Category: inBriefs

Federal cabinet decision concerning the regulation of Virtual Assets issued

The UAE Federal Cabinet has issued Cabinet Decision 111 of 2022, concerning the regulation of virtual assets (the Virtual Assets Decision). The Virtual Assets Decision was issued on 12 December 2022 and will come into force 30 days following its publication in the Official Gazette.

 

The Virtual Assets Decision aims to regulate virtual assets and virtual asset businesses at a Federal level in the UAE. It is anticipated that the Virtual Assets Decisions and any implementing regulations issued pursuant to it will operate together with Emirate-level regulations (such as those issued by the Virtual Assets Regulatory Authority in the Emirate of Dubai).

 

The Virtual Assets Decision requires (this is not an exhaustive list) that businesses within its scope:

 

  • implement measures to safeguard data in accordance with current global cybersecurity standards and technological best practices;
  • have sufficient capital and satisfy any further or specific requirements imposed by law (including any prescribed by the Emirates Securities and Commodities Authority);
  • provide sufficient information involving the risks concerning investments or dealings in virtual assets in a clear, fair and non-misleading manner;
  • comply with Federal Decree-Law 20 of 2018, as well as the guidelines and recommendations issued by the Financial Action Task Force; and
  • notify the concerned authorities in the event of a security risk, security breach, or any activity that falls within the scope of electronic crimes.

 

The introduction of federal legislation on the regulation of virtual asset businesses is a welcome development and should go some way in establishing a common standard for the regulation of such businesses across the United Arab Emirates. As with all such legislation, it remains to be seen how this legislation will be enforced and applied in practice. ■

Litigation 2.0 – Significant changes in onshore litigation from January 2023

On 2 January 2023, three pieces of federal legislation came into effect which, if implemented as envisaged, will arguably make the most significant changes to litigation in the on-shore Dubai Courts since the UAE was established.

 

The three laws are:

  • Federal Decree Law 42/2022 on Civil Procedures (the CPC);
  • Federal Decree Law 35/2022 on Evidence in Civil and Commercial Transactions (the Evidence Law); and
  • Federal Decree Law 34/2022 on Regulating the Advocacy and Legal Consultancy Professions (the Advocacy and Legal Consultancy Law).

 

While there is plenty in the laws to interest practitioners, what follows is an overview of some of the more significant changes introduced by each of the laws from the perspective of litigants.

 

Federal Decree Law 42/2022 on Civil Procedures (the CPC)

 

Perhaps the most significant change introduced by the CPC, and certainly the one that has captured the public attention, is the provision for the creation of courts that will function in the English language. Strictly speaking, these courts have not yet been created, and Article 5(2) of the CPC provides that the President of the Federal Judicial Council or the head of the local judicial authority to establish courts which will hear disputes regarding (as yet unspecified) specialised matters. The importance of this development is difficult to understate, as parties not conversant in Arabic have long been apprehensive of proceedings which they are unable to comprehend without the assistance of translation. It will also help bring down the cost of litigation by eliminating the need to translate all documentary evidence into Arabic. It is worth noting that Abu Dhabi has had dual language (English-Arabic) courts in operation for a few years now.

 

Article 29 of the CPC does away with the distinction between plenary and small claims cases before the courts of first instance (an administrative decision based on the value of the claim), and all matters in the first instance will now be heard by a single judge, whose decision will be final if the claim value is under AED 50,000. Previously, courts of first instance were comprised of three judges for plenary claims. In a jurisdiction where dissenting opinions are rare, the constitution of single judge courts to hear cases of first instance should hopefully free up judicial resources to create more circuits to hear disputes more efficiently.

 

Article 32 makes provision for the creation of a new circuit to hear inheritance cases and civil, commercial or real estate disputes arising out of inheritance matters. Decisions of the court will not be subject to appeal, but may be the subject of petitions for reconsideration. This amendment likely reflects the recent growth of the UAE population, and the UAE’s increasing popularity as a jurisdiction to reside in for the longer term.

