Author: afridi-angell

BVI companies – economic substance law

British Virgin Islands (BVI) companies are commonly used in the UAE by investors to hold real estate properties and/or shares in UAE companies. Investors need to be aware of a recently enacted BVI law, the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the Law), which introduces economic substance requirements in the BVI.

 

In order to avoid being identified/blacklisted as a non-cooperative jurisdiction for tax purposes by the European Union’s Code of Conduct Group (a group responsible for EU’s taxation policy), many offshore jurisdictions such as the BVI, the Isle of Man, the Cayman Islands, etc., have introduced legislation requiring entities established in such jurisdictions to demonstrate economic substance in their respective jurisdictions.

 

The Law came into force on 1 January 2019. Existing legal entities (companies or limited partnerships) in the BVI are required to demonstrate compliance with the requirements of the Law by 30 June 2019.

 

Applicability: Companies and Limited Partnerships

 

The Law applies to all companies (registered in the BVI under the BVI Business Companies Act, 2004) and limited partnerships (registered in the BVI under the Limited Partnership Act, 2017), except “non-resident companies”, “non-resident limited partnerships” and limited partnerships which do not have a legal personality.

 

A “non-resident company” or a “non-resident limited partnership” is a company/limited partnership which is resident for tax purposes in a jurisdiction outside the BVI (such a jurisdiction should not be on Annex 1 to the EU list of non-cooperative jurisdictions for tax purposes).

 

The Law is applicable to all companies and limited partnerships unless such companies and limited partnerships are considered as tax residents of other jurisdictions.

 

Relevant Activities

 

A legal entity is required to demonstrate economic substance in the BVI if it is carrying on any of the following activities (called “relevant activities”): (a) banking business; (b) insurance business; (c) fund management business; (d) finance and leasing business; (e) headquarters business; (f) shipping business; (g) holding business; (h) intellectual property business; (i) distribution and service centre business. These activities are defined in detail under the Law.

 

Requirements under the Law

 

The Law requires a legal entity carrying a relevant activity during any financial period to comply with the economic substance requirements in relation to that activity. A legal entity is considered to have complied with the economic substance requirements if:

 

a) the relevant activity is directed and managed in the BVI;

b) there are adequate number of qualified employees in the BVI;

c) there is adequate expenditure incurred in the BVI;

d) there are physical offices or premises in the BVI;

e) in case the relevant activity is intellectual property business and requires the use of specific equipment, that equipment is located in the BVI; and

f) it conducts core income-generating activity.

 

Holding Business

 

A BVI company which is carrying on the business of an equity/share holding company and earns dividends and capital gains, and carries on no other relevant activity is required to comply with a slightly relaxed level of economic substance requirements. Such a BVI company is considered to have adequate substance if it (a) complies with statutory obligations under the BVI companies law; and (b) has adequate employees and premises for holding and/or managing equitable interests or shares.

 

Requirement to Provide Information

 

A legal entity shall provide (in addition to the reporting requirements under other BVI laws) any information reasonable required by the competent authority to assess if such a legal entity has complied with the requirements under the Law.

 

Penalties

 

If the competent authority has determined that a legal entity has not complied with the economic substance requirements as per the Law, the competent authority shall issue a notice to the legal entity and impose a penalty (ranging between USD 5,000 to USD 50,000). A notice issued by the competent authority shall include its findings and steps required to be taken by the said legal entity to ensure compliance under the Law.

 

If the legal entity fails to comply with the first notice, the competent authority shall issue a second notice and impose additional penalty on the legal entity (ranging between USD 10,000 to USD 400,000).

 

If the legal entity fails to comply with the second notice, the competent authority may submit a report to the Financial Service Commission in BVI recommending striking the said legal entity off the Register of Companies or the Register of Limited Partnerships (as applicable).

 

A legal entity who has received a notice from the competent authority has a right to appeal to the BVI courts against the competent authority’s determination/findings (relating to compliance with the economic substance requirements) and amount of penalty imposed.

 

Next Steps

 

All legal entities are required to assess and determine if they are in compliance with the Law and if not, what steps are required to be taken to ensure compliance. ■

Directors’ duties in DIFC

Introduction 

 

On 12 November 2018, the Dubai International Financial Centre (DIFC) introduced a suite of new legislation concerning companies operating in or from the DIFC. This consists of DIFC Law 5 of 2018 (the Companies Law), DIFC Law 7 of 2018, the Companies Regulations and the Operating Regulations.

 

The Companies Law has amplified the duties of directors of DIFC companies by enacting a set of directors’ duties, largely following the standard contained in the UK Companies Act 2006.

 

This inBrief briefly outlines the particular duties that directors of bodies corporate in the DIFC should be aware of.

 

Directors’ Duties

 

Directors’ duties are owed to the company. This means that it will in the first instance be the company, rather than the shareholders, that are entitled to enforce them.

 

Companies are permitted to go further than the statutory duties provided by placing more onerous requirements on their directors in their articles of association, or by virtue of a director’s terms of appointment.

