Setting up a business in Abu Dhabi

Abu Dhabi City is the capital of the UAE, which was founded in December 1971 as a federation between six of its seven constituent emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah and Umm Al Quwain. The emirate of Ras Al Khaimah (RAK) joined the federation the following year. The UAE is governed by the UAE Constitution, which permits each emirate to have its own legislative body and judicial authority. Accordingly, there are both federal and local courts in the individual emirates which uphold the constitution.

The Abu Dhabi courts apply UAE federal law, as well as the laws of the emirate of Abu Dhabi. Although the legal procedures and laws applied by the courts of the individual emirates are similar, there are differences as a result of the federal system. It is therefore essential to understand the local law as well as the federal law. It should also be appreciated that the UAE is an Islamic state. Article 7 of the constitution states that Islamic sharia law shall be the main source of legislation in the UAE. As a result, there are a number of differences between local commercial and legal concepts and those underlying, for example, the European commercial and legal environment.

The Judiciary

The UAE is, essentially, a civil law jurisdiction with its roots in the Egyptian, French and Roman legal systems. Common law principles, such as adopting previous court judgments as binding legal precedents, are therefore not generally recognised. Where case reports are available, judgments delivered by higher courts do tend to be used as guidance by lower courts, although since there is no official system of case reporting, judges have a great deal of flexibility as regards decision making.

Traditionally, each emirate operated a two-tier court system, providing a Court of First Instance, and a Court of Appeal. The federal court structure introduces a third tier, the Supreme Court, which hears final appeals, conducts judicial review proceedings and presides over disputes between the individual emirates. The emirates of Abu Dhabi, Dubai and RAK have just a local court structure, but the remaining emirates apply the federal structure. Like most other jurisdictions, the courts are separated into those that rule on civil matters and those that rule on criminal matters. Personal matters are dealt with separately, under sharia law in the sharia courts that work alongside the civil and criminal courts.

Jurisdiction Of The Courts

Generally, parties to a contract are free to choose the governing law and dispute resolution forum for resolving disputes under a contract. It is common for foreign parties contracting with Abu Dhabi entities to propose that foreign law should apply to their agreements and foreign courts should have jurisdiction to hear any dispute arising from the resultant contractual relationship. In applying UAE rules of jurisdiction as provided for in Federal Law No. 11 of 1992 (Law of Civil Procedure), UAE courts are resolute in having the jurisdiction to hear any case filed before them, regardless of contractual jurisdiction clauses granting the hearing of disputes to foreign courts.

The situation is different if the contract provides for disputes to be referred to arbitration. UAE courts usually enforce these provisions, and the Law of Civil Procedure enables the court to stay a civil claim filed in respect of a contract containing an arbitration clause, provided that the defendant pleads the arbitration clause at the first hearing of the claim.

Appeals

After judgment has been delivered by Court of First Instance in the emirate, a party has the right to appeal to the Civil Court of Appeal on factual and/or legal grounds within 30 days. Parties may only appeal on specific points of law to the Court of Cassation (the highest court in Abu Dhabi), which is usually composed of a panel of five judges. An appeal to the Court of Cassation must be filed in 30 days of the date that the parties were notified of the judgment of the Court of Appeal and all the court’s decisions are final.

Arbitration

While Abu Dhabi has an established legal system and court structure that deal with both civil and criminal matters, arbitration has emerged as a popular means of alternative commercial dispute resolution as international trade and investment continues apace. The Law of Civil Procedure deals specifically with arbitration, including factors affecting the appointment of the arbitration tribunal and the validity of the arbitration award. It is contemplated that a new federal arbitration law (Federal Arbitration Law), yet to be enacted, will provide a more detailed framework for arbitration, introducing concepts consistent with international practice.

The law is largely based on the widely adopted UN Committee on International Trade Law (UNCITRAL) Model Law. The template will apply both to arbitrations that take place in the UAE and to international commercial arbitration where parties have agreed that the arbitration shall be subject to UAE law. The Federal Arbitration Law will ensure that the practical needs of the arbitrating parties, their lawyers and the arbitrators are met, and a number of provisions have been included with the intention of facilitating the procedure for the enforcement of both domestic and foreign arbitration awards. With a final draft yet to be issued and no time line released to date, it is not expected that the Federal Arbitration Law will be implemented in the immediate future.

