second edition - lw.com

Doing Business in the United Arab Emirates

Second Edition

LW.com

Contents

A. IntroductIon .....................................................................................2

I Country Background II Free Zones III Status of Shari’ah Law in the UAE

B. EStABLIShIng A LEgAL prESEncE In thE uAE ...........................3

I Incorporating a Local Entity II OpeningaBranchorRepresentativeOffice(OutsideaFreeZone) III Setting up a Free Zone Entity IV Holding Companies V Commercial Agency Relationship

c. gEnErAL LEgAL conSIdErAtIonS .................................................7

I Doing Business with the Public Sector II Import & Export Regulations III Foreign Exchange Controls & Anti-Money Laundering IV Bribery and Anti-Corruption V Taxation VI Employment Law VII Immigration VIII Real Property IX Intellectual Property X Data Protection and Privacy XI Governing Law

XII Dispute Resolution

XIII New Competition Law

AppEndIcES ............................................................................................15

1 Pros and Cons of Means to Set Up a Legal Presence in the UAE 2 Companies Law and Free Zone Entities

EndnotES ................................................................................................19

2 Latham & Watkins | Doing Business in the United Arab Emirates Latham & Watkins | Doing Business in the United Arab Emirates 3

this guide provides an overview of the principal legal issues for foreign investors considering doing business in the united Arab Emirates (the uAE).

A. IntroductIon

(i) country Background

The UAE is a federation of seven emirates comprising Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain and was formed on 2 December 1971.

The UAE federal constitution was permanently accepted in 19961 and provides for an allocation of powers between the federal government and the government of each emirate.

The constitution provides the legal framework for the federation and is the basis of all legislation promulgated at a federal and emirate level. Pursuant to the constitution, the federal government has exclusive jurisdiction in various substantive matters, including foreign policy, defence and security. Legislation passed at a federal level has primacy over the local laws of each emirate. The local government of each emirate is, however, permitted under Article 113 of the constitution to regulate all local matters which are not subject to federal legislation or matters which are not expressly reserved in the constitutiontothefederalunion(examplesofsuchfederalmattersbeingforeignaffairs,defenceandhealth).Assuch,thegovernmentsofeachindividualemirateretainsubstantial powers to regulate commercial activities, issue trade licences and effect the incorporation of corporate entities to the extent that such activity is not already regulated under federal legislation.

TheUAEjudicialsystemvariessignificantlyacrosstheUAEandthefreezones.Onlyfiveemiratessubmittoafederalcourtsystem—DubaiandRasAlKhaimahhavetheirownindependentcourtsystems.Alloftheemirates(exceptinrespectofsomeofthefreezones)followuniformlysimilarrulesofcivilprocedureandevidence,andtrialsare decided by a single judge or a panel of three judges, and not by a jury. In addition, someofthefreezoneshavetheirownjudicialsystems,aswellastheirownrulesofcivilprocedure and evidence.

(ii) Free Zones

TheUAEfederalconstitution,thefederallawsrelatingtofreezonesandthepowersreserved by the individual emirates under the federal structure, permit each emirate to setup“freezones”forgeneralorindustry-specificactivities.ThepurposeoffreezonesistoencourageforeigndirectinvestmentintotheUAE.Freezoneentitiesarenotgenerallyrequired to have any UAE nationals as owners. This contrasts with most companies incorporatedintheUAEoutsideofthefreezones,whereUAEnationalsaretypicallyrequired to own at least 51 percent of the company’s capital.

VariousfreezoneshavebeensetupintheUAE,mostofwhichareinDubai.Freezonesareauthorisedtoenacttheirownlawsandregulationsinspecificareas,whichinsomecases override federal and emirate law on the subject matter. For example, the Dubai InternationalFinancialCentre(theDIFC),whichisafinancialfreezonewithinDubai,has its own body of law, including corporate law, contracts law and employment law, as well as its own court system. Unless otherwise stated, references in this guide to matters of law or practice applicable in the UAE generally refer to the wider UAE outside of the freezones.

(iii) Status of Shari’ah Law in the uAE

Foreign parties contemplating doing business in the UAE often assume that all aspects of law in the country are governed by Islamic Shari’ah. While the UAE federal constitution provides that Shari’ah is a main source of law, it is not the only source of law and its applicationisgenerallylimitedto(i)beingusedbythecourtsasaninterpretativeaidwherethereisnoexpressprovisionoflegislationgoverningaparticularquestion;(ii)religious,moralityandpersonallawmatters,particularlyinvolvingMuslims(suchasinheritance,divorce,etc.);and(iii)transactionswhichareintentionallyexpressedtobeShari’ah-compliant, such as Islamic banking transactions. Outside of these rather limited areas, contractual terms that would be forbidden under Shari’ah are generally fully enforceable under the laws of the UAE, including under the UAE Civil Code. For example, a contractual term in a conventional commercial transaction requiring the payment of interest(whichisaconceptthatisforbiddeninIslamandiscontrarytoShari’ah)is,ingeneral, valid in the UAE and would normally be enforceable in the UAE courts.

B. EStABLIShIng A LEgAL prESEncE In thE uAE

In order to conduct business in the UAE, a foreign investor is required to establish a formal legalpresence(directlyorthroughanagent)withintheUAEthroughanyofthefollowingmeans:

•Incorporating a local entity;

•Registeringabranchorrepresentativeofficeofaforeigncompany;

•Establishingafreezoneentity;and

•Entering into a commercial agency relationship.

Further details of each of these means is set out below. A matrix summarising the pros and cons of the means likely to be most relevant to foreign investors is set out in Appendix 1.

(i) Incorporating A Local Entity

Unlike in many other jurisdictions throughout the world, it is not possible to buy shelf-companiesintheUAEandthereisnocentral“companieshouse”whereinformationonthe companies incorporated in the UAE is available. Only the company itself can provide suchinformationthatisfiledattheDepartmentofEconomicDevelopment(orothersimilaragency)oftheemirate(s)wherethecompany’sofficesarelocated.

As a general requirement, locally incorporated entities must obtain the following licenses:

•AtradelicensefromtheDepartmentofEconomicDevelopment(orothersimilaragency)oftheemirate(s)whereoffice(s)willbelocated;and

•If applicable, authorisation from the relevant Ministry or government entity with jurisdiction over the type of business activities to be conducted.2

Locally incorporated entities may be formed under the UAE Civil Code or incorporated underFederalLawNo.8of1984ConcerningCommercialCompanies(asamendedbyFederalLawNo.15of1998)(theCompaniesLaw).3

(a) Entities Formed under the uAE civil code/Establishments

EntitiesformedundertheUAECivilCodearerestrictedtocarryingout“non-commercial”orcivilactivities—theseareactivitiesthatinvolvethepromotionoftheskillsandexpertiseoftheindividual(s)conductingthebusiness.Mostconsultancyservices(includingthepracticeoflaw,medicine,andresearchactivities),theproductionofworksofartor


literature, and the sale of agricultural products by farmers are examples of activities that may be conducted by a UAE Civil Code entity.

