Category: inBriefs

Deportation in the UAE: General overview and the impact of Dubai Resolution No. (1) of 2025

Deportation refers to the formal removal of an individual or group from a state’s sovereign territory by order of the competent authorities. While definitions may vary by jurisdiction, deportation generally serves as a state mechanism to protect public welfare, safety, or national interests. The term “deportee” typically refers to a person who has been subjected to a deportation order. Though deportation is not unique to the United Arab Emirates (UAE)—as it is also widely implemented in jurisdictions such as the United States (US) and the United Kingdom (UK)—its practice in the UAE follows a distinct legal framework. This article explores the classifications of deportation in the UAE, whether it is mandatory or discretionary, and the mechanisms for its removal. It also assesses the implications of the recently enacted Dubai Resolution No. (1) of 2025 issued by Dubai Ruler, which reestablishes and expands the jurisdiction of the Tribunal for the Review of the Execution of Deportation Judgments and Travel Ban Orders, applicable exclusively within the Emirate of Dubai.

 

Legal Classifications of Deportation in the UAE

 

Deportation in the UAE is categorised as either judicial or administrative:

 

  • Judicial Deportation: Ordered by courts under various laws, most notably Federal Decree Law No. (31) of 2021 (the Penal Code) and Federal Decree Law No. (30) of 2021 on Narcotic Drugs and Psychotropic Substances (the Drug Law). Judicial deportation can be:

 

  • Mandatory: Required by law in specific cases. For example, Article 126(1) of the Penal Code mandates the deportation of any foreigner sentenced to a custodial penalty for a felony. Similarly, the Drug Law mandates deportation for foreigners convicted under its provisions.

 

  • Discretionary: Permitted but not required. Article 126(2) of the Penal Code allows courts to order deportation for misdemeanour convictions or as an alternative penalty. Article 75 of the Drug Law also permits discretionary deportation in cases involving personal drug use or possession.

 

  • Administrative Deportation: Enforced by the Federal Authority for Identity and Citizenship (ICP), this type of deportation may be ordered on grounds of public interest, national security, or public morals. It does not require a court conviction.

 

Removal of Deportation Orders

 

Whether judicial or administrative, deportation orders can be subject to cancellation or suspension under certain conditions:

 

  • Administrative Deportation may be revoked through an application submitted to the General Directorate of Residency and Foreigners Affairs (GDRFA) in the related Emirate. The application must include compelling legal grounds and supporting documentation.

 

  • Judicial Deportation requires a separate application submitted via the public prosecution portal.

 

In both cases, the reviewing authority will assess factors such as the risk of human rights violations in the deportee’s home country or other humanitarian concerns.

 

The Tribunal for the Review of Deportation and Travel Ban Orders

 

Dubai originally established a specialised tribunal under Resolution No. (7) of 2007, which allowed for the temporary suspension of final deportation and travel ban orders. However, that resolution was repealed and replaced by Resolution No. (1) of 2025, which not only reinstates the Tribunal but significantly expands its powers.

 

The Tribunal retains jurisdiction only in cases involving both a final deportation judgment and order and a travel ban. If no travel ban exists, the Tribunal lacks jurisdiction, as outlined in Article (2) of the 2007 Resolution and Article (3) of the 2025 Resolution.

 

Key differences between the two resolutions include:

 

  • Under Resolution No. (7), the Tribunal was authorised solely to suspend deportation orders for a fixed period.

 

  • Resolution No. (1), by contrast, allows for indefinite or extended suspension, since Article (4) (A/1) does not impose a strict time limit.

 

  • The 2025 Resolution empowers the Tribunal to cancel travel bans and authorise temporary release of deportees with appropriate guarantees.

 

These expanded powers represent a notable shift toward broader judicial discretion in managing deportation and travel ban enforcement.

 

Balancing Public and Private Interests

 

The underlying rationale for both Resolutions is to strike a balance between individual rights, creditors’ interests, and public safety. In many cases, individuals subject to deportation are also under travel bans due to outstanding debts or legal claims. Enforcing deportation without resolving these claims could result in significant financial harm to creditors. Conversely, indefinite delay in deportation could compromise public safety.

 

The Tribunal plays a mediating role by ensuring deportees can fulfil their financial obligations before removal—through temporary release or suspension of deportation—without jeopardising public interest. These measures help uphold principles of fairness, due process, and proportionality in enforcement decisions.

 

Conclusion

 

Deportation remains a powerful tool available to states to uphold public order and national interest. In the UAE, this measure is governed by a structured legal framework distinguishing between mandatory and discretionary deportation, as well as judicial and administrative procedures for its removal.

 

The enactment of Resolution No. (1) of 2025 marks a significant evolution in Dubai’s approach to deportation, offering more flexible judicial oversight through the Tribunal. This development reflects a broader commitment to safeguarding individual rights while maintaining community safety and ensuring that deportation orders do not undermine the legitimate interests of creditors.

 

Ultimately, by introducing avenues for judicial review and expanding the scope of the Tribunal’s authority, the Resolution enhances legal certainty and fairness in deportation proceedings and reaffirms the UAE’s commitment to a balanced, rights-respecting legal system. ■

Dubai Executive Council Resolution No. 11 of 2025: Expanding Free Zone Opportunities

The Dubai Government has introduced Dubai Executive Council Resolution No. 11 of 2025 (Resolution), marking a significant advancement aimed at enhancing economic growth and offering greater business flexibility for Dubai free zone entities (Entities). The Resolution offers new opportunities for Entities to operate in mainland Dubai subject to meeting certain regulatory requirements.

 

Scope of the Resolution

 

The Resolution applies to all Entities that intend to conduct business activities outside of their respective free zone on Dubai’s mainland, except for financial institutions licensed by the Dubai International Financial Centre.

 

Prior to the introduction of the Resolution, Entities were only permitted to conduct their business from within the boundaries of their relevant free zone. Entities whose business required them to operate onshore in Dubai were therefore necessitated to contract with a third-party agent, register a branch or incorporate a separate onshore presence. Of course, the establishment of an onshore branch or company came with additional compliance requirements, the expense of maintaining premises within the Emirate of Dubai and also capital requirements (in the case of an onshore company).