It is important to be aware that it is not possible for any Abu Dhabi or UAE government department to enter into any agreement to arbitrate, unless special consent is provided by the government. While the motivation toward arbitration is generally to remove the determination of a dispute by a court, there are certain functions that the Abu Dhabi and UAE courts will need to perform in relation to arbitrations conducted in Abu Dhabi, such as making orders to assist the arbitration process, dealing with any challenges to an arbitration award once issued and, most importantly, ratifying the award so that it is capable of being enforced against the losing party’s assets. The latter does mean that a final resolution of a dispute arbitrated in Abu Dhabi cannot be achieved without the involvement of the UAE courts.

Pursuant to UAE Federal Decree No. 43 of 2006, the UAE acceded to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), which is the leading commercial law treaty on the enforcement of foreign arbitration awards. As a result, arbitration awards issued in the UAE should now enjoy automatic recognition across the other 143 member states to the New York Convention, and should therefore be enforced outside the UAE on a reciprocal basis, without a re-examination of the merits behind the relevant dispute.

The New York Convention has been applied by both the Abu Dhabi and Dubai Courts of Cassation to uphold foreign arbitration awards. However, in 2013 in the case of Construction Company International vs. the Ministry of Irrigation of the Government of Sudan, the Dubai Court of Cassation refused to enforce a foreign arbitration award against Sudan’s Ministry of Irrigation. The Dubai Court of Cassation asserted that the court did not have jurisdiction under the UAE Civil Procedure Code. More recent cases have shown a marked effort to reinforce the recognition of foreign arbitration awards within the UAE.

At The Centre

The Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC) is the leading arbitration body for settling disputes in Abu Dhabi, but arbitration is also conducted locally under the rules of bodies such as the International Chamber of Commerce, the London Court of International Arbitration and other international arbitration bodies.

In October 2013 ADCCAC introduced new procedural rules which are widely considered to have brought the body in line with other international arbitration centres. Key provisions include details of a request for arbitration, the process for appointing arbitrators, a fee table, express confidentiality obligations and limitation of liability of the arbitrators. Commentators have noted a significant rise in ADCCAC arbitrations since the new rules were introduced.

Establishment Options

The purchase of “shelf companies” is not a concept that currently exists in the UAE. Broadly speaking, the basic criteria for a foreign company wishing to actively do business in Abu Dhabi is that an appropriate association ( typically on an emirate-by-emirate basis), with a UAE national or company 100% so owned, be established. Whilst the territory of such associations may always be extended, it can be very difficult subsequently to limit it and it is often the case that a national or his company is most effective only in his home emirate.

There are essentially four options available to the inward investor to carry on business in Abu Dhabi:

  • Participation in a local corporate entity (typically a limited liability company, LLC);
  • Establishment of a branch or representative office of the foreign entity;
  • Appointment of a commercial agent or distributor (where the principal stays at home, so to speak); and
  • Establishment in a free zone.

Each option involves a different method of operation from the foreign company’s point of view, with the first three requiring an association with a UAE national or a company wholly owned by UAE nationals. It should also be appreciated, particularly with regard to an agency or an independent licensed branch, that the local associate is afforded, by legislation and/or practice, a high degree of security of tenure. In practice, therefore, regardless of the terms of the relevant agreement, it is extremely difficult to bring such relationships to an end other than by mutual consent.

In determining which of the above options is most appropriate, an inward investor should consider, inter alia, the scope and nature of the intended business relationship, the nature of its proposed activities (this will be relevant with regard to licensing requirements), how much control is desired to be maintained by the foreign investor, and the time and expense that is likely to be involved in setting up the chosen entity. It should be appreciated that, irrespective of the type of relationship or method of operation, the associate will usually have, in effect, the right to be the exclusive associate of the foreign company in the territory of the relationship in question.

The new Commercial Companies Law (New Companies Law; Federal Law No. 2 of 2015 concerning Commercial Companies) came into force on July 1, 2015. Whilst the new law does introduce some new concepts and approaches, most of the essential features of the existing law are maintained.

Participation In A Local Corporate Entity

There are currently five types of commercial entity, as recognised by the New Companies Law:

  • Joint liability company;
  • Simple commandite company;
  • LLC;
  • Private joint stock company; and
  • Public joint stock company.

It should be noted that the main corporate vehicle via which inward investors establish a presence in Abu Dhabi and the UAE is a LLC.

