Author: afridi-angell

UAE FDI: latest developments

Since our 4 July inBrief on the UAE permitting 100 per cent foreign ownership for certain activities, there have been some significant developments which we will discuss below.

 

List of Strategic Impact Activities

The UAE Cabinet has now issued a list of strategic impact activities and the rules for licensing companies that engage in any of the listed strategic impact activities.

 

Cabinet Decision 55 of 2021 on the Determination of the List of Strategic Impact Activities (the Cabinet Decision) identifies the following broad strategic impact activities:

 

  1. Security and defence activities and activities of a military nature.
  2. Banks, money exchange, finance companies, and insurance activities.
  3. Printing currencies.
  4. Telecommunications
  5. Hajj and Umrah services.
  6. Quran memorisation centres.
  7. Fisheries-related services.

 

For each activity, depending on its nature, a specific UAE authority has been identified as the regulatory authority. For example, the Ministry of Defence and the Ministry of Interior are the relevant regulatory authorities for the activities in the security and defence sector.

 

Each regulatory authority has been provided with a broad range of powers to determine the percentage of permitted foreign direct investment (FDI) and enact rules and conditions applicable to the strategic impact activities under the purview of the regulatory authority. This is with the exception of the fisheries-related services activity which is the only activity listed in the Cabinet Resolution which requires 100 per cent UAE national ownership.

 

An investor must submit an application to the local licensing authority (i.e., the Economic Department) of the Emirate in which such an investor wishes to conduct the desired activity. The local licensing authority will then submit an application to the appropriate regulatory authority.

 

The regulatory authority will consider the application and will then issue a decision either (i) approving the application and determining the percentage of the national contribution together with any conditions attached to such approval or; (ii) reject the application.

 

The regulatory authority will notify the local licensing authority of its decision and will then communicate the decision to the applicant and if permitted, implement such decision. The Cabinet Decision also provides certain timelines within which a local licensing authority and the relevant regulatory authority are required to process a complete application.

 

Abu Dhabi Department of Economic Development (Abu Dhabi DED)

Pursuant to the Cabinet Decision, the Abu Dhabi DED has issued Administrative Decision 320 of 2021 (Decision 320 of 2021) which contains a list of 85 strategic impact activities. These comprise of the actual activity descriptions which fall under the general descriptions of the strategic activities listed at numbers 1-7 above. Establishing a business in the Emirate of Abu Dhabi licensed to conduct one of these strategic impact activities will be governed by the process discussed above.

 

In addition to the issuance of a list of strategic impact activities, Decision 320 of 2021 also repeals Administrative Resolution 37 of 2021 concerning Activities available for Foreign Ownership. As such, Decision 320 of 2021 repeals the previous list of activities for which up to 100 per cent FDI was permitted. Decision 320 of 2021 instead provides that natural person(s) or entity(ies) are permitted to fully own or to own any percentage of companies to practice all commercial and industrial activities except for the strategic impact activities (emphasis added). This would suggest that the Abu Dhabi DED has now taken the position that all activities licensed by it, will now be permitted for foreign ownership with the exception of the activities which are designated as strategic impact activities. As such, it would appear that there will no longer be a specific list of such FDI activities similar to those that were contained in Administrative Resolution 37 of 2021.

 

Sharjah Economic Development Department (SEDD)

The SEDD has also published a list of approximately 1,200 activities for which up to 100 per cent foreign ownership is permitted together with a guide on foreign investment. At this time, we understand that (i) no specific conditions will be attached to a company in which foreign direct investment is permissible and; (ii) no additional fees will be imposed for the practice of an FDI activity. ■

 

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Afridi & Angell’s corporate department has extensive experience in advising on foreign direct investment and corporate restructuring matters. Should you have any questions, please contact the authors or your usual Afridi & Angell contact.

 

 

UBO registration: it’s time to comply or risk being penalised

The UAE has introduced new administrative sanctions on all entities that fail to comply with the requirements of Cabinet Decision 58 of 2020 concerning the Regulation of Real Beneficiary Procedures (Decision 58 of 2020).