 

Under the Resolution, Entities may apply to the Dubai Department of Economy and Tourism (DET) for one of three types of licence/permit:

 

License Type

Requirements

Fees (AED)

Validity of License

Branch of an entity

Existing requirements to register an onshore branch to be followed.

As per existing requirements

One year

Branch of an Entity with its headquarters in the relevant free zone.

- Submission of the required documentation of the Entity to the DET.

- Approval of the DET.

- Approval of any other relevant UAE authority which regulates the activities of the Entity.

10,000

One year

Temporary permit for the Entity to practice certain activities onshore in Dubai

- Submission of the required documentation of the Entity to the DET.

- Approval of the DET.

- Approval of any other relevant UAE authority which regulates the activities of the Entity.

5,000

Six months

 

Additional Considerations

 

– The Resolution mandates that the DET, in collaboration with the relevant licensing authorities, shall publish a list of the economic activities that an Entity may carry out onshore in Dubai within six months from the effective date of the Resolution (i.e. by 3 September 2025). The economic activities will depend on which of the three licence options (see above) an Entity applies for.

 

– Any Entity that wishes to operate onshore in Dubai must comply with the relevant federal and local rules and regulations for the activity it wishes to practice. Consequently, Entities will need to ensure that they keep abreast of legislation and developments applicable to it both within the relevant free zone and onshore in Dubai.

 

– Under the Resolution, Entities which are permitted to operate in mainland Dubai must maintain separate financial records for their operations conducted in mainland Dubai. This also links into the tax treatment of these arrangements as it implies that the standard 9% corporate tax rate will apply in respect of the onshore business of the Entity (unless the income is otherwise exempt). This is in comparison to the 0% corporate tax rate offered to qualifying Dubai free zone companies on qualifying income.

 

– The Resolution sets out a one-year transitional period during which Entities currently operating outside of their free zone in the Emirate of Dubai must comply with the provisions of the Resolution.

 

Strategic Advantages

 

– Direct engagement in government contracts and onshore business activities without intermediary involvement.

 

– Reduced administrative overhead and financial burden associated with setting up a separate mainland entity.

 

– Enhanced market accessibility, fostering direct relationships with consumers and business partners.

 

The Resolution is expected to promote economic growth and business flexibility in Dubai. Entities should evaluate their current corporate structure in light of this Resolution to ensure that they capitalise upon the advantages of now being able to operate onshore in Dubai from a Dubai free zone in a more flexible manner. ■

Joint Venture Agreements in Real Estate Development Projects

Dubai’s development market is one of the most dynamic and rapidly growing real estate markets in the world, with consistent demand for residential, commercial, and mixed-use developments.

 

Developers frequently use Joint Venture (JV) agreements to collaborate on large-scale real estate and infrastructure projects, allowing them to share both the risks and rewards of large-scale developments.

 

In this inBrief, we discuss the types of JV agreements as well as their benefits, UAE specific considerations, and the key terms that should be considered to assist in reducing risks and disputes between JV parties.

 

Types of JV agreements

 

– Equity-based JV agreements: two or more partners create a new entity and share ownership, risks and profits based on their equity stakes.

 

– Special Purpose Vehicle (SPV): a common structure for JV agreements in real estate, where a new entity is created to handle a specific project, shielding the parent companies from some risks.

 

– Contractual JV agreements: parties collaborate on a project without sharing ownership of the project or forming a separate legal entity. Instead, the JV is governed purely by the terms of the agreement.

 

Benefits of JV agreements

 

JV’s offer several strategic advantages for developers and business partners such as:

 

– Access to capital and resources: developers can pool resources, capital and investors, allowing them to take on larger, more complex projects than they could on their own.

 

– Expertise and specialisation: developers can leverage each other’s expertise, for example, one partner might specialise in land acquisition, while another specialises in construction or design.

 

– Flexibility: JV’s allow developers to structure the agreement in a way that best suits the needs of the project, adjusting ownership percentages, management control, and profit sharing based on the contribution of each party.

 

– Risk sharing and liability: one of the main benefits of JV agreements in real estate is risk-sharing. The financial and operational risks associated with large projects are divided among the partners, reducing the exposure of each developer.

 

Key Considerations for Joint Venture (JV) Agreements in Dubai

 

When structuring a JV agreement in Dubai, developers should take into account the following important legal and regulatory aspects:

 

– Regulatory approvals: before commencing any development, developers must obtain regulatory approvals from the Dubai Land Department (DLD) and other relevant authorities. The JV agreement should include clauses that ensure compliance with local regulations, including but not limited to registration requirements, zoning laws, environmental standards, and such other requirements as may be applicable.

 

– Dispute resolution: in case of disputes, the JV agreement will typically contain provisions for dispute resolution, such as court, mediation or arbitration, especially when international parties are involved. The Dubai International Financial Centre (DIFC) and the Dubai International Arbitration Centre (DIAC) are common bodies for resolving such disputes when dealing with such complex matters.

 

The JV agreement should cover the following key elements:

 

– Project Scope and objectives: define the project’s location, size, design, budget, timeline, and expected returns.

 

– Ownership and control: a clear outline of the equity split, voting rights, decision-making authority, and dispute resolution procedures.

 

– Capital contribution and financing: specify each party’s capital contribution, identify debt financing sources, outline risk allocation, and processes for capital calls, distributions, and reinvestments.

 

– Profit sharing and exit strategy: clearly define how profit and loss sharing will be allocated, outline any preferred returns, and exit strategies such as selling, refinancing, or holding the project.

 

– Governance and reporting: establish the JV’s governance structure, assign key personnel, and set out meeting frequency, reporting requirements, and accounting methods.

 

– Contingencies and termination: outline the procedures for handling breaches of the agreement, including applicable penalties, termination conditions, and options for mutual buyout.

 

JV agreements are, therefore, a key tool for developers in Dubai, enabling them to pool resources and expertise for large-scale projects. These partnerships allow developers to share both the risks and rewards, making complex projects more manageable and financially viable. ■

Ministerial Decision on Registration of Branches and Representative Offices of Foreign Companies

On 30 July 2024, the UAE Ministry of Economy (Ministry) issued Ministerial Resolution No 138 of 2024 on the Controls and Procedures for Registering Branches and Representative Offices of Foreign Companies (the Decision). The Decision abrogated and replaced the earlier Ministerial Resolution No 377 of 2010.

