Over 30 years of heavy investment in infrastructure development has seen the emirate of Dubai transformed from an under-developed backwater into a hub for project finance which is often cited as the poster child for the type of metropolis that can be created through dedicated infrastructure investment. With the growing appetite for public private partnerships (PPPs) in the UAE, Rahat Dar analyzes the role Islamic finance will play in this new era.
Author: afridi-angell
The new UAE Pledge Law – security registration
UAE Federal Law 20 of 2016 (Regarding the pledge of moveables as a security for debts) (the Pledge Law) introduced a new regime for registering a pledge over moveable assets which are pledged as security for the repayment of a debt. We reported on this law in our inBrief of January 2017, New UAE Pledge Law Over Moveable Assets.
The actual registration of pledges was subject to establishment of a security register pursuant to the implementing regulations issued under the Pledge Law. This security register has now been established by the Emirates Development Bank and is known as the Emirates Movable Collateral Registry.
The Emirates Movable Collateral Registry allows:
1. free public searches of registered securities;
2. certified searches of registered securities;
3. registration of notices of security interests against assets of the primary obligors as well as third party security providers, including non-resident foreign persons (legal or natural) and UAE entities incorporated by federal decrees, for a minimal fee; and
4. registration of notices of termination of security interests (whether by mutual consent of the parties or by way of a court order) free of charge.
All parties holding pledges over moveables in the UAE by way of possession have until 15 March 2018 to register their precedence with the Emirates Movable Collateral Registry. To our knowledge, it is unlikely that an extension of time will be granted. Therefore, we recommend this is done as a priority. ■
Convertible Sukuk for funding social welfare in the modern era
As with other countries in the heavily oil-dependent Gulf region, the UAE has taken active steps in recent years to expand its revenue streams (including the implementation of value-added tax, effective the 1st January 2018). Afterall, relying on treasury reserves, albeit substantial, to plug spending gaps in the national budget was only going to be a short-term solution to the long-term problem of low oil prices.
UAE VAT designated zones defined
The UAE Ministry of Finance has released Cabinet decision No. 59 of 2017 specifying all Designated Zones to be effective from 1 January 2018 for the purposes of implementing the Designated Zone provisions in Federal Decree Law No 8 of 2017 on Value Added Tax.
The Cabinet has the authority to amend the list of Designated Zones as required.
A Designated Zone is required to be a specific fenced area with security measures and Customs controls in place to monitor entry and exit of individuals and the movement of goods to and from the area.
Concessional VAT treatment may be available for transactions involving the supply of physical goods within Designated Zones. No VAT concessions are available for transactions involving the supply of services within Designated Zones.
The list of Designated Zones for UAE VAT purposes are as follows:
No. Designated Zones (Abu Dhabi)
1. Free Trade Zone of Khalifa Port
2. Abu Dhabi Airport Free Zone
3. Khalifa Industrial Zone
No. Designated Zones (Dubai)
1. Jebel Ali Free Zone (North-South)
2. Dubai Cars and Automotive Zone (DUCAMZ)
3. Dubai Textile City
4. Free Zone Area in Al Quoz
5. Free Zone Area in Al Qusais
6. Dubai Aviation City
7. Dubai Airport Free Zone
No. Designated Zones (Sharjah)
1. Hamriyah Free Zone
2. Sharjah Airport International Free Zone
No. Designated Zones (Ajman)
1. Ajman Free Zone
No. Designated Zones (Umm Al Quwain)
1. Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
2. Umm Al Quwain Free Trade Zone on Sheikh Monhammed Bin Zayed Road
No. Designated Zones (Ras Al Khaimah)
1. RAK Free Trade Zone
2. RAK Maritime City Free Zone
3. RAK Airport Free Zone
No. Designated Zones (Fujairah)
1. Fujairah Free Zone
2. FOIZ (Fujairah Oil Industry Zone)
Certificate of good conduct required for all UAE employment visas
A new requirement will be introduced shortly that will affect all applications for employment visas. Beginning 4 February 2018, a Good Conduct and Behavior Certificate must be submitted along with the other supporting documents when an employer seeks to sponsor a residence visa for a new employee who is not a UAE national. It appears that the requirement will apply throughout the UAE, including the nation’s many free zones.
Like any other foreign document, the prospective employee’s Good Conduct and Behavior Certificate must be notarised in the country of origin and thereafter authenticated up to that country’s Ministry of Foreign Affairs, the UAE Embassy for that country, and finally by the UAE Ministry of Foreign Affairs and International Cooperation. This authentication process often consumes several weeks.