The most common form of civil entity used by foreign investors is the professional services company. Such entities are only appropriate for carrying on service businesses, suchasengineering,medicalandconsultancyservices.Theprimarybenefitofestablishing a professional services company is that such an entity may be 100 percent foreign owned,4 although a national agent must be engaged by all such companies. The provisions of the Companies Law do not apply to entities formed under the UAE Civil Code.

(b) Entities Incorporated under the companies Law

Alllocallyincorporatedcompanies(otherthanthoseformedundertheUAECivilCode)must be set up in accordance with the Companies Law. The Companies Law requires companies to adopt one of the following forms:

•Limited Liability Companies;

•Private Joint Stock Companies;

•Public Joint Stock Companies;

•JointParticipationVentures(orPrivateUnlimitedCompanies);

•LimitedPartnerships(orSimpleCommanditeCompanies);

•PartnershipLimitedwithShares(orShareCommanditeCompanies);and

•GeneralPartnerships(orJointLiabilityCompanies).

Appendix 2 summarises the key differences between the entities set out above.

Of the entities listed above, most foreign businesses choose the limited liability company asforeignerscanexertsignificantcontroloverthemanditrequiresarelativelysmallamount of minimum capital to start up. Previously limited liability companies in Dubai were required to have a minimum share capital of AED 300,000 and those in other emirates required a minimum of AED 150,000. However, following an amendment to Article 227 of the Companies Law,5 shareholders now have the right to determine the share capital of their limited liability companies, provided that such company will have sufficientcapitaltoachieveitsobjects.Suchanentitymay,however,beinappropriatetoachieve certain business goals. For example, businesses involving banking, insurance or investment activity on behalf of third parties may only be conducted by a public joint stock company, and limited liability companies may not offer their shares for public subscription, which is a central feature of the public joint stock company.

The key limitation on entities incorporated under the Companies Law is that 51 percent of the capital of a company must be owned by a UAE national. However, certain services and investment activities are reserved for UAE nationals. For example, only UAE nationals and companies wholly owned by UAE nationals may supply real estate services, rental/leasing services relating to cars, services incidental to agriculture, forestry,farmingandfishing,placementandsupplyofpersonnel,investigationandsecurity services, travel agencies and tour operator services, passenger and freight road transportation and the ownership of pharmacies and medical warehouses.

It is possible for the constitutional documents of a limited liability company to allocate upto80percentoftheprofitsofthecompanytotheforeignshareholderinDubaiandup to 85 percent in Abu Dhabi. The constitutional documents may also incorporate the following provisions designed to protect the interests of a foreign minority shareholder:

•The foreign shareholder may appoint all of the directors;

•The foreign shareholder may appoint the general manager;

•The foreign shareholder may veto major decisions of the company;

•The foreign shareholder may be entitled to all of the assets of the company on winding up; and

•Theforeignshareholdermaybeentitledtomorethan49percentofthecompany’sprofits.

Inrelationtotheremainingpercentageofprofitsofthecompany,itispossibleforadditionalcommercial agreements to be put in place to give a foreign minority shareholder access to almost100percentoftheprofits.

However, there is much commentary and debate in the UAE about the enforceability of any contractual side arrangements that may be put in place that purport to confer the full economicownershipandprofitstoaforeignminorityshareholder,whentheconstitutionaldocumentssetouta49percentto51percentsplit.ItisgenerallydifficulttoknowhowaUAE court would treat side arrangements if asked to consider them, as the UAE courts are not bound by precedent and do not report on discussions. Likewise, consideration should be given to the Anti-Fronting Law.7

The Anti-Fronting Law was enacted in the UAE in 2004 and was supposed to come into force in November 2007. However, a UAE Ministerial Cabinet Resolution deferred such enforcement until 21 December 2009. Although the UAE Ministry of Economy does not appeartohaveprovidedfurtherclarificationontheimplementationdateoranyscheduledfurtherdeferralofthislawsincetheresolution,therearedifferingandconflictingviewsonits current enforceability. As such, enforcement of the law remains unclear.

Insummary,theAnti-FrontingLawisdesignedtoprevent“fronting,”beingwhereaforeigner is able to undertake any economic or professional activity, which such foreigner would not be able to carry out under the other effective laws of the UAE, whether undertaken on the foreigner’s own account or in a venture with others and enabling such foreigner to evade applicable obligations. As such, it could be argued that the Anti-Fronting Law is aiming to prevent the use of nominee and side arrangements with UAE nationals.

Due to the uncertainty over the Anti-Fronting Law, side arrangements remain common in the UAE but their legality and enforceability remains questionable.

(ii) Opening a Branch or Representative Office (Outside of a Free Zone)

Articles 313 to 316 of the Companies Law permit foreign companies to open branches orrepresentativeofficeswithintheUAE.Abranchorarepresentativeofficeofaforeigncompany may be wholly owned by foreigners.

A branch of a non-UAE company may only be registered in the UAE with the sponsorship of a local service agent who must be a UAE national or a company wholly owned by UAE nationals. The arrangement between the company wishing to set up the branch and the local service agent will be set out in an agency agreement in English/Arabic which has to besignedbeforealocalnotarypublic(theSponsorshipAgreement).Theserviceagenthas neither power nor responsibility in respect of the branch and the foreign company wouldretainfullcontrolandbenefitoverthebranch.Alocalserviceagentisusuallypaidanannual fee in the range of US$20,000 to US$25,000.8

There are no minimum capitalisation requirements for a branch although the foreign company is required to provide a standard form Arabic bank guarantee from a local bank (whichincludesaninternationalbankwithabranchinDubai)intheamountofAED50,000(approximatelyUS$14,000)andtoshowdetailsofitsowncapitalisationandgoodstanding,together with its two most recent sets of annual audited accounts.


Generally, the parent company of the branch must have been in existence for more than two years in order to open a branch in the UAE.

Thebranchmusthaveacertainspecifiedbusinessactivity,whichmustbeapprovedinadvance by the relevant local authorities. The activity of the branch must be the same activityasthecompanyestablishingthebranch(oritsgroup).IftheforeignentityisaGulfCooperationCouncil(GCC)entitythennolocalserviceagentneedstobeappointed.With regard to trading activities, branches are not permitted to physically deal in or trade in goods within the UAE other than goods manufactured by its parent or its parent’s group. It is, however, permitted to render maintenance and repair services to customers of its parent company.

It is important to note that approval for the issuance of a licence for a branch depends on the type of activity the proposed branch intends to carry on in the emirate. It is prudent therefore to obtain initial approval from the relevant local authorities for the proposed activities of the branch prior to commencing the incorporation process.

