DED

The amendment of Corporate Law in the UAE

Corporate

Changes to foreign ownership restrictions

The United Arab Emirates (UAE) has had a longstanding requirement that entities in the UAE shall be 51% sponsored or owned by an Emirati citizen. Foreign businesses who wish to operate onshore would do so through a Limited Liability Company (LLC) or branch office of a foreign company. For LLC’s, 51% of the shares had to be registered in the name of one or more Emirati citizen or a company wholly owned by an Emirati citizen. For a branch, companies had to appoint an Emirati individual or company wholly owned by an Emirati as a national service agent. However, since the introduction of the Federal Decree Law 26 of 2020, foreign companies opening a company in the UAE no longer need an Emirati shareholder or agent in order to be established. This has significantly shifted the law and significantly amended the Federal Law 2 of 2015 (Commercial Companies Law). Previously, 100% ownership was only possible in ‘free zone’ areas such as Dubai International Financial Centre (DIFC). The aim of the Federal Decree Law 26 of 2020 is to boost the country’s competitiveness and facilitate doing business to attract foreign investment. The removal of an Emirati sponsorship reduces registration and administration costs for businesses.

However, there is an exception contained in the law. Companies which have a ‘strategic impact’ are not included. The UAE Cabinet will establish a committee compromising of representatives from each of the Department of Economic Development (DEDs) who will be responsible for determining a list of commercial activities considered to have a ‘strategic impact’ on the UAE’s economy; and additional licensing controls to impose on companies undertaking commercial activities in the sectors listed on the Strategic Impact List. The Cabinet is yet to decide but it is likely that the oil, gas and national security related sectors will be listed. It is important to note, that this list is not exclusive and may vary between each Emirate as the UAE is a federal state. Companies will have one year to comply with the amended legislation from the time it comes effective, which is the 1st of June 2021.

The Ultimate Beneficiary Owner (UBO) disclosure

Following the Cabinet Decision No. 58 of 2020 on Regulating the Beneficial Owner Procedures (Regulations), companies will be required to create and maintain a Register of Real Beneficial Owners (UBO) and Register of Partners (shareholders). The purpose of this amended legislation is to introduce an additional element of transparency and make the UAE corporate practices more in line with global standards such as the EU and Hong Kong. This aids in combatting tax evasion, corruption and money laundering as individuals can be held accountable. However, the amendments will not apply to companies in the DIFC and ADGM or companies which are directly or indirectly wholly owned by the government in any of the Emirates.

An Ultimate Beneficiary Owner (UBO) is an individual who ultimately owns or controls the company, through at least 25% of the capital or voting rights. If no person is identified within these criteria, then the UBO is the individual who exercises control of the company through other means. If this is also not met, then the UBO is the individual who is responsible for the senior management of the entity. An UBO disclosure shall include the following information: full name, nationality, date and place of birth, place of residence and address; passport or ID number; date and basis on which the individual became a UBO; the date on the which the individual ceased to be a UBO (if applicable). Companies must regularly update and maintain this register – any changes or amendments must be notified to the Registrar within 15 days of the change or amendment. Furthermore, companies must designate a person whom the Registrar can be in regular contact with, in relation to any disclosure submitted. Companies under liquidation must also provide an UBO disclosure and this must be completed within 30 days of the liquidation appointment.

A Register of Partners must also be submitted under the Cabinet Decision, as mentioned above. The Register of Partners must include: the number and classes of shares; associated voting rights; date of appointment as a partner/date of acquisition of shares. For natural persons, it must include the full name as per passport, nationality, address, place of birth, name and place of work, photocopies of the relevant identification documents.  For legal persons, it must include the name of the legal person, legal form and memorandum of association, registered office address, articles of association and any similar documents, names and particulars of the directors of the entity. The Register must also include information on any partner or shareholder who is acting as a ‘trustor’ (natural or legal person who transfers management of their funds to a trustee by virtue of a deed) or ‘nominee board member’ (natural person who acts in accordance with the instructions of another person). Companies have up to 15 days to update any changes or amendments to the information provided.

Development in corporate governance and compliance

Corporate governance is best described as the system of rules and practices that dictate how the company is controlled and directed. This is usually composed of Board of Directors who oversee the operations of the company and the recognition of shareholders. This would aid in promoting transparency and accountability, which would increase the UAE’s position in the global economy as a reliable economy. This assists in increasing investor confidence and reducing the risks of corruption and mismanagement within companies. Most notably, the Chairman of Securities and Commodities Authority (SCA) Board Decision No. (03 R.M.) of 2020 advanced corporate governance and compliance, in particularly with regards to Public Joint Stock Companies (PJSC). The Decision requires that: shareholders must be treated equally; have a right to receive profits and review the PJSC’s financial reports; and enjoy the right to attend, participate and vote at general assembly meetings.