 

The Companies Law sets out the following directors’ duties (though there may also be additional duties that are relevant to a director, for example, a duty to prepare and deliver accounts) although directors of public limited companies or financial services providers licensed by the Dubai Financial Services Authority may be subject to additional duties:

 

• duty to act within powers: directors are confined to exercising their powers in accordance with the company’s articles of association and for the purposes for which those powers have been conferred;

 

• duty to promote the success of the company: directors must act in the manner they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole. In doing so, directors must consider, amongst others, the interests of the company’s employees, likely consequences of any decision in the long run and the impact of the company’s operations on the community and the environment;

 

• duty to exercise independent judgement: directors must generally exercise their powers independently. As an example, directors may not agree to vote at a board meeting in a certain way if instructed by a third party (i.e. shareholder);

 

• duty to exercise reasonable care, skill and diligence: a director must act as a reasonably diligent person would at all times. A director must display the general knowledge, skill and experience to carry out the functions that are required by the director. An individual should not take on a directorship unless they are appropriately qualified or experienced to be able to perform the functions that they may reasonably be expected to carry out;

 

• duty to avoid conflicts of interest: directors must avoid scenarios in which they have or can have a direct or indirect interest that conflicts with, or may conflict with the company’s interest;

 

• duty not to accept benefits from third parties: directors must not accept any benefit from a third party which is conferred because of him being in the position as a director of the company, or for him doing (or not doing) anything in his position as director, unless the acceptance of such benefit cannot reasonably be regarded as likely to give rise to a conflict of interest. “Benefit” has not been defined in the Companies Law, but it is likely that a court considering the matter would interpret this term to have its ordinary meaning;

 

• duty to declare interest in a proposed transaction or arrangement: directors must declare, before entering into the relevant transaction or arrangement, to the other directors the nature and extent of any interest (direct or indirect) in a proposed transaction or arrangement with the company. As the legislation provides for indirect interest, the director need not be a party to the transaction for the duty to apply and directors should apply their mind to potential parties who may be regarded as connected persons;

 

• duty to declare interest in existing transaction or arrangement: directors must declare, as soon as practicable after the director became aware of the circumstances, the nature and extent of any interest (direct or indirect) in a transaction or arrangement with the company or by a subsidiary which, to a material extent, conflicts or may conflict with the interests of the company.

 

Consequences of breach

 

The consequences for directors breaching their statutory duties can be severe and may include personal civil liability, fines or payment of damages to the company. A breach of duty may also be grounds for disqualification from the position as a director.

 

Conclusion

 

Directors should familiarize themselves with the statutory duties outlined in the Companies Law (and other relevant legislation) before accepting a position as a director of a DIFC company. Individuals should assess whether they have the necessary qualifications, experience, knowledge and capabilities to perform the tasks which may be expected of the director. Directors or potential directors who are uncertain of what may be expected of them in their role as directors should seek legal advice. ■

Health data confidentiality on a rise in the UAE!

Recent events, including the investigations into Facebook’s handling of its users’ personal data, have highlighted the realization that personal data is, in today’s world, one of the most valuable resources for any business and that businesses not only collect and store their customers’ personal data but also use and even sell it for profit.

 

While there is no single federal data protection law in the UAE, and UAE law does not recognise concepts such as data controllers and data processors, over the years, there have been number of sectoral laws that deal with data protection. These include Federal Law 5 of 2012 on Combating Cyber Crimes, Federal Law 3 of 2003 Regarding the Organisation of Telecommunications Sector, and the UAE Central Bank’s Regulatory Framework for Stored Values and Electronic Payment Systems. There are also data protection laws in some of the UAE’s free zones, such as the Dubai International Financial Centre, the Abu Dhabi Global Market and Dubai Healthcare City. Dubai has a few of its own laws that deal with data protection in certain contexts, e.g., Dubai Law 28 of 2015 Concerning Dubai Statistics Centre and Dubai Law 26 of 2015 on the Regulation of Data Dissemination and Exchange in the Emirate of Dubai.

 

A new sectoral data protection law, Federal Law 2 of 2019 Concerning the Use of the Information and Communication Technology in the Areas of Health (the New Law), has been published and is set to come into force in May 2019. The New Law is aimed at regulating the collection, processing and transfer of electronic health data that originates in the UAE and will apply to all “information and communication technology methods and uses” in the healthcare sector in the UAE, whether onshore or in any of the free zones (including the Dubai Healthcare City).

 

The New Law will apply to all businesses that handle health data and information such as healthcare facilities and providers, pharmacies, medical insurance providers and intermediaries, service providers assisting with medical claims management, as well as technology service providers servicing the healthcare industry. Essentially, all businesses that process data relating to patient names, consultation, diagnosis and treatment, alpha-numerical patient identifiers, common procedural technology codes, medical scan images and laboratory results will have to comply with the New Law.

 

In view of the consistently fast paced development of healthcare related technology, the scope of application of the New Law could be much wider than was probably contemplated at the time of drafting it. A lot of the devices that we use in our day-to-day lives such as mobile phones and digital wrist watches have features that provide healthcare support. All businesses that manufacture such devices or develop applications that operate on these devices to provide healthcare support are likely collecting, processing and (in some cases) transferring data relating to fitness and lifestyles in the UAE, and as such, will likely fall under the scope of the New Law’s application.

 

The New Law requires businesses that use information and communication technology for processing health data to ensure its confidentiality, accuracy and validity, as well as its availability when required.

 

Some of the key features of the New Law are:

 

– a general prohibition on transfer of health data outside the UAE, subject to an authorisation by the relevant health authority;

– establishment and management of a central system by the UAE Ministry of Health and Prevention to store, exchange and collect healthcare data and information in compliance with the parameters set by the New Law; and

– a data retention period of not less than 25 years.

