FAQs
In regards to Company formation, corporate governance and licensing in the United Arab Emirates’ by Suneer Kumar, Partner & Head of the Corporate & Commercial practice group and Vida Grace Serrano, Senior Associate of Corporate & Commercial practice group.
Corporate Practice:
Q1: What are the key considerations when selecting a business structure for company formation in the UAE?
The key considerations when selecting a business structure for company formation in the UAE involve assessing the shareholder structure, business requirements, market dynamics, and the specific activities intended to be carried out. In the context of UAE laws, these factors play a crucial role in determining the most suitable legal entity, taking into account ownership regulations, business nature, market conditions, and the scope of planned operations. Whether it’s the involvement of a local partner, the nature of business activities, or the intended market presence, a comprehensive evaluation of these considerations ensures a harmonized and well-informed decision-making process for establishing a company in the UAE.
Q2: How can foreign investors ensure compliance with local regulations during the company formation process?
In the UAE, the nuances of business ownership and operations are indeed crucial considerations for foreign investors. Mainland companies, while permitting 100% foreign ownership in defined activities, offer the flexibility to conduct business both inside and outside of the UAE. This flexibility makes mainland entities an attractive option for those looking for a broad operational scope within the country and internationally.
On the other hand, free zone companies in the UAE allow 100% foreign ownership as well, but there is a limitation on the scope of services. These companies are generally restricted to rendering services within and amongst free zones and outside the UAE. This model is advantageous for businesses that primarily focus on international trade and do not require a significant presence in the local market.
Offshore entities in the UAE are designed for businesses that intend to operate exclusively outside the country. While providing certain tax benefits, offshore entities are restricted from conducting business within the UAE. This option is ideal for businesses that primarily deal with international clients and have no need for a physical presence within the country.
Understanding these distinctions is vital for foreign investors seeking to establish a presence in the UAE. It ensures that the chosen business structure aligns with the intended scope of operations and complies with the regulatory framework of the selected jurisdiction.
Following the selection of the appropriate business structure, adherence to the licensing and regulatory framework of the chosen jurisdiction is paramount. Obtaining the requisite licenses and permits for specific business activities is crucial to ensure legal compliance. It is important to highlight that different business activities may necessitate approvals and permits from governmental departments and authorities. This underscores the importance of a thorough understanding and compliance with the evolving regulations across various jurisdictions within the UAE contributing to a smooth company formation process. Engaging local legal experts such as Alsuwaidi & Company LLC therefore becomes instrumental in navigating these intricacies providing invaluable insights to facilitate successful establishment and operation in accordance with local laws and regulations.
Q3: What documentation and licenses are typically required for registering a company in a UAE Free Zone?
For registering a company in a UAE Free Zone, the documentation and licenses required vary for individuals and corporate entities.
Types of Licenses:
- Specific free zones offer various types of licenses, such as trading, industrial, professional, and more. The type depends on the nature of the business
For Individuals:
- Passport copy
- Last entry permit stamp or latest Unified Identification Number (UID number)
- UAE Residence visa copy (if applicable)
- Emirates ID copy (if applicable)
For Corporate Entities (Outside UAE):
- Corporate documentation (license, AOI, MOA)
- Incumbency certificate reflecting shareholders and directors
- Resolution for incorporation
- Ultimate Beneficial Ownership declaration including passport copies of the ultimate beneficial owners
**All attested up to the level of UAE embassy of the country of issuance
For Corporate Entities (Inside UAE):
- Corporate documentation (license, AOI, MOA)
- Incumbency certificate reflecting shareholders and directors
- Resolution for incorporation
- Ultimate Beneficial Ownership declaration including passport copies of the ultimate beneficial owners
Additionally, Alsuwaidi & Company can assist in providing the necessary requirements and drafting the required documentation for a smooth registration process.
Q4: Are there specific industry restrictions or licensing requirements that vary across different emirates in the UAE?
Yes, certain industry-specific activities may require approvals and NOCs (No Objection Certificates) from authorities that regulate the particular industry. For example, establishing a healthcare facility might require approvals from the Health Authority in the respective emirate. Industry restrictions and licensing requirements can indeed vary across different emirates in the UAE.
Q5: Can you explain the significance of the Memorandum of Association (MOA) in the company formation process?