 

Issued on 23 May 2021, Cabinet Decision 53 of 2021 (Decision 53 of 2021) empowers the Ministry of Economy and the relevant licensing authorities in the UAE to administer various penalties on violators of Decision 58 of 2020.

 

To provide our readers with a brief background, the UAE enacted Decision 58 of 2020 on 24 August 2020. The Decision places a number of obligations on all entities licensed to conduct business in the UAE (with the exception of those licensed in a financial free zone in the DIFC and the ADGM), including identifying, recording, submitting and maintaining details of the shareholder(s)/partner(s) (the Shareholders) and the real beneficiaries or the ultimate beneficial owner(s) (the UBO). Please refer to our October 2020 inBrief for further information on your obligations under Decision 58 of 2020.

 

Further to the issuance of Decision 58 of 2020, various licensing authorities in the UAE had issued a deadline of 30 June 2021 for all licensees to submit, amongst other things, details of their UBO and Shareholders. However, some authorities have issued different deadlines or none altogether.

 

We have set out below a summary of the key fines:

Under Decision 53 of 2021, entities that fail to create and maintain records of their UBO, will be issued a written notice in the first instance. If the entity does not rectify these failures, a fine of AED 50,000 will be imposed along with another notice to remedy the position within 30 days. If the entity fails to remedy its position within the 30-day period, the entity shall face a fine of AED 100,000 and the suspension of its licence for a minimum period of one year.

 

Entities that fail to create records of their Shareholder(s) will be issued a fine of AED 50,000 and will be given notice to remedy the position within 60 days. If the entity fails to remedy its position within the 60-day period, it shall face a fine of AED 100,000 and the suspension of its licence for a minimum period of one year.

 

A written notice will be sent to entities that fail to maintain the records of their Shareholder(s), after which a fine of AED 30,000, and a notice to rectify the failure within 15 days will be issued. If not rectified, it will result in a fine of AED 60,000 and a suspension of its licence for a minimum period of six months.

 

Similarly, entities that fail to submit the details of its UBO and its Shareholder(s) to licensing authorities, shall be issued a written notice in the first instance, and thereafter a fine of AED 15,000 will be issued along with a notice to rectify the non-compliance within 15 days. If the failure is not rectified after the second warning, a fine of AED 30,000 will be levied along with the suspension of the licensee’s licence for at least three months. On a practical level, we are aware of action being taken by the relevant licensing authorities to implement the provisions of Decision 53 of 2021, with notifications being sent to licensees that have not fulfilled these obligations.

 

Providing incorrect, incomplete, non-updated information or the omission of the information on the UBO as well as the manager(s) or nominee director(s), is subject to fines along with a suspension of licence. Such entities will be issued a written notice first. Thereafter, a fine between AED 10,000 to AED 20,000 will be levied on the second instance with a notice of 15 days to rectify the fault. A third recurrence will result in a fine of AED 20,000 to AED 40,000 and the suspension of licence for at least one month. At the same time, Decision 53 of 2021 states that the authorities or the Ministry shall also restrict the authority of the board of directors or managers of entities who have provided inaccurate, incomplete or non-updated information. We await to see how this will be implemented in practice.

 

Entities currently under liquidation or those which have been liquidated are also required to comply with the relevant provisions of Decision 58 of 2020. The liquidated entity (or entity under liquidation), or its liquidator, who fails to maintain the details of the UBO, the Shareholder(s), manager(s) and director(s) of such liquidated entity for a period of 5 years from the date of dissolution, shall firstly be issued with a written notice followed by a fine of AED 20,000 upon non-compliance and then a fine of AED 40,000 upon the third recurrence.

 

With these strict enforcement measures in place and the enactment of new legislation concerning anti-money laundering and economic substance, the UAE has affirmed its strong position to craft a robust legal framework to combat the modern-day economic and financial crimes. ■

 

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Afridi & Angell’s corporate department has extensive experience in advising on ultimate beneficial ownership obligations. Should you have any questions, please contact the authors or your usual Afridi & Angell contact.