LLC

Under the New Companies Law, it remains the case that at least 51% of the shares in LLCs must be held by UAE nationals or by companies wholly owned by UAE nationals. In recognition of the majority local ownership and local incorporation, LLCs are regarded for many purposes as local companies in Abu Dhabi. Certain fields of activity (e.g., those falling within what the authorities regard as “industrial”) are open only to local companies. In certain sectors, preferences operate in favour of local companies, and indeed some contracts are open only to local companies.

There is no minimum share capital requirement for an LLC. However, local authorities may still impose minimum capital requirements for specific types of business and the share capital must always be fully paid up. There is no concept of unissued, as against issued shares, and only one class of share is allowed.

Existing partners in an LLCs are given a “first option” to purchase shares being offered by another partner to a third party (in reality this right of pre-emption, which cannot effectively be waived, tends to benefit the local shareholder as a foreign partner holding 49% may not increase his stake beyond that 49%).

Generally the liability of a partner is limited to the extent of his holding, but in certain circumstances (for example, if a resolution contravening the New Companies Law is passed) additional liability may accrue. It is possible to agree within the LLC’s constitution that profits are to be shared other than in proportion to shareholdings; for example, where one of the parties provides particular expertise or assumes responsibility for the management of the LLC. It is likely that there will be greater focus on anti-avoidance provisions and penalising those who attempt to side-slip majority-ownership rights.

In addition to satisfying requirements of the Ministry of Economy and the Department of Economic Development (ADDED), depending on a LLC’s proposed activities additional approvals from other government departments or ministries may be required.

The following should be noted in respect of LLCs under the New Companies Law:

  • An LLC may be established by a single shareholder;
  • The maximum number of shareholders is 50;
  • The limit on the number of managers is removed;
  • Pre-emption rights are retained as is the statutory one class of share;
  • The valuation of shares can now be assessed by an independent (DED-approved) consultant with financial expertise;
  • A mechanism for pledging shares in an LLC is introduced.

Pledges will be deemed valid against the LLC and third parties upon registration in the Commercial Registry of the competent authority of each emirate; and

  • Profits continue to be permitted to be distributed other than in proportion to shareholdings.

Joint Stock Companies

Should the company operate in business sectors involving insurance, banking or investment of funds for third parties it may only be established in the emirate of Abu Dhabi as a public joint stock company (PuJSC). A PuJSC limits the liability of its shareholders to the par value of their shareholding and its shares can be offered to the public. A foreign investor’s choice to incorporate a joint stock company is likely to revolve around the proposed company’s activities. For example, an entity wishing to engage in investment banking must be a joint stock company. Investors may wish to have flexibility regarding a future stock market listing, and the conversion process to a PuJSC is simpler for an existing private joint stock company (PJSC) than for an LLC.

With regard to PuJSCs, the following considerations should be noted in the New Companies Law:

  • A PuJSC may be established by a minimum of five founders ;
  • In an attempt to encourage initial public offerings (IPOs), while reducing the loss of control, the New Companies Law provides that founders may own a greater stake in their company by holding a minimum of 30% and a maximum of 70% of the capital of the firm (this is a significant increase from the 20% to 45% range stipulated in the previous law);
  • Contrary to expectations, the New Companies Law does not facilitate or permit sell-downs by existing shareholders. It was hoped that this would be drafted into the new law to bring the UAE into line with most developed markets and to further encourage IPOs;
  • A PuJSC will require a minimum share capital of Dh30m ($8.2m) divided into equal negotiable shares. The concept of authorized share capital will be introduced, which may not exceed twice the value of the issued share capital;
  • The board is to be composed of between three and 11 members;
  • The nominal value of shares is to be paid within three years from incorporation (as opposed to five);
  • A founder’s lock-up period of two years is retained;
  • A new prohibition on providing financial assistance to shareholders for the purchase of shares;
  • Capital may be increased and shares may be allotted to a “strategic investor” without applying the pre-emption rights of existing shareholders;
  • Debt may be capitalised; and
  • The possibility of issuing an employee share incentive share scheme is specifically addressed. With regard to a PJSC, the following highlights should be noted in respect of the New Companies Law:
  • A PJSC must have a minimum share capital of Dh5m ($1.4m), and the nominal share value is to be paid up in full on incorporation;
  • Other than the provisions under the New Companies Law relating to public subscription of shares, the new provisions under the New Companies Law also apply to PJSCs;
  • More than one class of shares is permitted (although further classes of shares will require a resolution from the federal Cabinet);
  • The number of founding members is reduced to two; and
  • The financial lock-up period is reduced from two years to one year.

