Author: afridi-angell

Acquisition of UAE Nationality

The Government of the UAE made another milestone announcement on 30 January 2021, announcing a procedure for the granting of citizenship to foreign nationals in a bid to retain talent in critical sectors and to expand and diversify the economy.

 

Nationality and citizenship in the UAE are governed by Federal Law No. 17 of 1972 Concerning Nationality and Passports, as amended by Federal Law No. 10 of 1975 and Federal Decree-Law No. 16 of 2017 (the Nationality Law), pursuant to which UAE nationality may be obtained by law, citizenship or naturalisation.

 

The recent announcement, as reported, would amend the Nationality Law to make the following categories of individuals eligible for UAE nationality by naturalisation:

 

• Leading artists and intellectuals;

 

• Authors;

 

• Doctors and specialists in unique scientific fields with significant contributions and experience of at least 10 years;

 

• Engineers;

 

• Investors who own property in the UAE;

 

• Inventors who have been granted at least one patent approved by the UAE Ministry of Economy;

 

• Scientists with at least 10 years of experience who are active researchers and have made substantial progress in science as recognised by prestigious scientific awards or funding; and

 

• Members of the immediate family (i.e., spouse and children) of a person who is naturalised under one of the foregoing provisions.

 

The process of naturalisation would begin with a nomination by the Federal Cabinet or by the Ruler’s Office or Executive Council in an Emirate. Letters of recommendation are also required for nominations in most categories. The detailed criteria for each category have yet to be announced. Reports indicate that a person who acquires nationality under the new rules will not be required to renounce his or her earlier citizenship, but instead may remain a dual national; this is a departure from the previous rules for acquiring nationality under the Nationality Law.

 

This is the latest in a series of recent measures that aim to attract and retain talent. Others include the introduction of the “golden visa,” the “retirement visa,” and the “remote working visa.” Another new visa category is the “student family visa,” whereby a foreign student in the UAE may obtain a residence visa while also sponsoring residence visas for family members. ■

 

UAE Majority Shareholder No Longer Required

In what appears to be a seismic move, His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE, has passed a decree allowing foreign investors to own 100 per cent of UAE companies based on the mainland (i.e. outside of the free zones). This change is expected to come into effect as early as December 2020.

 

This is a remarkable change, removing the requirement to have a majority Emirati shareholder (i.e. at least 51 per cent). Certain sectors such as oil and gas, transport and utilities and strategic areas are exempt.

 

The UAE Commercial Companies Law is set to be amended to allow for such changes.

 

The transformation will certainly enhance the UAE’s position in the global market. The doors are open to foreign investors.

 

We will provide more updates as the story develops. ■

The separability of an arbitration clause – the Sharjah Court of Appeal sets limits

The Sharjah Court of Appeal recently declined to apply the principle of separability of an arbitration clause, on the basis that the underlying agreement (i.e. in which the arbitration clause was contained) was not defective or argued to be invalid by the appellant. This judgment has potentially significant implications for parties who intend to rely on an agreement which contains an arbitration clause to assert claims in court.

 

The separability of an arbitration clause is the legal principle that allows an agreement to arbitrate to be considered independently from the contract in which the agreement to arbitrate is contained. The effect of this principle is that even if the underlying agreement is held to be invalid, the arbitration clause in the agreement will remain valid (unless the agreement to arbitrate itself is found to be invalid for reasons other than the invalidity of the underlying agreement). However, as specific authority is required to create a valid arbitration agreement under the laws of the UAE, it is common to see this principle being relied on to bring claims in court, on the basis that the arbitration clause is invalid for want of authority, but the rest of the agreement is sound and may be relied upon to assert claims.

 

The principle of separability is recognised in the UAE’s Federal Arbitration Law (Federal Law No 6 of 2018), and the recognition of this principle was considered one of the highlights of the law. Article 6(1) of the Federal Arbitration Law provides as follows:

 

An arbitration clause shall be treated as an agreement independent from the other terms of contract. The nullity, recission or termination of the contract shall not affect the arbitration clause if it is valid per se, unless the matter relates to an incapacity among the parties.