UAE FDI: the doors are open to foreign investors but what are the practical considerations?

As most readers will now know either via the press or through other legal publications, the requirement for a limited liability company (LLC) to have at least 51 per cent UAE national ownership was removed on 30 March 2021 pursuant to Federal Decree-Law 26 of 2020 (Decree Law).

 

Under the Decree Law, local licensing authorities (i.e., the relevant economic departments) of each Emirate were granted the authority to determine a list of activities for which up to 100 per cent foreign ownership is permitted (FDI Activities).

 

The Department of Economic Development in Abu Dhabi and the Dubai Department of Economic Development have already published their list of FDI Activities. We understand that the Department of Economic Development in Sharjah will publish its list imminently.

 

No conditions/restrictions on 100 per cent foreign owned LLCs?

What has changed since September 2018 when Federal Decree-Law 19 of 2018 regarding Foreign Direct Investment (the 2018 FDI Law) was enacted?

 

Pursuant to the 2018 FDI Law, Cabinet Resolution 16 of 2020 was issued which contained a positive list of 122 activities wherein a 100 per cent foreign owned company could be established with certain conditions and/or restrictions. The key conditions and/or restrictions were the requirement to have a specified minimum share capital and a minimum level of Emiratisation of the workforce (to be determined by the Ministry of Human Resources and Emiratisation).

 

The 2018 FDI Law was repealed with effect from 2 January 2021.

 

While the 2018 FDI Law did impose some conditions/restrictions on 100 per cent foreign owned companies, as of now, no special conditions/ restrictions have been imposed by the Economic Departments of Abu Dhabi and Dubai.

 

Other Considerations

While a 100 per cent foreign owned LLC in mainland UAE is an attractive option, there are various other matters to be considered before deciding on an ownership structure for an LLC.

 

1. GCC Customs Exemptions

Goods manufactured in the UAE by 100 per cent foreign owned LLCs under the current customs regime, will not be able to avail the benefit of the 5 per cent GCC customs duty exemption offered to entities which are owned at least 51 per cent by GCC nationals. Exports by a 100 per cent foreign owned company, would not be eligible for national treatment when exported to another GCC member state.

 

2. Tax holiday offered by free zones

Most free zones in the UAE offer a guaranteed tax holiday. For example, the Dubai Airport Free Zone offers a 50-year exemption from all tax (including income tax).

 

If an investor can conduct its business from one of the free zones of the UAE, even if a 100 per cent foreign owned company can be established in mainland Dubai or Abu Dhabi, such an investor may still wish to establish within a free zone in order to benefit from the guaranteed tax exemption.

 

Restructuring of existing LLCs

In addition to the issues raised above, the following points should also be kept in mind while restructuring ownership of existing LLCs:

 

 1. Arrangements with local partners

The terms of any existing arrangements with local partners should be reviewed in advance of triggering any proposed restructuring to ensure that the arrangements permit the foreign partner to request the transfer of the interest in the LLC held by the local partner.

 

2. A UAE LLC with branches in other Emirates

To the extent that there are variances among the Emirates in relation to the permitted FDI Activities, it will be interesting to see if a wholly foreign owned LLC will be permitted to register a branch in a different Emirate even if that Emirate does not have the LLC’s licensed activity on its list of permitted FDI Activities.

 

3. Name of the LLC

If the shares of an LLC are being transferred so that the LLC becomes a 100 per cent owned subsidiary of a foreign investor, note that as per Article 72 of the Companies Law, the name of the LLC will be required to be amended to reflect that the LLC is a single shareholder company. The phrase (One Person Company) must also be added to the LLC’s name. The implications of this change of name on the business operations of the LLC should be considered in advance of any restructuring. It is also worth noting, that under the Decree-Law, it is expected that the Cabinet will issue a Decision determining the procedures for the management of single shareholder LLCs. Once this decision is issued, foreign investors will be required to consider the effects of the decision on the running of their business.