In accordance with UAE Companies Law, the Memorandum of Association (MOA) holds significant importance in the company formation process. The MOA outlines the company’s constitution, defining its objectives, scope of activities, and the internal regulations governing its operations. It serves as a crucial legal document, specifying the company’s structure, share capital, and the rights and obligations of shareholders. Approval and adherence to the MOA are fundamental for obtaining the company’s trade license, emphasizing its essential role in the establishment and governance of businesses in the UAE.
Corporate Governance:
- Directors must ensure the LLC adheres to all applicable laws and regulations, both at the federal and emirate levels. Upholding fiduciary duties, directors are obligated to act in the best interests of the company and its shareholders. Monitoring financial performance, directors are responsible for accurate financial reporting, transparency, and safeguarding the company’s assets.
- Participating in strategic decision-making, directors contribute to the formulation and execution of the LLC’s business plans. Identifying and managing risks, directors are tasked with implementing effective risk management strategies to protect the LLC’s interests. Maintaining accurate corporate records and ensuring compliance with the LLC’s Memorandum of Association and Articles of Association.
- Disclosing and managing conflicts of interest is crucial to prevent any compromise in the integrity of decision-making processes. Directors are also responsible for transparent communication with shareholders, keeping them informed about the LLC’s performance and major decisions.
- Shareholders exercise voting rights on significant decisions, such as the appointment of directors, modifications to the Memorandum of Association, and major business transactions. They can influence corporate governance by electing representatives to the board of directors, ensuring their interests are represented in strategic decision-making. Shareholders typically have the authority to approve annual reports, financial statements, and the distribution of profits, fostering transparency and accountability.
- Active participation in general assembly meetings provides shareholders with a platform to express concerns, pose questions, and engage with the company’s management. Shareholders may enter into agreements that outline their rights and responsibilities, impacting governance structures beyond statutory requirements. Through discussions and voting, shareholders can influence the formulation and amendment of corporate policies, ensuring alignment with their expectations.
- Additionally, shareholders may hold the power to remove directors if they believe their actions are not in the company’s best interest, contributing to checks and balances within the governance structure. Overall, the engagement and decisions of shareholders significantly impact the corporate governance practices of an LLC, promoting accountability, transparency, and alignment with shareholder interests.
- AML (Anti-Money Laundering):
- UBO (Ultimate Beneficial Owner):
- ESR (Economic Substance Regulations):
- ESG (Environmental, Social, Governance):
- VARA (Virtual Asset Regulatory Authority):
- The UAE Commercial Companies Law serves as a cornerstone, outlining legal provisions governing corporate entities and establishing standards for transparency, accountability, and the responsibilities of directors.
- Regulatory bodies such as the Securities and Commodities Authority (SCA) play a crucial role in overseeing corporate activities in specific sectors, ensuring compliance with regulations.
- Corporate misconduct can also lead to both criminal and civil liability with the legal system allowing for the prosecution of individuals or entities involved in fraudulent activities, breaches of fiduciary duty or other offenses.
- The principal Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) legislation includes Federal Decree-Law No. (20) of 2018, as amended by Federal Decree Law No. (26) of 2021, and Cabinet Decision No. (10) of 2019, as amended by Cabinet Resolution No. (24) of 2022.
- Dispute resolution mechanisms, including courts and arbitration centers in the UAE, handle disputes related to corporate misconduct. The legal system supports alternative dispute resolution methods, such as arbitration and mediation.
- Corporate governance codes and guidelines have been implemented in the UAE, emphasizing ethical behavior, transparency, and responsible corporate practices.
- Various governmental agencies, including the Ministry of Economy, Dubai Financial Services Authority (DFSA), and Abu Dhabi Global Market Financial Services Regulatory Authority (FSRA), are entrusted with enforcing laws and regulations related to corporate conduct. These agencies investigate complaints, conduct audits, and take appropriate enforcement actions.
Mergers and Acquisitions
Commercial Practice:
Commercial Dispute Resolution
Q1: What are the advantages and disadvantages of choosing arbitration over litigation for commercial disputes in the UAE?
Choosing between arbitration and local litigation for commercial disputes in the UAE presents distinct advantages and disadvantages.
Arbitration offers neutrality and expertise through a panel of industry-specific experts. Proceedings are generally confidential, protecting sensitive information. Flexibility in procedural aspects allows for a tailored approach and arbitral awards are globally enforceable under the New York Convention. However, arbitration can be expensive, with fees for arbitrators, administrative costs and venue expenses. Further, there is limited grounds for challenging arbitral awards.