Establishing A Representative Office

The establishment of a branch or representative office involves the founding of an independently licensed branch office of the foreign company holding in its own right, via a separate registration with the authorities. To establish a branch in the emirate of Abu Dhabi, a foreign firm must appoint a local service agent, colloquially referred to as a sponsor. It is possible for sponsors to be active (for example, by providing promotional services), but more often than not the role is limited to assisting in and facilitating the required registration and administration formalities.

Sponsors are entitled to a fee even if inactive. If the sponsor is required to provide services in addition to basic registration, visa assistance, or the like, they are generally permitted to do so, but they may well seek to negotiate an additional fee. A fee is generally freely negotiable and may be, for example, a fixed annual amount, a percentage of profit or turnover, however defined, or a combination.

A sponsor does not play any role in the management of the branch and is not involved in negotiating contracts on behalf of the branch office. It must be appreciated that branches are not regarded as local firms. The name of the branch must be that of its parent company with the addition of “Abu Dhabi Branch”.

Once a branch office is registered, it may carry on business in its own name. It is permitted, for example, to enter into contracts in its own name, employ its own personnel and to obtain visas for them. A branch is not permitted to trade, however, and certain matters, in particular the import of goods, equipment or plant, may require the assistance of the sponsor. Although a branch office is able to enter into contracts in its own right, it can only engage in the same activities as its parent. The parent firm is required, as part of the registration process, to guarantee the liabilities of the branch office. The termination of a sponsorship generally involves a negotiated settlement between the foreign company and the sponsor culminating in the payment of compensation. The choice of sponsor is thus an important one.

Representative offices are not legally distinguishable from a branch office of a foreign company and are established in a similar manner, but they may not contract in their own right and hence fulfil more of a promotional function on behalf of the parent entity.

Commercial Agency

Perhaps the simplest way for a foreign company to carry on business in, or with, Abu Dhabi is by the appointment of a registered trade agent. This type of arrangement is regulated by Federal Law No. 18 of 1981 as amended, regarding commercial agencies, known as the Trade Agencies Law (TAL). No real distinction is made between a commercial representative and a distributor, so the expression “agent” is interpreted to apply equally to a main distributor and to a representative, as well as to a commercial “agent”. The expression “agent” is therefore used here in this broader sense.

The trade agency route may initially be cheaper for foreign companies wishing to test the market because it avoids the need to establish a physical presence in the emirate, thereby avoiding the need to procure any separate registrations because the business will be carried on under the agent’s trade licence.

Other than any initial costs, the principal’s only recurring expense will be the amount of commission payable to the trade agent (the official agent is entitled to commission on all transactions in its territory, even if those transactions have not been concluded as a result of the efforts or involvement of the agent). A foreign principal may appoint an official agent for the UAE as a whole or may appoint agents on an emirate-by-emirate basis. In either case the agent’s appointment is generally an exclusive one although the official agent does have the right to appoint sub-agents in the territory. Under the TAL, only UAE nationals or companies wholly owned by UAE nationals are entitled to act as official agents.

A foreign principal may not terminate or refuse to renew the agency unless they can show “a material reason justifying its termination or non-renewal”. If the principal is unable to display a “material reason” justifying the termination or non-renewal, the principal may well be required to pay compensation to the agent on termination of the agreement. The TAL now provides that a dispute must be taken to a committee established to hear disputes arising in respect of commercial agencies before it can proceed to court.

An agency agreement which is not registered in the Commercial Agent’s Register maintained by the Ministry of Economy will not, in principle, be recognised or enforced. An agency cannot be re-entered in the Commercial Agents Register in the name of another agent, unless the parties have mutually agreed to abrogate the relationship or a court verdict has been issued terminating the agency.

Free Zone Entities

The principal merit of a free zone entity is that its shares can be held 100% by a foreign entity and there is no need to involve a local sponsor or shareholder. Furthermore, the company enjoys tax exemptions and is freely able to repatriate profits. It is not subject to import duties and so may have a regional role in relation to, for example, import, export, manufacture or assembly, and distribution. A number of free zones provide guaranteed exemptions from corporate taxation for up to 50 years (which can be renewed).