 

Whilst the issues discussed in this inBrief are not an exhaustive list of matters to be considered, before incorporating a 100 per cent foreign-owned LLC or restructuring an existing LLC, they represent some useful and important considerations. For each type of business, careful analysis and planning will be required to determine the most suitable structuring option(s). ■

 

Afridi & Angell’s corporate department has extensive experience in advising on foreign direct investment and corporate restructuring matters. Should you have any questions, please contact the authors or your usual Afridi & Angell contact.

UAE Economic Substance Requirements – Penalties Imposed by the Federal Tax Authority

The Federal Tax Authority (the FTA) has started to impose penalties on businesses that have failed to submit their economic substance notifications by the set deadline of 30 June 2020 for the financial period ended on 31 December 2019, and the economic substance reports by the set deadline of 31 December 2020 for the financial period ended on 31 December 2019.

 

Pursuant to the Cabinet of Ministers Resolution 57 of 2020 concerning the Economic Substance Requirements (Decision), the FTA has imposed a penalty of AED 20,000 on a licensee who has failed to submit the notification and an amount of AED 50,000 on a licensee who has failed to submit the economic substance report. The Decision empowers the FTA to impose certain other types of penalties on licensees.

 

Article 17 of the Decision provides that a licensee may appeal against a penalty by filing an appeal to the FTA.

 

A licensee conducting a relevant activity (as per the Decision) is annually required to file a notification within six months from the end of the relevant financial period, and an economic substance report within 12 months from the end of the relevant financial period. For a licensee whose financial year ended on 30 June 2020, the deadline to file an economic substance report is 30 June 2021, and if the financial year ended on 31 December 2020, the deadline to file a notification is 30 June 2021.

 

The notification and/or the economic substance report is required to be filed by creating an account on the Ministry of Finance website (www.mof.gov.ae/en/StrategicPartnerships/Pages/ESR.aspx). Additional information on Economic Substance Requirements can also be found on the Ministry of Finance website.

Canadian Immigration: The Importance of Tax Planning

For anyone planning to immigrate to Canada, or former Canadian residents preparing to return after a period of non-residency, it is worth taking the time to do some pre-immigration tax planning.  It may well be that the Canadian tax environment is a lot more aggressive than where you’re coming from. If you wait until after you arrive to start arranging your affairs, it will be too late.  Each personal or family situation will be unique and will benefit from bespoke professional advice, but this note will outline a few things that a prospective new/returning Canadian should bear in mind before making their move.

 

Canada imposes tax on the basis of residency, so once you become a Canadian resident you will be subject to Canadian taxation on your worldwide income, including foreign investments, foreign trusts, foreign rental properties, proceeds of the sale of foreign properties, and any other income from any source, anywhere in the world.  Foreign tax credits may apply to reduce your Canadian tax burden to some extent on foreign sources of income to avoid “double” tax on such amounts. The Canada Revenue Agency (CRA) actively investigates foreign income and has information exchange treaties with many other countries (including automatic exchange of information treaties that provide for easy, fast, automated sharing), so your assumption should be that the CRA will be able to find or verify any foreign income you may have. It is your responsibility under Canadian law to voluntarily report it – if the CRA has to seek it out, you will be subject to interest and penalties.

 

Certain income earned before you arrive in Canada, but which you receive after you arrive (i.e., become “resident” in Canada) are taxed in Canada, so make sure you receive as much income as possible prior to your arrival and do not leave amounts accrued and unpaid.

 

The deemed tax cost (i.e., the adjusted cost base) of your capital assets (worldwide) for Canadian tax purposes will be their fair market value as of the date you become a Canadian resident. This is a benefit because when you dispose of any such assets, you pay tax only on the capital appreciation over and above the adjusted cost base of the asset, so the higher it can be, the better. You should obtain third-party valuations of your material capital assets shortly before or after you become a resident and keep this information on file, as you will need it.