 

The Decision provides detailed process and guidelines on the registration of branches (Branch) and representative offices (Office) of foreign companies in the UAE. All applications for registration, renewal of registration, amendment of registration, suspension of registration, deletion of registration or re-registration of a Branch or an Office must be filed through an online electronic platform on the Ministry’s website.

 

One of the key changes under the Decision is that the requirement to submit to the Ministry (at the time of establishment of the Branch/Office) a bank guarantee of AED 50,000 issued by a bank licensed in the UAE has been removed. Under the old Ministerial Resolution No 377 of 2010, an entity (eg: foreign entity or a free zone entity) establishing a branch in mainland UAE was required to provide a bank guarantee for an amount of AED 50,000 during the process of establishment of the Branch/Office. Now, a bank guarantee of AED 50,000 is not required to be submitted to the Ministry. Existing branches who had submitted bank guarantees at the time of their registration should contact their banks for cancellation of the bank guarantees.

 

Additionally, the key provisions under the Decision are as follows:

 

(1) Licensing requirement: A foreign company shall conduct its business from the UAE only after obtaining a license from the local authority in the Emirate (Authority) and after obtaining the Ministry’s approval. The foreign company must license and register each additional Branch or Office in the UAE.

 

(2) Registration process: The foreign company must obtain an initial approval from the Ministry prior to obtaining the license from the Authority. The initial approval from the Ministry shall be valid for a period of eight months. After obtaining initial approval from the Ministry, the foreign company must obtain the license from the Authority as per the procedures prescribed by the Authority. Upon receiving the license from the Authority, the foreign company must file an application with the Ministry and obtain a certificate of registration within one month from the date of issuance of the license by the Authority. The certificate of registration shall be valid for a period of one year. Failure to complete the registration with the Ministry within one month from the date of issuance of the license by the Authority may attract penalties.

 

(3) Authentication of documents: All documents required to be submitted to the Ministry on the online electronic platform must be duly certified and authenticated. Generally, this process involves attestation up to the level of the UAE Embassy in the relevant foreign jurisdiction, followed by attestation by the Ministry of Foreign Affairs in the UAE. Further, the documents are required to be translated into Arabic and attested by the Ministry of Justice. This process sometimes causes delays for foreign companies as certification and authentication of documents can take up to four to five weeks in certain jurisdictions. However, under the Decision, the Ministry may now accept temporary registration applications for documents that have not yet completed certification and authentication, with a maximum grace period of three months to complete the authentication process. Failure to do so shall result in cancellation and deletion of the application.

 

(4) Appointment of Auditor: Every Branch must appoint an auditor licensed to practise in the UAE. The auditor shall be appointed for a period of one year, renewable by a decision of the foreign company, so long as the renewal / term does not exceed six consecutive financial years. In such case, the partner in charge of auditing the Branch must be changed after three financial years. The auditor may be re-appointed after at least two financial years from the end of its previous term.

 

(5) Renewal of registration: A Branch or Office must renew its registration within one month prior to the expiry of its registration. At the time of renewal of the registration, in addition to the copy of the Branch or Office license, a certificate of incumbency/extract of commercial register of the foreign company and the audited financial accounts of the Branch and/or Office are required to be submitted to the Ministry. While the Decision does not specifically state that an Office is also required to appoint an auditor, as per the Decision, the audited financial accounts of an Office are required to be submitted for renewal of registration of an Office with the Ministry.

 

(6) Data of foreign companies: Data of foreign companies that have established Branches or Offices in the UAE can be obtained through the online electronic platform. A certificate containing details such as name of the foreign company, nationality of the foreign company, name of manager, activities of the foreign company, number of Branches of the foreign company (including date of registration and expiry) shall be issued to the applicant. However, as of now, only details such as the name of the Branch (in English and Arabic); registration number; registration date; and status of the Branch is publicly available (without payment of a fee). ■

Why Dubai is attracting UK high net worth individuals and businesses

Effective 6 April 2025, the United Kingdom (UK) is set to implement significant changes to its non-domiciled (non-dom) tax status, transitioning from a domicile-based to a residence-based taxation system. This will result in all UK residents being taxed on their worldwide income and gains, eliminating the previous remittance basis that allowed non-doms to pay UK tax only on income brought into the country.

This update and change to the UK non-dom rules shall have substantial tax implications for those who have previously relied on their non-dom status, especially those with significant foreign income or assets. Key changes being:

 

Expansion of the Tax Base: as noted above, the new rules will subject more foreign income and assets to UK taxation, especially for long-term residents. This will extend to inheritance tax on foreign assets.

 

Reduction of Tax Benefits: foreign income relief will be reduced, with reductions and limitations on the time period for claiming tax relief. Such changes will diminish tax optimisation opportunities for high-income individuals.

 

Temporary Concessions: whilst there will be a temporary repatriation facility offered with a reduced tax rate on remitted foreign income, this will be limited in time.

 

Increased Administrative Burden: overall the new system is set to require more meticulous management of tax obligations, leading to additional legal and accounting costs.

 

The UK’s shift from a remittance-based tax system to one focused on tax residence years has raised concerns, particularly amongst high-net-worth individuals (HNWIs), making the UK less appealing to wealthy individuals, placing a higher burden on foreign nationals with significant wealth and assets, and prompting some to consider relocating to countries with more favourable tax regimes.

 

In 2024, nearly 1,000 HNWIs from the UK relocated to Dubai, contributing to a broader trend of wealthy individuals moving to the United Arab Emirates (UAE). A London-based investment migration consultancy predicted that a total of 6,700 millionaires would move to the UAE by the end of the year, with a significant portion coming from the UK.

 

Why the UAE?

 

Despite the introduction of corporate tax in the UAE in 2023, the UAE still offers a considerably more favourable tax environment for HNWIs and businesses compared to the UK. Key benefits include:

 

 

Low or Zero Taxes for Individuals

 

    • Income Tax: one of the biggest draws for HNWIs is that the UAE does not impose personal income tax, meaning that individuals, including business owners and executives, can retain more of their income. In the UK, the income tax rate can reach up to 45% for individuals earning over £125,140 annually.