 

The dispute before the Sharjah Courts arose in relation to a commercial agreement between a foreign company (the plaintiff) and a UAE company based in Sharjah (the defendant). The plaintiff instituted proceedings before the Sharjah Court of First Instance asserting certain contractual claims based on the agreement. The defendant took the position that the Sharjah Court had no jurisdiction because the agreement contained an arbitration clause.

 

The plaintiff argued that the individual who signed the agreement on its behalf had no authority to agree to arbitration on its behalf. The plaintiff sought to advance this argument by reference to the standards applicable under UAE law to establish the authority to agree to arbitration (or in this case, the lack thereof). The defendant took the position that the issue of authority to agree to arbitration should be determined with reference to the law applicable to the plaintiff (i.e. the law applied in the plaintiff’s country of incorporation), and not UAE law.

 

Although the question of authority was the principal issue addressed in the parties’ pleadings, the Sharjah Court of First Instance issued judgment dismissing the plaintiff’s case for the want of jurisdiction. The court held that the plaintiff may not simultaneously rely on the agreement as the basis of its claims and seek to dispute the validity of the arbitration clause contained therein. The plaintiff thereafter filed an appeal to the Sharjah Court of Appeal, and its principal argument was based on the separability of an arbitration clause. The Court of Appeal held against the plaintiff/appellant on the basis that the plaintiff/appellant has taken the position that the agreement is binding in asserting its claims and, as the agreement itself was not defective or invalid, the arbitration clause cannot be separated from the rest of the agreement.

 

It therefore appears from this judgment that a party asserting a claim in court may not seek to rely on the separability of an arbitration clause if it does not also assert that the underlying agreement itself suffers from some form of invalidity. It is likely that this judgment will be appealed to the Union Supreme Court. Until such time the Union Supreme Court issues its judgment, this judgment will give pause to parties who intend to assert contractual claims in court on the basis that the arbitration clause in their agreement is defective. ■

 

Doing Business in Iran: Joseph R. Biden; New Path Forward

The landscape for doing business in Iran may have changed significantly with the election of Joseph R. Biden as President of the United States.

 

On July 14, 2015, the P5+1 (the United States, the United Kingdom, Germany, France, China and Russia), the European Union and Iran agreed and signed a Joint Comprehensive Plan of Action (“JCPOA”) contemplating the easing of certain Iran related sanctions. On October 18, 2015, Adoption Day, the JCPOA came into effect and signatories began embarking on the steps necessary for implementation of the JCPOA. On January 16, 2016, and after the International Atomic Energy Agency’s verification of Iran’s commitments under the JCPOA, the United Nations, the European Union and the United States ceased the application of sanctions relating to certain sectors of business activity with respect to Iran (i.e. no longer restricting non-US persons from engaging in certain activities) and doing business with Iran began again.

 

It is important to note that the US sanctions on Iran restricting US persons from dealings related to Iran (“US Primary Sanctions”) always continued in full force and were not affected by the JCPOA (as opposed to the U.S. sanctions regime concerning non-US persons’ dealings related to Iran (“US Secondary Sanctions”); it was these US Secondary Sanctions that ceased to apply as of January 16, 2016.

 

However, in 2018 the French, German and British governments had been in talks with the United States with respect to its concerns regarding the JCPOA for many months. Even though the United States had agreed to the deal in 2015, the US expressed serious concerns about certain aspects of the deal and decided to withdraw from the Iran nuclear deal (i.e. JCPOA).

 

The US government, in light of its withdrawal, reimposed certain US Secondary Sanctions with respect to Iran on August 6, 2018, with any remaining US Secondary Sanctions reimposed by November 4, 2018.

 

New Path Forward

 

However, with the election of Mr. Biden as President, there may be a new path forward with respect to Iran. Indeed Mr. Biden has stated that the US would rejoin the JCPOA if Iran returns to strict compliance with the JCPOA. If this occurs, it would usher in a new chapter in the economic and geopolitical landscape of the Middle East as well as renewed investment and business opportunities (and challenges). ■

Does VAT apply to bare land that is leased to a tenant who will develop it?

The supply of undeveloped (bare) land is exempt from value added tax (VAT) pursuant to Article 46 (3) of UAE Law No 8 of 2017.