 

Consider arranging for the establishment of one or more trusts which can help reduce your Canadian tax burden during life and upon succession. Canadian tax laws apply various so-called attribution rules and deemed residency rules for non-Canadian trusts, which operate to severely restrict offshore planning opportunities. Other rules do the same for corporate entities that hold property for a Canadian resident (attributing passive income directly to the individual shareholder). There is greater opportunity to implement effective structures without falling afoul of these rules prior to becoming a Canadian resident. The same is true of a restructuring of existing trusts, that will become Canadian resident trusts when you move to Canada. The rules are complex and professional advice is necessary before attempting to implement any structures or changes.  The consequences of poor planning can be disastrous from a tax perspective, and such consequences are often avoidable.

 

Note in particular that even some actions taken prior to residency will come under the scrutiny of the CRA.  For instance, if a foreign trust has been settled, or contributed to within the 5-year period prior to Canadian residency, the trust could be deemed to be Canadian resident, including retroactively to the time of the contribution. It depends on who made the contributions and how. For trusts which do become Canadian resident when you do, note that those trusts will be taxable from January 1 of that year (even if you only became resident later in the year). If you can arrange for those trusts to receive payments prior to January 1 of the year you will become a Canadian resident, you should do that (such as paying out dividends to the trust on shares it holds).

 

Where a Canadian resident is a beneficiary of an offshore trust, and if the trust has been established in a manner that successfully avoids application of the Canadian attribution or deemed trust residency rules, it is possible to receive payments from such trusts on a tax-free basis. To achieve this, payments need to be made out of trust capital, not income, but this is not difficult to arrange with trusts that are established in jurisdictions that do not impose income tax on trusts. Such payments still need to be reported to the CRA as income received from a foreign trust on form T1142, but Canadian income tax is not payable on such amounts.

 

Even after Canadian residency is obtained, there remains many very good tax and non-tax reasons to make use of trusts in estate and succession planning, and they remain a central tool to the Canadian wealth planning community. However, there are unique and potentially very beneficial opportunities available to non-residents; be sure to take full advantage of them.

 

Our experienced team members will be pleased to arrange a confidential meeting or call to discuss your situation and goals, and how we can help you protect your wealth. ■

Implementing Regulation to the new Movable Security Registration Law

Since the issuance of Federal Law No. 4 of 2020 on Guaranteeing Rights Related to Movables (the Mortgage Law) the business community, particularly banks and financial institutions, have been eagerly awaiting the publication of the implementing regulations to the Mortgage Law, which would provide details on a number of key issues including the specific procedure for registering security on the new register; rules applicable to taking security over intangible assets; accessing information from the new security register; and the treatment of the existing security (particularly security that had been registered under the previous movables security registration regime). The implementing regulations were published in the Official Gazette as Cabinet Decision No. 29 of 2021 on the Implementing Regulations for Federal Law No. 4 of 2020 on Securing Rights Over Movable Property (the Regulations) on 21 March 2021 and came into effect the following day.

 

Whilst the Regulations do not address the creation of the security register or appointment of the registrar, (both of these issues will be clarified following the publication of the cabinet decision which will create the registry and identify the registrar), they do introduce the following key developments to the security registration regime.

 

How to make a registration

 

The registration process is relatively straightforward. Firstly, the applicant needs to establish an account with the registrar (only possible following the appointment of the registrar). The online registration must include the following information:

 

  1. details of the (i) security provider including its name, nationality/registration number (as applicable), identity card or passport number (in case of natural person) or license (in case of a legal person) and (ii) secured party including the name, address and email address (together, the Identification Information);
  2. description of the security assets including the specific type and class of assets and confirmation of whether the assets are existing or future assets; and
  3. description of the secured obligations, whether it is a specific amount, subject to an upper limit and/or refers to all obligations owed to the secured party.

 

In contrast to the earlier registration procedure under Federal Law No. 20 of 2016 (the Old Mortgage Law), it is no longer necessary to submit a completed security agreement between the secured party and the security provider, at the time of the registration application.

 

The registration fees range from AED 50 to AED 200 per registration, depending on the type of security registration. The register shall issue an electronic confirmation upon the completion of the registration.