In many countries, a Good Conduct and Behavior Certificate may be obtained from the concerned national law enforcement authorities. Here in the UAE, the Ministry of Interior issues such Certificates in respect of UAE nationals and residents, pursuant to a formal and recognised application process. However, many countries do not have central law enforcement authorities. For example, in the United States, a Good Conduct and Behavior Certificate (or a “Police Clearance Certificate”) would be sought from the local municipal police.
The Certificate must be issued in the employee’s home country or the country where the employee resided for the five years prior to the application. The Certificate is required only in respect of an employment visa application. It is not required for visas for any of the employee’s dependent family members, nor is it required for other types of visas such as transit and visit visas. Presumably, the new requirement will not apply to visa applications that have already been approved by the authorities. It is not clear whether the new requirement will apply to pending applications that have not been approved. ■
Changes to law allowing developers to terminate off-plan sales contracts
On 16 November 2017, Law No. (19) of 2017 was gazzetted which amends the procedures contained in Law No. (13) of 2008 on Interim Property Registration in Dubai. This law stipulates the procedures which developers must follow if a buyer breaches an off-plan sales contract.
The new law is an important development in Dubai and will assist developers who are facing a difficult real estate market and increasing buyer default.
What’s the Key Change?
The new law has not drastically changed the existing procedures contained in Law No. (13) of 2008, but has rather built on them and provided timeframes within which a developer must return excess money to buyers who have defaulted.
Under the new law, if a buyer breaches its obligations under an off-plan sales contract:
a. the developer must notify the Land Department and the Land Department will serve a notice on the buyer giving it 30 days to fulfill its contractual obligations; and
b. if the buyer fails to fulfill its contractual obligations or reach an amicable settlement with the developer within the 30-day notice period, the Land Department may issue an official document stating that the developer has fulfilled his legal obligations and specifying the percentage of completion of the property; and
c. after the developer receives this document from the Land Department, the developer may take any of the following actions, without approaching the court or pursuing arbitration:
i. if the percentage of completion of the real estate unit exceeds 80%, the developer may:
1. continue with the performance of the contract concluded between the developer and the purchaser, retain the whole amounts paid and request the purchaser to pay the outstanding amount of the contract price;
2. request the Land Department to sell the real estate unit by public auction so that the developer may collect the outstanding balance payable to the developer by the purchaser; or
3. terminate the contract unilaterally, retain up to 40% of the price of the real estate unit specified in the off-plan sales contract and return any excess amount to the purchaser within one year of the date of termination of the contract or within (60) sixty days of the date of re-selling the real estate unit to another purchaser, whichever is earlier;
ii. if the percentage of completion of the real estate unit is between 60% and 80%, the developer may terminate the sale contract unilaterally, deduct not more than 40% of the price of the real estate unit specified in the off-plan sales contract and return any excess amount to the purchaser within one year of the date of termination of the contract or within (60) sixty days of the date of re-selling the real estate unit to another purchaser, whichever is earlier;
iii. if the developer has commenced construction work on the project as per the designs approved by the competent authorities and the percentage of completion of the real estate unit is less than 60%, the developer may terminate the contract unilaterally, retain up to 25% of the price of the real estate unit specified in the off-plan sales contract and return any excess amount to the purchaser within one year of the date of termination of the contract or within (60) sixty days of the date of re-selling the real estate unit to another purchaser, whichever is earlier; and
iv. if the developer has not commenced the execution of the real estate development project for reasons beyond his control and without negligence on his part, the developer may terminate the contract unilaterally, deduct not more than 30% of the amounts paid by the purchaser and return any excess amount to the purchaser within (60) days of the date of terminating the contract.
Additionally, where the development project is cancelled by the Real Estate Regulatory Agency, the real estate developer must refund all payments received from the purchaser, pursuant to the procedures and provisions stipulated in the said Law No. (8) of 2007.
What’s the commercial and practical impact?
Developers must follow the procedure set out in Law No. 19 of 2017 if they wish to recover from a buyer who has breached an off-plan sales contract.■
Assessing the Impact of the Changes to Dubai’s Interim Property Registration Law
Shahram Safai, Partner and Anna White, Associate at Afridi & Angell assess the impact of the changes to Dubai’s Interim Property Registration Law which were announced in November.
Dawn raids: do you have a policy in place, and is it fit for purpose?
The term “dawn raid” refers to an unanticipated visit to commercial premises by a regulatory authority. Examples of this could include a squad of policemen entering a warehouse, a team from a financial-services regulator checking trading records at a bank, or an official from the UAE Ministry of Human Resources and Emiratisation entering your office to check the work permits of all employees present there (an increasingly common practice).