Arepresentativeofficeismorelimitedthanabranchofficeinthescopeofactivitiesthatitispermittedtoundertake.Arepresentativeofficemayonlyconductmarketingandadministrativefunctionsonbehalfofitsforeignparent.Arepresentativeofficetypicallygathers information on the local market, establishes relationships and solicits orders to be performed by the parent company. The parent company will generally be required to engage a commercial agent if it wishes to conduct sales activities within the UAE.

(iii) Setting up a Free Zone Entity

AkeyfeatureofafreezoneentityisthatitisnotsubjecttotheforeignownershiprestrictionsimposedbytheCompaniesLawinthewiderUAE(althoughissuesofforeignownershipmaystillberelevantifthefreezoneentityisusedasaholdingcompanyforassetssituatedoutsidetherelevantfreezone).Freezoneentitiesarealsograntedcertainancillaryfinancialbenefits(describedfurtherinPartC).

Afreezoneentitywillgenerallytakeoneofthefollowingthreeforms:abranchorrepresentativeofficeofaforeigncompany,afreezonecompanyorafreezoneestablishment. There is no minimum capital requirement for a branch or representative office,whileinmostfreezones,afreezoneestablishmentandafreezonecompanyare typically required to have a minimum capital of around AED 500,000, but the precise requirementsvaryfromfreezonetofreezone.Afreezoneestablishmentmaybeownedbyasingleindividualorcompany,whereasafreezonecompanytypicallyrequirestwoormore owners.

Thekeylimitationofafreezoneentityisthatitisgenerallypermittedtoconductbusinesswithinitsrelevantfreezoneorinternationallyandislimitedtoperformingsolelythoseactivitiesspecifiedinitslicense.9Afreezoneentitymusttypicallyholdoneofthefollowinglicensesissuedbytherelevantfreezoneauthority:(i)tradinglicense,(ii)servicelicense,(iii)manufacturing/industriallicense.InorderforafreezoneentitytoengagelegallyinsaleswithintheUAE(andoutsideoftherelevantfreezone),theentitywillgenerallyhaveto retain a commercial agent or distributor or establish a branch onshore.

(iv) holding companies

Incertaincircumstances,entitiesincorporatedinthefreezonesmaybeusedasoffshoreholding companies, meaning that they are used in transactions that do not involve operationsphysicallysituatedintherelevantfreezone.Examplesofthispracticeincludethe use of companies incorporated under the offshore companies regime of the Jebel Ali Free Zone for use as a regional holding, or as a holding company for the ownership ofrealestateassetsinDubai.Additionally,specialpurposecompanies(SPCs)canbe

incorporatedintheDIFCinregionalstructuredfinancetransactions,availingofthemoreinternational-standard regulatory environment and court system offered by the DIFC. Whileexceptionssuchasthesedoexist,freezoneentitiesgenerallyhavephysicaloperationswithinthefreezoneinwhichtheyareincorporated.Mostfreezoneshaveafocus on attracting and catering for a particular industrial or economic sector, as evident inthenamesoffreezonessuchasDubaiInternetCity,DubaiHealthcareCityorDubaiMediaCity.WhilethemajorityoftheUAE’sfreezonesaresituatedinDubai,freezonesoutside of Dubai include the Khalifa Industrial Zone in Abu Dhabi, the Hamriyah Free Zone in Sharjah and the RAK Free Trade Zone in Ras Al Khaimah.

(v) commercial Agency relationship

If a foreigner wishes to import goods into the UAE but does not wish to maintain a physical presence in the UAE it will generally enter into a commercial agency relationship with a wholly local owned entity or UAE national. Commercial agents are generally used by foreign manufacturers and traders who are engaged in the large-scale importation of goods into the UAE on a regular basis.

Under a commercial agency, the foreign business and the commercial agent agree to thetermsofthesalescommission,theterritoryofthedistributorship(ataminimum,thiswouldbeoneemirate)andthedurationoftherelationship.Ifthecommercialagentregisters the contract with the Ministry of Economy and Commerce the agent can obtain the various protections afforded to agents under the UAE Commercial Agencies Law (FederalLawNo.18of1981,asamendedbyFederalLawNo.14of1988andFederalLaw No. 2 of 201010).Theseprotectionsinclude:

•Exclusivity—registeredcommercialagentshavetheexclusiverighttoimportthegoodswhich are the subject matter of the agency;

•Commissions—registeredcommercialagentsareentitledtoreceivecommissionsonthe sales they make as well as commissions on sales made in the UAE by the principal or any other party; and

•Termination—theprincipalmayonlyterminatearegisteredcommercialagencyarrangementunilaterallyfor“materialreasons.”Suchreasonsmustbeacceptableto the Commercial Agencies Committee. In practice, it is very hard to terminate a registered agency arrangement. Further, a principal may not refuse to renew a registered commercial agency agreement after its expiry date without the payment of compensation to the registered commercial agent.

Unregistered commercial agencies on the other hand are not subject to the above restrictions. There is no formal procedure required for an unregistered commercial agency to be valid other than parties negotiating and agreeing the terms of their arrangement.

Generally limited liability companies in the UAE can import and distribute goods in their own right, but do still need to register to obtain the protections described above.

c. gEnErAL LEgAL conSIdErAtIonS

(i) doing Business With the public Sector

Foreign businesses that do business with the federal government or the government of any emirate or any other governmental body must comply with public sector procurement rules as set forth in Financial Order No. 16 of 1975, the Federal Regulation of Conditions of Purchases, Tenders and Contracts as well as any local procurement rules.


(ii) Import & Export regulations

AsamemberoftheWorldTradeOrganization(theWTO)andasapartytovariousregional free trade agreements throughout the GCC, the UAE has low rates of tariffs.

ImportdutiesarenormallychargedonproductsimportedintotheUAE(outsideofthefreezones),atratesthatcanvaryaccordingtothenatureoftheimport(e.g., higher dutiesapplytoalcoholandtobaccoproducts).Thedutymaybealleviatedbyexemptionsbasedontheimporter’sstatus(e.g.,freezoneentity,majorityownedbyaGCCnational,etc.)orexemptionsbasedonthetypeofproduct.Generally,foreignpartiescannotimportgoodsintotheUAEforthepurposeofresale,otherthanafreezoneentitydirectlyforsalewithintherelevantfreezoneorforitsownuse.Notethatthereisa5percentexportduty for all goods leaving the Jebel Ali Free Zone for Dubai.

There are no duties or tariffs on exports.

The UAE imposes a boycott of trade with Israel.

(iii) Foreign Exchange controls & Anti-Money Laundering

The UAE does not generally have any currency exchange controls and restrictions on theremittanceoffunds.Further,freezoneentitiesaregenerallyexpresslypermittedtorepatriate100percentoftheirprofitsfromtheUAEinaccordancewithregulationsinplaceintheirrespectivefreezones.