 

Liability for registration

 

The Regulations provide that whilst the registrar can reject a registration application, if it does not contain the mandatory information therein, the registrar shall not review the contents of the registration or the accuracy or completeness of any information in the registration. These provisions are accompanied by a general move towards placing a high degree of responsibility for the registration, on the applicant.

 

In particular, the registration only becomes effective once it has been entered into the register database in a manner that allows the declaration to appear when searching the register. Merely completing the registration exercise does not guarantee enforceability. The registration may be unenforceable if (i) there is an error in entering any of the Identification Information, which leads to an inability to retrieve the information in the registration when conducting a search of the register database or, (ii) any other information in the registration which reasonably misleads anyone conducting a search of the register database. Whilst the Mortgage Law and Regulations do not provide any guidance on what constitutes “reasonably misleads”, we believe that this will include instances where information used to conduct searches in the database, as identified in the Regulations (see below), has been entered incorrectly. Given that any errors in the application could render the registration ineffective, applicants would be well advised to seek professional advice when completing registrations.

 

Accessing information from the register database

 

A person can search the register database by entering the registration number or the Identification Information. A person may also print a search report containing information regarding the registration, including its time of creation, details of the parties on the registration, description of the secured assets, validity period and any other data requested by the registrar.

 

Security over intangibles

 

The Mortgage Law provided that the creation of a security interest, its enforcement and priority relating to intangible assets shall be subject to the law of domicile (as identified in the Regulations) of the security provider. The Regulations provide that domicile shall be determined by looking to the country in which the security provider’s workplace is located or the country in which its head office is located (if it has operations in more than one country). Caution should be exercised in determining the domicile of a security provider, particularly when dealing with overseas companies / branches, or UAE companies which only have overseas operations.

 

Taking the secured assets without the Court’s assistance

 

A secured party may seize and dispose of secured assets, without the need to seek a specific court order, by sending a notice to exercise its right to seize and dispose of the assets to the security provider, the underlying obligor, other parties with a security interest in the relevant assets and other interested parties. The Regulations provide that such notice should also include details of the assets that will be seized and disposed, the method of execution, and the time and place of the disposal.

 

The prospect of being able to take quick unilateral action to seize and enforce a security interest may seem appealing, particularly considering the time and effort required to secure a court order. However, this will entail the secured party assuming responsibility for disposing of the assets, settling its debts (less, any reasonable execution expenses) and those of other secured parties, in order of priority. Any one of these obligations could expose the secured party to potential legal action by the security provider, underlying obligor and other secured parties, e.g., claims that the assets were sold at an undervalue or the proceeds were not correctly distributed amongst other secured parties. In any event, exercising this option will require the co-operation of other parties (e.g., third parties with possession of the secured assets) failing which the secured party will have no option but to enforce through the courts.

 

In relation to secured bank account, if the secured party is also the account bank, then it can exercise its security interest over the secured account, without a court order. This can also be achieved under the customary set-off provisions in most account opening documents. In the case where the secured account is held with a third party bank the security provider, secured party, account bank can enter into a side agreement to establish control and management over the secured account, in favour of the secured party. We note that such provisions are already customary in most account pledge agreements, involving third party account banks.

 

Existing security under the Old Mortgage Law

 

The Mortgage Law repealed the Old Mortgage Law in its entirety. Furthermore, all circulars, resolutions and regulations relating to the Old Mortgage remain valid (to the extent they are consistent with the Mortgage Law), until replaced by the Regulations and new resolutions and circulars. Consequently, it was not clear how a secured party, with a registration on the existing register, would exercise its rights to request the courts to seize and dispose of secured assets, when the very law providing such rights had been repealed.

 

The Regulations have confirmed that any existing registration under the Old Mortgage Law, shall remain effective against third parties, until it is terminated in accordance with the provisions of the Mortgage Law. Whilst this implies that any existing registrations will be effective against third parties it does not address enforcement against the security provider (e.g., how would the security party enforce its right to seize and dispose of secured assets that are in the possession of the security provider?). There is also little to no guidance on how to enforce an existing registration, under the Old Mortgage Law, before the courts (e.g., would you use the enforcement procedure under the Old Mortgage Law or the Mortgage Law?). The situation is further complicated by the fact that the Old Mortgage Law was, itself, in its infancy and remined largely untested before the local courts.