The Decision also places various obligations on members of the Board in the PJSC, which ultimately enhance corporate compliance. Board members are expected to safeguard the PJSC’s interests, exercise reasonable care and undertake acts for the benefit of the PJSC. Board members must also avoid conflicts of interest; they need to disclose any interests and avoid voting on these matters. To tackle conflicts of interest, Board members are required to fill out a form, which is kept by the Board of Secretary, declaring any interests or relationships that may affect their ability to perform their tasks as a Board member. This is reviewed and updated regularly. The Board has to appoint an independent Board of Secretary, which they directly report to.

Economic Substance Regulations

The UAE introduced Economic Substance Regulations in 2019. This was in order to respond to the EU’s decision of blacklisting the UAE for not meeting the EU’s criteria on tax transparency, fair taxation and measures to counteract base erosion of profit shifting. Companies must report actual profits of economic activities undertaken within the UAE. The Cabinet Resolution No.57 of 2020 Concerning Economic Substance Requirements and Ministerial Decision No. 100 of 2020 on the Issuance of Directives for the Implementation of the Provisions of the Economic Substance Requirements are referred to together as the Regulations. The Regulations apply to any legal person (incorporated inside or outside the UAE) or a Licensee (registered in the UAE – including free zones) that carries out one or more of the ‘relevant activity’, which include areas like banking, insurance, shipping and intellectual property. A Licensee that carries out one or more relevant activity must maintain and demonstrate an adequate economic presence in the UAE and fulfil the criteria enlisted in the Economic Substance Test.

As part of the Economic Substance Test, a Licensee must conduct necessary core income-generating activity in the UAE and this activity is to be directed and managed in the UAE. Core income-generating activity means activities that are of central importance to a Licensee for generating income from the ‘relevant activity’. ‘Relevant activity’ is demonstrated by companies by having an adequate number of qualified full-time employees who are physically present in the UAE, adequate operating expenditure incurred by the Licensee in the UAE and adequate physical assets in the UAE. To show this, the Licensee’s Board of Directors must meet in the UAE, record the meetings in written minutes, noting the decisions made and this must be signed by the directors attending the meeting. The records must also be kept in the UAE.

There are some entities that may be exempt from Economic Substance Regulations such as investment funds or Licensees who are not a UAE tax resident. Additionally, if there is a branch of a foreign company which is registered in the UAE however the relevant income is generated outside the UAE, then it is considered an Exempt Licensee. This is because the relevant income may be subject to tax in a jurisdiction outside the UAE. Exempted Licensees are required to submit sufficient information and evidence to the relevant authority to establish its status as an Exempted Licensee for each financial year.

Economic Substance Notifications from Licensees as well as Exempted Licensee’s should be submitted to the relevant regulatory authority. This is to be done for each financial year and submitted within six months from the end of the Licensee’s/Exempted Licensee’s financial year. They must submit the nature of the relevant activity, whether relevant income was generated, the date of the commencement and termination of their financial year and any other information which may be requested by the regulatory authority. For onshore entities, the relevant authority is the Department of Economic Development; for DIFC entities it is the DIFC Registrar of Companies; and for ADGM entities it is the ADGM Registration Authority. The relevant authority’s position is to collect and review notifications and reports from the Licensee or Exempted Licensee. They will then report this information to the UAE Federal Tax Authority, who are the National Assessing Authority. The relevant authority’s along with the National Assessing Authority have discretion to request any additional information they may need to complete the Economic Substance Test and failure to comply can result in penalties, suspension or non-renewal of a Licensee’s license or permit.

What are multi-tiered clauses for dispute resolutions?

Uncategorized

Multi-tiered clauses are dispute resolution clauses which includes a escalating-step system to resolve differences, which starts with a number of alternative dispute resolution steps (negotiation between senior managers, mediation, dispute boards, etc.), and ends with arbitration if the first alternative steps result unsuccessfully. In my experience, these clauses work as a filter only letting the most entrenched disputes go through to arbitration. On their nature, much has been discussed as to whether they are genuine arbitration agreements or something different. It is increasingly common in complex commercial contracts to see “multi-tier” ADR clauses.
It is important that these clauses are carefully considered. Clauses that simply say, for example, the parties are to engage in “good faith negotiations” before proceeding to arbitration, leave a number of issues open.