The UAE has recently strengthened its laws relating to the use of criminal proceeds andterroristfinancingactivities.AstheGCCisamemberoftheglobalFinancialActionTaskForce(theFATF),theUAEhasimplementedanti-moneylaunderingprocedurestomeetthestandardsoftheFATF.Thevariousfreezonesalsogenerallyhaverulesonpreventing money laundering. For example, the DIFC requires companies incorporated intheDIFCtoappointaseniormanagerasamoneylaunderingreportingofficerandtosubmit an annual report detailing steps that such company has taken to implement its anti-money laundering rules.

(iv) Bribery and Anti-corruption

TheUAEhasratifiedtheUnitedNationsConventionagainstCorruptionandhasenactedfederal and emirate level legislation to target bribery and corruption.

BriberyofaUAEpublicofficial(suchtermincludesallcustomarygovernmentandministerial positions and also covers employees of state-owned companies or partially state-ownedprivatecompanies)isanoffenceintheUAE.Thisappliesequallytothepublicofficialandthosewhooffer,acceptandfacilitatebribes,whetherornottheyactuallybenefitfromthebribe.PrivatesectorbriberywithintheUAEissimilarlyprohibited, however the legislation only applies to the person accepting the bribe, not the person offering or facilitating the bribe. Penalties for bribery can include forfeiture of the bribe,upto10yearsinprisonandfinescommensuratewiththeamountofthebribe.

(v) taxation

ThereisnofederalcorporateorincometaxleviedintheUAE(exceptonoilcompaniesandbanks).Certainemirates,includingDubaiundertheDubaiIncomeTaxOrdinanceof 1969, have introduced a local income tax; however, these taxes have not been implementedasofthedateofthismemorandum.Inaddition,freezoneentitiesmaybeabletobenefitfromformaltaxholidaysforperiodsofupto50years(renewable15yearholidaysarecommon).TheUAEhastaxtreaties(concludedwithanumberof

jurisdictions(includingGCCcountries)whichUAEnationalsandlocallyincorporatedentitiescanbenefitfrom.Currently,thereisambiguityregardingwhether,underthelawsofotherGCCstateswhetherfreezoneentitiesshouldqualifyforthefavourabletaxtreatment usually afforded to other GCC nationals/GCC-incorporated entities, particularly where such entities are not majority or wholly-owned by UAE nationals.

There is currently no value added tax or sales tax in the UAE, although the imposition of a GCC-wide value added tax has been widely discussed for the last several years.

TherearealsocurrentlynofederalpersonaltaxesofanykindintheUAE—i.e. no federal income tax, capital gains tax or inheritance tax. Certain municipality taxes are levied at the emirate level on designated services.

It should be noted that, while there are generally no direct taxes in the UAE, there are a number of indirect taxes in the form of government fees. These include land transfer fees andfeespayabletothenotarypublic(sincemostcorporatetransactions,includingsharetransfersgenerallyrequiretheinvolvementofthepublicnotaryorotherofficialbodytograntregistration).Inaddition,certaintransferfeesareapplicableinthefreezones.Forexample,thetransferofsharesinafreezoneestablishment(FZE)intheJebelAliFreeZone is subject to a transfer fee of a minimum of AED 20,000 subject to a maximum of AED 50,000.

(vi) Employment Law

Employment in the UAE is governed by the UAE Labour Law, Federal Law No. 8 of 1980, as amended, which imposes certain minimum standards on employing juveniles, working hours, vacation and public holidays, sick leave, maternity leave, employee records, safety standards, termination of employment and end of service gratuity payments. In January 2011, the Ministry of Labour and Social Affairs introduced, for the firsttime,aminimumwagelimitfordifferentcategoriesofworkers.Employeegrievancesare handled by a special programme run by the Ministry, and the Ministry must also be informed if an employee is subject to the disciplinary code. Pensions and social security schemes in the UAE are governed by the Pensions & Social Securities Law, Federal Law No. 7 of 1999, as amended.

Somefreezoneshavetheirownemploymentlawsandemployeegrievanceproceduresalthough, generally speaking, these mirror the provisions of the UAE Labour Law. In somefreezones,forexampletheDIFC,thefreezone’slawswilltakeprecedenceoverthe federal employment laws.

MostemployeesworkingintheUAE,includinginthefreezones,havewrittencontractsof employment. The Ministry of Labour requires a standard form contract of employment tobeenteredintoandfiledwiththeMinistryofLabour.Manyemployersalsoenterinto further, more comprehensive employment contracts with their employees. Written contracts of employment are certainly advisable for any business in the UAE. There is noemploymentatwillintheUAE(theUAELabourspecifiesminimumnoticeperiodsforterminationofemployees).

Since September 2009, all institutions registered under the Ministry have been required to make all payments of their workers’ wages and salaries through the Wages Protection System.Thisinvolvesthetransferofmoniesthroughafewselectedfinancialinstitutionsthat are authorised and regulated by the government. The Wages Protection System doesnotapplytosomefreezones,forexampletheDIFC.

UAE federal law also sets out preferences for hiring UAE nationals and, for some administrativepositions,requiresthatonlyUAEnationalsbeemployed(e.g., public relationsofficerswholiaisewiththegovernmentatlargecompanies,attorneysappearinginthecourts,etc.).Ifanon-free-zonecompanyhasmorethan50employees,itmust


employaminimumpercentageofUAEnationalsinaccordancewiththe“Emiratization”policy of the UAE Federal Government as originally expressed in Council of Ministers Order No. 259/1 of 2004 entitled “Resolutions on Training and Employment of UAE CitizensinthePrivateSector”(theResolution).TheEmiratizationpolicyappliestoboththe public and the private sector, and both local and international companies operating in theUAEaresubjecttotheEmiratizationpolicyinthesectorsforwhichsuchguidelineshavebeenformulated.TheEmiratizationpolicyquotasarehigherinthepublicsector,and have recently been amended for the private sector to require a blanket 15 percent quota of UAE national workers, across all private sector industries. The Resolution principally tasks the National Human Resources Developing and Employing Authority and theMinistryofLabourwithdevelopingfurtherEmiritizationguidelines.

A key provision of UAE federal employment law is a requirement to pay a statutory end ofservicegratuity(ESG)toemployeesuponterminationoftheiremployment.TheESGregime in the UAE takes the place of a formal pension regime. ESG is calculated at a rateof21days’salaryperyearforthefirstfiveyears’serviceand30days’foreachyearthereafter, up to a maximum amount of ESG equal to two years’ salary. ESG is payable as a lump sum on termination of employment. The DIFC has its own ESG regime, which is broadly similar to that applied in the wider UAE. Share incentive schemes are not common in the UAE.