 

In light of the above and given the relatively modest fees for registering existing security interest(s) in the new register (i.e., AED 50 per registration), secured parties would be urged to register all eligible existing security interests in the new register.

 

The Mortgage Law provides a period of 6 months following the issuance of the Regulations to register existing security interests in the new security register. It remains to be seen whether the new register will be established and operational before this deadline. ■

Another step in the right direction – the Dubai Court introduces the concept of a pre-trial conference

The past couple of years have seen significant changes in litigation in the UAE Courts. On 31 March 2021, in what appears to be yet another move to modernize litigation in Dubai, the President of the Dubai Court of First Instance issued Circular No. 2 of 2021 (the Circular). The Circular introduces the concept of a ‘pre-trial conference’ into litigation in the Dubai Courts. The Circular provides that:

 

  • a pre-trial conference will be held between the parties under the supervision of a judge;
  • the pre-trial meeting may be held in person or by remote communication technology; and
  • the parties are to discuss matters which will assist in the case being disposed of without delay. The Circular lists the following by way of example:

 

  • The possibility of settlement and expediting the trial process.
  • The complexity of the case and the expected duration of the trial.
  • Narrowing down the scope of disputed issues and issues pertaining to evidence.
  • Scheduling a procedural timetable for the submission of written pleadings, documents, expert reports and other documents, and lists of witnesses (if any).

 

Common law practitioners, and clients who have experienced litigation in common law jurisdictions, will be familiar with the concept of a pre-trial conference, but what will pre-trial conferences look like in onshore Dubai – a jurisdiction in which a trial (as understood in a common law jurisdiction) does not exist?

 

No doubt time will tell. In the meantime, we set out below a couple of markers that may assist in tracking how this concept will be implemented in the UAE.

 

1. This is a step towards greater certainty – at least in matters of procedure. At present, there is no telling how many rounds of written submissions a Dubai court will require before fixing a matter for judgement. Litigants who file submissions at almost every hearing – regardless of whether the hearing is fixed for submissions to be filed by that party or not – are a frequent source of frustration and delay. Fixing a timetable in advance ought to remedy this.

 

2. Parties will be required to give more thought to the issues in dispute at the outset of the case, which ought to result in more focused pleadings being filed in court.

 

3. This could have a bearing on the use of court-appointed experts – but it most likely will not. Under current practice, the appointment of an expert by the court is the norm, rather than the exception. However, the decision to appoint an expert is driven primarily by the judges, as opposed to the parties. Consequently, the submissions by the parties at a pre-trial conference is unlikely to have a conclusive effect on whether or not an expert is appointed by the court. However, the pre-trial conference (particularly the requirements to discuss matters relating to presenting evidence) may have an effect on parties who attempt to file proceedings without evidence, or with light evidential support, and bank on the appointment of an expert to assist in the gathering of evidence.

 

4. It could be an avenue to require disclosure by litigants. The Circular requires the parties to narrow down the scope of disputed issues and, issues pertaining to evidence. In order to do so, ostensibly there needs to be a discussion regarding disputed facts and issues which in turn may lead to opportunities to question a counterparty regarding relevant facts and evidence.

 

5. Under the Civil Procedure Code Regulations issued in 2019, penalties were introduced to discourage parties from denying copied documents without a legal basis, and for failing to produce evidence in a timely manner. The Circular requires the parties to discuss the possibility of a settlement. It will be interesting to see whether penalties will be introduced for parties who declined a reasonable settlement at the pre-trial stage, and eventually have judgment rendered against them.

 

6. Finally, and perhaps most importantly, how the Circular will be implemented shall eventually be measured by the consequences of failing to comply with the orders issued at the pre-trial conference. What happens to a party who tries to bring up new or different issues not identified at the pre-trial conference? What are the consequences of deviating from the agreed procedural timetable? While the Circular is silent, we should expect guidance to follow.

