The Middle East presents a very attractive proposition for foreign businessmen who are looking to expand their companies into different markets. The UAE remains a very common entry point due to many reasons, which include familiarity, prevalence of the English language, transport, and logistics.
For anyone who is contemplating starting a business should be well versed with the business or corporate laws of the particular company. This is especially important because these business laws differ based on the region and so will the processes of the company registration as well.
United Arab Emirates (UAE) has become a business hub in recent times and has seen tons of foreign investment in the region as well. The UAE has had a number of regulations in place which are related to economy, travel, trade, license, and investment since its formation in 1971.
In order to ensure smooth and fair conducting of business, there are some laws that are must be complied with and are as following:
- Govern your personal business
- Protect the health, environment, and safety of the region and its residents
- Protect the labor rights, consumer rights, and intellectual property rights
- Govern the free zone in which you are planning to or already have set your company in
Understanding UAE’s Business Scene
UAE, a federation of seven independent emirate states which comprise Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm al Quwain. The UAE is a civil law jurisdiction and where the legislation remains silent, the principles of Shariah law fill in the gaps. The UAE laws are dictated by Federal Supreme Council but each emirate reserves the right to implement certain laws which will be restricted to the particular emirate. The core principle of federal law for UAE businesses in the UAE Commercial Companies Law, Federal Law No 2 of 2015.
UAE is home to 45 different free zones which are present in their own designated areas, having their own rules and regulations. These rules and regulations are limited to their own free zone and all the companies being registered in these free zones are bound to comply with them whether they agree with them or not. These rules and regulations of the free zones are overseen by an independent regulator established within that free zone. All areas which exist out of these free zones are commonly referred to as being “onshore” UAE, where not only the federal but also the emirate-level laws will apply including the Companies Law.
Furthermore, there are also two financial free zones which are considered to be a special subset of the free zones. These financial free zones are called Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM). Similar to the aforementioned context, these two financial free zones also have their own sets of rules and regulations. The one major difference is that both are common law jurisdictions. They also have their independent financial service regulators, which follow the UK FCA regulatory regime for the most part, and also their own court system.
Types of Business Licenses in UAE
There are various types of business licenses that are issued in the UAE. The list of them are as following:
- Professional license
- It covers all the services which are offered by professionals, artisans, and craftsmen.
- Commercial license
- It covers all trading and commercial activities performed with an intention of making a profit
- Industrial license
- It covers all industrial and manufacturing activities
- Tourism license
- This license covers all activities related to hospitality & tourism
Different Jurisdictions in UAE
Before moving on to business law, let us first discuss the different jurisdictions in the UAE. There are three jurisdictions where a company can be formed in the UAE and they are as following:
Each jurisdiction has its own licensing authority. For instance, UAE Mainland’s licensing authority is the Department of Economic Development of the respective emirates. Each Free Zone has its own authority which will be looking after the business matters whereas the Offshore Authority will handle all cases of Offshore jurisdiction.
UAE Business Regulations Related to Mainland Companies
The UAE Federal Law No. 2 of 2015 on Commercial Companies, as amended applies to any economic entity that practice any commercial, financial, industrial, agricultural, real estate, or other kinds of economic activity on the mainland except the following:
- Companies excluded by resolution of the UAE Cabinet
- Companies wholly owned by federal or local governments and companies held in full by such companies, if a special provision to this effect mentioned in the company’s memorandum
- Companies operating in certain oil, gas, and power sectors in which the federal or local government directly or indirectly holds 25 percent, provided a provision to this effect is mentioned in its MoA
UAE Business Regulations Related to Free Zone Companies
Your business will be governed by the free zone authority in which your business is set up and in some cases might be additionally governed by another government entity. Specific laws relating to the type of business activity you conduct will also govern your business.
General business/commercial laws except the Federal Law No. 2 of 2015 regarding Commercial Companies Law apply. In addition, your business shall be governed by laws relating to your specific business activity, in terms of practice, observance of property rights, QHSE compliance, and those of the respective free zone authorities.
The business laws we will now be discussing are as follows:
- Commercial Companies Law
- Anti-Money Laundering Law
- Tax Law
- Bankruptcy Law
- Laws Related to Online Businesses
- Law Applied to All Businesses
- General Laws
- Laws concerning recruitment and employment
- Laws concerning private security companies
- Laws from Securities and Commodities Authority
- Health, environment, and safety regulations
- Taxation Laws
Commercial Companies Law
This is one of the most cited laws in the business domain as it specifies that UAE should be the nationality of all the companies which are established in the country. All Mainland companies are subject to the rules and regulations imposed under the Commercial Companies Law. Having said that, the free zone companies get leverage in that sense as they are exempt from the provision of this particular law. The latest changes made to the Commercial Companies Law (Federal Law No. 2 of 2015) came into effect from the 1st of July, 2015.
The CCL imposes a number of non-negotiable restrictions to protect the rights. This is one of the reasons why all public companies are required to use the full IFRS, which is issued by the IASB. The need for IFRS enables global financial reporting as countries across the globe are now starting to embrace them. IFRS standards are must be complied with by all companies which are not only listed on NASDAQ Dubai but also Dubai Financial Service Authority (DFSA), and Abu Dhabi Securities Exchange as well.
