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Dubai Introduction
The basic requirement for all business activity in
Dubai is one of the following three categories of licence:
- Commercial licences covering all kinds of trading
activity;
- Professional licences covering professions, services,
craftsmen and artisans;
- Industrial licences for establishing industrial
or manufacturing activity.
These licences are all issued by the Dubai Economic
Department. However, licences for some categories of
business require approval from certain ministries and
other authorities: for example, banks and financial
institutions from the Central Bank of the UAE; insurance
companies and related agencies from the Ministry of
Economy and Commerce; manufacturing from the Ministry
of Finance and Industry; and pharmaceutical and medical
products from the Ministry of Health.
More detailed procedures apply to businesses engaged
in oil or gas production and related industries.
Practising some trade activities (e.g. jewellery and
insurance) requires the submission of a financial guarantee
issued by a bank operating in Dubai.
In general, all commercial and industrial businesses
in Dubai should be registered with the Dubai Chamber
of Commerce and Industry.
Fifty-one per cent participation by UAE nationals is
the general requirement for all Dubai-established companies
except:
- Where the law requires 100% local ownership;
- In the Jebel Ali Free Zone, Dubai Internet City,
Dubai Airport Free Zone, Dubai Media City or the
Dubai International Financial
Centre;
- In activities open to 100% AGCC (Gulf Cooperation
Council) ownership;
- Where wholly owned AGCC companies enter into partnership
with UAE nationals;
- In respect of foreign companies registering branches
or a representative office in Dubai;
- In professional or artisan companies where 100%
foreign ownership is permitted.
In September 2005, Khalaf Al Habtoor, member of the
Dubai Economic Council, revealed that the UAE's Ministry
of Finance and Industry was putting the finishing touches
to new company laws.
Al Habtoor, who consulted on the law during its development
phase, confirmed that: "The federal government is
revising the company law which will bring down the listing
ceiling, making it flexible for us...A change in this,
offering flexibility, will help the UAE's family businesses
to go public." The legislation brought the listing
threshold down from 55% to 25%.
Since 1984, steps have been taken to introduce
a codified companies law applicable throughout the UAE.
Federal Law No. 8 of 1984, as amended by Federal Law
No. 13 of 1988 - the "Commercial Companies Law"
- and its by-laws have been issued. In broad terms the
provisions of the Law are as follows:
The Federal Law stipulates a total local equity of
not less than 51% in any commercial company and defines
seven categories of business organisation which can
be established in the UAE. It sets out the requirements
in terms of shareholders, directors, minimum capital
levels and incorporation procedures. It further lays
down provisions governing conversion, merger and dissolution
of companies.
The categories of business organisation defined by
the law are:
General partnership company
Partnership-en-commandite
Joint venture company
Public shareholding company
Private shareholding company
Limited liability company
Share partnership company
Partnerships
Partnership companies are limited to
UAE nationals only. The Dubai government does not presently
encourage the establishment of partnerships-en-commandite
or share partnership companies.
In February 2008, the DIFC Authority (DIFCA)
released for public consultation the Exempt Companies
Regulations, a new set of regulations proposed under
the Companies Law of 2006 and the Insolvency Law of
2004.
The new regulations are designed to assist financial
institutions to carry out, among other things, securitisation
transactions using the existing DIFC legal and regulatory
framework.
Commenting on the imminent adoption of these regulations,
Dr Omar Bin Sulaiman, Governor of the DIFC, noted: "With
the increasing number and growing sophistication of
transactions taking place in the Dubai International
Financial Centre, the DIFC has again proved its commitment
to international best practices - this time in the area
of securitisation and other structured finance transactions."
"Through the adoption of these regulations, the
DIFC demonstrates its willingness to support key players
in their sectors of activity and respond to their requirements
in a flexible manner while remaining faithful to its
founding principles of integrity, transparency and efficiency."
"The simplicity of these new regulations also
demonstrates the robustness of the existing legislative
system, where it is now possible to introduce new areas
of activity with relatively minor changes to our existing
framework."
Nasser Al Shaali, CEO of the DIFC Authority added:
"As the DIFC continues its emergence as a leading
international financial centre we are committed to providing
the most mature, sophisticated infrastructure and legal
framework to promote the development of a highly prosperous
financial industry. By proposing the new regulations
we aim to encourage securitisation transactions at the
centre and cater and encourage the expansion of the
products and services available at the DIFC."
Both Islamic finance and conventional finance transactions
in the region often require the use of special purpose
vehicles (SPVs). These SPVs, otherwise known as transaction-specific
companies, are usually incorporated with the intention
of being restricted in their operations, with no employees
other than special directors.
The use of SPVs in the DIFC under the new regulations
is simply for the purpose of facilitating sophisticated
financing activity. This is likely to have a favourable
impact on the region's increasing demand for SPVs, in
both conventional and Sharia-compliant products.
In September 2009, Prime Minister
of the UAE and Ruler of Dubai, Sheikh Mohammed Bin Rashid
Al Maktoum enacted updates to the Dubai International
Financial Centre’s (DIFC) Companies Law and Insolvency
Law.
The updates in the Companies Law cover certain registration
requirements specified by the DIFC Registrar of Companies
while the updates to the Insolvency Law incorporate
changes in applications and procedures for winding up
Protected Cell Companies (PCCs). PCCs are self-insurance
structures that provide a simple and cost-effective
solution to companies wishing to establish a captive
insurance company.