 

The Circular is, without a doubt, a step in the right direction. However, how far of an actual travel in that direction, will depend on how the Circular will be implemented. Watch this space. ■

US Antiboycott Regulations Modified

The most recent edition of Federal Register, which appeared earlier this month, announces the removal of the United Arab Emirates from the list maintained by the US Department of Treasury of countries that observe the Arab League Boycott of Israel. This fact will substantially ease compliance burdens for American businesses operating in the UAE, although it does not eliminate the compliance burdens entirely.

 

The United States never supported the Arab League Boycott of Israel. But it went further than simple non-support by designating the Boycott of Israel as an unsanctioned Boycott. Persons who cooperated with or supported an unsanctioned Boycott could be subject to penalties under two different statutes, the Internal Revenue Code and the Export Administration Act.

 

The Treasury Department promulgates regulations under the Internal Revenue Code. Those regulations prohibit a US taxpayer from taking an act in furtherance of an unsanctioned boycott or from entering into an agreement to do so. Non-compliance could lead to loss of tax benefits and exposure of the taxpayer to tax penalties. The Treasury Regulations contain the well-known “apply” – “comply” distinction, which has probably led to more violations of US antiboycott law than any other feature of the regulations.

 

In the regulations, the Treasury Department adopted the position that a US taxpayer could not permissibly enter into an agreement to “comply” with the law of a country that participated in the Arab League Boycott of Israel unless the agreement to “comply” contained modifying language that carved out the Boycott laws of the boycotting country. In contrast, an agreement that the laws of the boycotting country shall “apply” to a US taxpayer’s operations in that country would not be prohibited.

 

Moving from the abstract to the concrete, consider the two following provisions:

 

“Shall Comply”

The contractor agrees that it shall comply with the laws, regulations, requirements and administrative practices of the State of the United Arab Emirates in the course of performance of this contract in the State.

 

“Shall Apply”

The contractor agrees that the laws, regulations, requirements and administrative practices of the State of the United Arab Emirates shall apply to performance of this contract in the State.

 

Under the Treasury regulations, sanctions would be imposed for agreeing to the first provision, but not the second provision. Of course, many unintentional violations occurred, as this “shall comply” language is common in public sector contracts in the UAE.

 

And if the issue was spotted, alternative language would have to be negotiated. In either case, the receipt of the request to participate in the Boycott would have to be reported to the Treasury Department by the taxpayer, and a failure to report would constitute a further violation.

 

That should now be behind us. Because of the amendment of the Treasury Department regulations, it is no longer a breach of the Treasury regulations to agree that a party shall “comply” with the laws of the UAE, since those laws no longer contain an obligation to comply with the Arab League Boycott of Israel. Likewise, receipt of such “comply” language no longer needs to be reported to the Treasury Department.

 

The actions of the Treasury Department constitute a belated acknowledgment of the Abraham Accords, which were announced in August 2020 and signed in September 2020, in connection with which the UAE repealed its Boycott Law, Federal Law No. 15 of 1972. (See our Legal Alert dated 31 August 2020). With this development, the UAE now joins the Kingdom of Bahrain and the Sultanate of Oman, previously recognized by the Treasury Department as non-Boycotting countries.

 

Although the Treasury Department regulations have been amended, the antiboycott provisions of the Internal Revenue Code and the Export Administration Act remain in effect. Agreeing to language that contains an overt obligation to commit Boycott-related acts continues to be prohibited. Because of this, it would still be prohibited for an American business to agree to contractual language that contained references to Israel, the Boycott or the blacklist. It may also be prohibited to agree to other clauses if there is a Boycott purpose to such clauses. For these reasons, and until Boycott language has been purged from all public sector contracts used in the UAE, continued vigilance will be necessary.

 

It is up to the Commerce Department to amend the Export Administration Act implementing regulations in light of the Abraham Accords. This may be expected in the coming months. ■