 

The parameters for storing health data and information inside the UAE will be defined by a resolution issued by the UAE Minister of Health and Prevention.

 

Non-compliance with the New Law may attract fines of up to AED 1 million. Other disciplinary sanctions include notices and warnings, and also the suspension or cancellation of an entity’s license.

 

Although a welcome step towards protection of healthcare data, the New Law is not the first law that regulates healthcare data in the UAE. UAE Federal Law 7 of 1975 concerning the Practice of Human Medicine Profession and the Ministry of Health Code of Conduct 1988 concerning the collection of health data impose obligations of confidentiality on healthcare practitioners. Those previous healthcare laws remain in effect, although the New Law repeals inconsistent provisions of prior law.

 

The timeframe to ensure compliance with the New Law as well as the scope of its application will be known once the underlying implementing regulations are issued. All concerned parties should closely monitor legislative developments in this regard and obtain legal advice to prepare for compliance with the New Law. ■

Ultimate Beneficial Ownership Regulations (DIFC)

The DIFC Authority has issued the Ultimate Beneficial Ownership (UBO) Regulations, which took effect on 12 November 2018 (the Regulations).

 

The Regulations require entities currently registered with, or to be registered with, the DIFC Authority to keep and maintain a UBO Register and (if applicable) a Register of Nominee Directors, setting out the details of the UBO and Nominee Directors respectively.

 

In this inBrief, we highlight the key items that DIFC entities need to be aware of in creating and maintaining their UBO Register and Register of Nominee Directors and in issuing the associated notifications to the DIFC Registrar of Companies.

 

Who are the Nominee Director and the UBO?

 

For the purposes of the Regulations, a Nominee Director is a director who is obligated to act in accordance with the directions and instructions of another person.

 

An ultimate beneficial owner is a natural person who:

 

– in relation to a DIFC company, owns or controls directly or indirectly:

o 25% of shares, ownership interests or voting rights in the DIFC entity; or

o has the right to appoint or remove the majority of the directors of the DIFC entity.

 

– in relation to a DIFC partnership, exercises significant control over the activities of the partnership;

 

– in relation to a DIFC foundation, exercises significant control over the council of the foundation; and

 

– in relation to a DIFC non-profit incorporated organisation, exercises significant control over the board.

 

If, after applying the foregoing rules, no natural person can be identified as an ultimate beneficial owner of the DIFC entity, anyone who exercises significant control over the DIFC entity (or its governing body) shall be required to be notified as an ultimate beneficial owner of the DIFC entity. If there is no such person, then members of the governing body of the DIFC entity shall be required to be notified as ultimate beneficial owners of the DIFC entity.

 

Obligation of DIFC entities

 

The obligations of the DIFC entities vary slightly depending on when they were registered with the DIFC Authority.

 

– DIFC entities registered prior to 12 November 2018 were required to establish a UBO Register and Register of Nominee Directors, and notify the details of the Nominee Directors and the ultimate beneficial owner to the DIFC Authority through the DIFC portal by 12 February 2019 (the DIFC Authority granted an additional penalty free grace period of 30 days, meaning that the final deadline for compliance was 14 March 2019).

 

– DIFC entities registered after 12 November 2018 were also required to comply with the deadline of 14 March 2019 to establish a UBO Register. For the Register of Nominee Directors, the deadline is 30 days of the later of the registration date of the DIFC entity or the Nominee Director becoming a director of the DIFC entity.

 

– Entities in the process of being registered with the DIFC Authority are required to establish a UBO Register 30 days following the date of registration with the DIFC Authority.

 

The latter two categories of entities need not notify the DIFC Authority of the UBO details, as they are deemed to have provided such details as part of the registration process.

 

Changes to the UBO Register

 

DIFC entities must record any changes to the UBO Register and Register of Nominee Directors, and notify the DIFC Authority of the same through the DIFC Portal, within 30 days of becoming aware of such change.

 

Penalties

 

Failing to keep and maintain the UBO Register and the Register of Nominee Directors will result in a fine of USD 25,000. If the DIFC entity fails to comply with any requirement, or notice issued, under the Regulations, the DIFC Registrar may strike the DIFC entity off the Public Register.

 

Exempt Entities

 

The Regulations set out DIFC entities that are exempt from keeping and maintaining a UBO Register and Register of Nominee Directors. These are DIFC entities that:

 

– have their securities listed or traded on an exchange recognised by the DIFC Authority;

 

– or regulated by the DFSA or any other financial services regulator recognised by the DIFC Authority;

 

– constitute a company, foundation or partnership which the DIFC Authority recognises as being subject to equivalent international standards with adequate transparency of ownership information in its home jurisdiction;

 

– are a non-profit incorporated organisation which does not, as its primary function, engage in raising or disbursing funds for charitable, religious, cultural, educational, social, fraternal or similar purposes;

 

– are wholly owned by a government or governmental agency of the UAE and any other jurisdiction which the DIFC Authority may determine from time to time; or

 

– are established under UAE law to perform governmental functions.

 

DIFC entities that fall under one of the abovementioned categories will be required to request a formal exemption.