 

Continuing the trend of the amendments made to the old civil procedures law (notably including the 2019 regulations), the CPC contains provisions aimed at making litigation a faster process. Some examples include:

 

(a) Where parties overseas are required to be summoned through diplomatic channels, Article 11(2) provides that the parties are deemed to be summoned once 21 working days have passed from the UAE Ministry of Foreign Affairs making the request for service to the diplomatic mission of the foreign country in the UAE. The previous practice was to wait for confirmation of summons being served in the foreign jurisdiction, which caused significant delays. It should be noted that service through diplomatic channels is now a last resort, where summons through other means (e.g. electronic communication) have failed.

 

(b) The powers of the supervising judge of the case management offices have been enhanced to include issuing orders to appoint experts, hear witnesses, refer disputes to conciliation, or rule that claims have been waived or abandoned. Previously, these orders could only be issued by the court, which led to delays.

 

Major changes have been made to the appeals process. Appeals to the Court of Appeal formerly entailed a complete re-hearing of the dispute as a matter of course, but this will no longer necessarily be the case.

 

Article 167 provides that the Court of Appeal shall, within 20 working days of the appeal being referred to it by the case management office, make a decision on whether to dismiss the appeal or call for further submissions. It possible, therefore, that an appeal could be determined with only a single round of submissions made to the Court of Appeal. Consequently, as a practical matter, parties will be required to present comprehensive arguments, together with supporting evidence, with its first submission. For more details, please see our inBrief of 9 January 2023.

 

Article 178 requires appeals to the Court of Cassation to be made within 30 days, as opposed to 60 days as previously provided for. If a Cassation appellant makes an application for a stay of execution, Article 177(3) requires that it must be decided on within 15 days by the Court of Cassation, whereas previously there was no time limit.

 

Time limits applicable to execution proceedings have also been truncated. A judgment debtor now only has seven days within which to satisfy a judgment debt or object to its execution before the court makes orders for attachment of assets etc. This period used to be 15 days.

 

Federal Decree Law 35/2022 on Evidence in Civil and Commercial Transactions (the Evidence Law)

 

The changes made by the Evidence Law are equally important, perhaps more so, as they more likely to have a direct bearing on the outcome of cases.

 

Perhaps the most significant change is the one made through Article 35 which provides that, in commercial disputes, a party may seek production of documents from its opponent, provided that the document must be identified clearly (or as a clear category of documents), the document must relate to the underlying commercial transaction, and the production should not infringe trade secrets or related rights. The court may draw an adverse inference in the event a party refuses to produce documents. The limitations regarding document disclosure and production were often cited as a weakness in the onshore court system, and the position now under Article 35 (which will be quite familiar to common lawyers) ought to go some distance in redressing this weakness.

 

Article 5 of the Evidence Law requires the courts to give evidence to any rules of evidence that the parties may have agreed to in writing, unless it is contrary to public order.

 

There appears to be an emphasis on oral evidence in the new Evidence Law. Article 78 in particular contains detailed provisions on the examination and cross-examination of witnesses. It is also encouraging to see specific provisions in Article 9 of the Evidence Law on how persons with speech impediments may give testimony.

 

Subject to the UAE’s treaty obligations and considerations of public order, Article 12 provides that a court may accept ‘evidentiary procedures’ implemented overseas, which could include, for example, affidavits or witness statements executed overseas. These provisions would be of particular interest to parties who wish to tender evidence from overseas (e.g. from parent companies headquartered overseas, or where the dispute relates to an international transaction, both which are quite common in the UAE).

 

Federal Decree Law 34/2022 on Regulating the Advocacy and Legal Consultancy Professions (the Advocacy and Legal Consultancy Law)

 

Given the introduction of a framework for English language courts, it is not particularly surprising that the Advocacy and Legal Consultancy Law makes provision for foreign lawyers to appear in the onshore courts. Article 10 provides that foreign lawyers who, among others, have a minimum of 15 years’ experience, have a valid registration in the country in which s/he is qualified as an advocate, and is a partner in a firm which has branches in at least three different countries with at least 25 partners in total and two partners in the UAE, may appear in the onshore courts. However, these rights of audience are limited to ‘specialised circuits’ (almost certainly the English language circuits provided for in the CPC) and do not extend to criminal or family matters. Previously, rights of audience in the onshore courts were limited to UAE nationals and certain Arab nationals.

