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Doing Business in the UAE
The UAE business environment can be very lucrative and even predictable if care is taken to understand the influences working on an individual market at any one time. Keeping an ear to the ground and maintaining a steady physical presence is invaluable.
Visiting business people are advised to consult the many sources of commercial intelligence, including embassy lists, the chambers of commerce, official gazettes and tender lists. UAE national businessmen are the best source of information, and the ideal man in a business development role will usually be the one with excellent contacts in the local business community. Given the right high-level contacts it is possible to hear of projects ahead of the rest and long before tender documents can be officially purchased. The UAE is one of the most open and freely competitive markets in the world and although the authorities want to do business on the basis of quality and value for money, much still depends on this inside knowledge.
Personalities play a significant role in contract award. The knowledge, accessibility and reputation of one's local associate is often a vital factor in determining the outcome of fierce bidding between large numbers of international companies.
Business is Distinctive
Business in the UAE is complicated by the distinct character of each emirate. The commercial aspirations of Dubai Emirate mean that in most quarters there is a definite will to conduct business at a Western-style pace. This does not mean that traditional courtesies are waived. Business visitors will find that in Abu Dhabi, where there are fewer commercial pressures, the pace is more measured and the atmosphere more traditional. In the smaller emirates, except Sharjah, the pace of business is altogether more traditional. Sharjah, with its rapidly growing industrial sector, to a great extent follows the Dubai mode. So lessons learned in one emirate are not necessarily applicable in another.
The application of uniform federal standards and regulations, which started in the 1980s, has increased in speed in the first half of the 1990s. But discrepancies and procedural differences still persist.
Dubai's Economic Department is a New Departure
The Dubai government set up an Economic Department in 1992 with the express purpose of facilitating and encouraging the development of trade and industry in the emirate. It functions as a one-stop shop for business registration. If it receives correctly completed documents and approvals from the respective authorities in time, then a business licence is issued within a few days.
In order to speed up the procedure, representatives from the Chamber of Commerce & Industry, Dubai Municipality, Civil Defence and a notary public all provide their services at the Economic Department. In addition, staff at the Economic Department liaise with the federal Economy & Commerce Ministry and follow up applications themselves.
However, there are categories of business that require approval from other authorities: manufacturing institutions are subject to approval by the Finance & Industry Ministry and financial institutions from the Central Bank. The Economic Department was working on a plan for future co-ordination with these authorities to further facilitate the registration process as the practical guide was being published.
In addition, the Economic Department is in charge of strategic economic planning for the emirate of Dubai, the organisation of industry and trade, the execution of statutes relating to commercial and industrial activities, developing the natural resources of the emirate and diversifying its sources of income.
To achieve this, it is in charge of preparing and maintaining the commercial register, protecting industrial and commercial property rights, organising commercial agents and mediators, commercial advertising, and decisions on the establishment or expansion of factories.
It is also responsible for the promotion of the emirate's industrial products and the investment of national and foreign capital in commercial industrial projects. It can recommend government participation in development projects and represents government interests in national companies. Finally, it co-ordinates with federal government departments in the implementation of federal laws related to commerce and industry.
Business Law is evolving
In the UAE, business activity is regulated by individual emirates as well as by the federal government. In practice, the detail of business registration is the responsibility of each emirate, while the laws that govern that activity come from the federal authorities.
Since 1993, there have been a number of legal reforms aimed at creating a framework able to accommodate the country's commercial aspirations. Most notable is the commercial code which came into effect at the end of 1993 and covers a wide range of banking and commercial activities. Also significant are new laws on copyright, patents and trademarks which came into force in 1993. They are:
Commercial transactions law. The commercial transactions law (federal law number 18 of 1993) covers banking and commercial transactions on a scale unprecedented in prior legislation. It contains provisions on who may lawfully conduct business in the UAE; subject to certain exemptions for GCC nationals or companies operating in free zones. No one other than UAE nationals may do so unless in conjunction with UAE partners in line with the requirements of the commercial companies law which stipulates a minimum 51 per cent local ownership.
The commercial code also introduces a new legal basis for mortgages over a wide range of assets, both tangible and intangible and contains detailed provisions concerning bankruptcy and receivership.
Banking transactions are fairly comprehensively covered including current accounts, bank loans and guarantees, the discounting of commercial paper, trust receipts, deposits of securities and detailed rules on cheques, bills of exchange and promissory notes. In addition, the commercial code permits lenders to receive interest on commercial loans subject to certain limitations, a clarification welcomed by banks.