 

Partially Exempt DIFC Entities

 

Additionally, the Regulations set out the requirements for a partially exempt DIFC entity, which is a DIFC entity that is at least 25% owned by a corporate person that falls under one of the abovementioned categories (Exempt Owner). Such DIFC entity is subject to the obligations set out in Section 4, however with respect to the Exempt Owner, instead of tracing the ownership details of the Exempt Owner, the details of the Exempt Owner are inserted in the UBO Register instead. ■

New Tawazun Economic program policy guidelines issued

The UAE has had an offset program for the better part of 30 years. It was originally conceived as an inducement for investment in industrial ventures in the UAE that would contribute to the diversification of the UAE’s economy. This underlying purpose continues today. However, the offset program, as originally devised, looked for development in non-military and non-hydrocarbon sectors. This narrow focus has long been abandoned, leading the program to landmark achievements in these sectors and others.

 

The offset program has given rise to Mubadala, Abu Dhabi’s leading strategic investor, while the original defense focus of the offset program has been assumed by the Tawazun Economic Council. But the original hallmarks of the UAE offset program have remained constant – a focus on economic diversification, technology transfer and development of personnel; a target of 60% in offset credits based on the underlying procurement contract value; bank guarantees to ensure performance; and an eight year time frame (now reduced for some projects) within which to achieve the offset milestones — all governed by a contractual framework. The latest iteration of the guidelines for the offset program, published on March 31st on the website of the Tawazun Economic Council and called the Tawazun Economic Program Policy Guidelines, clarify the program’s expectations and offer guidance to contractors.

 

The new guidelines afford increased scope for the development of technology-driven projects that extend beyond the defense and security industry, to now include aerospace; infrastructure and transportation; communication technology; education technology; sustainability, environment and climate change; food and water security; and other strategic sectors as advised from time to time by Tawazun.

 

With the added focus on technology integration, Tawazun will also consider projects that comprise dual-use of stand-alone specific technologies, such as artificial intelligence and big data analytics, blockchain, additive manufacturing, virtual and augmented reality, advanced information technologies, quantum computing and encryption, robotics, internet-of-things,  advanced energy capture, storage and propulsion and smart materials and smart sensors.

 

Offset obligations are triggered when a supplier (or group of suppliers) reaches a threshold value of USD 10 million in awarded contracts. Under the previous guidelines, this would occur when the value of a series of contracts reached the threshold value. In a significant change, offset obligations now attach only when a single contract of no less than the threshold value is awarded. Contracts of lesser value awarded thereafter are also brought under the offset program for as long as the supplier has an active account with Tawazun, but not contracts of lesser value awarded to a supplier with no active account with Tawazun.

 

Other aspects of the program remain similar to the previous guidelines. A defense contractor must sign a framework Offset Agreement to enter the program and then sign a separate supplemental agreement to govern the specific obligations incurred in respect of each supply contract.

 

Investment vehicle options available to defense contractors have been widened with the new program. These now include investments (in the form of joint ventures with local partners, non-equity co-production, or technology co-development); contractual engagements with local businesses; and capability development programs through which technical expertise is shared with local partners or employment created for UAE nationals.

 

Other key changes to the program include the removal of input and output ratios for credits; the addition of enhanced parameters for the assessment and apportioning of credits (defense contractors can now generate credits in nine different ways); and a bonus multiplier scheme that rewards projects in the higher end value chain, that produce local content or create high skilled jobs for UAE nationals.

 

Defense contractors are now also permitted to “bank” or “trade” excess credits they have generated for a period of five years following the completion of a project, and use such banked credits against future obligations or transfer or trade these credits to other entities with obligations.

 

Where a project results in a shortfall in credits at the end of the period wherein a defense contractor is eligible to generate credits, a defense contractor can choose between either paying 8.5% of the shortfall value or rolling over the shortfall value by amending an existing (or by signing a new) supplemental agreement in order to perform another project.

 

In the case where Tawazun deems a project to be non-performing, it will notify the defense contractor and provide it 180 days to rectify the situation. In the case that the defense contractor is unable to rectify the situation, Tawazun may collect the maximum penalty by liquidating the full (or remaining) bank guarantee amount, declaring the defense contractor to be in default, notifying the relevant government entities, and/or taking further action as necessary.

 

It is hoped that the new program will enable defense contractors to identify more accessible opportunities to generate offset credits and meet their obligations towards the UAE government. ■

New administrative fines imposed by the UAE Insurance Authority

On 6 January 2019, UAE Cabinet Resolution No. 7 of 2019 Concerning the Administrative Fines Imposed by the Insurance Authority was published in the UAE Official Gazette, which lists a total of 204 items that are considered to be violations by the Insurance Authority and their corresponding penalties. This resolution will come into force on 6 April 2019 and will apply to any person, company or insurance–related professional1 that commits any of the violations listed in the resolution.

 

The violations set out in the resolution are broad in range and generally cover, among other things, the following:

 

• the failure to comply with the various regulations applicable to insurance providers and decisions issued by the Insurance Authority, including the UAE Financial Regulations;

 

• the performance of insurance-related or reinsurance activities or the opening of a branch within onshore UAE without obtaining the Insurance Authority’s approval or the necessary license; and

 

• the failure to provide the Insurance Authority with the required data, documentation, reports and notifications within the specified periods of time.

 

Most of the administrative fines range from AED 5,000 to AED 250,000 per violation. One exception is when a company opens a point of sales for insurance products without being licensed and registered with the Insurance Authority. This fine is AED 50,000 for each point of sales. The amount of any administrative fine may be doubled if a violation is repeated within one year from the date of the last violation with a maximum fine amount of AED 2 million.