What to consider while drafting the clauses?

How long can the parties take in the negotiating process? If negotiations are futile, how does a party escalate the matter to the next level of ADR? When has a party not acted in “good faith” in a negotiation process? Generally in drafting, it is preferable to:

1. Specify how the ADR process is initiated. For example, it may be initiated by one party serving the other party with a notice setting out brief details of the dispute.

2. Set time limits on the various stages of the ADR process.
For example, the clause could provide that in the negotiation stage of ADR, the parties must make representatives with authority to settle the dispute available for the purpose of meeting in an effort to resolve the dispute and that such meeting must take place within 30 days of service of a notice of dispute. If the negotiation turns out to be fruitful and not enough time has been allocated, the parties can always agree to extend the time period. By setting a time limit, the parties eliminate the risk that either party will cause undue delay by declining to participate in the negotiation.

3. Spell out how a dispute is moved from one stage of the ADR process to the next.
This should be triggered by an indisputable event, e.g. expiry of a time period. In the example above, if the dispute is not settled by the authorized representatives in the 30 days, make it clear that the dispute shall proceed to be determined in accordance with the remainder of the ADR clause. Avoid the use of terms which may cause a dispute in themselves. For example, a requirement that negotiations be conducted in good faith adds nothing, other than an invitation to a dispute about whether one party acted in good faith.

4. Avoid the use of terms which may cause a dispute in themselves. For example, a requirement that negotiations be conducted in good faith adds nothing, other than an invitation to a dispute about whether one party acted in good faith.

Among the key issues that parties to an arbitration clause should consider is the place of the hearing for domestic contracts, and the place of arbitration for international contracts (i.e., contracts where the parties reside in different jurisdictions). Where the contract is a wholly domestic one, the location for the hearing may not be an issue if both parties reside in, say, DIFC (the parties would invariably designate the DIFC as the place for the hearing). However, if the parties reside in different cities and the contract does not designate a hearing location, unless the parties can agree, this will be up to the arbitrator to decide (adding time and cost to the process while this issue is being determined). The issue is very simply avoided by, for example, a clause specifying: “The arbitration will be held in DIFC, United Arab Emirates.”

It is worthwhile to mention effective ADR clauses mandate ADR (whether it is negotiation, mediation, expert determination, arbitration or a combination of all of them (i.e. a multi-tier clause). Ineffective ADR clauses unintentionally provide an option of ADR or litigation, for example providing that any disputes which cannot be settled by negotiation “may” be submitted to arbitration (not “must” or “shall”). Another error I have experienced is for a contract to contain, in successive clauses, both a consent to the jurisdiction of certain courts and a consent to arbitration, leaving it uncertain whether the parties intended arbitration to be the exclusive dispute resolution process. These errors are avoided by careful drafting and word choice.

Who will get the custody of the child as per the UAE law?

Family Law

A breakdown of marriage is always a sensitive matter. It can be even more complicated if children are involved.
So if this happens, who will get the custody of the children as per the UAE law?
With the experience of working with many families for over the years, it is apparent that child custody is one the hardest and emotional thing that the couple’s faces when they are decide to end a marriage.
When people get into the conflict of the custody dispute or a nasty divorce, they tend to choose hatred which can lead to worsening the situation and increases conflict. If they choose to deal with it with hatred, the problem cannot be resolved.
This is the time when to decide to consult with a lawyer to get to know their rights and entitlements for custody.
When I start mediation to reconcile between the parties, my aim is not to come out of that meeting to win but to but to hear from the parties and to decrease their conflict as much as possible. My first advice to them is not to split the children and secondly to look after their best interests. 90% percent of the cases are resolved amicably but we have also a number of cases where the parties choose not to agree to write the settlement agreement or does not work due to other reasons such as a party being outside of the country. In this article, I want to share a few things I know:-

1. First of all, UAE courts are accepting the cases and application from citizens and residents or if the marriage has been registered here in UAE courts.
2. We have a Muslim and non-Muslim category for family case registrations.
3. The parties can agree if they do not want the Sharia ’a law to apply and insist to proceed according their home country law. While if the father has a different nationality than the mother, in this case the court can decide whether Sharia law will apply or the law of the father’s home country.
4. In accordance to Sharia’a law, the mother shall have the right of her children‘s custody in case of dispute over the custody unless the judge decided otherwise for the child’s interest. The guardianship over the minor children is granted to the Father which shall include safekeeping, managing and investing his property. It shall be the duty of the child’s father to handle his affairs, correct, guide and educate him.
5. As per Article no. 146 of Federal Law No. (28) of 2005 On Personal Status; the right of the child’s custody shall be awarded to his mother, then to mahram women, provided that maternal relatives shall have precedence over paternal relatives, that the closest relative on the two sides shall be considered except the father in the following order, and that the judge shall consider the child’s interest when he decide his right;

a) The mother.