Companies Law, Federal law number 8 of 1984, came into effect in its amended form in January 1989 and has been applicable to all companies formed since that date. In particular, the companies law requires all companies to be at least 51 per cent owned by UAE nationals and to take one of the seven forms specified by the law.
Companies formed prior to 1989 did have the benefit of a number of grace periods to give them time to comply with the provisions of the law. The last grace period expired at the beginning of 1994 and has not been renewed. The companies law is now unequivocally applied to all local companies irrespective of when they were formed. A number of substantial amendments to the companies law were under consideration as the practical guide was being published, although it is not clear when they will be introduced, if at all. Foreign investors who are unsure of how the companies law now affects their interests should seek advice from their local legal advisors.
The professional companies law. This was due to come into effect at the end of 1994. Professional companies - companies where the knowledge of the partners is the main asset (for example, lawyers, engineers, accountants, hairdressers) - are not covered by the commercial companies law. The new law provides that UAE nationals must own at least 25 per cent of professional companies. The law will be applicable immediately to all new professional companies formed after it has come into effect. Professional companies already in existence will have a grace period of five years to adjust.
National Ownership is Required
Under the companies law, at least 51 percent ownership by UAE nationals is required for all UAE establishments, except where the law requires 100 per cent local ownership as in the case of, for example, commercial agencies. The companies law is not applicable to Free Zone Entities or branches established in the free zones generally. As mentioned, it is not applicable to professional companies, which, in due course, will need to be 25 per cent owned by UAE nationals.
The Categories of Company
The law sets out the requirements for shareholders, directors, minimum capital levels and incorporation procedures. Mergers, conversions of licenses and the dissolution of companies are also covered. The seven categories of business organisation permitted are:
- General partnership. General partnership companies are limited to UAE nationals.
- Simple partnership
- Joint venture
- Public joint stock company. Companies engaging in banking, insurance and financial activities should be run as joint stock companies. But foreign banks, insurance and finance companies can set up branches or representative offices. For joint stock companies, the minimum capital requirement is $2.725 million. The chairman and the majority of board directors must be UAE nationals and there is less flexibility regarding profit distribution than with a limited liability company.
- Private joint stock company. The minimum capital is $545,000 for a private company.
- Limited liability company. In limited liability companies, the profit and loss distribution is negotiable. A limited liability company is for between two and fifty people and the liability of shareholders is limited to their shares in the company's capital. In Dubai the minimum capital requirement is $82,000. In Abu Dhabi and all other emirates the minimum capital requirement is $41,000.
- Share commandite company.
The Dubai government does not presently encourage the establishment of simple partnership and share commandite companies. Otherwise, all entities formed under the companies law must be at least 51 per cent owned by UAE nationals.
Jebel Ali Free Zone
Jebel Ali Free Zone has special legal status allowing companies established there to be offshore, or outside the UAE for legal purposes. Incentives include 100 percent foreign ownership, no corporate taxes for 15 years renewable for an additional 15 years, 100 percent repatriation of capital and profits, no personal income tax, no currency restrictions, no recruitment or administration problems, abundant energy, excellent facilities at Dubai Ports Authority's two modern terminals, no import or export duties payable within the zone, first class communications and an attractive working environment.
Four different types of licence are available
- Special Licence. Special licenses are issued to companies established outside the UAE. Ownership may be 100 percent foreign and a license from the Dubai Economic Department is not required. A company with a special licence may undertake any activity permitted in the zone, but may only operate in the zone or outside the UAE. However, business can be conducted in the UAE through agents and distributors.
- General Licence. General Licences are issued to companies already holding a valid licence from the Dubai Economic Department permitting them to do business within the UAE. In the Free Zone, holders of a general license must comply with federal and municipal requirements relating to their operations in the rest of the UAE.
- National Industrial Licence. A National Industrial Licence is for manufacturing companies registered inside or outside the UAE. The company must be at least 51 per cent UAE or GCC-owned. At least 25 per cent UAE ownership is required for a certificate of origin issued by the Ministry of Economy & Commerce, as well as the requirement for the UAE value-added input to be at least 40 per cent of the total value of the relevant products. The holder of a National Industrial Licence who manufactures goods which are eligible for a UAE certificate of origin therefore qualifies for customs duty exemption if its products are exported to other parts of the UAE or to other GCC countries.