 

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The implementation of these legislative changes will be scrutinised with interest and, in addition to making the process of litigation more efficient, it is hoped that that the changes will also lead to better outcomes. The new Evidence Law is likely to be quite important in this respect, and it will be particularly interesting to see how the provisions on witness examination and document production will be treated by civil law judges. Going forward, the creation of specialist commercial and technical courts will be an important, if not essential, reform to facilitate better outcomes, and it is encouraging to see the concept of specialist courts being recognised under the CPC with the creation of courts that will have jurisdiction over inheritance-related disputes. ■

Are appeals to the court of appeal a matter of right under the new Civil Procedure Law?

The UAE has introduced a new law on civil procedure (Federal Decree-Law 42/2022) which repeals Federal Law No. 11 of 1992 on civil procedure and its executive regulations issued under Cabinet Resolution No. 57 of 2018. The new law came into force on 2 January 2022.

 

As a firm that has an extensive practice before on-shore UAE Courts, the routine advice given to a client on the UAE Court system is that an appeal to the court of appeal is generally available as a matter of right (provided the monetary threshold of the claims are met), and that there is no concept of ‘leave to appeal’, as can be seen in other jurisdictions.

 

While it appears that this position remains, the new law provides for an added level of scrutiny of the appeal, where the court of appeal is required to deliberate on the appeal in chambers (Article 167 of the new law). This deliberation occurs after the appeal is referred to the judge by the Case Management Office. Generally, the Case Management Office is required to ensure that summons is served on the appellee, and that the appellee is given an opportunity to respond to the appeal.

 

The new law imposes a 20-working day time-line for such deliberation, and the court may either decide on the appeal, or schedule a hearing for the examination of the merits. If the court decides that the appeal is inadmissible or that the judgment appealed is to be affirmed, the court is required to render a reasoned judgment.

 

Parties therefore will need to ensure that its submissions filed before the Case Management Office are comprehensive, as there is a possibility that the appeal will be decided based only on the submissions filed before the Case Management Office.

 

Apart from this additional level of scrutiny, Article 167 of the new law clarifies the following:

 

  • relief that has not been sought before the court of first instance cannot be included in the court of appeal – Article 167(5);

 

  • addition of parties to a dispute, including applications to intervene are not permitted in the court of appeal – Article 167 (6); and

 

  • an appeal to the court of appeal necessarily entails a re-trial, where all decisions and judgments rendered in the court of appeal will be reviewed. ■

UAE Unemployment Insurance Law

In September 2022, the UAE introduced an insurance scheme pursuant to Federal Decree No. 13 of 2022 concerning unemployment insurance. This law was followed by Cabinet Decision No. 97 of 2022 concerning the mechanisms and controls for implementing the unemployment insurance scheme, and Ministerial Resolution No. 604 of 2022 concerning the unemployment insurance scheme (together with the Federal Decree, the Unemployment Insurance Law).

 

Applicability of the Unemployment Insurance Law

 

The Unemployment Insurance Law came into effect on 1 January 2023. It applies to all employees in the private sector and the UAE Federal government sector. However, certain categories are exempt from the applicability of the Unemployment Insurance Law, such as: investors (i.e., individuals who own their companies and work at such companies), domestic workers, workers under temporary contracts, etc.

 

As of now, the Unemployment Insurance Law is not applicable to employees of free zone companies.

 

Is it mandatory to subscribe to the insurance scheme?

 

It is mandatory for an employee (unless the employee is under one of the exempt categories) to subscribe to the unemployment insurance scheme.

 

What are employers’ obligations under the Unemployment Insurance Law?

 

There is no obligation on an employer to register its employees. However, employers are expected to encourage and direct their employees to subscribe to the scheme.

 

How much an employee is required to contribute?

 

Insurance premiums are calculated based on the basic salary of employees. Contribution of not more than UAE Dirhams 5 per month for employees earning a monthly basic salary not exceeding UAE Dirhams 16,000 (the Category 1) and contribution of not more than UAE Dirhams 10 per month for employees earning a monthly basic salary exceeding UAE Dirhams 16,000 (the Category 2), will be required to be paid.