Local litigation benefits from the expertise of local courts in UAE law and regulations. In some cases, it may be more cost-effective especially for straightforward disputes. The process allows for extensive judicial oversight with the option to appeal decisions. Yet, recent regulations have streamlined local litigation addressing concerns about its time-consuming nature.
Q2: Can businesses opt for alternative dispute resolution methods, and what are the implications?
Businesses in the UAE have the option to choose alternative dispute resolution (ADR) methods, such as arbitration and mediation.
ADR offers flexibility, efficiency, and confidentiality, with proceedings often being less formal than traditional litigation. The expertise and neutrality of arbitrators and mediators contribute to fair outcomes. Further, arbitral awards are enforceable globally. ADR can be cost-effective, yet businesses should carefully consider associated costs.
On the other hand, the informality of ADR can help maintain relationships and foster collaborative solutions. The UAE recognizes and supports ADR methods providing a legal framework for their implementation and enforcement. However, businesses should be mindful of potential drawbacks such as limited grounds for challenging arbitral awards and ensure careful drafting of ADR clauses in contracts.
Q3: What role do local courts play in enforcing arbitral awards in the UAE?
In the UAE, local courts play a crucial role in enforcing arbitral awards. The legal framework supports the recognition and enforcement of such awards. Once an arbitral tribunal issues an award, it can be submitted to the relevant local court for enforcement.
Local courts follow established procedures to examine and confirm the enforceability of arbitral awards. The enforcement process is generally efficient, aligning with international standards. The UAE is a signatory to the New York Convention, thus, facilitating the global enforcement of arbitral awards.
However, it is essential to highlight that local courts have the authority to set aside or refuse enforcement under specific circumstances, including matters related to the public policy of the UAE. Despite this, the general approach is to uphold and recognize arbitral awards, promoting the effectiveness of alternative dispute resolution in the country.
In summary, local courts in the UAE actively support the enforcement of arbitral awards, providing a mechanism for parties to obtain the benefits of their arbitration outcomes within the country’s legal framework.
Mergers and Acquisitions
Recent changes in UAE labor laws are reshaping how businesses approach employee contracts and benefits. The emphasis on written employment contracts calls for increased transparency; whilst the growing trend of remote work requires adjustments to contract structures. Amendments to working hours, rest periods and the principle of equal pay for equal work impact compensation strategies. Changes in leave entitlements and disciplinary procedures also necessitate updates to benefit packages and employment terms.
Notably, all unlimited employment contracts are now converted to limited reflecting a shift in contractual arrangements. The heightened focus on occupational health and safety influences the incorporation of well-being measures in benefits. Adjustments in gratuity calculations and severance pay requirements prompt a careful review of employment contracts to ensure compliance. As businesses adapt to these changes, they are proactively aligning contracts and benefits with the evolving legal landscape to foster compliance and meet the needs of the modern workforce.
Q3: Can you explain the legal requirements for termination of employment contracts in the UAE?
Under the new UAE labor laws, terminating employment contracts requires adherence to specific guidelines. Employers must provide notice or payment in lieu of notice as specified in the contract. Severance pay is calculated based on base salary, service length and termination reason. Termination by mutual agreement should be documented in writing. Valid reasons, such as redundancy or incapacity, must justify termination. Fair and transparent disciplinary procedures, including a progressive approach, are essential. Employers should maintain clear documentation outlining the grounds for termination. Settlement of end-of-service benefits including gratuity is mandatory.
With all employment contracts being limited, termination can occur at the expiry date of the contract. In certain cases, employers may need to notify the Ministry of Human Resources and Emiratization (MOHRE), especially in mass termination situations. Complying with these legal requirements is crucial for employers conducting terminations under the new labor laws.
Employment Law:
Q1: What are the key provisions that should be included in employment contracts to ensure compliance with UAE labor laws?
To comply with UAE’s new labour law, employment contracts should include essential provisions which encompass specifying the job role, employment terms, working hours, compensation and benefits. Clear details about leave entitlements, probation periods, termination conditions and notice periods are important. Additionally, contracts should address confidentiality, non-compete clauses, disciplinary procedures, health and safety measures and grievance procedures.
The agreement should emphasize compliance with UAE labor laws that outlines responsibilities regarding visa and work permits and establish a dispute resolution process. Ensuring these key provisions are incorporated helps create transparent expectations for both employers and employees, promoting legal compliance. Legal advice from Alsuwaidi & Company can assist in tailoring contracts to meet specific industry and organizational requirements.
Q2: How do recent changes in labor laws impact businesses’ approach to employee contracts and benefits?