b) The father.

c) The grandmother, from the mother’s side, and upwards.

d) The grandmother, from the father’s side and upwards.

e) The sisters, giving preference to the full sister, then to the stepsister from the mother’s side, then the stepsister from the father’s side.

f) The daughter of the full sister.

g) The daughter of the stepsister from the mother’s side.

h) The aunts from the mother’s side, in the same order as the sisters.

i) The daughter of the stepsister from the father’s side.

j) The daughters of the brother in the same order as the sisters.

k) The aunts from the father’s side, in the above order.

l) The mother’s aunts from the maternal side, in the above order.

m) The father’s aunts from the maternal side, in the above order.

n) The mother’s aunts from the paternal side, in the above order.

o) The father’s aunts from the paternal side, in the above order.
6. If parents are not exist and the persons entitle to custody reject it, the judge shall choose a suitable person from the child’s relatives or others or a qualified institution for such purpose.

For any further information, please feel free to comment here in below or email us.
N.rahmannejadi@araalaw.com

What does the law say about late rent payment?

Civil Law

While tenants are struggling to pay their rent during the COVID-19 pandemic, the landlord’s rights are still secured to claim the rent cheques from the tenants unless the landrod agree to defer the rent temporarily.

In the current situation, it is genuinely encouraging to be witness many developers taking this situation into consideration and considering their commercial profit secondary to their humanitarian concern. They have provided the tenants with more flexibility for their payments. For example, a 2-month grace period which can be further extended or to split the payments into more separate PDC.
Properties investment (PI)- a Dubai Investments joint-venture company engaged in the investment and development of real estate – has announced a 3-month rent relief for all retailers within ‘The Market’ – a dedicated retail avenue, located in the Green Community, Dubai Investments Park.

Meanwhile Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai and Chairman of the Dubai Judicial Council, temporarily suspended all eviction judgements related to residential and commercial facilities in the UAE during March and April, according to a Wednesday 25th of March statement from the Dubai Media Office. The directive also stopped all “imprisonment judgements” linked to rental disputes. However, the ruling does not apply to abandoned homes.

With that said, “While landlords have a robust list of rights to protect them if a tenant cannot pay their rent, under rental laws facilitated by the Real Estate Regulatory Agency,
“their priorities right now are to the well-being and safeguarding of tenants”, the Dubai land department said.

The situation changes by the hours so it’s best to keep a close eye on any development and updates on our page or website.

Validity of the online signature on contracts in courts or legal cases.

General UAE Law

In accordance to the Article (17) of Federal Law No. (1) of 2006 On Electronic Commerce and Transactions;

1. A signature shall be treated as a Secure Electronic Signature if, through the application of a prescribed Secure Authentication Procedure or a commercially reasonable Secure Authentication Procedure agreed to by the parties involved, it can be verified that an Electronic Signature was, at the time it was made:
a) unique to the person using it;
b) capable of identifying such person;
c) was, at the time of signing, under the sole control of the Signatory in terms of the creation data and the means used; and
d) linked to the Electronic Record to which it relates in a manner which provides reliable assurance as to the integrity of the signature such that if the record was changed the Electronic Signature would be invalidated.

2. Absent proof to the contrary, reliance on a Secure Electronic Signature is deemed reasonable.

In addition, It is also important to consider the following:
1. The jurisdiction by which the agreement or document will need to be recognized and/or enforced. If another jurisdiction than the UAE is involved, it is important to consider their own laws regarding e-signatures;
2. Where an e-signature is being relied on (other than pursuant to Article 17 of the E-Commerce Law), whether such reliance would be considered reasonable by the courts (factors the courts would consider are set out above); and
3. Whether the type of document with respect to which the e-signature is used may be signed by way of e-signature under the e-commerce law.

The use of e-signatures also imposes additional duties on a signer, set out under Article 19 of Federal Law No.1 of 2006. There may be repercussions if these duties are not fulfilled. These duties include notifying concerned persons, without any unjustifiable delay, in the instance of finding out the signer’s signature tool was or may have been exposed to safety risks based on circumstances or facts made known to him/her.

As long as the requirements set out above are fulfilled, there should be no significant risk that the UAE courts not consider the e-signatures valid and the Signatory shall bear the legal consequences.

1 2 3 … 11