The procedure for setting up a presence, obtaining a business licence and procuring visas for a workforce is generally quicker and more streamlined. Each free zone caters to the specific needs of a particular industry. In many instances a free zone presence entitles a firm to carry on business only within that free zone, so the option requires careful consideration.

Media Zone

The twofour54 free zone was established pursuant to Law No. 12 of 2007 (concerning the establishment of the Abu Dhabi Media Zone Authority). It has been developed as a media and content-creation free zone and offers an advantageous geographical location and an integrated environment with key infrastructure for local, regional and international investors seeking to carry out media-related business activities in the MENA region.

Abu Dhabi Airport Free Zone (ADAFZ)

ADAFZ is being established by Skycity, a subsidiary of Abu Dhabi Airports, pursuant to Abu Dhabi Executive Council resolution No. 61 of 2010, which has granted free zone status to the properties owned by the Abu Dhabi Airports within Abu Dhabi International Airport, Al Ain International Airport and Al Bateen Executive Jet Airport. Situated within the boundaries of the Abu Dhabi International Airport, ADAFZ is being developed to allow a broad spectrum of business sectors to operate, subject to compliance with health and environmental standards. It is proposed that, in line with other free zones in the UAE, the benefits of operating within ADAFZ will include 100% foreign ownership, 100% corporate tax exemption, 100% import and export duty exemption and a one-stop administration services.

Green Zone

Masdar City is an arcology project consisting of a planned city, which is being built by Masdar, a subsidiary of Mubadala Development Company, under sponsorship of the government of Abu Dhabi. Once completed it will be a model of sustainable urban development, and the world’s first carbon-neutral, zero-waste city. It is the first special economic zone to be established for clean technology and renewable energy companies.

Masdar City is a purpose-built city focusing on academic research, development and operations for companies, entrepreneurs and financiers based in renewable energy and related technologies. It is now estimated to be completed between 2020 and 2025. Masdar City’s population is expected to grow to some 10,000 inhabitants in the coming three to five years.

New Financial Free Zone

Federal Decree No. 15 of 2013 established the Abu Dhabi Global Market (ADGM) as a financial free zone in Abu Dhabi. ADGM, taking shape on Al Maryah Island, has its own judicial and legal system and is therefore exempt from UAE federal laws as well as the civil and commercial laws applicable to Abu Dhabi. Draft regulations published by ADGM apply English common law.

The market has also published draft consultation papers relating to governance and regulation of financial services in the free zone, and it is understood that these are to broadly follow the framework adopted in the UK. ADGM has been established to attract commercial and investment banks, foreign exchange and commodities traders, brokerages, investment and pension funds, financial consultancies, insurance and reinsurance firms, Islamic financial firms, and related financial, accounting and professional service providers and in 2016 is registering its first financial firms.

Khalifa Industrial Zone

The Khalifa Industrial Zone Abu Dhabi (Kizad) is between Abu Dhabi and Dubai and is fully integrated with Khalifa Port. With flexible ownership rights, serviced plots for industrial and logistics projects, free zone and non-free zone solutions, the zone offers outstanding access to markets and world-class infrastructure in a competitive operating environment.

Draft Foreign Investment Law

A long-contemplated relaxation to foreign shareholding limits is expected to be addressed in a proposed new Foreign Investment Law, the draft of which has been finalised by the Ministerial Legal Committee and is awaiting approval of the Federal National Council. The current 49% shareholding restriction is often the main concern for an inward investor and so any change in the law which relaxes or removes this limitation should be warmly received by inward investors and provide the impetus for diversification, which can be driven by a dynamic private sector. Under the new Foreign Investment Law, it is thought that foreigners may be able to own up to 100% of a firm. It is unlikely that 100% foreign ownership will be permitted across the board, but it is thought that sectors like health care, education, and professional and financial services, where there is a demand for additional foreign knowledge and expertise, could be subject to such a substantial relaxation of the ownership restrictions.

For the time being, foreign investors will have to continue to rely on one of the existing legal structures available as discussed above if they wish to achieve majority or full ownership of a presence in the UAE. Furthermore, certain economic activities may only be conducted by UAE nationals. These include services related to the Islamic pilgrimage of hajj, commercial agents and various social services including care homes for the disabled, the establishment of newspapers and magazines, and recruitment agencies.