Recent changes in UAE labor laws are reshaping how businesses approach employee contracts and benefits. The emphasis on written employment contracts calls for increased transparency; whilst the growing trend of remote work requires adjustments to contract structures. Amendments to working hours, rest periods and the principle of equal pay for equal work impact compensation strategies. Changes in leave entitlements and disciplinary procedures also necessitate updates to benefit packages and employment terms.
Notably, all unlimited employment contracts are now converted to limited reflecting a shift in contractual arrangements. The heightened focus on occupational health and safety influences the incorporation of well-being measures in benefits. Adjustments in gratuity calculations and severance pay requirements prompt a careful review of employment contracts to ensure compliance. As businesses adapt to these changes, they are proactively aligning contracts and benefits with the evolving legal landscape to foster compliance and meet the needs of the modern workforce.
Q3: Can you explain the legal requirements for termination of employment contracts in the UAE?
Under the new UAE labor laws, terminating employment contracts requires adherence to specific guidelines. Employers must provide notice or payment in lieu of notice as specified in the contract. Severance pay is calculated based on base salary, service length and termination reason. Termination by mutual agreement should be documented in writing. Valid reasons, such as redundancy or incapacity, must justify termination. Fair and transparent disciplinary procedures, including a progressive approach, are essential. Employers should maintain clear documentation outlining the grounds for termination. Settlement of end-of-service benefits including gratuity is mandatory.
With all employment contracts being limited, termination can occur at the expiry date of the contract. In certain cases, employers may need to notify the Ministry of Human Resources and Emiratization (MOHRE), especially in mass termination situations. Complying with these legal requirements is crucial for employers conducting terminations under the new labor laws.
Compliance and Regulatory Matters
Q1: How does the law firm assist clients in navigating evolving regulatory landscapes and staying compliant?
We, Alsuwaidi & Company, assist clients in the UAE by navigating evolving regulatory landscapes and ensuring compliance. Leveraging our regulatory expertise, we offer proactive updates on changes in laws, tailor compliance strategies, and facilitate communication with government authorities. Our responsive legal support ensures clients have a reliable resource for legal guidance in adapting to regulatory changes seamlessly.
Q2: What are the key challenges businesses face in maintaining compliance with UAE regulations?
Maintaining compliance with UAE regulations poses several challenges for businesses. The dynamic nature of regulatory frameworks requires constant vigilance to stay updated on changes. Diverse regulations across sectors and free zones add complexity necessitating a detailed understanding of industry-specific requirements. Language barriers and interpretation issues can further complicate compliance efforts. The need for meticulous documentation and record-keeping aligned with regulatory standards presents an ongoing challenge. Additionally, businesses must navigate the balance between federal and emirate-level regulations. Ensuring a robust compliance program demands dedicated resources, ongoing training, and the ability to adapt swiftly to regulatory shifts, reflecting the detailed landscape businesses operate within.
Q3: How do regulatory changes, such as tax reforms, impact businesses operating in the UAE?
In light of UAE laws and regulations including the introduction of VAT and a corporate income tax rate of 9%, regulatory changes, especially tax reforms, significantly impact businesses operating in the UAE. The Federal UAE Corporate Tax (CT) Law, effective for each taxable person’s new financial year beginning on or after 1 June 2023, extends across all emirates and encompasses all business and commercial activities.
The implementation of VAT necessitates businesses to adapt their financial systems, pricing structures and compliance processes to ensure accurate tax collection and reporting. Simultaneously, the corporate income tax introduces a new dimension to financial planning, influencing profit distribution strategies and overall tax liabilities. Companies must navigate these changes diligently ensuring proper documentation, transparent financial reporting and adherence to updated tax compliance requirements.
Under the Federal UAE CT Law, certain entities are exempt from corporate tax subject to specific conditions. These exemptions include UAE government entities, government-controlled entities, persons engaged in extractive and non-extractive natural resource businesses, qualifying public benefit entities, qualifying investment funds and other categories determined by Cabinet decisions.
The evolving regulatory landscape underscores the need for businesses to proactively engage with tax experts, Alsuwaidi & Company, to navigate these changes effectively, optimize their tax positions and ensure ongoing compliance with the latest regulations. Companies should carefully assess their financial structures and tax planning strategies to adapt to this transformed tax landscape in the UAE.
For more information, please contact our Authors: Suneer Kumar directly on Suneer@alsuwaidi.ae ,Vida Grace Serrano directly on Vida@alsuwaidi.ae