(vii) Immigration

Asacountrywithaveryhighpercentageofexpatriates(85percentto90percentofthetotalpopulation)andvisitingtourists,theUAEisgenerallyaccommodatingtolegalimmigrants and visitors. Visas are available for business and tourists visits, transit and residency, and in the majority of cases, an attorney is not required to handle processing of visas.

Visitorsfromapproximately33countries(includingtheUSandUK)canobtainvisitvisas upon arrival at an airport in the UAE for no cost. Visitors from other countries can typically obtain tourist visas from certain hotels or tour operators. Business visitors can besponsoredbyanemployerwithabusinesslicense(e.g., a branch or representative office,freezoneentity,entityundertheCompaniesLaw,etc.).NationalsoftheotherGCC states do not require a visa.

Employers can obtain residency visas, which last for three years, for a certain number of employees, as determined by the federal government in relation to particular industries. Forentitieslocatedoutsideofthefreezones,employersmustregistertheemploymentcontract with the Ministry of Labour and Social Affairs before a residency visa can be issued.Inmostfreezones,thesponsorofeachemployeeisthefreezoneitselfandthefreezoneinteractswiththefederalgovernmentdirectly,whichmakestheprocessmoreefficient.Oncearesidencyvisaisobtainedandtheemployeeearnsacertainsalary,theemployee may sponsor his or her family for immigration, provided that he or she earns a minimum of AED 4,000 per month.

(viii) real property

Exceptincertaindesignatedfreeholdareasorcertainfreezones,realpropertymayonlybeownedbyUAE(orGCCincertainemirates)nationalsorentitiesthatarewhollyowned by such persons. Most foreign residents and foreign businesses lease their homesandofficespaces.However,JAFZAoffshorecompaniesaretheonlyoffshorestructures permitted to own properties within Dubai and be delivered a title deed. However, if the JAFZA offshore company is owned by a foreigner then it may still only own property in certain designated areas.

EntitiesoperatingoutsidefreezonesarepermittedtoleasespaceintheUAEuponregistrationasalocallyincorporatedentityorasabranchorrepresentativeoffice.Forentitiesoperatingwithinfreezones,registrationwithinfreezonesentitlesandinmostcasesrequiresonetoapplyforaleaseorfreeholdfromthefreezone’srealestateauthority.

(ix) Intellectual property

UAE law recognises a broad range of national intellectual property rights, which are similar in form to those under the UK, European and US systems. By virtue of the UAE’s membershipofcertainworldwideconventionsonintellectualproperty(e.g. the Madrid Convention, the WTO, TRIPS,PatentCooperationTreaty1970(thePCT),etc.),thereisalso recognition within the UAE of worldwide intellectual property rights. Registration of intellectual property is handled by the federal Ministry of Economy.

(a) patents (or Industrial property)

PatentsareprotectedundertheUAE’sIndustrialPropertyLaw(FederalLawNo.17of2002),asamendedbyFederalLawNo.31of2006.TheUAEoperatesundertwosystems, the Patent Cooperation Treaty system for domestic patents and the UAE is alsopartoftheGCCPatentsystemwhichprovidesamechanismforregionalfilingsofpatent applications within the GCC countries. The GCC is not part of the PCT system, sopatentapplicationsoflocalinterestonlyshouldbefiledthroughtheGCCsystem.The number of patents registered in the UAE annually is very small, and as the UAE is an importing country, infringement issues are usually dealt with in the US or Europe. However, it is possible to register patents in the UAE to maximise protection. Obtaining a grant is expensive and takes a long time, because the examination for patentability is outsourced. Infringers of patents registered in the UAE are subject to limited damages, finesandpossibleimprisonment.

(b) copyrights

Federal Law No. 7 of 2002 Concerning Author’s Rights and Neighboring Rights gives copyright protection to a wide range of works. Copyrights are protected in the UAE in accordance with widely accepted international conventions, though there are some areas(notablyintheareaofownershipofemployeeworksandtheassignmentoffuturecopyright)whereUAElawdivergesfrominternationalnorms.Foremployersitisimportant to ensure that copyright works such as software are written by more than one author so as to avoid the worst consequences of the law limiting the assignment of future copyright. Before suing under copyright it must be registered. This is largely to establish title. In the court system, enforcement is based on criminal law principles, which means thatfinesarelevied,whichareofteninadequate,butinjunctionsagainstfutureconductare not awarded. Damages are per consignment before the court and not generally for all infringement, and therefore are inadequate.

(c) trademarks and trade names

FederalLawNo.37of1992(asamendedbyFederalLawNo.19of2000andFederalLawNo.8of2002)givesprotectiontobothtrademarksandtradenames.Trademarksand the applications procedures are slow and expensive and not computerised, so searchingisdifficult.Registeredtrademarksareafederalrightbutbusinessnamesare dealt with locally by each emirate, which makes for multilayer protection and enforcement.TheUAEtrademarkofficedoesnotallowfilingofmulti-classapplicationsfortrademarks.Dubaicustomsseemstohaveefficientmeansofbordercontrol,buttheother emirates are less well equipped. In the court system, enforcement is based on criminallawprinciples,whichmeansthatfinesarelevied,whichareofteninadequate,


but injunctions against future conduct are not awarded. Damages are per consignment before the court and not generally for all infringement, and therefore are inadequate. There is some discussion about reforming civil procedures.

(d) Confidential Information

UAE’sIndustrialPropertyLaw(FederalLawNo.31of2006),whichdealsalsowithpatentsandindustrialdesigns,specificallyprotectstradesecrets.TheUAE’sgeneralcontractlaw,unfaircompetitionlawandvariousconfidentialityprovisionsinspecificareasoflaw(e.g.employmentlaw)alsoprotectknowhowandconfidentialinformation.The absence of a uniform trade secrets law means that there is a degree of uncertainty as to protection of these rights under UAE law. A particular problem is that the statute forprotectingconfidentialinformationisalsothestatutethatprotectspatents,whichresultsinconflictsinattemptingtoresolvecompetingrights.Consequentlythebestprotection is through contracts with employees and third parties, and this does seem to be enforceable. In recent years, both the DIFC and the Ministry of Economy have looked at issuing a separate draft law on trade secrets, but at the time of writing, neither law hasbeenenacted.UAECourtswillgenerallyacttopreventtheconfidentialinformationof one party being used or disclosed by another party, especially where there are contractual relations, including contracts of employment.

(x) data protection and privacy

While the UAE constitution and certain federal laws recognise an individual right to privacyinspecificcircumstances,theUAEhasnotestablishedafederaldataprotectionregime of the type found in jurisdictions such as Australia, the European Union or Hong Kong.

Notwithstanding the absence of federal laws, the DIFC and Dubai Healthcare City freezoneshavebothenacteddataprotectionlawsandregulationsthatregulatetheprocessing, storage and transfer of personal data.