The updates to the Companies Law include the abolition
of the procedure for approval of a company’s Articles
of Association by the DIFC Registrar of Companies and
the requirements for recognised companies to file an
annual return. It also provides clarifications on the
right of shareholders and directors to participate in
shareholder or directors meetings. The Insolvency Law
has been updated to include minor amendments arising
from the introduction of the proposed updates to the
Companies Law and the amended Insolvency Regulations
of 2009.
Omar Bin Sulaiman, Governor of the Dubai International
Financial Centre said: “The updates to the two
laws form part of DIFC’s efforts to constantly
update its legal framework to meet the changing needs
of the industry and to stimulate the growth of new sectors
and niche areas in the financial services industry.”
DIFC also issued new regulations that
incorporate the updates to the Companies Law and Insolvency
Law. The new regulations will help the insurance industry
in offering innovative new products and services out
of the financial district.
The enactment of the laws comes following the completion
of a public consultation process, as part of which DIFC
invited public comments on proposed updates in the laws.
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Dubai Joint Venture Company
A joint venture is a contractual agreement between
a foreign party and a local party licensed to engage
in the desired activity. The local equity participation
in the joint venture must be at least 51%, but the profit
and loss distribution can be prescribed. There is no
need to license the joint venture or publish the agreement.
The foreign partner deals with third parties under the
name of the local partner who - unless the agreement
is publicised - bears all liability.
In practice, joint ventures are seen as offering a
suitable structure for companies working together on
specific projects.
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Dubai Public and Private Shareholding companies
The law stipulates that companies engaging in banking,
insurance, or financial activities should be run as
public shareholding companies. Foreign banks, insurance
and financial companies, however, can establish a presence
in Dubai by opening a branch or representative office.
Shareholding companies are suitable primarily
for large projects or operations, since the minimum
capital required is AED 10 million (USD 2.725 million)
for a public company, AED 40 million for banks and AED
25 million for insurance and investment companies, and
AED 2 million (USD 0.545 million) for a private shareholding
company. The chairman and a majority of directors must
be UAE nationals and there is less flexibility of profit
distribution than is permissible in the case of limited
liability companies.
A minimum of 25% of the shares of a Public
Shareholding Company must be offered to the general
public.
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Dubai Limited Liability Company
A limited liability company can be formed by a minimum
of two and a maximum of 50 persons whose liability is
limited to their shares in the company's capital. Such
companies are recognised as offering a suitable structure
for organisations interested in developing a long term
relationship in the local market.
Companies Law stipulates that an LLC may engage in
any lawful activity except for insurance, banking and
the investment of money for others.
In Dubai, the minimum capital is at the
time of writing AED300,000 (USD82,000), contributed
in cash or in kind. While foreign equity in the company
may not exceed 49%, profit and loss distribution can
be prescribed. Responsibility for the management of
a limited liability company can be vested in the foreign
or national partners or a third party.
The following steps are required in establishing
a limited liability company in Dubai:
- Select a commercial name for the company and have
it 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 approval is granted, the company will be
entered in the Commercial Register and have its
Memorandum of Association published in the Ministry
of Economy and Commerce's Bulletin;
- The licence will then be issued by the Economic
Department;
- The company should then be registered with the
Dubai Chamber of Commerce and Industry.
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Dubai Branches and Representative Offices
The Commercial Companies Law also covers
the formation and regulation of branches and representative
offices of foreign companies in the UAE and stipulates
that they may be 100% foreign owned, provided a local
agent is appointed.
Only UAE nationals or companies 100% owned
by UAE nationals may be appointed as local agents (which
should not be confused with the term "commercial
agent"). Local agents -- also sometimes referred
to as sponsors -- are not involved in the operations
of the company but assist in obtaining visas, labour
cards, etc and are paid a lump sum and/or a percentage
of profits or turnover. In general, branches and offices
of foreign commercial companies are not licensed to
engage in importing activity except for re-export or
in the case of products of a highly technical nature.
To establish a branch or representative
office outside of the free zones in Dubai, a foreign
commercial company should proceed as follows:
- Apply for a licence from the Ministry of Economy
and Commerce, submitting an agency agreement with
a UAE national or 100% UAE owned company.
- Before issuing the licence, the Ministry will
forward the application to the Economic Department
to obtain the approval of the Dubai government and
will 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
and Commerce will issue the required Ministerial
licence 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 licence will be issued;
- The branch or office should also be entered in
the Foreign Companies Register of the Ministry of
Economy and Commerce;
- Finally the branch or office should be registered
with the Dubai Chamber of Commerce and Industry.
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Dubai Branches and Representative
Offices of Foreign Professional Companies
Branches and representative offices of foreign professional
firms may be 100% foreign owned provided UAE nationals
or 100% UAE owned companies are appointed as local agents.
As mentioned previously, such agents are not involved
in the operations of the firm but assist in obtaining
visas, labour cards etc and are paid a lump sum as remuneration.
The Economic Department is the authority in charge of
licensing such branches or representational offices.
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Dubai Sole Proprietorships
In setting up a professional firm, 100% foreign ownership,
sole proprietorships or civil companies are permitted.
Such firms may engage in professional or artisan activities
but the number of staff members that may be employed
is limited. A UAE national must be appointed as local
service agent, but he has no direct involvement in the
business and is paid a lump sum and/or percentage of
profits or turnover.
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