 

Any of the administrative fines issued by the Insurance Authority may be appealed within 15 days from the date of the notification of the fine and the appeal must be decided by the Insurance Authority’s board of directors within 60 days from the date that the appeal is submitted.

 

Insurance and reinsurance providers should review the resolution and the list of violations to ensure their compliance prior to the resolution’s effective date and should also continue to monitor their compliance accordingly going forward.

 

The complete list of violations and administrative fines included in Cabinet Resolution No. 7 of 2019 can be accessed on the Insurance Authority’s website.

 

For more information, please contact the professionals listed in the column above, or your regular Afridi & Angell contact. ■

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1 An insurance-related professional is defined in the resolution as any entity or person that is licensed by the Insurance Authority to practice as an insurance agent, actuary, insurance broker, loss and damage adjuster, insurance consultant, health insurance TPA or any other insurance-related profession regulated by the Insurance Authority.

Merger clearance matters

Introduction

 

The United Arab Emirates (the UAE) promulgated legislation to specifically address the regulation of competition (being Federal Law 4 of 2012, or the Competition Law) several years ago but until recently, it has been the case that the requisite implementing regulations and processes were not in place. This is no longer the case. Not only have the much anticipated implementing regulations been issued, the UAE Ministry of Economy (the Ministry) (being the regulator in charge of administering the UAE competition regime) has now formed the required committee and issued the anticipated guidance and forms to allow concerned parties to make merger clearance submissions to the Ministry where required to do so pursuant to the Competition Law.

 

In this inBrief, we highlight the key issues that those with market share in the UAE should consider in an M&A context.

 

In what instances is a request required to be filed? 

 

A merger clearance request is triggered (and must be filed) in cases where there is an “economic concentration”, unless an exemption applies.

 

The concept of an economic concentration is defined in the Competition Law as follows:

 

“any act resulting in a total or partial transfer (merger or acquisition) of property, usufruct rights, rights, stocks, shares or obligations from one establishment to another, empowering the establishment or a group of establishments to directly or indirectly control another establishment or another group of establishments”

 

The requirement to submit a merger clearance request is accordingly triggered in all cases where there is an economic concentration, irrespective of whether the parties to the concentration have a formal, licensed presence in the UAE. The test is an effect based test (see article 3 of the Competition Law) – hence why foreign-to-foreign transactions must also be notified if they otherwise qualify for a filing.

 

Cabinet Resolution 13 of 2016 (the Ratios Resolution) further stipulates that merger clearance is required to be sought where the overall market share of the parties to the transaction exceeds 40% of the relevant market.

 

For the purposes of this analysis, the Ratios Resolution does not stipulate any conditions or formulae for how the threshold must be met. In other words, it does not appear to be relevant whether the parties to an economic concentration together or separately meet the threshold, so long as together (i.e., after the concentration is complete), they would have a market share of at least 40% of the relevant market.

 

Exemptions available under the Competition Law

 

As noted above, there are a number exemptions contained in the Competition Law. To the extent that one or more of the concerned parties to a concentration qualify for an exemption, the obligation to seek merger clearance does not arise.

 

Sector specific exemptions

 

The Competition Law contains the following exemptions:

 

• telecommunication;

• financial sector;

• cultural activities (readable, audible and visual);

• oil & gas;

• production and delivery of pharmaceutical products;

• postal services including the express mail service;

• activities relating to production, distribution and transportation of electricity and water;

• activities on the treatment of sewerage, garbage disposal, hygiene and the like, in addition to supportive environmental services thereof; and

• land, marine or air transport, railway transport and services related thereto.

 

Businesses owned by the Federal or an Emirate level government

 

In addition, there is a carve-out for entities that are owned by the Federal or an Emirate level government. In order to qualify for this exemption the relevant business must be at least 50% owned by the Federal or an Emirate level government.  It is yet to be seen whether indirect ownership qualifies.

 

It is important to note that the Ministry has discretion to interpret the scope of each exemption and as such, if an exemption is to be relied upon, this is something that must be discussed with the Ministry on a case by case basis.

 

Small and medium sized enterprises (SMEs)

 

The term “SME” has been defined in Cabinet Resolution 22 of 2016.

 

• Trade sector:

 

  • o Micro-sized: Less than or equal to 5 employees, or revenue of less than AED 3 million;
  • o Small-sized: Between 6 and 50 employees;  or annual revenue of less than AED 20 million; and
  • o Medium-sized: Between 51 and 200 employees or annual revenue of less than AED 200 million.

 

• Industry sector:

 

  • o Micro-sized: Less than or equal to 9 employees; or revenue of less than AED 3 million;
  • o Small-sized: Between 10 and 100 employees; or annual revenue of less than AED 50 million; and
  • o Medium-sized: Between 101 and 250 employees; or annual revenue of less than AED 250 million.

 

Defining the market

 

The first step in considering issues of competition is to understand what the “market” is. This is not a task to be taken lightly and will usually require substantial discussion with both counterparties to the transaction and their respective commercial teams. There is as yet no official guidance available as to how the market(s) concerned are to be defined. For assistance, principles of EU competition law can be considered though these principles are not of any authoritative value under UAE law.