 

Insurance payout

 

The insurance payout will be on monthly basis and will be equal to 60 per cent of an employee’s monthly basic salary subject to a maximum of UAE Dirhams 10,000 per month for the Category 1 employee and UAE Dirhams 20,000 for the Category 2 employee.

 

The insurance payout will be for a maximum period of three months for each claim.

 

Criteria for claiming compensation

 

The following criteria are required to be met by an employee to claim compensation:

 

(i) employee must have been insured for not less than a consecutive 12-month period;

 

(ii) premiums must be paid by the employee as per the payment schedule;

 

(iii) employee should not have voluntarily resigned;

 

(iv) employee’s employment should not have been terminated for disciplinary reasons;

 

(v) employee must be in UAE at the time of making a claim;

 

(vi) insurance claim should be submitted within 30 days from the date of termination of the employment or the decision from a UAE court;

 

(vii) employee should not have an existing complaint of interruption from work; and

 

(viii) claim for compensation should not be made through deception or fraud and place of establishment should not be fictitious.

 

Penalties for non-compliance

 

An employee who fails to subscribe to the insurance scheme will be fined UAE Dirhams 400. An employee who fails to make payment of the insurance premium for more than three months from the due date will be fined UAE Dirhams 200.

 

If an employee fails to pay the fine for three months from the due date, then the fine will be deducted from the employee’s wages through the Wage Protection System, end of service gratuity, or any alternative system.

 

Further, an employee will not be eligible for a new work permit until all due fines have been paid within the specified timelines.

 

Timelines for subscription

 

All current employees who fail to enroll themselves under the scheme by 30 June 2023 will be fined as per the aforementioned penalties. Employees who are starting employment after 1 January 2023, are required to enroll themselves within four months from the date based on the criterion mentioned in the Unemployment Insurance Law. ■

Tax Residency in the UAE: who qualifies as a UAE Tax Resident?

Recently approved Cabinet Decision 85 of 2022 (the Decision) outlines the requirements and conditions for classification of persons as a “Tax Resident” of the UAE. We briefly outline below who qualifies as a UAE tax resident.

 

Afridi & Angell have assisted a variety of clients in procuring tax domicile certificates and are well versed in the procedures and requirements. If you are interested in learning more about whether you may qualify as a Tax Resident, or the procedures for obtaining a tax domicile certificate, please reach out to one of our team members. Tax domicile certificates are an important and valuable component in the tax-planning structures that we implement for many of our clients.

 

Companies as UAE Tax Residents

 

Article 3 of the Decision provides that a company shall be deemed as a Tax Resident where it meets one of the following criteria:

 

(1) it is established, formed or recognised according to the legislation in force in the UAE. The Decision expressly excludes branches of foreign companies registered in the UAE from the definition of a Tax Resident; or

 

(2) it is otherwise deemed as a Tax Resident by virtue of a different federal law imposing tax (Tax Law).

 

Natural Persons as UAE Tax Residents

 

Article 4 outlines the requirements for a natural person and provides that such a person shall be deemed as a Tax Resident where they meet one of the following conditions:

 

(1) the habitual or primary place of residence of the individual is located in the UAE, so long as it is considered to be the place of fiscal and personal interests of the individual and where it meets the conditions and standards as applicable and determined from time to time;

 

(2) the individual is physically present in the UAE for a minimum of 183 days, within the duration of 12 consecutive months; or

 

(3) the individual may qualify as a Tax Resident where they have been physically present in the UAE for a minimum of 90 days within the relevant duration of 12 consecutive months, if the individual holds UAE nationality or a valid UAE Residence Permit or the nationality of any of the GCC Countries, and meet either of the following conditions:

 

a. the individual holds a “Place of Permanent Residence” in the UAE; or

b. the individual holds a position or is exercising “Activities” in the UAE.

 

A “Place of Permanent Residence” means a place located in the UAE which is deemed available to the individual at all times and “Activities” includes any activity practiced on a regular, ongoing and independent basis by a natural person.