- Free Zone Entity Licence. Free Zone Entities (FZEs) have been allowed since 1992. A FZE is 100 per cent foreign-owned and is similar to a limited liability company. The main difference is that a FZE can have only one shareholder which is of interest to foreign companies wishing to have a wholly-owned subsidiary in the Free Zone, rather than simply a branch. The minimum capital requirement is $ 272,500 and liability is limited to the amount of paid up capital.
All licences are issued by the Jebel Ali Free Zone Authority (JAFZA) and are valid for the period the company holds a lease from JAFZA, but are renewable annually.
Intellectual Property
Other recent legal developments of note relate to intellectual property. The key pieces of legislation are:
- Patents. Regulations governing the registration of patents, industrial designs and models are covered by Federal Law number 44 of 1992 and came into effect in 1993.
- Trademarks. These are covered by federal law 37 of 1992 which came into effect in February 1993.
- Copyright and censorship. These are covered by federal copyright law 40 of 1992 and deal with the procedures for obtaining permission for the printing, publication, display, sale and registration of works in the UAE. These regulations have been enforced since September 1994 and pirated computer software and video cassettes are no longer easily available in the UAE.
- This article was prepared with the assistance of Clifford Chance, Dubai which specialises in corporate, commercial and banking matters, shipping litigation, oil and gas transactions, UAE offset programme work and arbitration.
Customs
A list of 70 foodstuffs are exempt from tariffs, as are medicines, agricultural machinery, pesticides, fertilisers, periodicals, wood, unstrung pearls, unworked silver and gold, iron and steel for use in construction, and raw or partially worked materials for use by local manufacturers. Goods produced within the GCC are also exempt. There is no duty payable on goods destined for Jebel Ali Free Zone.
For a product to qualify as a national product and receive GCC customs exemption, at least 40 percent of the product's final value added must be made locally. The factory must be licensed by the Ministry of Finance & Industry and there must be 100 per cent or minimum 51 per cent UAE national or GCC ownership of the producing plant.
An appeals desk has been established at the federal customs directorate to hear claims from importers for goods to be classified as duty free, chairman of the UAE customs council and director-general of Dubai customs Obaid Busit said in December 1994. Busit said that the UAE had successfully resisted pressure from other GCC states for a 5 percent minimum duty. The increase in tax on tobacco to 50 per cent is to be implemented later in 1995, he added. A federal law raising tobacco tax was passed on 2 November but only comes into effect when it is published in the official gazette (MEED 25:11:94). Computerisation of customs services to cut the time to process papers from 45 minutes at present is due to take place in January.
Taxation in the UAE
There is no corporate tax in the UAE. The only exceptions are oil producing companies and branches of foreign banks.
It is highly unlikely that direct taxation will be introduced in the UAE in the near future. However, it is possible that one day Dubai emirate may introduce some form of direct taxation as its oil reserves dwindle.
Exchange Controls
There are no exchange controls and the UAE dirham is freely convertible. The dirham is linked to the US dollar and the rate is $1=Dh 3.67.
Agency Law
Foreign companies may sell goods to companies in the UAE by concluding transactions directly with importers and traders who are already established in the market. However, in the case of high volumes of business, a more permanent form of representation may be desired.
Companies wishing to sell to the UAE without establishing an office may prefer to appoint a commercial agent. This is covered by Federal Commercial Law 18 of 1981 as amended by Law 14 of 1988. The law states that the agent must be a UAE national or a company 100 per cent owned by UAE nationals. He must be registered in the Commercial Agency Registry kept by the Ministry of Economy & Commerce.
The procedure is as follows:
- A commercial agency agreement is drawn up specifying the products and territories covered by the contract.
- The agreement should be signed by both parties (principal and agent) and, if signed in Dubai, be legalised before a court notary. The agreement is then translated into Arabic by a sworn translator licensed to operate in the UAE.
If the agency agreement is signed outside the UAE:
- It must be authenticated by a local notary public.
- The local Ministry of Foreign Affairs must then certify and authenticate the signature and seal of the notary public;
- The agency agreement must be certified by the UAE embassy or consulate.
- When the documents arrive in the UAE, they should be taken to the Foreign Ministry so that the stamp of the UAE embassy or consulate may be authenticated, and translated into Arabic by a sworn translator.
- The agency should be registered at the Federal Ministry of Economy & Commerce.
A sole UAE agent may be appointed in each emirate or defined area of the country. A commercial agent is entitled to territorial exclusivity enforceable by infringement commissions.