 

    • No Capital Gains Tax: currently there is no capital gains tax in the UAE, which is particularly beneficial for those individuals involved in investment, real estate, or other ventures where they may sell assets and retain 100% of the profits.

 

    • No Inheritance or Estate Tax: the UAE’s lack of inheritance tax means that wealth can be passed on to heirs without tax penalties, making it attractive for estate planning.

 

 

Corporate Tax Incentives for Businesses

 

  • Corporate Tax Rate: despite the UAE’s introduction of a 9% corporate tax in 2023 (on profits above AED 375,000), the corporate tax rate in the UAE still remains one of the lowest in the world. For example, corporation tax in the UK is 25% (on profits above £250,000).

 

  • Free Zones: the UAE has over 30 free zones where businesses may operate with the benefit of profit repatriation, and tax exemptions for a set period.

 

  • Double Taxation Treaties: The UAE has over 100 treaties to avoid double taxation, simplifying compliance for global operations.

 

 

Other Benefits

 

  • VAT Exemptions and Refunds: in comparison to the UK’s standard rate of 20%, the UAE has a low 5% VAT rate, with exemptions and the possibility of claiming refunds on expenses, making Dubai attractive for international trade.

 

  • Residency Visa: the UAE introduced Residence by Investment, which is aimed at providing long-term residence to foreign investors, entrepreneurs, and talented individuals who make significant investments in the country. Business owners, investors and entrepreneurs can obtain residency visas for up to 10 years making it easier to reside in the UAE.

 

  • Competitive Setup Packages: freezones offer affordable company setup packages, covering licensing, office space, and visa processing to streamline the process.

 

  • Global positioning: The UAE’s global position makes it easy for HNWIs and businesses to have ease of access to global trade across Europe, Asia, Africa and the Americas.

 

All of these factors contribute to the UAE’s growing appeal to UK HNWIs and businesses looking to reduce their tax burden, and utilise and benefit from tax advantages supporting growth and profitability. ■

UAE Introduces New Merger Control Thresholds

In January, the United Arab Emirates (UAE) introduced Cabinet Decision 3 of 2025 on the Ratios Related to the Implementation of Federal Decree Law 36 of 2023 Regulating Competition (2025 Decision). The 2025 Decision, set to take effect on 31 March 2025, establishes conditions under which merger control filings must be submitted to the UAE Ministry of Economy (MOE).

 

Key Conditions for Merger Filings

 

Entities involved in mergers, acquisitions, or other forms of Economic Concentration (i.e. any transaction resulting in the full or partial transfer of ownership or usufruct rights in assets, rights, stocks, shares, or obligations, granting an establishment or group of establishments direct or indirect control over another) will be required to file an application with the MOE if either of the following thresholds is met:

 

1.) Turnover Threshold: this threshold was originally included as a trigger for the requirement to make a merger clearance filing pursuant to the introduction of the new Federal Competition Law in late 2023 however, the turnover amount was not at that time clarified. The 2025 Decision now provides that the total annual sales of the relevant entities in the “Relevant Market” within the UAE must exceed AED 300 million (approx. USD 81.7 million and EUR 79.2 million) during the previous fiscal year; or

 

2.) Market Share Threshold: the total market share of the relevant entities exceeds 40% of total sales in the “Relevant Market” within the UAE during the previous fiscal year.

 

The 2025 Decision does not clarify whether an overlap is a requirement or whether one party alone could meet the new turnover threshold. However, it should be noted that the MOE formerly took the position under the old Competition Law that the acquirer alone could meet the market share threshold so it is likely that the same approach will be taken under the new regime.

 

Further, it should be noted that new Implementing Regulations are yet to be issued. These regulations will act to supplement the UAE competition law regime and should also provide clarification on a number of factors including any exemptions available under the new regime together with the definition of “control” as used within the definition of an “economic concentration”.

 

We are currently engaged in discussions with the MOE on a number of practical considerations relating to the filing process and its requirements. At present, we understand from the MOE that substantially the same form will be used as under the former Federal Law in order to make an application for a merger clearance. In addition, it is understood that going forward fees will be levied on the submission of a merger clearance application.

 

The issuance of the 2025 Decision marks a significant development in the UAE’s competition law regime by introducing clearer and stricter criteria for merger control. The 2025 Decision enhances regulatory oversight of market concentration and aims to promote fair competition within the UAE.

 

Going forward, given the mandatory and suspensory nature of the regime, it is imperative that parties and their advisors evaluate early on in the transaction process whether their transaction may trigger a requirement to file for merger clearance in the UAE to ensure compliance with the new regime. ■

The United Arab Emirates’ (UAE) Corporate Tax Regime: Globally Competitive and Business Friendly

Businesses often seek a favourable environment that fosters growth and offers tax savings. In this inBrief, we discuss the UAE’s tax-friendly landscape which stands out globally, drawing entrepreneurs, family offices and businesses that are eager to thrive in a jurisdiction with fewer restrictions and attractive exemptions and reliefs.

 

The UAE has become a major financial hub in the recent few years and is one of the easiest countries in which to do business. With the recent introduction of the Corporate Tax (CT) framework under Federal Decree Law 47 of 2022 (CT Law), the UAE aligned its fiscal policy with international tax standards and best practices, particularly pursuant to the goals of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) project, which further solidifies the UAE’s position as a competitive business centre.

 

Tax Landscape

 

The UAE’s CT structure is designed to levy a modest 9% tax rate on businesses with profits (income after deduction of expenditure incurred wholly and exclusively for the purposes of a taxable person’s business) exceeding AED 375,000. This remains notably low compared to, for instance, Portugal, a traditionally favoured European country, with a 21% CT rate on profits exceeding €25,000 (approximately AED 95,000).