Investment Management Rules

Efforts to provide greater regulation and protection for investors in UAE investment funds have culminated in the new Investment Management Regulations, which came into force in 2014.

Regulation of investment and fund management activities in the UAE has now passed to the Securities and Commodities Authority (SCA).

All existing entities carrying on such activities in the UAE (including banks and investment companies) have been required since February 2015 to obtain a new licence from the SCA. The Investment Management Regulations enables asset and fund managers domiciled in the Dubai International Financial Centre (DIFC) and regulated by the Dubai Financial Services Authority to participate in investment and fund management in the UAE. DIFC entities applying for an SCA investment management licence will need to establish an onshore office to operate under that licence.

Investment managers must ensure full separation between the investment manager’s accounts and customers’ accounts. All managed assets must be held by a custodian licensed by the SCA or a custodian outside the UAE in respect of foreign assets.

Corporate Governance

Companies whose securities are listed on a UAE on-shore stock exchange (i.e., the Abu Dhabi Securities Exchange or the Dubai Financial Market), other than government entities, finance companies under the control of the central bank and companies listed on foreign financial markets, are required to adopt good corporate governance rules and to create an internal control system.

A circular issued by the SCA details the requirement that there be a balance on the board between executive, non-executive and independent directors (with a majority of the board to be non-executives and one-third being independent).

The board must also establish two permanent committees, namely an audit committee and a nomination and remuneration committee. Listed companies are also required to implement an internal control system in order to assess governance, compliance and the company’s financial data.

A corporate governance report (the form of which was attached to the circular) must also be submitted to the SCA on an annual basis.

Compliance

Listed companies must appoint a compliance officer to verify the scope of compliance by the company (and its employees) with relevant laws and regulations. The board must also implement a clear policy on dividend distribution in the best interests of the shareholders and the company, which must be made available in general meetings. The articles of association and internal regulations of each listed company must ensure shareholders are provided with all information necessary to enable them to fully and equally to enjoy their rights without discrimination, including the opportunity to take an effective part in the deliberations of general meetings and voting on resolutions.

In addition, shareholders must be provided with the biographies of all the individuals nominated to the board before voting takes place. Affected companies must implement a code of professional conduct (applicable to directors, managers, employees and internal auditors), as well as an environment and social policy towards the local community.

Competition Law

UAE Federal Law No. 4 of 2012 concerning Regulation of Competition (Competition Law) regulates competition, addressing restrictive agreements, the abuse of dominant position and economic concentration. The Competition Law bans restrictive agreements, business and actions that lead to the abuse of a dominant position, control the operations of economic concentration and targets all activity that may prejudice, limit or prevent competition. However, exclusive distribution agreements are governed by the TAL and are outside the scope of the Competition Law, even if they might otherwise infringe its provisions on restrictive agreements.

The Competition Law has yet to become fully functional and there remains continued uncertainty regarding its application, as further regulations and decisions are still required in order to prescribe significant aspects of the law including, among others, the controls for excluding small and medium establishments and the market-share threshold for the definition of dominant position.

Certain sectors are excluded from the ambit of the Competition Law, including the telecommunications, financial and postal services sectors. These sectors are only exempt due to another sector specific regulatory body regulating competition in that area.

Public Sector Procurement

Pursuant to the Federal Regulation of Conditions of Purchases, Tenders and Contracts, Financial Order No. 16 of 1975 (Public Tenders Law), and subject to certain exceptions, only UAE nationals, foreign entities represented by a UAE agent, or foreign entities with UAE partners (i.e., an entity with at least 51% UAE ownership) may bid for public sector tenders for the supply of goods and public works projects governed by the Public Tenders Law. As a result, foreign entities wishing to perform public sector contracts are generally required to have some level of UAE national participation.

The general requirement for UAE national participation is not observed by all government agencies in the context of certain direct sales to the public sector, or private tenders in which the government solicits bids directly from relevant manufacturers. This is particularly the case where the goods or services are specialised or not widely available, and thus a foreign partner is better equipped to supply this demand. These exceptions are applied on a case-by-case basis.

The Public Tenders Law relates to federal government procurement and does not apply to public procurement within the individual emirates, or purchases and contracts conducted by the UAE’s federal defence forces.