If your business is subject to a dawn raid, it generally means something has already gone wrong. Regulators only have limited resources, and they typically don’t engage in random inspections. If they are visiting you there is almost certainly a good reason for it. How you handle the raid itself will have a significant impact on the discussions and negotiations that are sure to follow.
A calm, professional and pragmatic interaction with the regulators will serve your organisation much better than a disorganised and panicked response. Having a written policy in place provides your team with a script to follow, and prevents inappropriate behaviour by untrained staff. Unfortunately, dawn-raid policies used in other parts of the world are often fatally flawed when reviewed in the context of the UAE.
All dawn-raid policies should include training of your receptionists, with specific directions for the contact people who must be immediately informed of the raid. These might include the manager of the office, the compliance officer (if any) and the organisation’s lawyers (internal and/or external). The receptionists will almost certainly be the first people that the regulators come into contact with.
The organisation’s lead representative should then attempt to agree an approach with the raiding authority. The aim is to allow the search to take place in a manner which minimises the inevitable disruption to normal business activity. If possible, you will also want to agree the extent of the search and to place limits on the types of materials that the raiding authority can inspect. Much will rely upon the charm and negotiating ability of your lead representative at this stage. Many regulators will resist efforts to curtail the scope of the inspection.
The policy should document the fact that, in the event of a raid, documents must not be destroyed or amended. Normal document-destruction procedures should be suspended. An ill-guided attempt to hide evidence from inspectors will make a bad situation much worse. The policy should also specify that all employees receive regular training on this point. In the event that someone does destroy a document, it may help the organisation if you can point to the policy and the training and thereby state that you had told employees not to do this.
The policy should also include a communications plan. This would deal with both internal communication to employees, plus external communication to the general media, other industry regulators, and competitors. Employees will need to be reminded that they should keep details of the investigation confidential. The amount of detail disclosed externally needs to be carefully considered. Too little information suggests that the company is trying to hide a problem. Too much (or too early) will prejudice your ability to reach a negotiated settlement with the regulator.
The reason that dawn-raid policies from other parts of the world are fatally flawed when used in a UAE context is due to the concept of legal privilege. The concept of legal privilege is engrained in many legal systems, and is often seen as a fundamental principle of justice. It grants a protection from disclosing evidence. A key issue in dawn raids in other parts of the world is therefore identifying which documents are protected by legal privilege, and therefore need not be disclosed to regulators. A client must be confident that his discussions with his lawyer are confidential. This means that all correspondence between a client and his lawyer (in many parts of the world) is protected by legal privilege.
The situation is somewhat different in the UAE. Lawyers owe a duty of confidentiality to their client, but this falls short of being legal privilege, which is a right enjoyed by the client. In the context of a UAE dawn raid, you risk antagonising a regulator (and increasing the disruption to the business) if you attempt to argue that certain documents need not be disclosed as they are protected by legal privilege. There is a danger of this happening if you adopt a dawn-raid policy developed overseas and do not amend it to accord with local conditions. Please contact us if you would like us to review your dawn-raid policies, or to assist you in developing a new policy. ■
Cap restored on Abu Dhabi Court fees
Abu Dhabi has put an end to a four-year experiment – widely viewed as unsuccessful – with uncapped court fees.
Prior to 2013, court fees in Abu Dhabi were calculated as a percentage of the amount in controversy, subject to a cap of AED 20,000. But Abu Dhabi Law 6 of 2013 introduced a new formula of 3% of the amount in controversy without any cap. This imposed significant costs on claimants, even taking into account the power of the courts to charge fees to the losing party. Resort to the courts was deterred, even for an action such as the enforcement of an arbitral award where the role of the courts was restricted.
This has now been remedied by Abu Dhabi Law 13 of 2017, which repealed Law 6 of 2013. Law 13 of 2017 provides for a court fee of 5% of the amount in controversy, provided that the fee shall be not less than AED 100 and not more than AED 40,000. The formula is the same for appellate fees, but with a maximum fee of AED 10,000. For a lawsuit of indeterminate value, a fixed fee will be charged initially depending on the type of case, with the balance of the fee to be calculated following pronouncement of judgment on the basis of the amount of the award using the normally-applicable formula.
Law 13 of 2017 also sets a cap of AED 10,000 for fees for additional electronic services provided by the Abu Dhabi Judicial Department. ■
Blockchain and Crypto Currencies, Lexis Middle East Law
Blockchain technology is attracting the attention of Governments, business people, and consumers. The headline-grabbing cryptocurrency, ‘Bitcoin’, is the best-known application, but the implications and potential uses of Blockchain technology and, more broadly, distributed ledger technology (DLT), are much broader than Bitcoin and other cryptocurrencies.