 

Portugal’s tax structure presents a notable contrast to the UAE’s, with implications for businesses. Portugal’s Value Added Tax (VAT) of 23% far exceeds the UAE’s 5%, in addition to levying a 25% withholding tax on dividends, interest, and royalties, adding complexity for businesses involved in cross-border trade. Comparatively, the UAE offers 0% withholding tax. Further, Portugal imposes a capital gains tax of up to 28%, while the UAE’s corporate tax rate is set at 9%.

 

Internationally Competitive and Connected

 

To facilitate and promote cross-border transactions and to continue to grow as a financial hub, the UAE has 137 Avoidance of Double Taxation Agreements and Bilateral Investment Treaties with other countries and the European Union (EU). These agreements are aimed at reducing double taxation and facilitating cross-border businesses. This approach encourages investment flows between treaty partners by reducing or even eliminating withholding taxes.

 

In addition, the UAE offers significant incentives to foreign investors through its 10-year Golden Visa program, which provides individuals with the opportunity to live, work, and invest in the UAE without the need for a local sponsor. The UAE also provides targeted incentives for technology and innovative startups, including funding opportunities, incubator programs, and tax exemptions to foster innovation and business growth.

 

No Personal Income Tax

 

One of the key advantages of the UAE’s favourable tax environment is the absence of personal income tax on wages, earnings, income from real estate investments and other types of investment income. This is in contrast to many European Union jurisdictions, where personal income tax rates often exceed 40% or even 50% for high-earning taxpayers.

 

Tax Relief and Exemptions

 

The CT Law provides for specific exemptions (for instance, the participation exemption), tax groupings for efficiency and preferential rates for qualifying small businesses and businesses engaged in specific sectors (innovation or technology). The aim of these tax exemptions and reliefs is to encourage corporate transactions, reduce the tax burden on emerging businesses and to stimulate economic growth within the UAE.

 

UAE Corporate Tax Law – A Business Attraction Tool

 

The UAE’s 9% CT rate, 5% VAT rate, absence of personal income tax (in most cases), 0% withholding tax rate, certain tax exemptions, international tax agreements and ease of doing business make it an unparalleled and highly competitive destination for multi-nationals, entrepreneurs, investors and family offices. As a result, the UAE CT regime acts as a tool to attract businesses to this highly business-friendly environment, especially in contrast to higher-tax jurisdictions in the EU, North America and Asia. ■

Agents, dealers and service providers beware: UAE regulators to focus on DNFBP’s

Speaking at a recent conference in Dubai, representatives of several of the UAE’s regulatory authorities indicated that they will be significantly increasing their focus on the so-called Designated Non-Financial Business or Profession (DNFBP) sector. Senior members of the Dubai Financial Service Authority (DFSA), the UAE Ministry of Economy, the Securities and Commodities (SCA) and the Abu Dhabi Global Market Financial Services Regulatory Authority (FSRA) were unanimous in their commitment to cracking down on perceived weaknesses in the DNFBP sector, particularly in the context of anti-money laundering (AML) compliance.

 

The UAE is perhaps unusual in the number and variety of regulatory organisations with similar or overlapping remits, and businesses operating in the UAE are required to familiarise themselves with a number of different obligations, depending on where they fall in the regulatory mix. The precise definition of DNFBP therefore varies across the UAE, but broadly captures the following:

 

– Real estate agents;

 

– Dealers in precious metals and/or stones;

 

– Issuers and service providers in the field of virtual assets (crypto, tokens etc);

 

– Legal businesses, including notaries;

 

– Accounting, audit and insolvency firms; and

 

– Corporate service providers.

 

Anyone active in any of the above businesses in the UAE should be aware of their ongoing registration and reporting obligations. This includes all anti-money laundering (AML), Know Your Customers (KYC) and counter terrorist financing (CTF) obligations. The UAE regulators, not unreasonably, consider the DNFBP sector to be particular vulnerable to exploitation by both criminals and terrorist financiers.

 

Companies active in the UAE in any of the above businesses should ensure that they are properly registered where required as a DNFBP, and that their compliance policies and procedures adequately reflect their current obligations. The UAE regulators have expressly stated that they will be taking enforcement action in the sector in the coming months and years. Afridi & Angell can advise and assist in this area. ■

The New Netting Law

A new netting law was published on 1 October 2024 as Federal Decree-Law No. 31 of 2024 on Netting (the Netting Law) and came into effect on 2 January 2025, repealing Federal Decree-Law 10 of 2018 on Netting (the Old Law). The Netting Law provides further clarification on both the legal recognition and enforceability of various financial contracts, and the ability to implement close-out netting (i.e., netting of obligations following an event of default or termination event), particularly following the insolvency of the UAE counterparty. The Netting Law applies to all qualified financial contracts, netting agreements and related collateral arrangements entered into by a person or entity in the UAE (other than persons and entities located in financial free zones, being the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), which have their own netting regimes). As with the Old Law, the Netting Law is closely modelled on the 2006 and 2018 ISDA Model Netting Acts (as published by the International Swaps and Derivatives Association (ISDA)).

 

Why is netting important?

 

Close-out netting is essentially the process where, following a default under a contract (usually a master agreement, such as an ISDA Master Agreement), the non-defaulting party can request the termination of all transactions between the parties under the contract. The parties then determine the value of the unperformed obligations under all “open” transactions and then aggregate the obligations owed by each party to the other, resulting in a net sum (or close-out amount) owed by one party to the other. Effective close-out netting (particularly in post-insolvency situations) can provide a clear and reliable mechanism for parties to settle payments and/or obligations (including collateral transfers) across multiple transactions, thereby minimising the overall credit and settlement risk and, in the case of financial institutions, reducing the amount of collateral required to secure the counterparty’s obligations under contracts.

 

Financial institutions relay on close-out netting as a key tool for managing and mitigating credit risk associated with a variety of financial contracts, particularly over-the-counter derivatives trading. Financial institutions will use post-insolvency risk of a counterparty to set credit limits, thus if the counterparty is in a jurisdiction where the insolvency laws recognise netting arrangements then the credit limit will be calculated on the basis of net exposure, whereas, if the counterparty is a jurisdiction where the insolvency laws do not recognise netting arrangements (a non-netting jurisdiction), the credit limit will be based on gross exposure.

 

Therefore, entering into financial contracts with a counterparty in a non-netting jurisdiction can result in the financial institution becoming subject to very high capital adequacy requirements and increase the costs and collateral requirements for the counterparty.