Thus, Abu Dhabi has its own procurement law, which is similar to that of the Federal Public Tenders Law and also requires suppliers to have commercial agents or national companies that are registered within the Abu Dhabi municipality. However, it varies from federal legislation in terms of the requirements of compensation, method and flexibility.

Property

Under Abu Dhabi’s property laws (Law No. 19 of 2005 as amended by Law No. 2 of 2007), UAE nationals and legal entities wholly owned by them can own freehold property anywhere within the emirate. GCC nationals and legal entities wholly owned by them are also entitled to own freehold property, but only within specifically designated investment zones, including Al Raha Beach, Al Reem Island, Saadiyat Island and Al Reef Villas.

Currently, non-GCC nationals have the right to own property in the investment zones as leaseholders with leases for up to 99 years, but they have no rights to the actual underlying land. However, it has been announced by Abu Dhabi Municipality that the state-owned firm, Aldar Properties, has been contracted to build properties in specially designated investment zones where foreign nationals will be permitted freehold title. The Musataha agreements (land development contracts) for these works have already been registered by the Abu Dhabi Municipality.

A 5% annual rent increase cap in Abu Dhabi was abolished in late 2013 and any rise in rental rates is now, in theory, determined by negotiation between the tenant and the landlord, although in practice rent increases tend to be determined by the landlord.

Anti-Discrimination & Hatred Decree

Recent federal legislation specifically prohibits all forms of discrimination on the basis of religion, belief, sect, faith, creed, race, colour or ethnic origin. Notably, the law states that a representative, manager or agent of a company will be punished (by the same penalties that would apply if s/he had committed the offence themselves) if a crime prohibited by the law is committed by any personnel of the company in its name and on its behalf. Penalties are imprisonment and/or a substantial fine.

Labour Law

Labour law matters in Abu Dhabi are governed by Federal Law No. 8 of 1980 (as amended and as supplemented by various ministerial decrees), which covers aspects of the employment relationship, including those relating to labour contracts, working hours, wages, leave, safety at work, discipline, termination of employment contracts (although there are no specific provisions directly dealing with redundancy), end-of-service benefits, compensation for occupational diseases, labour inspections and penalties.

The Labour Law applies to all employees working in the UAE, whether they are nationals or expatriates, although certain categories of individuals are exempted from the law, for example, those employed by public bodies. The Labour Law sets minimum requirements for employee compensation. As a result, if the provisions in an employment contract are less favourable than those outlined in the Labour Law, then the contract will not be enforceable and the Labour Law takes precedence.

Foreign nationals working in Abu Dhabi must hold work and residence permits. A work permit will be issued on the basis of (among other matters) a contract of employment with a locally licensed entity in local form issued by the Ministry of Labour covering the basic provisions of the Labour Law. In most instances, employers will issue significantly more detailed employment contracts to their expatriate employees and, to the extent that the employee has greater benefits under the long-form contract, the latter will prevail and be enforced locally.

ADGM recently unveiled its employment regulations (Regulations) and these came into effect on June 14, 2015. The Regulations closely follow those of the DIFC and as such differ in a number of areas from the UAE position. From the employee perspective, there are more generous sick leave, maternity leave and also, for the first time in the UAE private sector, paternity leave. There are also anti-discrimination and data protection provisions and the working hour arrangements are also quite flexible. Overall, the Regulations are likely to be welcomed by employees.

Ministerial Decrees which came into effect on 1st January 2016 are designed to enhance labour relations. Employees must now receive a formal offer of employment in Ministry of Labour format, the terms of which must be reflected in the employee’s contract of employment. Notice periods and procedures on termination of contracts of employment have been adjusted and the circumstances in which a labour ban will be imposed on a former employee have been substantially reduced.

Intellectual Property

The UAE is a signatory to multiple international treaties on the recognition and enforcement of intellectual property rights. Intellectual property is recognised domestically in three forms: trademarks, patents and copyright. In each of these areas there is federal law dealing with registration, protection and enforcement matters. The enforcement of trademarks, copyright and industrial property comes under the purview of the relevant department of the Ministry of Economy and is assisted by the Ministry of Interior, the Abu Dhabi Municipality, and the criminal investigations department of the Abu Dhabi police.