 

Broadly, the EU Commission has provided the following guidance on market definition :

 

• The relevant market combines the product market and the geographic market, defined as follows:

 

  1.  a relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer by reason of the products’ characteristics, their prices and their intended use;

 

  1.  a relevant geographic market comprises the area in which the firms concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogeneous.

 

Practical experience with the UAE merger control regime

 

Afridi & Angell has recently acted on a foreign-to-foreign merger in the rail and metro transport sector. We advised both parties to the proposed concentration on all aspects of the UAE merger control process and the submission of a clearance request in respect of the proposed transaction. Though the transaction was recently blocked by the EU Commission and therefore did not proceed, it was granted unconditional approval in the UAE by the Ministry.

 

Despite the limited number of filings submitted to the Ministry to date and the dearth of published decisions and guidance, the UAE competition regime is in force and is fully operational. Parties doing business in or from the UAE would be well advised to consider the impact of the competition regime on their existing businesses and on any acquisitions or disposals they propose to undertake. ■

Significant changes to Civil Procedure Code

Introduction

 

Significant changes to Federal Law No 11 of 1992 (the Civil Procedure Code) will soon be coming into effect. These changes are introduced through regulations (the Regulations) issued under the Civil Procedure Code and will come into effect on 16 February 2019.

 

The Regulations were promulgated pursuant to Decree by Law No 10 of 2017. These Regulations will amend the Civil Procedure Code where applicable.

 

The Regulations (in all, 193 articles) address a wide array of litigation procedures, from service of process, to enforcement of foreign judgments and arbitration awards, to execution procedures. Some of the Regulations codify practices already observed by the UAE Courts. In this inBrief, we set out a high-level overview of some of the Regulations which will impact both litigants and practitioners alike.

 

Service of Process

 

Pursuant to Article 3 of the Regulations, a court may permit a party or its attorney to serve process. Pursuant to the Regulations, process may be served between 7 am and 9 pm, unless served electronically, in which case the time limits do not apply. Article 6 of the Regulations provide that process may also be served by voice or video calls, text messages, fax, or any other alternative and technological means as may be determined by the Minister of Justice.  Importantly, Article 5 of the Regulations provides that if the official language of the defendant is not Arabic, the plaintiff is required to provide an official translation of the court notice in English. The cost of translating the notice is recoverable by a successful plaintiff.

 

Article 7 provides that service on parties domiciled abroad may be effected through ‘technological means, or private companies and offices, or as otherwise agreed between the parties, and if service cannot be so effected, process will be served through diplomatic channels.

 

Pursuant to Article 8, service is deemed to be effected on the date of sending the email or text message and on the date on which a voice or video call was made. Only process served by facsimile is deemed to have been served on the date of receipt.

 

Registration of Cases

 

Article 16 of the Regulations requires that a Statement of Claim/Plaint should include the details of the defendant(s) including information regarding the defendant’s identification number, which is applicable with respect to individual defendants. The practice of the Dubai Courts with respect to corporate defendants is to require a copy of the defendant’s trade license at the time of registering the case. It is therefore of practical significance that parties have copies of their counterparties’ ID and/or licensing documents with them, and obtaining such documentation should form part of best practice when entering into transactions.

 

Certain Regulations are evidently intended to speed up litigation procedures. Article 18, for example, provides that the period allowed for the defendant to appear in the Case Management Office or the court following registration of the case is ten days, which may be reduced to three days. Where summary claims are concerned (such as applications for provisional attachment) this period is 24 hours, which may be reduced to one hour on the condition that notice is served on the defendant personally. While Article 18 goes on to carve out an exception for maritime claims, the scope of the exception is currently unclear.

 

Proceedings in the UAE Courts are commenced by filing the plaint and supporting evidence (electronically or in person) with the relevant court. Thereafter, the Case Management Office of the court will fix the court fee payable, and complete the registration of the case upon receiving payment and completing any documentary requirements which may be identified by the Case Management Office. Given that there can be a considerable passage of time between filing the plaint and completing the registration in some instances, this led to uncertainty regarding the date on which action was commenced, which is an important consideration in determining whether time bars and other time related deadlines under law have been complied with. Article 19 of the Regulations clarifies that the date of registration is deemed to be the date on which the case was submitted to the court system, and not the date on which the registration of the case is completed.

 

Assessment of Case Value

 

Assessment of case value is an important practical consideration, as it has a bearing on jurisdiction, appeal thresholds, and of course the court fees payable by a plaintiff. Article 23 of the Regulations provides that minor circuits (as set out in Article 30(1) of the Civil Procedure Code) will have jurisdiction over civil, commercial and labour claims not exceeding AED 1 million in value (the threshold previously being AED 500,000), and counterclaims asserted in such cases irrespective of the value of the counterclaim. Decisions made by the minor circuit court in labour cases valued at no more than AED 20,000 and in all other cases valued at no more than AED 50,000 may not be subject to appeal. The current threshold is AED 20,000 for all types of cases. Article 23 further provides that the threshold (in terms of value) for appealing a judgment of the Court of Appeal to the Court of Cassation is AED 500,000. The current threshold is AED 200,000. Article 25 of the Regulations contains provisions for assessing case values in various types of disputes. For example, an action for the dissolution of a company and appointment of a liquidator is valued based on the company’s capital at the time of filing action.