 

The Decision provides that any person deemed as a Tax Resident in the UAE may submit an application to the Federal Tax Authority for issuance of a tax domicile certificate. ■

UAE Federal Decree Law 47 of 2022 on Taxation of Corporations and Businesses

January 2022 began with the announcement that businesses and corporations will be subject to Corporate Tax (CT) from 1 June 2023. While the UAE Ministry of Finance helpfully provided information on the basic tenets of CT, including a comprehensive white paper, the CT Law governing CT was published on 9 December 2022 providing clarity. However, there are still a number of areas that will be further clarified through the implementing regulations. An unofficial translation of the Law together with FAQs have been provided by the MoF.

 

Who will be liable to pay CT?

 

Both corporate entities and individuals who conduct Business/Business Activity in the UAE are considered a Taxable Person and will be liable to pay CT. A Taxable Person can either be a Resident Person or a Non-Resident Person (including Branches, Partnerships and Foundations).

 

A Resident Person includes:

 

– a company/establishment that is established in the UAE;

– a foreign company/establishment that is effectively managed and controlled in the UAE; or

– an individual who conducts business activities in the UAE.

 

A Non-Resident Person is a person who is not considered a Resident Person that:

 

– has a permanent establishment in the UAE;

– derives state sourced income; or

– has a nexus to the UAE, as to be specified by the Cabinet of Ministers.

 

Who is exempt from CT?

 

The following persons are exempt from CT:

1. Government entities;

 

2. a Government Controlled Entity;

 

3. a Person engaged in an Extractive Business, that meets the conditions of Article 7 of the Law;

 

4. a Person engaged in a Non-Extractive Natural Resource Business, that meets the conditions of Article 8 of the Law;

 

5. a qualifying Public Benefit Entity (Charities) under Article 9 of the Law;

 

6. a qualifying Investment Fund under Article 10 of the Law;

 

7. a public pension or social security fund, or a private pension or social security fund that is subject to regulatory oversight of the competent authority in the UAE;

 

8. an entity incorporated in the UAE that is wholly owned and controlled by an Exempt Person that meets the required conditions specified under paragraphs (a), (b), (f) and (g) of Clause 1 of Article 4 of the Law; or

 

9. any other Person as may be determined by the Cabinet of Ministers.

 

What about Free Zones?

 

The Law provides that CT shall be imposed on a “Qualifying Free Zone Person” at the following rates:

 

– 0 percent on Qualifying Income; and
– 9 percent on Taxable Income that is not Qualifying Income.

 

A Qualifying Free Zone Person is defined as a person that meets the condition set out in Article 18 of Law, which includes maintaining adequate substance in the UAE, derives Qualifying Income and has not elected to be subjected to CT.

 

“Qualifying Income” is to be specified further by the Cabinet of Ministers.

 

Importantly, all Free Zone entities will be required to register and file a CT return, irrespective of whether they are a Qualifying Free Zone Person or not.

 

What will be taxed (Taxable Income)?

 

A Taxable Person will be taxed on its worldwide taxable income, regardless of whether the income is derived within or outside the UAE, which will be determined on the basis of the net profit (or loss) in financial statements prepared for financial reporting purposes in accordance with acceptable accounting standards.

 

Also, international agreements (including those for the avoidance of double taxation) should be considered with respect to the CT regime.

 

What is the CT Rate?

 

CT will be levied at a rate of 9 percent on Taxable Income that exceeds AED 375,000. Taxable Income below AED 375,000 will be subject to a 0 percent rate.

 

What about Tax Losses?

 

Tax Losses can be offset against Taxable Income of future periods up to a maximum of 75 percent of Taxable Income for each of such future periods. Any excess, unused Tax Losses can be carried forward and used later.

 

What about Transfer Pricing?

 

The UAE will implement Transfer Pricing rules broadly in line with the OECD Transfer Pricing Guidelines and require periodic Transfer Pricing reporting obligations.

 

Are there Anti-Abuse Rules?

 

The CT contains anti-abuse rules to prevent abuse or avoidance of the CT Law.  The Federal Tax Authority (FTA) may make a determination, in a ‘just and reasonable’ manner, that one or more specified CT advantages obtained as a result of a transaction or arrangement are to be counteracted or adjusted if, having regard to all relevant circumstances, it can be reasonably concluded that:

 

  • the entering into or carrying out of the transaction or arrangement, or any part of it, is not for valid commercial or other non-fiscal reason which reflects economic reality; and
  • the main purpose or one of the main purposes of the transaction or arrangement, or any part of it, is to obtain a CT advantage that is not consistent with the intention or purpose of the CT Law.