The registration of a trademark in Abu Dhabi is effected through the trademarks section of the Ministry of Economy, which includes a Trademark Registry. Article 5 of Federal Law No. 37 of 1992 on Trademarks as amended by Law No. 19 of 2000 and Law No. 8 of 2002, details certain signs that cannot be registered as trademarks, outlines the trademark registration and cancellation procedures, as well as transfer of ownership, licensing others to use trademarks and penalties for trademark law infringement, as well as general and transitory provisions.

Registration of a trademark affords the owner protection in each of the seven emirates, giving the owner the right to file an action in the courts for damages in cases of infringement.

The timeframe for filing a trademark up to registration is approximately 12 to 18 months. The period of validity of the trademark is 10 years and renewal should be undertaken six months before the expiry and is valid for 10 years. Licence agreements should also be recorded in the Trademark Registry, in order to have effect against third parties.

Federal Law No. 17 of 2002 as amended by Federal Law No. 31 of 2006 regulates patent protection in the UAE. Federal Law No. 17 of 2002 repealed Patent Law No. 44 of 1992 to bring UAE legislation in line with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Patents will only be granted to new inventions that result from an innovative idea or an innovative improvement to an invention protected by an existing patent. The new invention must also be capable of industrial application.

Protection of a patent is for a period of 20 years from the date of filing, while a utility certificate and industrial models are protected for 10 years and know-how is protected for as long as it remains unpublished and out of the public domain.

The Copyright and Authorship Protection Law No. 7 of 2002 covers copyright in the UAE. It gives a right to prevent third parties from copying without consent and infringing works.

Protection is afforded to original works in writing, sound, drawing, image, motion pictures, creative titles or computer software. Translation of original works is also protected. The duration of the protection is for the lifetime of the author plus 50 years after the death of the author or 50 years from the date of publication in cases of cinematographic works or works of corporate bodies. Works of applied arts are protected for 25 years from the publication OBG would like to thank Reed Smith for its contribution to THE REPORT Abu Dhabi 2016 date and broadcasts are protected for 20 years from the date of first broadcast.

Copyright arises automatically upon the creation of an original work, provided it is not in a category that is excluded from protection such as works already in the public domain. The works should be filed with the Ministry of Information and Culture.

Several methods are available for enforcing intellectual property rights against violators, including administrative and judicial action. Federal government authorities, as well as local government authorities in several emirates, have jurisdiction to enforce intellectual property laws by raiding shops and warehouses, seizure of goods and fining parties found to be in breach of relevant laws. Customs authorities also have the right to seize and destroy illegal goods. Owners of intellectual property may wish to file a claim in court to demand compensation for damages suffered, however, there are no specialist intellectual property courts in the UAE and judges, especially in the lower courts, may not have specialised expertise.

Anti-Bribery & Corruption

The UAE has ratified the UN Convention Against Corruption. Article 15 of the convention holds that signatories must adopt legislation with regard to acts of bribery involving public officials.

To date the UAE does not have a stand-alone corruption and bribery law. Relevant legislation is contained mainly in the Federal Constitution, Articles 234 through 239 of the Penal Code (Federal Law No. 3 of 1987 as amended), the Commercial Companies Law (Federal Law No. 8 of 1984 as amended), the Commercial Transactions Law (Federal Law No. 18 of 1993 as amended), Human Resources Law (Law No. 11 of 2008) and the UAE Anti Money Laundering Law (Law No. 4 of 2002). Together, these constitute an anti-bribery and corruption regime with infringement punishable by imprisonment and fines. The main provisions primarily target any gift or advantage offered to, or sought by, a public official in exchange for the performance (or not) of their public duties, or acts beyond their duties.

A new draft Anti-Commercial Fraud Law was endorsed by the UAE Cabinet in January 2013 and is intended to replace Federal Law No. 4 of 1979 concerning the Suppression of Fraud and Deception in Commercial Transactions. This new draft law supplements the existing enforcement mechanisms in respect of intellectual property rights and especially trademarks. The law is not yet enacted and there may be further amendments before it is finally passed into law. An amendment to the 2002 UAE Anti Money Laundering Law was passed by the UAE Federal National Council in 2014 and came into force in October 2014.  The amendment significantly expands the scope of money laundering crime in the UAE and introduces new and more stringent measures to combat financial crimes and money laundering offences. 

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The Report: Abu Dhabi 2016

Legal Framework chapter from The Report: Abu Dhabi 2016

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