 

Bare land (as opposed to covered land) is defined as ‘land that is not covered by completed, partially completed buildings or civil engineering works’ pursuant to Article 44 of Cabinet Decision 52 of 2017. Accordingly, the supply (in this case, a lease) of land that does not have completed or partially completed buildings or civil engineering works is exempt from VAT, and hence no VAT is payable.

 

Note that land means ‘any area on the surface of the earth which may include trees, plants or other natural objects in, under or on top of it’ (UAE Federal Tax Authority VAT Guide, Real Estate, VATGRE1, April 2020).

 

Land will not be considered to be bare land where it is covered by civil engineering works which are complete, or partially complete. Land will be considered to be bare land where there are civil engineering works which run underneath the land, but which do not break the ground surface of the land and to which land carries no right of access. Examples of civil engineering works include roads, bridges, and pipes used forming water or power services. Also, where land has been fenced to allow construction to commence and temporary movable structures were placed on the land then the fencing and movable structures will not change the classification of the land from bare land to covered land.

 

However, even if land that is leased to a tenant is bare to begin with, the classification of such land can change if the tenant develops the land. Accordingly, after the tenant commences construction such that the land has civil engineering works or a partially completed building, then the land is no longer bare land.

 

This subsequent change in nature of the land will not immediately affect the VAT treatment of the land, however if any further supply of the land is made by the landlord (for example entering into a new lease agreement, or if the supply is treated as being made periodically under Article 26 of VAT Decree Law No (8) of 2017), then this subsequent supply of the land would be subject to VAT at the standard rate as it would no longer be a supply of bare land. ■

UAE Introduces Filing Requirements Relating to Beneficial Ownership – Deadline of 27 October 2020

On 24 August 2020, the UAE issued Cabinet Resolution 58 of 2020 on Regulating the Procedures of the Real Beneficiary (the Resolution). The Resolution, amongst other things, aims to establish a legal framework for identifying and recording details of real beneficiaries of entities licensed to conduct business in the UAE.

 

The Resolution is an additional step towards the UAE’s efforts in combating money laundering, the financing of terrorism and illegal organisations. Many countries around the world have enacted similar legislation regarding real beneficiaries. Even prior to issuance of the Resolution, many licensing authorities in the UAE had already started requesting information about the ultimate beneficial ownership of entities licensed by them. However, the Resolution now requires a more streamlined and uniform approach to the information that must be maintained.

 

The Resolution was published in the Official Gazette on 27 August 2020 and came into force the following day. The Resolution introduces a filing requirement which is discussed further below.

 

Applicability of the Resolution 

The Resolution applies to registrars of companies (including the Dubai Department of Economic Development, Jebel Ali Free Zone Authority and the Dubai Development Authority) (each a Registrar) and entities licensed and/or registered in the UAE (including within the commercial free zones of the UAE). However, companies directly or indirectly wholly owned by the federal or state governments and companies licensed in the Dubai International Financial Centre or the Abu Dhabi Global Market free zone shall be exempted from the provisions of the Resolution.

 

Real Beneficiary

A real beneficiary of an entity is someone:

 

a) who ultimately owns that entity through direct or indirect ownership of shares representing 25% or more interest in the capital of such an entity; or

 

b) who has voting control of 25% or more of the capital of such an entity by exercising control over such an entity (by for example, having a right to appoint or remove the majority of the entity’s directors/managers).

 

If it is not possible to identify the real beneficiary (i.e. a natural person) of an entity, then the natural person who exercises control over the entity shall be considered as the real beneficiary.

 

Obligations of UAE Entities

 

Entities in the UAE are required to take reasonable measures to obtain proper, accurate and updated information relating to their real beneficiary(ies) and maintain a register of real beneficiaries containing such information. This register of real beneficiaries is required to be created within 60 days from the date the Resolution was published (i.e. by 27 October 2020).

 

The Resolution does however state that the obligation to maintain a register of real beneficiaries shall not extend to those entities that are owned by a listed company in a regulated market which is subject to sufficient ultimate beneficial disclosure requirements or any affiliates which are majority owned by such listed company.

 

The register of real beneficiaries shall include at least the following information on each real beneficiary:

 

a) full name, nationality, date and place of birth;

 

b) place of residence or address for communication;

 

c) passport or identity card details;

 

d) the basis on which the identified real beneficiary became a real beneficiary and the date of acquiring such capacity; and

 

e) the date on which a person ceases to be a real beneficiary.