In addition, certain other federal and local laws apply to the security and processing of personal data in certain circumstances, including in relation to employee records, financialinformation,electroniccommerce,communications,healthcareandcybercrime.

(xi) governing Law

Jurisdictionswhichhave,andrelyupon,largebodiesofcaselaw(particularlycommonlawjurisdictionssuchastheUSandEngland)tendtohavemoredevelopedbodesofcommercial and corporate law than the UAE. The same is true, to an extent, of other civil law jurisdictions as well. Laws and cases in the UAE tend not to be as readily available, or available with reliable English translations, as in these other jurisdictions. Accordingly, whereaforeignerisenteringintocontractswithapartylocatedintheUAE(otherthananentityconnectedtofederaloremirategovernments),itisquitecommontoseenon-UAElawselectedandthereisanotabletendencytoselectEnglishlaw(or,insomeinstances,NewYorklaworthelawsofanotherUSstate)asanalternative.

Care should always be taken to ensure that the selection of a governing law is made expressly, that the selection of a governing law extends to non-contractual obligations arisingoutoforconnectedtotherelevantcontract(whereappropriate)andthattheselection and/or the law itself will be recognised in any enforcement action in the UAE. Parties should also be aware that the selection of a non-UAE law will not prevent mandatory rules of UAE law impacting on contractual obligations in some circumstances (especiallywherecontractualobligationsareperformedintheUAEorwhereenforcementissoughtintheUAE).

While it may be helpful as a matter of practice to include such provisions, there can be no assurance that a foreign jurisdiction or arbitration clause would be recognised by the UAE courts in practice. The Civil Code and general law in the UAE gives the UAE courts broad powers to hear and adjudicate matters involving a UAE party, and there is therefore inevitably a risk that a UAE court could purport to take jurisdiction over a matter despite an express provision providing for an alternative jurisdiction. UAE legislation provides that the UAE courts have jurisdiction to hear actions brought against UAE nationals,UAEcorporateentitiesandforeigncitizenshavinganaddressorplaceofresidence in the UAE, irrespective of any agreement between the parties in respect of jurisdiction and applicable laws.

(xii) dispute resolution

(a) Arbitration

International arbitration is the preferred method of dispute resolution for cross-border transactions relating to the UAE. The primary reason for that, and one of the key features of international arbitration, is the relative ease with which arbitral awards can be enforced in countries around the world. That is thanks to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which well over 140 countries are a party. The UAE acceded to the New York Convention in 2006, which means that foreign arbitral awards should be as easily enforced within the UAE as UAEarbitralawards.Asaresult,manypartiesdoingbusinessintheUAE(bothforeignandlocallybased)tendtoreferanydisputesarisingoutoforinconnectionwiththeircontractstofinalandbindingarbitration.

(b) dispute resolution options in the dIFc

Recently,theDIFCCourts’jurisdictionhasbeensignificantlyexpandedtoincludejurisdiction over matters which are referred to the DIFC Courts by private parties on a consensual basis, whether or not such parties are DIFC-domiciled entities, in addition to jurisdiction over all matters pertaining to the parent companies of DIFC registered branches.12 The practical effect of these changes is to enable non-DIFC persons to opt in to the jurisdiction of the DIFC courts, including through the inclusion of forum selection clausesinordinarycommercialcontractsandfinancedocuments,irrespectiveofanexusto the DIFC.

A common concern that remains with respect to DIFC court judgments is the procedure for enforcement of those judgments. At least within Dubai and the UAE, however, thereareestablishedproceduresandcodifiedguidelineswhichensureDIFCcourtjudgments will be adequately enforced by the courts of Dubai or the other emirates of the UAE. Pursuant to the Protocol of Enforcement between the Dubai Courts and the DIFCCourts(theProtocolofEnforcement),alljudgments,ordersandawardsissuedorcertifiedbytheDIFCcourts(forexample,intheinstanceofthecertificationofaDIFC-LCIA arbitration award13)willbeenforcedbytheDubaiCourtsprovidedthattherelevantjudgmentororderhasbeentranslatedintoArabicandconstitutesafinaljudgment.Crucially,thejudgerecognizingandexecutingthejudgmentattheDubaiCourtshasno authority to review the merits of an order or judgment during any enforcement proceeding. The procedure established by the Protocol of Enforcement essentially facilitates the conversion of a DIFC court judgment into an order of the Dubai Courts. Thereafter, automatic enforcement can be achieved not only onshore in Dubai, but in the other Emirates of the UAE, who as a constitutional matter are required to enforce the orders of the courts of other Emirates within the union.


Nevertheless, it remains an open question as to whether the courts of other GCC states will similarly enforce an order of the DIFC Courts that has been converted into a Dubai Court judgment by virtue of the Protocol of Enforcement. In theory, there is a treaty basedinstrumentwhichshouldsupportpan-GCCenforcement—theGCCConventionfortheEnforcementofJudgmentsandJudicialNoticesandDelegations(theGCCConvention).Thisprovidesthatallmemberstatesshallensurethattheirdomesticcourtsenforcethefinaljudgmentsofthecourtsofothermemberstates.However,theGCCConventionauthorizesthecourtsofmemberstatestorejectenforcementifthejudgmentin question is deemed to be contrary to the provisions of Islamic Shari’a, the provisions of a member state’s constitution or public order.

(xiii) new competition Law

On 23 February 2013, the new Competition Law14 came into force in the UAE, although there is a six-month transitional period expiring on 23 August 2013. The Competition Law appliestoenterprises(anynaturalorlegalpersonorconsortium)engagingineconomicactivity or holding intellectual property rights in the UAE. Where economic activity occurs outside the UAE but has the ability to affect competition in the UAE, these practices and agreements will also be subject to the Competition Law.

A number of entities and sectors are excluded from the legislation, including federal and localgovernments,state-ownedenterprisesandsmallandmediumsizedenterprises.The following sectors have also been carved out of the legislation: telecommunications, financialservices,culturalactivities,pharmaceutical,utilities,wastedisposal,transportation, oil and gas, and postal services.

The structure of the Competition Law is similar to the regime in the European Union, broadlycovering:(i)restrictiveagreements(includingthosethatpricefixandlimitthefreeflowofgoods),(ii)abuseofdominance,and(iii)mergercontrol.15

Fines will be imposed where the Competition Law is not followed or breached, and where companies repeatedly breach the law, such penalties may be doubled. In addition totheimpositionoffines,thecourtshavethediscretiontoshutdownestablishmentsfound in breach of the law for a period of between three to six months.

pros and cons of Means to Set up a Legal presence in the uAE

Means pros cons

Incorporating a Limited Liability company (under the companies Law)

•Allows entity to conduct a broad range of activities in alloftheUAE(otherthaninthefreezones).

•Allows entity to conduct business with federal and localgovernmentalbodies(withouttheinvolvementofacommercialagentornationalagent).