 

A CT advantage includes but is not limited to:

 

  • a refund or increased refund;
  • avoidance or reduction of CT payable;
  • deferral of a payment of CT or advancement of a refund of CT; and
  • avoidance of an obligation to deduct or account for CT.

 

When do you have to file a tax return and pay CT?

 

A Taxable Person must file a tax return and pay the CT no later than nine months from the end of the relevant Tax Period. The FTA will be responsible for the administration, collection and enforcement of CT and other federal taxes.

 

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Please contact us if you have any comments or queries with respect to this law. ■

Video inBrief: New Emiratisation targets in the UAE

In this video inBrief, Abdus Samad, partner, discusses the new Emiratisation targets required by business in the UAE by January 2023.

 

 

 

Disclaimer: Afridi & Angell’s video inBriefs provide a brief overview and commentary on recent legal announcements and developments. Comments and opinions contained in the video and description are general information only. They should not be regarded or relied upon as legal advice.

Video inBrief: Property Investment Funds in Dubai

In this video inBrief, Shahram Safai, partner, discusses Dubai Decree No. 22/2022 on the approval of the privileges of the property investment funds in the Emirate of Dubai.

 

 

 

Disclaimer: Afridi & Angell’s video inBriefs provide a brief overview and commentary on recent legal announcements and developments. Comments and opinions contained in the video and description are general information only. They should not be regarded or relied upon as legal advice.

Video inBrief: Business Income Tax in the UAE

In this video inBrief, Shahram Safai, partner, talks about the Business Income Tax that is coming to the UAE on June 1st 2023.

 

 

Disclaimer: Afridi & Angell’s video inBriefs provide a brief overview and commentary on recent legal announcements and developments. Comments and opinions contained in the video and description are general information only. They should not be regarded or relied upon as legal advice.

Introduction of the requirement to register co-occupants

What’s happened?

Pursuant to a circular issued by the Dubai Land Department on 23 September 2022, the registration of all co-occupants that reside in residential properties in the Emirate of Dubai, whether owned or rented, must be completed today.

 

Who does this apply to?

The circular issued by the Dubai Land Department applies to real estate developers, real estate leasing and management companies, real estate owners and tenants.

 

However, based on feedback from the Dubai Land Department, the responsibility for the registration of co-occupants is that of the person occupying the property.

 

Therefore, to ensure compliance, all applicable parties (specifically owners and tenants) should take the appropriate steps to ensure registration is completed.

 

Who is required to be registered?

Anyone residing, or who is due to reside, in a residential property for a period in excess of one month (inclusive of all family members and household staff) are required to register with the Dubai Land Department.

 

How to register?

Registration of a co-occupant’s details can be completed by uploading the same to the Dubai REST App. The relevant property should be selected by the user and the option to “add more” can then be used to insert the details of the additional co-occupants. The co-occupants Emirates ID details/passport number and date of birth are required to be uploaded and verified by using the Dubai REST App.

 

Similarly, where a co-occupant has ceased to reside in a residential property, a co-occupant’s details can be removed by using the same application.

 

Potential implications

It is envisaged that the registration of co-occupants could signal a move towards the extension of certain tenancy rights to certain persons legally residing in the property and may eventually enable certain co-occupants to enforce the terms of a tenancy contract against the landlords. Whether or how such rights would extend to household staff remains to be seen.

 

Similarly, it may also permit landlords to impose the obligations contained in a tenancy contract upon registered co-occupants.

 

The registration of co-occupants in residential properties would also help deter the practices of subletting without consent and overcrowding of residential units.

 

Conclusion

Whilst the Dubai Land Department has instructed that the registration of all co-occupants must be completed by today’s date, it is not clear at present what penalties (if any) will apply for a failure by any of the above-mentioned parties to complete this process within the prescribed timeline.

 

To ensure compliance with the latest Dubai Land Department circular and avoid any potential issues, the responsible parties should ensure the prompt registration of all co-occupants. ■