 

If an entity discovers that a person who might be a real beneficiary and his beneficial ownership was not registered in the register of real beneficiaries, then such an entity is required to enquire about the status of such a person by following the process laid down in the Resolution. The Resolution further provides for the process required to be followed in case a party (not mentioned as a real beneficiary of an entity) requires amendment (i.e. inclusion of its name) to the register of real beneficiaries.

 

The Resolution also provides that an entity must not register or execute any documentation in connection with the transfer of its shares unless the transferee provides information confirming whether such transfer will result in the change of the real beneficiary of the entity and the nature of such change.

 

All entities are also required to maintain the details of its partners/shareholders in a register of partners or shareholders.

 

Any change in the register of real beneficiaries and the register of partners or shareholders (together the Registers) must be notified to the relevant Registrar within 15 days from the date of such change.

 

 

Sharing of Information with the Registrar

 

Within 60 days from the date of publication of the Resolution, each entity is required to provide the Registers to the relevant Registrar. At present we have been informed that the Dubai Department of Economic Development is still in the process of establishing the way in which the Registers will be provided to it. The Resolution also provides for certain timelines required to be followed by the entity in case of any change in the Registers. Note that each Registrar has been given broad powers to request additional documents and information regarding the Registers and the real beneficiaries.

 

If an entity is in the process of liquidation, the Resolution also obliges the appointed liquidator to submit the Registers (or a true copy thereof) to the Registrar within 30 days of its appointment.

 

It should also be noted that under the Resolution, the entity, the management of the entity or the liquidator must maintain the Registers for at least five years from the date of the dissolution and liquidation of the entity.

 

Confidentiality

 

The Resolution requires authorities not to disclose information in the Registers to any person without the consent of the real beneficiary(ies). However, this will not prohibit an authority from sharing information required pursuant to international laws and agreements entered into by the UAE.

 

The Resolution, provided implemented effectively, will improve the transparency and wider availability of uniform information relating to entities incorporated in the UAE and will bring the UAE closer towards more established and regulated jurisdictions of the world. ■

UAE Amends the Labour Law

The promulgation of Federal-Decree Law 6 of 2020 has introduced two amendments to the Labour Law of the United Arab Emirates, Federal Law 8 of 1980, as amended. The amendments introduce equal treatment for male and female employees in respect of compensation and parental leave. The new measure was promulgated on 25 August 2020 and took effect on 25 September 2020.

 

The first amendment affects Article 32 of the Labour Law. Previously, Article 32 simply provided that a woman shall be paid the same salary as a man if she performs similar work. Now, this provision requires that a woman be paid the same as a man if she performs the same work or work of equal value. Furthermore, the Cabinet is enabled to promulgate detailed regulations on the subject of equal value, based on the recommendations and proposals of the Minister of Human Resources and Emiratisation. Such regulations may be expected to establish the parameters for calculation of equal value; they could also set out avenues of redress for aggrieved employees and provide for sanctions for violations.

 

The second amendment relates to Article 74 of the Labour Law. When originally enacted in 1980, this provision defined the UAE’s official holidays. It was repealed in 2017, and a Cabinet Resolution introduced a new and slightly revised list of official holidays. Now Article 74 has been repurposed to address the subject of parental leave, giving any employee the right to take five paid days of parental leave at any time from the birth of a new child until the child reaches six months of age. This right is given regardless of the employee’s gender. This right would therefore benefit female employees in addition to the provisions on maternity leave that appear in Article 30 of the Labour Law and which remain intact. Moreover, this right would appear to attach immediately upon commencement of employment.

 

The concept of equal value is new to the Labour Law, but it is already playing a role in other sectors of the labour market. With regard to the public sector, Federal Decree-Law 27 of 2018 provides equal wages to female employees of Federal government entities who have the same specialisations, qualifications, skills, work experiences and professional competencies as male employees. With regard to two financial free zones of the UAE, the Dubai International Financial Centre and the Abu Dhabi Global Market, it is prohibited to discriminate on the basis of gender in respect of any terms and conditions of employment. ■