 

Conduct of Proceedings

 

Certain claims may now be disposed of with only one hearing by a minor circuit court (Article 22). These claims include civil and commercial claims not exceeding AED 100,000 and claims for wages and salaries not exceeding AED 200,000. The Case Management Office is required to fix a case which is to be disposed of under Article 22 for its first hearing within 15 days of the date of registration of the case, and this may be extended only once with an additional 15 days by the judge supervising the matter. Article 22 does not apply to cases in which the State is a party.

 

Denying documents on the basis that they are copies (based on Article 9(2) of the Federal Law No 10 of 1992) is a position commonly adopted by parties, particularly defendants. Article 20 of the Regulations however provides that denying documents simply on the basis that they are copies will no longer be acceptable, and the party seeking to deny documents will also be required to maintain that such documents are “invalid” or were not in fact authored by the party to whom they are attributed to. A party which has denied documents and the court finds that the party’s denial was without justification may be subject to a fine of between AED 1,000 to AED 10,000. Importantly, Article 20 also provides that the court may inform the authorities regulating the legal profession in the UAE of the fine, and thus impacts the advocates having conduct of litigation. It is to be noted that fines for frivolous denials of documents is not new, however its codification is a welcome development.

 

The efficient conduct of litigation is a recurring theme in the Regulations. The Regulations require parties to plead their cases as completely as possible at the hearing before the Case Management Office (i.e. before the matter is transferred to a court). Article 32 provides that if the plaintiff or the defendant submits a document in a subsequent session which requires the court to adjourn the matter, and the court is of the view that the document could have been submitted at the first hearing, the court may penalise the party submitting the document with a fine between AED 2,000 to AED 5,000. Article 32 clarifies that a party may however produce documents in response to the defences and/or incidental demands of the other party without threat of sanction. Article 35 provides that a court may allow the parties to submit documents, submissions and new evidence, and to amend the relief sought and assert counterclaims that they were unable to submit to the Case Management Office. However, the court at its discretion may deny such submissions if the court is of the view that they could have been made to the Case Management Office.

 

Article 37 provides that a hearing may not be adjourned more than once for the same reason attributable to a party in the absence of a valid excuse. Where such a valid excuse exists, the second adjournment shall not exceed two weeks. Article 48 provides that where the pleadings have been concluded, the court may issue its decision or reserve the matter for judgment in a period not exceeding two weeks. The date reserved for judgment may only be adjourned once, and for a period of no more than two weeks. In other words, judgment must be issued within a month of pleadings being concluded.

 

Article 39 provides that the court is no longer confined to using interpreters appointed or licensed by the Ministry of Justice, and the court may use an interpreter from another source or resort to the use of ‘approved technology’. The Regulations do not provide any guidance as to what constitutes ‘approved technology’, and this may be the subject of further regulations.

 

Costs and Fines for Malicious Prosecution/Defence

 

While the law and the Regulations provide that the court may award costs, in practice the UAE Courts do not award legal costs, except in a token sum. Court fees and expert’s fees are however recoverable by a successful plaintiff. Article 56 of the Regulations provides that even a party that is successful on the merits of the case may be required to bear a portion of the expenses if that party has inter alia caused any ‘futile expenses’ or did not disclose documents which could have disposed of the matter to its opponents. Article 58 of the Regulations provides that a party which submits a malicious motion, plea or defence may be subject to a fine between AED 1,000 and AED 10,000.

 

Payment Orders 

 

Articles 62 through 68 of the Regulations set out provisions with respect to ‘Payment Orders’. Payment Orders are not new and the relevant provisions can be found in Articles 143 to 149 of the Civil Procedure Code. Payment Orders may be applied for by a creditor who has a claim for a fixed amount of money or a movable of a known type and quantity, and where the creditor’s right is confirmed. The Regulations enable the possibility of confirmation by reference to electronic sources, as well as the option of applying for a Payment Order where the subject of the claim is the execution of a commercial contract, or in case the creditor’s entitlement arises out of a commercial instrument. Pursuant to Article 63 of the Regulations, the creditor is required to demand payment from the debtor and grant at least five days to make payment. If payment is not received, a Payment Order may be applied for. The application must include the details required of a Statement of Claim/Plaint (as set out in Article 16 of the Regulations), and have the proof of the debt and evidence of the demand for payment attached thereto. Article 63 provides that the order be granted (or denied, presumably) within three days of the application being filed. If the application is denied, the judge is required to provide reasons. Prior to the Regulations, there was no requirement for the judge to provide reasons. A Payment Order may be appealed within 15 days by the debtor, and the court is required to determine the appeal within a week from the date of registration.

 

An application for a Payment Order does not preclude the party from seeking provisional relief under the relevant provisions of the Civil Procedure Code.

 

Enforcement of Foreign Judgments and Awards

 

Article 85 of the Regulations provides that an application to enforce a judgment or order of a foreign court shall be made to an execution judge, and that the judge is required to make his decision within three days. The execution judge is required to verify the following before issuing the decision:

 

• that the UAE Courts do not have exclusive jurisdiction over the matter;

 

• that the judgment or order has been issued by an authorised court under the law of the relevant foreign jurisdiction;

 

• that the parties to the foreign proceedings have been summoned and represented;

 

• that the foreign judgment/order sought to be enforced is res judicata under the laws of the relevant foreign jurisdiction; and

 

• that the foreign judgment/order sought to be enforced is not contrary to judgment or order of a UAE court, and is not contrary to the morals and public order of the UAE.