 

Whilst the UAE Bankruptcy Law (Federal Decree-Law No. 51 of 2023 Promulgating the Financial Reorganisation and Bankruptcy Law) recognises the set-off on a net basis, this is limited to agreements and arrangements under the Old Law. Consequently, it is not clear whether the adoption of the Netting Law means that the UAE is currently a non-netting jurisdiction.

 

Key Concepts Under the Netting Law

 

Netting

 

The Netting Law allows parties to enter into netting agreements for the purposes of netting off their payment and delivery obligations under qualified financial contracts (netting). A netting may include the following features:

 

a.) any termination, liquidation and/or acceleration of payment/delivery rights or obligations under qualified financial contracts entered into under a netting agreement or to which a netting agreement applies;

 

b.) calculation, estimation or adoption of an index of close-out or termination value, market value, liquidation value or any other relevant value, which may arise from a party’s failure to enter into or perform a transaction under a netting agreement, where the rights and/or obligations of the parties under such netting agreement have been terminated, liquidated and/or accelerated under point (a) above;

 

c.) conversion of the values calculated or estimated under point (b) above into a single currency;

 

d.) determination of the net balance of values calculated under point (b) above to be paid or in respect of which an obligation may arise, as converted under point (c) above, whether by exemption, replacement or otherwise; and

 

e.) entry into an arrangement whereby the net amount calculated under point (b) above becomes payable directly or as part of either the (i) consideration for a specific asset or (ii) damages for non-performance of such transaction.

 

Netting Agreements

 

Under the Netting Law, netting agreements include:

 

a.) any agreement between two parties for netting of present or future rights to or obligations for payments or delivery, or transfer of title arising in connection with one or more qualified financial contract between the parties (a master agreement) or between parties to whom the agreement applies;

 

b.) any agreement providing for the netting of amounts due under two or more master netting agreements (a master netting agreement);

 

c.) any collateral arrangements such as credit support annexes or documents relating to or forming part of a master netting agreement or master agreement;

 

d.) any Shari’ah compliant agreement or arrangement which is intended to have a similar effect as the agreement or arrangements under points (a) through (c) above or any other netting agreement; and

 

e.) any agreements, contracts or transactions which fall within the definition of a qualified financial contract.

 

A netting agreement and all qualified financial contracts to which it applies will constitute a single agreement.

 

Qualified Financial Contracts

 

The Netting Law currently identifies 26 categories of agreements as qualified financial contracts (which create either a right to receive or an obligation to make a payment or delivery or to transfer title to assets/commodities for consideration) including (a) all types of swaps (in relation to currencies, interest rates, basis rates or commodities), forward rate agreements, currency or interest rate futures, currency or interest rate options, derivatives (relating to bonds, energy, bandwidth, freight, emissions and property index), securities contracts, collateral arrangements, commodities related contracts, (b) derivatives, agreements, contracts or digital asset transactions of the types under the other categories of qualified financial contracts, (c) any voluntary carbon credit derivatives, agreements, contracts or transaction or other types of carbon credit from the types of transactions under the other categories of qualified financial contracts, and (d) any Shari’ah compliant arrangement having an equivalent of the type of agreements and transactions under the other categories of qualified financial contracts.

 

The list of qualified financial contracts under the Netting Law may be reduced or expanded by the UAE Central Bank. This is a change from the Old Law, which contemplated the establishment of a Committee for Designation of Qualified Financial Contracts which would, amongst other things, determine the type of transactions that would constitute qualified financial contracts.

 

Collateral Arrangements

 

The Netting Law recognises collateral arrangements, including title transfer collateral arrangements (such as under repo transactions). Collateral arrangements are identified as mechanisms whereby collateral (including cash, securities, guarantees, letters of credit, repayment obligations and any other assets that are commonly used as security in the UAE) as security relating to or forming part of a netting agreement or qualified financial contracts including (a) security interest over collateral, (b) a collateral title transfer arrangement or (c) any obligation to provide collateral, letter of credit or repayment from one party to another party under a qualified financial contract.

 

The Netting Law provides that:

 

a.) Any sale, acquisition or liquidation of collateral under a collateral arrangement shall be enforceable without the need for any notice or consents from any person unless (i) the parties have agreed to such notice or consent requirements or (ii) UAE requires the sale, acquisition or liquidation to be effected in a fair commercial manner. The Netting law provides no guidance on what constitutes “fair commercial manner”.

 

b.) Any direct transfer of collateral under a collateral title transfer arrangement shall be concluded in accordance with its terms and shall not be characterised as an insurance arrangement.

 

No Ghurar

 

Under UAE law, futures, margin trading and derivatives transactions were often viewed as potentially unenforceable due to perceived gharar, an unacceptable level of risk or uncertainty that undermines contract formation. In the past, UAE courts had held in some instances, that derivatives are unenforceable “contracts of risk,” even when used to manage risk (as in hedging contracts) rather than to create risk or to speculate. Even for Shari’ah compliant hedging products in the market (for example, the ISDA/IIFM Tahawwut Master Agreement), which are supported by fatwas confirming that such products are Shari’ah compliant and free of gharar, there was no certainty on how the courts would hold. The Old Law had minimised, if not entirely eliminated, these uncertainties by providing that qualified financial contracts shall not be void, unenforceable, or not final by reason of gharar under the UAE Civil Code – the Netting Law has retained this earlier position. Further, under the Netting Law if a party pledges that a qualified financial contract or any agreement relating to a qualifying financial contract is Shari’ah compliant, then the pledging party cannot refuse to perform its obligations under such qualified financial contract, on the basis that the qualified financial contract is no longer Shari’ah compliant, whether on account of a change in the interpretation of Shari’ah rules and principles or otherwise. This provision may have been added as a consequence of recent cases in the UAE, where issuers of Shar’ah compliant financial products (mostly Sukuk) refused to perform their obligations on the basis that these products (or the transitions thereunder) were no longer Shari’ah compliant.