•Separate legal entity from its foreign owner.

•At least 51 percent of the company’s capital has to be owned by UAE nationals. However, the foreign owner may seek the following protections in the constitutional documents:

•The right to appoint all of the directors

•The right to appoint the general manager

•The right to veto major decisions

• The right to all of the assets of the company on a winding up

•Therighttomorethan49percentoftheprofits16

•Can take up to several months to set up. Certain licenses, e.g. for industrial activities, will take longer.

•MustemployaspecifiednumberofUAEnationalsifemploy more than 50 people and fall within the scope of theEmiritizationguidelines.

•No general minimum capital requirement.

Opening a Branch Office •Quicker than incorporating a local entity.

•More activities permitted than for a representative office.

•Abranchofficemayonlyengageinactivitiesthatdonotconstitute“commercialbusiness,”whichtypicallymeansthatbranchofficesarelimitedtoprofessionalactivities(althoughanexceptionhasdevelopedin practice for branches engaged in the sale of productsmanufacturedbyitsparentcompany).

•Not a separate legal entity from the foreign owner.

•Must engage a UAE national agent to act as a service agent who will handle sponsorship and government paperwork.

•Limited to employing the number of foreigners permitted under its business license.

opening a representative Office

•Quicker than incorporating a local entity. •May only handle marketing and administrative functions on behalf of a foreign parent.

•Not a separate legal entity from the foreign owner.

•Must engage a UAE national agent to act as a service agent who will handle sponsorship and government paperwork.

•May only employ up to three or four foreigners.

AppEndIX 1


AppEndIX 1

pros and cons of Means to Set up a Legal presence in the uAE

Means pros cons

Setting up a Free Zone Entity17

•100 percent foreign ownership permitted.

•Geographical proximity to entities carrying out similar activities.

•Commitmenttozerotaxesforaperiodofatleast15years(renewableforanadditional15years).

•Fullrepatriationofprofitsandcapitalexpresslypermitted.

•Sponsorship process for employees is streamlined throughthefreezoneauthority.

•Generally,afreezoneentityispermittedtoconductbusinesssolelywithinitsrelevantfreezoneandlimitedtoperformingsolelythoseactivitiesspecifiedin its license.18

•Eachfreezoneauthorityislimitedinthescopeofactivitiesitmayauthorise(e.g., only licenses for mediaandITservicesintheDubaiMediaCity,etc.)

•Manyfreezonesrequireanactualphysicalpresenceinthefreezone(e.g.,leasingofficespaceandatleastoneemployee).

•Itisdifficultandexpensivetoobtainspaceinthepopularfreezones(e.g., DIFC, Sharjah Airport InternationalFreeZone).

commercial Agency relationship

•Does not require establishment of a physical presence in the UAE.

•Third party handles all aspects of the foreign business in the UAE.

•Once a commercial agency contract is registered with the Ministry of Economy and Commerce:

•Exclusivity—registeredcommercialagentshavethe exclusive right to import the goods which are the subject matter of the agency.

•Commissions—registeredcommercialagentsareentitled to receive commissions on the sales they make as well on sales made in the UAE by the principal or any other party.

•Termination—theprincipalmayonlyterminatea registered commercial agent for “material reasons.”Further,aprincipalmaynotrefusetorenew a commercial agency agreement after its expiry date without the payment of compensation to the registered commercial agent.

companies Law and Free Zone Entities

type of Entity Limited Liability companies19

private Joint Stock company20

public Joint Stock company21

Joint participation Ventures22

Minimum ownership percent for uAE nationals24

51 percent. 51 percent. 51 percent of shares26(preandpost-publicissuance).

51 percent of capital must be contributed by the local partner

Liability Limited Limited Limited Joint

Minimum capital requirement

No requirement AED 2,000,000

AED 10,000,000 No requirement

number of Founding Members/partners

Two to 50 At least three Three to 15 At least two

Management or director restrictions (by nationality)

No restrictions Chairman must be a UAE national

Majority of directors must be UAE nationals

Chairman must be a UAE national

Majority of directors must be UAE nationals

No restrictions.

AppEndIX 2

Latham & Watkins | Doing Business in the United Arab Emirates 1918 Latham & Watkins | Doing Business in the United Arab Emirates

Simple Limited partnerships

partnership Limited with Shares

general partnerships23 Free Zone Establishments24

Free Zone companies

•Must have at least one general partner who is a UAE national

•Limited partners can be both UAE and foreign nationals

•Must have at least one general partner who is a UAE national

•Limited partners can be both UAE and foreign nationals

100 percent. None. Can be 100 percent non-UAE owned

None. Can be 100 percent non-UAE owned

•Joint for UAE nationals

•Limited for foreign nationals

•Joint for UAE nationals

•Limited for foreign nationals

Joint Limited Limited

No requirement AED 500,000 No requirement AED 1,000,000 AED 500,000

At least two At least three At least two One Between two andfive

Must be managed solely by UAE nationals

Must be managed solely by UAE nationals.

Must be managed solely by UAE nationals.

No nationality requirements however at least one of the directors and the company secretary must be resident in Dubai

No nationality requirements however at least two of the directors and the company secretary must be resident in Dubai

AppEndIX 2

ENDNOTES

1 The UAE federal constitution was established as a temporary legal framework for the union ofthesevenemiratesin1971.In1979,adraft“permanent”constitutionwaspreparedwhichprovidedfortheunificationofthejudicialsystemsandarmedforcesofeachoftheindividualemiratesintocombinedfederalentities.Dubairefusedtoaccepttheunificationofeitheritscourtsormilitaryforcesunderafederalumbrellauntil1996,whenitaccededtotheunificationofmilitary forces only. The UAE federal constitution was permanently accepted by Dubai and the otheremiratesaftertheunificationofmilitaryforcesin1996.Dubaicontinuestomaintainitsowncourt system which is not subject to oversight from the Supreme Court of the UAE.

2 Thesebusinessactivities(andtherelevantgovernmentagencies)include,amongothers,thefollowing:industrialprojects(MinistryofFinanceandIndustry),engineeringconsultantsandrelatedtechnicalservices(municipalityauthorityoftherelevantemirate),lawfirms(Ruler’sCourtoftherelevantemirate),bankingandfinancialservices(UAECentralBank),recruitmentagencies(MinistryofLaborandSocialAffairs);seacargo,freightforwardingandcargoclearing(DepartmentofPortsandCustoms).

3 Thereisanexceptiontothisgeneralruleforentitiesthatare(a)specificallyexemptedbythe federal Cabinet of Ministers from the requirements set forth in the Companies Law; and (b)operatinginanyoffoursensitiveindustries:oilandgas,electricityandgasproduction,water treatment and transmission, distribution or other related activities thereof. Entities under subsection(a)aresubjecttospecificrequirementsimposedbythefederalgovernment,andthoseundersubsection(b)aresubjecttospecificrequirementsimposedbytherelevantemirate(andfederalgovernment),onan ad hoc basis.