 

Article 86 provides that the provisions of Article 85 (set out above) are also applicable to arbitral awards issued in a foreign jurisdiction. Article 86 adds that the subject matter of the foreign arbitral award must be arbitrable according to the laws of the UAE, and the award must be enforceable in the jurisdiction in which it was issued, in order to seek enforcement in the UAE. The provisions of Articles 85 and 86 are without prejudice to the provisions of any treaties entered into by the UAE with respect to the enforcement of foreign judgments, orders or awards. The New York Convention is an example of such a treaty.

 

Conclusion

 

Overall, the Regulations are directed towards quick and efficient litigation, and will be welcomed by parties and practitioners. However, they put considerable time pressure on litigants, particularly on defendants, to ensure that their respective cases are pleaded fully within relatively short time periods.

 

The Regulations contain many provisions which warrant a detailed look, for example with respect to provisional orders and execution proceedings, which will be discussed in a series of inBriefs to follow. ■

New long term residency visas

What’s happened?

 

After much media coverage, Cabinet Decision 56 of 2018 (the Decision) has been gazetted which introduces new long term residency visas to, amongst others, the following four categories of persons in the UAE:

 

1. investors;

2. entrepreneurs;

3. individuals with specialised talents and researchers in various fields of science and knowledge; and

4. honours students with promising scientific potential.

 

The Decision is an important development in the UAE and it is expected to have a positive impact on the real estate market in conjunction with the run up to the Dubai World Expo 2020 and as part of the broader UAE vision 2021.

 

In this InBrief we look at the conditions that the Decision requires a person to satisfy in order to apply to the Federal Authority for Identity and Citizenship (the Authority) for a long term residence visa.

 

Investor Visas – Real Estate

 

A five year residency visa may be applied for by investors in real estate in the UAE if the following conditions are met:

 

1. the investor must have invested in one or more properties in the UAE with a total  value of no less than AED 5 million;

2. the amount invested must not be derived from the proceeds of a loan. Consequently, it will not be possible for there to be a mortgage over the property if this visa is to be applied for;

3. the property  must be owned by the investor for at least three years from the date of issuance of the residency visa;

4. the investor must not be financially liable for any claims or civil judgments which reduce his financial solvency below AED 10 million; and

5. the investor must have a comprehensive health insurance policy covering himself  and his  family members,

 

(conditions 2-5 above being hereinafter referred to as the Conditions)

 

An “investor” is defined in Article 1 of the Decision as an “Alien who spends his/her capital for financial gain or returns, in accordance with the controls referred to in this Decision.”

 

Investor Visas – Public Investments

 

A ten year residency visa may be applied for by investors in public investments if:

 

1. one of the following conditions are met:

 

a. the investor must have a deposit of no less than AED 10 million in an investment fund within the UAE. Note that the Decision does not define what constitutes an “investment fund”; or

b. the investor must establish a company in the UAE with a capital of no less than AED 10 million or be a partner in an existing or new company with a financial share of no less than AED 10 million; or

c. the investor must have investments in the UAE with a total value of no less than AED 10 million (provided that the non-real estate part of such investment constitutes no less than 60% of the total investment);

 

and

 

2. all of the Conditions must be met.

 

Entrepreneur Visas

 

A five year renewable residency permit may be applied for by entrepreneurs if all of the following conditions are met:

 

1. the entrepreneur must own a “former successful project” with a minimum value of AED 500,000 in an approved area. Again, there is no guidance in the Decision as to what constitutes a “former successful project”;

2. the entrepreneur must have obtained the approval of a business incubator accredited in the UAE to establish the proposed activity in the UAE; and

3. the entrepreneur must have a comprehensive health insurance policy for himself and his family members.

 

An “entrepreneur” is defined in Article 1 of the Decision as an “Alien who has an economic project of a technical or future nature based on risk and innovation, in accordance with the controls referred to in the present Decision.”

 

Specialised Talent Visas

 

A ten year renewable residency permit may be applied for by “Individuals with Specialised Talents” under the categories listed below subject to certain conditions set out in Article 8 of the Decision being met. Note, an “Individual with Specialised Talent” is defined in Article 1 of the Decision as an “Alien who is excellent or skilful, or a leader, or competent performer or has an outstanding talent in any field of science and knowledge, in accordance with the controls referred to in the present Decision.”

 

The categories of “Individuals with Specialised Talents” are as follows:

 

1. medical doctors and specialists;

2. scientists;

3. creative individuals in the field of culture and art;

4. inventors;

5. elite individuals;

6. executive directors; and

7. specialists in educational areas of priority.

 

Honours Student Visas

 

A five year renewable residency visa may be applied for by honours students (and their families) if all of the following conditions are met:

 

1. the student must have a grade of excellence or at least 95% in the General Certificate of Secondary Education or its equivalent;

2. the student must be enrolled in any of the accredited universities in the UAE and must have a  grade point average as set out in the Decision  in selected  scientific specialties;

3. the student must have obtained the approval of a committee established by the Decision for the purpose of examining such applications;

4. the student must submit proof of registration at a university or institute accredited in the UAE; and

5. the student must hold a comprehensive health insurance policy for himself and his family members.

 

Conclusion

 

The new law is a welcome development in the UAE.

 

The Authority has reported that applications for such permits will be accepted from 3 February 2019 and already a total of 20 visas have been granted to recent honourees of the Mohammed Bin Rashid Award for Scientific Excellence. ■