Anti-Money Laundering Law
Money laundering is a global issue and eradicating it has been a tough task for authorities around the world. Oftentimes, authorities from different regions combine hands to take down the complicit parties. Similarly, UAE also has a strong system in place to track, monitor, and eradicate money laundering. The UAE uses a robust system called Anti-Money Laundering (AML) system. This system has been put in place to scrutinize the cash flows better and also combat terrorist financing; this includes not only the enactment of Anti-Money Laundering Law but also the counterterrorism law.
The rules which serve as the foundation of this particular law are Law No. 4/2002 and Law No. 1/2004. The former is the AML and CTF law whereas the latter is the counterterrorism law.
Law No. 7 of 2017 is referred to as the Federal Law which is issued by the UAE Ministry of Finance. According to the documentation of the law, it “sets the foundations for the planned UAE tax system, regulating the administration and collection of taxes and clearly defining the role of the Federal Tax Authority (FTA).”
This particular law deals with things ranging from tax procedures, tax implementation, tax rates, tax obligations, cases of tax exemption, to things such as guidelines and rules provided for tax registration and also its cancellation.
Here are the complete details of the laws which are related to tax in the UAE.
- Federal Decree-Law No. 7 of 2017 on Excise Tax
- Federal Decree-Law No. (8) of 2017 on Value Added Tax
- Federal Law by Decree No. 13 of 2016 Concerning the establishment of the Federal Tax Authority
Business bankruptcy in the UAE is governed by Federal Law by Decree No. 9 of 2016 on Bankruptcy which came into force in December 2016. The law provides a legal framework to help distressed companies in the UAE avoid bankruptcy and liquidation through different mechanisms which include:
- Consensual out-of-court financial restructuring
- Composition procedures
- Financial restructuring
- The potential to secure new loans under terms set by the law
- Conversion to a declaration of bankruptcy and liquidation of the debtor’s assets.
The law does not apply to natural individuals. It applies to:
- Companies governed by the Commercial Companies Law
- Companies that are not established under the Commercial Companies Law and which are wholly or partly owned by the federal or local government, stipulating that Federal Law by Decree No. 9 of 2016 on Bankruptcy applies
- Companies and establishments in the free zones that are subject to the provisions of Federal Law No. 8 of 2004 on Financial Free Zones and which are not governed by particular provisions regulating protective composition procedures, financial restructuring, and/or bankruptcy
- Any individual who is a trader as defined in the Commercial Transactions Law (Available in Arabic only).
- Licensed civil companies carrying out professional activities.
Laws Concerning Recruitment and Employment
There are various laws that are put in place to protect the employees and give them certain benefits that they deserve irrespective of the organization. The UAE government has listed the following laws which align with the recruitment and employment of the employees:
- The UAE Labour Law – Ministry of Human Resources and Emiratisation
- Ministerial Decree 764 of 2015: Standard Employment Contracts
- Minister of Labour’s Decree 765 of 2015 on rules and conditions for the termination of employment relations
- Ministerial Decree 766 of 2015 on rules and conditions for granting a permit to a worker for employment by a new employer
- Resolutions and circulars – Ministry of Human Resources and Emiratisation
- Emiratisation Laws – Ministry of Human Resources and Emiratisation
- International agreements – Ministry of Human Resources and Emiratisation
Laws Concerning Private Security Companies
- Federal Law No. 37 of 2006 concerning private security companies
- Cabinet Resolution No. 33 of 2008 concerning application licensing fees for private security companies
- Ministerial Resolution No. 557 of 2008 concerning the executive regulations of private security companies law
Laws from Securities and Commodities Authority
- Federal Law No. 4 of 2000 concerning the Emirates Securities & Commodities Authority and market
- Laws – Securities and Commodities Authority
Health, Environment and Safety Regulations
- Mid-day break rule – Ministry of Human Resources and Emiratisation
- International agreements – Ministry of Human Resources and Emiratisation
- Laws and legislation – Ministry of Climate Change and Environment
- Rules and regulations – Federal Authority for Nuclear Regulation
- Environment laws – Environment Agency, Abu Dhabi
So in summary, there is a vast layer of issues to consider for in-house counsel and decision-makers of businesses looking to set up in the UAE, but there is invariably a route through the UAE legal matrix that allows a foreign business to carry on its activities in the UAE in a way that fits within its risk appetite. Careful planning is needed from an early stage to ensure the correct corporate and commercial approach is taken and to ensure any staff who are moved over to the UAE to help run the new business are dealt with in a fair manner and without overly exposing the business under local employment laws. Moreover, the clear direction of travel indicated by the UAE authorities is intended to boost foreign investment into the UAE and to ease the burden on doing business here, which is a welcome development and a trend that we expect will continue for the foreseeable future.
Riz & Mona Consultancy
Whether you’re looking to start a new business in Dubai or you need services for your existing business. It’s always recommended to consult with a reputable consultancy firm like Riz & Mona to avoid any mistakes or legal issues.
We provide a complete range of corporate services across the UAE and have clients from all over the world. Our services include LLC Company Formation, Business Setup in Dubai Mainland or in any of the Free Zones of UAE, Offshore Company Formation, Business Support Services, Business Licenses, Product Registration, Pro Services, Bank Account Opening, Visa Services and much more.
Get a free consultation from our experts. Contact us on Whatsapp: +971 54 582 1012 or email: email@example.com. Book your free appointment to get professional assistance as per your requirements.