Although the term of the agreement may be limited to a specific period, it is not permissible for the principal to terminate the agreement without the agent's approval, except for reasons considered valid by the commercial agencies committee of the Ministry of Economy & Commerce.
Failure to renew an agreement without justifiable reason may require compensation for the former agent.
Setting up a Business
There are various procedures for setting up corporate entities: Limited liability companies (Dubai). To do this, the following procedure should be followed:
- Get the company's commercial name approved by the Licensing Department of the Economic Department.
- Draw up the company's memorandum of association and have it notarised by a Notary Public in the Dubai courts.
- Seek approval from the Economic Department and apply for entry in the Commercial Register.
- Once approved, the company will be entered in the Commercial Register and have its memorandum of association published in the Bulletin of the Ministry of Economy & Commerce.
- The company should then be registered with Dubai Chamber of Commerce & Industry.
Branches and representative offices of foreign companies (Dubai). To establish a branch or representative office in Dubai, a foreign company should:
- Apply for a license from the Ministry of Economy & Commerce, submitting an agency agreement with a UAE national or 100 per cent UAE national owned company. Before issuing the license, the Ministry will:
- forward the application to the Economic Department to obtain the approval of the Dubai government,
- forward the application specifying the activity that the office or branch will be authorised to undertake in the UAE to the Federal Foreign Companies Committee for approval.
- Once this has been done, the Ministry of Economy & Commerce will issue the required Ministerial license specifying the activity to be practised by the foreign company.
- The branch or office should be entered in the Economic Department's commercial register and the required license will be issued.
- The branch or office should also be entered in the foreign companies register of the Ministry of Economy & Commerce.
- The branch or office should be registered with the Dubai Chamber of Commerce & Industry.
Branches and representative offices of foreign companies (Abu Dhabi). Individual expatriates and foreign companies wishing to do business in Abu Dhabi have to enter into agreement with a UAE national according to one of the following options:
- An agreement with a non-participant sponsor (individual establishments and foreign firms).
- An agreement with a national partner participating with 51 per cent or more of the capital (obligatory for all trading companies).
The procedure is as follows:
- Sign agreement with UAE sponsor before the notary public.
- Submit the mother company's articles of association and a copy of the resolution by which the competent authority decided to open a branch in Abu Dhabi.
- Provide certification from the country of origin that the company is not insolvent or bankrupt.
- Obtain an official power of attorney in favour of the proposed representative in Abu Dhabi issued by the mother company in the country of origin.
- Obtain a letter from the Abu Dhabi Israeli Boycott office certifying that the company in question is not blacklisted.
- Ensure all documents required for 2-5 are duly attested in the company's mother country.
- All foreign documents must be translated into Arabic by a sworn translator.
A non-participant UAE sponsor does not have a share in the capital and is not liable for any loss or obligation towards others. He or she shall be entitled to 25 per cent of the annual net profit if the activity undertaken is trade. Commission on income from contracting companies is fixed according to the size of contracts.
Trade license (Abu Dhabi). The procedure is as follows:
- Sign a sponsorship agreement with a UAE national. There is no minimum capital requirement in Abu Dhabi.
- Secure approval for the selected business location from the municipality in order to obtain a provisional trade license. Licenses are issued in five categories, namely commercial, commercial (Local without import), vocational, professional and industrial.
- Submit a copy of the partnership agreement authenticated by the notary public, a copy of the provisional trade license, the lease contract for the business premises, and a photograph of each partner to the Abu Dhabi Chamber of Commerce & Industry. There is an initial Dh 2,000 fee and a Dh 2,000 annual fee for each economic activity. Once approved, the Chamber will issue a certificate of approved membership.
- The certificate of approved membership is taken to the municipality. The license fee depends on the amount of capital invested in the business. The final license broadly specifies the type of product to be imported. The trade license must be amended if the company wants to expand into other lines.
Special, general or national license from the Jebel Ali Free Zone Authority (JAFZA). All procedures can be completed within 30 days where no environmental issues are concerned. The process is as follows:
- Applicant submits completed questionnaire (available from JAFZA).
- JAFZA reviews questionnaire, then sends application form, electricity supply & planning documents, and E form (on environmental issues) if applicable.
- JAFZA reviews documents and determines whether Environment Impact Statement (EIS) is required. If yes, a full report is requested by JAFZA.