 

Bankruptcy

 

Effective close-out netting can limit a party’s exposure to the insolvency of its counterparty, thus allowing sums owing to an insolvent party to be netted-off against sums owed by the insolvent party to the other party. Under the UAE Bankruptcy Law, a debtor and creditor may only set off obligations (i) if the conditions for exercising the setoff are satisfied before initiating procedures under the UAE Bankruptcy Law, (ii) if conducted as part of the implementation of a preventative settlement or restructuring procedure or (iii) as approved by the court.

 

The Netting Law provides that the provisions of a netting agreement shall be deemed final and enforceable (including against a third-party security provider, even if such third party becomes insolvent), even following the insolvency and/or bankruptcy of one of the parties thereto. The arrangements under a netting agreement may not be suspended, delayed or made conditional merely by the appointment of a liquidator or the initiation of bankruptcy proceedings or under any other law applicable to insolvent parties. Insolvency and/or bankruptcy proceedings will not affect the netting arrangements under a netting agreement or a qualified financial contract (or any other financial contract) to which a netting agreement applies. Similarly, the provisions of a netting agreement shall not be affected by any limitations on setoff or netting imposed under any insolvency or bankruptcy laws.

 

In case of procedures under the UAE Bankruptcy Law, the liquidator or trustee of a party to a netting agreement (the insolvent party) may annul, stop or refuse the performance of a transaction constituting a preference to a non-insolvent third party (the third party). For example, such a transaction could be the transfer of cash, assets, property or collateral from the insolvent party to the third party under a netting agreement. However, the liquidator or trustee may do so only on the basis of clear and convincing evidence that such third party entered into the transaction with the intention to prevent, hinder, delay debt recovery by a current or future creditor of the insolvent party or defraud the creditors of the insolvent party or any party that becomes a creditor as a result of the relevant netting agreement or qualified financial contract. There is no definition of “clear and convincing evidence” (a term that has no antecedent in UAE law), but the concept would appear to present a higher hurdle than a mere preponderance of evidence. Significantly, there are no other grounds in the netting law for a liquidator or trustee to fail

 

Multi-branch netting

 

In line with the 2018 ISDA Model Netting Act and Guide, the Netting Law has recognised multi-branch netting agreements (the MBNA) as netting agreements between two or more parties, one of whom must be a foreign party (i.e., a party that is established, registered or regulated outside the UAE) under which a party can enter into qualified financial contracts through its home office (i.e., the office in the country where it is established, registered or regulated (home country)) and one of its branches or agencies in countries other than its home country.

 

In the event of the insolvency of a foreign party’s branch/agency (the branch), its liability (or the liability of its liquidator in the UAE) to the non-insolvent counterparty (the solvent counterparty) shall be calculated on the date of the termination of the qualified financial contract under the MBNA and limited to the lesser of (i) the foreign party’s net payment obligations (as adjusted by any payments to the solvent counterparty and the fair market value of any collateral provided by the foreign party under the MBNA) or (ii) the branch’s net payment obligation. The foreign party’s net payment entitlement from the solvent counterparty (as adjusted by any payments made to the liquidator of the foreign party and the fair market value of any collateral provided by the solvent counterparty under the MBNA) shall be netted against the solvent counterparty’s net payment entitlement from the foreign party. The solvent counterparty may liquidate any collateral (provided under, and in accordance with the terms of, the MBNA) and apply the proceeds against settlement of sums due from the foreign party under any related qualified financial contracts. Any excess collateral shall be returned.

 

Conclusion

 

The Netting Law is a sign of the UAE’s continued desire to participate fully in international markets for financial services. The addition of agreements relating to digital asset transactions and carbon credit derivatives as qualified financial contracts also demonstrates the UAE’s commitment to stay at the forefront of market developments and allow UAE counterparties to take advantage of the full range of financial products available in the international markets.

 

Whilst the Netting Law provides that it shall override any conflicting laws, it remains to be seen how the Netting Law will be implemented by the courts in certain circumstances, including the sale or title transfer of collateral under a collateral arrangement, where the relevant collateral is subject to a conflicting security interest in favour of a third party (including security interest perfected through registration on the EIRC movables security register or otherwise). We will continue to report as these and other issues are addressed in the coming years. ■

DIFC Court of Appeal overrules Sandra Holding in part and reaffirms itself as an international commercial court

“When you make a wrong turn you must make two right turns: one to correct the wrong turn and one just for growth.”

 

This ancient, Native American proverb still holds true today – at least, it seems, according to the eagerly-awaited decision in Carmon Reestrutura-Engenharia E Serviços Técnios Especiais, (SU) LDA v Antonio Joao Catete Lopes Cuenda [2024] DIFC CA 003 (Carmon v Cuenda).

 

The DIFC Court of Appeal in Carmon v Cuenda has overturned, in part, its own decision in Sandra Holding Ltd and others v Fawzi Musaed Al Saleh and others [2023] DIFC CA 003 (Sandra Holding), holding that the Court does have the jurisdiction to make freezing orders in support of foreign court proceedings. This landmark decision, issued by Justices Robert French, Sir Peter Gross and Rene Le Miere, is also the first time that the DIFC Court of Appeal has considered the circumstances under which it may depart from its own previous decisions.

 

Background

 

On 24 July 2023, Afridi & Angell, acting on behalf of the Claimant (an Angolan construction company), sought and obtained from Justice Wayne Martin (as he then was), sitting as the DIFC Court of First Instance, an ex parte freezing order together with an order for specific disclosure in support of proceedings in Hong Kong in which it was alleged that the Defendant had misappropriated in excess of USD 23 million of Carmon’s money.

 

The High Court of Hong Kong had already issued both a proprietary injunction over the funds, and their traceable proceeds, and a worldwide freezing order. A banker’s book order revealed that the Defendant had transferred the funds to other jurisdictions including Switzerland and the UAE.  Justice Martin’s Order accordingly restrained the Defendant’s bank accounts in onshore Dubai to prevent any further dissipation and required the disclosure of balances in those accounts.

 

Following a heavily-contested return date hearing, Justice Martin reserved judgment pending the Defendant’s compliance with his previous order for disclosure and, on the morning of 7 September 2023, ruled that the freezing order should continue – not least because new evidence revealed that the Defendant had, in apparent breach of the Hong Kong High Court orders, dissipated and/or transferred-on most of the funds in the UAE bank accounts.