4 Certain activities, even if carried out by professional services companies, are restricted to UAEnationalsandcompanieswhollyownedbyUAEnationals(e.g. real estate agency and brokerageactivities,andeducationactivities).

5 The UAE Federal Government issued a Federal Decree on 10 August 2009, amending Article 227 of the Companies Law. The amendment applies retroactively to limited liability companies set up on or after 1 June 2009.

6 The amendment to Article 227 impacts certain other provisions of the Companies Law.

Article 255 of the Companies Law requires a limited liability company to retain 10 percent of itsnetprofitineachyearinordertocreateastatutoryreserve,thusleavingtheremaining90percentofprofitstobedistributedasdividends.Oncethestatutoryreserveamountstohalfofthesharecapitalofthecompany,theshareholdersmaysuspendtheretentionofsuchprofits,thusallowingallfutureprofitsofthecompanytobedistributedasdividends.Ifalimitedliabilitycompany is established following the above legislative amendment with a minimal share capital, it is likely that the shareholders will have a larger pool of funds to be distributed as dividends, as the retention of half of the share capital ought to be easier and quicker to attain.

Article 289 of the Companies Law, which relates to the dissolution of a limited liability company, provides a trigger event for dissolution by the shareholders if the company sustains losses amounting to one half its capital. Any new limited liability company incorporated with a minimal share capital amount may easily reach the losses prescribed in this Article resulting in the windingupofthecompany(unlesstheshareholderselecttorecapitalisethecompany).

7 UAE Ministerial Cabinet Resolution No.229/12 of 2007.

8 However, there is a growing practice in Dubai whereby local service agents are not required in certain circumstances.

9 Therelevantlicencewillbeissuedbythefreezoneauthorityregulatingthefreezoneinwhichthecompanyisincorporated.Incertaininstances,afreezoneentitymaybeabletoapplyforanadditionallicencefromaUAEauthoritythathasjurisdictionoutsideofthefreezone(forexample,theDubaiDepartmentofEconomicDevelopment)ifitisconductingcertainkindsofpermissiblebusinessinaparticularemirateoutsideofthefreezoneofincorporation.

10 The 2010 amendments to the UAE Commercial Agencies Law strengthen the protection afforded to UAE nationals agents. The 2010 amendments remove the concept of a principal beingabletounilaterallyderegisterafixedtermagencyarrangementuponexpiryofthefixedterm.

20 Latham & Watkins | Doing Business in the United Arab Emirates

11 The Commercial Agencies Committee is a special committee, reintroduced by the 2010 amendments to the UAE Commercial Agencies Law, that is charged with the duty of reviewing terminations of agency arrangements.

12 Dubai Law No.12 of 2004 as amended by Dubai Law No.16 of 2011.

13 The Protocol of Enforcement extends to arbitral awards issued by the DIFC-LCIA, however, theseawardsmustfirstberatifiedbytheDIFCcourtsbeforebeingenforcedbytheDubaiCourts.

14 Federal Law No.4 of 2012

15 In respect to merger control, at present the Competition Law contains a market share test, however, the precise threshold has yet to be determined by the UAE Cabinet. The expectation is that this will follow later this year.

16 RefertosectionB(i)(b)above.

17 Inmostfreezonestherearethreepermittedformsthatafreezoneentitycantake:afreezonecompany,afreezoneestablishmentandafreezonebranch.AfreezoneestablishmentandfreezonecompanyarerequiredtohaveminimumcapitalofatleastAED500,000insomefreezones(andahigherthresholdinothers).Typically,afreezonecompanymusthavemorethanoneownerwhereasafreezoneestablishmentmayhaveasingleowner.Abranchhasnominimumcapital requirement, but is more limited in the types of activities that it may conduct as compared tothefreezoneestablishmentorfreezonecompany.

18 Freezoneentitieswithservicelicenceshavebeenknowntoprovideservicesoutsideoftheirfreezone.FreezoneentitieswithtradingorindustriallicencesgenerallyrequirealocaldistributororcommercialagenttosellgoodsoutsidethefreezoneandwithintheUAE.

19 ThisisthepreferredformofentityforforeignerswishingtoentertheUAE(outsideofafreezone).Thisisprimarilybecauseoftherelativelysmallcapitalrequirementsandtheflexibilitytodecidehowmanagementdecisionswillbemadeandhowprofitswillbedistributed,irrespectiveof the foreigner’s equity holding. One important limitation is that it cannot be used to transact the following activities: banking, insurance or investment for a third party, which are restricted to public joint stock companies.

20 The rules governing a private joint stock company are the same as the rules governing the public joint stock company, except that public joint stock companies are permitted to issue securities to the public.

21 TheUAEfederalgovernmenthasencouragedcertainhigh-profileprojectstobeundertakenvia a public joint stock company in order to allow the issue of shares to the public. Further, any company carrying on banking, insurance or investment for a third party must be a public joint stock company. Note that in the case of some listed public joint stock companies, higher local ownership restrictions may be imposed or may be included in the company’s articles of association.

22 Joint participation ventures are often formed by foreigners who wish to set up in the UAE on a short-termbasistocarryoutaspecificproject,oftenwithgovernmentbodies.Eachparticipantin the venture will generally conduct business in its own name. The major drawback of a joint participation venture is that the liability of the participant who is conducting business is unlimited. In addition, if the liability of other participants is disclosed to third parties, each participant will be liable to third parties as if it were a general partner.

23 Foreigners are not permitted to join a general partnership.

24 Therearegeneralrequirementsaseachfreezonewillhaveindividualrulesandregulations.

25 GCC Nationals may own 100 percent of entities incorporated in the UAE as a matter of law.

26 At least 20 percent and no more than 45 percent of the initial capital must be owned by the founders.

For more information, please contact Villiers Terblanche, Ahmad Anani or your Latham representative.

Please visit www.al-mirsal.com to view Latham’s Middle East blog, which is produced in English and Arabic and highlights industry and legal developments relevant to the region.

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If you wish to update your contact details or customize the information you receive from Latham & Watkins, please visit http://events.lw.com/reaction/subscriptionpage.html to subscribe to our global client mailings program.Latham&WatkinsoperatesworldwideasalimitedliabilitypartnershiporganizedunderthelawsoftheStateofDelaware(USA)withaffiliatedlimitedliabilitypartnershipsconducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. The Law Office of Salman M. Al-Sudairi is Latham & Watkins associated office in the Kingdom of Saudi Arabia. In Qatar, Latham & Watkins LLP is licensed by the Qatar Financial Centre Authority. Under New York’s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York’s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022-4834, Phone: +1.212.906.1200. © Copyright 2014 Latham & Watkins. All Rights Reserved.

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