- The EIS is reviewed and, if applicable, the application is progressed. If not, the applicant is informed.
- JAFZA accepts application and sends provisional approval letter. The presentation of company documents is requested. This includes notarised certificate of registration, articles of association, a list of board directors, a copy of board resolution setting up branch and appointing manager, a statement by company as to amount of capital set aside for company's operation in the free zone, the branch manager's photograph and a specimen signature.
- If company documents are in order, JAFZA accepts application and a lease profile is signed.
- JAFZA sends a conditional approval letter and requests the applicant to sign the lease and the pay rent and license fee.
- The lease and license is issued to the applicant. The license for land is issued only after a building completion certificate has been issued.
For a general license, the following documents are also required: a valid trade license from Dubai Economic Department, and a Dubai Chamber of Commerce & Industry membership certificate (if applicable).
Free zone entity (FZE). The procedure is as follows:
- Applicant submits preliminary questionnaire.
- JAFZA reviews the project. If approved, it forwards FZE Application and other documents.
- JAFZA forwards official approval of the applicant's incorporation as a FZE and requests documents to be completed. Issues letter to blank enabling applicant to open local bank account and to postal authority for registered addresses to be given.
- Applicant signs lease profile, forwards it to JAFZA and pays capital sum required.
- JAFZA issues certificate of formation, applicant signs lease.
- JAFZA issues lease and license.
Costs
- Special Licence: $954.
- General License: $545.
- National Industrial License: $1,360.
- Registration of FZE: $2,717.
- Processing of FZE license: $1,358.
The Chambers of Commerce in the UAE
The establishment of any business or industrial activity must pass through the Chamber of Commerce & Industry of the relevant emirate. The chambers represent the private sector and protect its interests.
Their role is to organise commercial and industrial affairs, collect relevant information and statistics, produce publications, and organise conferences and exhibitions within each emirate.
The chambers' affairs and performance are supervised by a board of directors composed of 21 members appointed by the relevant government. Five board members are on the executive board and the other members form various sub-committees.
Abu Dhabi Chamber of Commerce and Industry
The Abu Dhabi Chamber of Commerce & Industry is situated in the Chamber Tower on the Corniche Road. The chamber was established in 1969 and has had a branch office in Al Ain since 1978.
Under Law 6 of 1976, all nationals and foreign persons, be they individuals, companies, or establishments practising commercial, industrial, financial or contractual activities within the emirate, whether they are branches or agencies, temporary or permanent, shall have to join the chamber.
Dubai Chamber of Commerce and Industry
The opening of a purpose-built building in the spring of 1995 is the highlight of the decade for the Dubai Chamber of Commerce & Industry. The magnificent new head office is opened to mark the 30th anniversary of the chamber's foundation. The Dubai Chamber's work falls under the following headings: foreign relations, registration and documentation, industrial affairs, administration and finance and legal affairs.
Sharjah Chamber of Commerce and Industry
This is situated in Al-Boorj Avenue. By late 1994, it had 9,902 professional members, 9,340 commercial members and 495 industrial members.
Useful Addresses
Federation of the UAE Chambers of Commerce & Industry
PO Box 3014, Abu Dhabi, UAE.
Tel: +9712 214144. Fax: +9712 339210.
Abu Dhabi Chamber of Commerce & Industry,
PO Box 662, Abu Dhabi.
Tel: +9712 214000. Fax: +9712 215867
Dubai Chamber of Commerce & Industry,
PO Box 1457, Dubai.
Tel: +9714 2280000. Fax: +9714 2211646.
Sharjah Chamber of Commerce & Industry,
PO Box 580.
Tel: +9716 5541444. Fax: +9716 5541119.
Fujairah Chamber of Commerce & Industry,
PO Box 738.
Tel: +9719 2222400. Fax: +9719 2221464.
Ras Al-Khaimah Chamber of Commerce & Industry,
PO Box 87.
Tel: +9717 333511. Fax: +9717 330233.
Ajman Chamber of Commerce & Industry,
PO Box 662.
Tel: +9716 7422177. Fax: +9716 7427591.
Umm Al-Qaiwain Chamber of Commerce & Industry,
PO Box 436.
Tel: +9716 7656915. Fax: +9716 7657056
Canadian Business Council Dubai & the Northern Emirates
P.O. Box 52472. Dubai, U.A.E.
Tel: +971-4-359-2625. Fax:+971-4-359-1026
Website: www.cbc-dubai.com