 

The Wrong Turn: the CA decision in Sandra Holding

 

On the afternoon of 6 September 2023, the Court of Appeal handed down judgment in Sandra Holding which held that the DIFC Court of First Instance had no jurisdiction to make a freezing order in support of the prospective enforcement of a judgment in proceedings pending in a foreign court unless the Court had such jurisdiction established through one of the pathways specified in Article 5(A) of the JAL.

 

The Defendant then, relying on Sandra Holding, applied to set aside Justice Martin’s order for want of jurisdiction.  Justice Martin, accepting that he was bound to follow the decision of the Court of Appeal, discharged his own orders while staying the operation of the discharge (i.e., maintaining the freeze over the Defendant’s accounts) pending the decision of the Court of Appeal. Justice Martin also gave permission to appeal his order on limited grounds. Carmon then sought further permission to appeal from the Court of Appeal as to whether the recent decision in Sandra Holding was wrong in law and should, to that extent, be overruled.

 

The First Right Turn:  Correcting the Law

 

In a legal first for the DIFC Courts, on 4 April 2024, Justice Sir Peter Gross sitting as a single judge of the Court of Appeal, also gave leave to appeal in respect of Carmon’s further grounds, holding that there was “an arguable case that Sandra Holding was wrongly decided” and identifying a number of important policy issues which arose:

 

“(1) The power of the DIFC Courts, established (inter alia) to assist international trade, to grant freezing orders in circumstances where such relief could be crucial to avoid the dissipation of assets.

 

(2) The need to guard against the assertion by the DIFC Courts of an exorbitant jurisdiction.

 

(3) The proper limits of judicial (as distinct from legislative) development of the law by the DIFC Courts, whose jurisdiction is based on statute.”

 

In last week’s landmark judgment, the Court expressly held in summary: [1]

 

“It is the respectful opinion of this Court that the Court in Sandra Holding took a wrong turning in an unduly restrictive view of the powers of this Court which may be deployed in aid of its express jurisdiction ….. it is clear with the benefit of full and further consideration, that the past decision was legally incorrect ….. Further, it can be said to have generated inconvenience in the sense that the absence of the power to issue a freezing order in respect of a prospective foreign judgment may result in the jurisdiction of this Court to recognise the foreign judgment ultimately issued being thwarted. The correct analysis, in our respectful view, is whether the Court had power (and if it be necessary to say so, ancillary jurisdiction) to do so in order to avoid the thwarting of its undisputed express jurisdiction to recognise and enforce a foreign judgment. We are clear that the answer is Yes. We would add that considerations of policy for this Court are overwhelmingly in favour of granting the injunction. So too, are all discretionary considerations. The appeal should be allowed.” [2]

 

The Second Right Turn:  For Growth – the DIFC as an international court

 

The significance of the decision of the Court of Appeal in Carmon v Cuenda cannot be overstated.

 

First, it lays a strong foundation for the continued economic growth of the region and the promotion of the Emirate as an international centre for dispute resolution and settlement: [3]

 

“The ability of a potential judgment debtor in a commercial dispute to make a pre-emptive strike against enforcement of any judgment against it would be inimical to the rule of law in trade and commerce, domestically and transnationally. The DIFC Courts are part of a growing network of international commercial courts in a number of jurisdictions around the world. Where their jurisdiction and powers are amenable to constructions supporting the rule of law in transnational trade and commerce, such constructions should be preferred. In our opinion, Article 24 of the Court Law properly construed confers jurisdiction to entertain proceedings by way of an application for such relief as may be necessary to prevent its pre-emption by a dissipation of the assets of a prospective judgment debtor in proceedings in a foreign court whose judgment can be recognised and enforced in the DIFC Courts…..”

 

Second, the Court of Appeal provided carefully-considered guidance as to how in the future the question of whether the DIFC Court Rules confer jurisdiction on the DIFC courts in a particular case should be resolved.  Adopting what it termed an “expansive” approach “informed by public policy”, the Court ruled that “regard must be had to the function and purpose of the DIFC Courts, which are statutory courts integral to the operation of the DIFC as a Financial Free Zone”.

 

Third, an important conceptual distinction was made between the existence of a jurisdiction and the powers that may be exercised in aid of it.  Critically, it was said that jurisdiction may be implied from the grant of a power. [4]

 

Accordingly, the Court of Appeal held in Carmon v Cuenda that the grant of a jurisdiction to recognise and enforce a foreign judgment must encompass, if only by implication, the grant of power necessary to prevent that jurisdiction from being thwarted. The DIFC Court has express jurisdiction to recognise and enforce foreign judgments, and that jurisdiction would be thwarted if a defendant to a foreign proceeding which may yield such a judgment could dissipate its assets, whether within the DIFC or otherwise.

 

Finally, having been asked for the first time to overrule one of its own previous decisions, the Court of Appeal concluded that if one of its earlier decisions embodied an error of law that impeded the effective administration of justice then it would review the case having regard to the four considerations set out by the High Court of Australia in John v Federal Commissioner of Taxation[5], namely:

 

  • whether or not the precedent decision rested upon a principle carefully worked out in a significant succession of cases;

 

  • whether there were differences in the reasoning that led to the precedent decision;

 

  • whether a precedent decision had achieved no useful result but considerable inconvenience; and

 

  • whether or not a precedent decision had been independently acted on in a manner which militated against reconsideration.

 

The decision is also growing evidence of the progress of the DIFC Courts’ longer term mission to develop its own distinctive body of jurisprudence by broadening the base beyond its traditional roots in English common law. ■

 

Afridi & Angell successfully represented Carmon throughout the proceedings and instructed Zoe O’Sullivan KC of Serle Court Chambers for the set aside application and the appeal.

 

–

[1] Extracted from [204] and [205]

[2] The Carmon Court also found that the case for a WFO was not established on the merits in Sandra Holding Ltd and the result would therefore likely have been the same even had the court found there to be jurisdiction and power to make the order sought in that case

[3] Extracted from [154] – [155]

[4] See [31], [38] and [58].

[5] (1989) 166 CLR 417