditors, accountants, architects
services and investment holding. restaurants, stationery shops, limited in the activities it may and consultants in the DIFC. To
cafes and grocery stores. It carry out, which are referred to as carry out financial services under
should be noted that a DIFC LLC “Exempt Activities” in the SPC an LLP, an application for a
is not allowed to perform financial regulations. An SPC may perform license must be submitted to the
services. financial services if licensed by DFSA
the DFSA. However, it cannot
carry out trading business or act
as a general holding company.

Number of There must be at least one It must have at least two An SPC cannot have more than The liability of partners or
shareholders shareholder and the liability of its members (shareholders) and can three shareholders and it is a members in an LLP is limited by
and liability shareholder(s) is limited to contain up to 50 members. Its limited liability company. their capital contribution and the
its/their capital contribution. There shareholders are called rights and duties of the partners
are no restrictions on the “members” who own are governed by the limited
nationality of the shareholders. “membership interests” in the liability partnership agreement, a
DIFC LLC. This membership copy of which must be submitted
interest is equivalent to shares. to the DIFC Authority (which is
The liability of its shareholders is separate from the DFSA).
limited by their capital
contribution.

Minimum The CLS has no minimum capital There is no minimum capital A minimum capital of USD 100 is There is no minimum capital
capital requirement, unless it becomes a required. It cannot raise capital by required. requirement, unless it becomes a
regulated entity whereby its offering membership interests regulated entity whereby its
minimum capital requirement through a public offer. It also minimum capital required would
would depend on its prudential cannot issue securities. depend on its prudential category

Baker McKenzie Habib Al Mulla | 43

 Company Limited by Shares Limited Liability Company Special Purpose Company Limited Liability Partnership
(CLS) (DIFC LLC) (SPC) (LLP)
category as licensed by the as licensed by the DFSA.
DFSA. In addition, it may offer
shares to the public and issue
securities.

Physical There is a requirement to lease There is a requirement to lease There is no requirement to lease There is a requirement to lease
offices office space in the DIFC. office space in the DIFC. office space in the DIFC, but office space in the DIFC.
there is a requirement to have a
registered address for delivery of
communication.

Management There must be at least two Management of the DIFC LLC is It is not required to hold annual Every member may take part in
directors, who do not have to be through either an executive general meetings of its the management of the LLP.
UAE residents, and a company manager or a board of managers. shareholders. It is also not
secretary must be appointed. required to maintain, file or audit
its accounts. However, it is
mandatory for an SPC to hire a
corporate service provider in the
DIFC whose role would be similar
to a company secretary.

Transfer of There are no restrictions on the The transfer of a membership Transfers must be made to the No person may be introduced as
shares transfer of shares. Shares are interest (in whole or in part) is same category of shareholders a member nor may voluntarily
transferred through the execution valid if authorized by a special listed in the SPC regulations. assign an interest in an LLP
of the proper transfer resolution. Existing members without the consent of all existing
instruments. have the right of first refusal to members. The LLP shall file a
acquire the membership interest notice of change of member with
to be transferred. the DIFC Companies Registrar
within 14 days.

44 | Baker McKenzie Habib Al Mulla

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