Tag: Corporate and Commercial

UAE FDI: the doors are open to foreign investors but what are the practical considerations?

As most readers will now know either via the press or through other legal publications, the requirement for a limited liability company (LLC) to have at least 51 per cent UAE national ownership was removed on 30 March 2021 pursuant to Federal Decree-Law 26 of 2020 (Decree Law).

 

Under the Decree Law, local licensing authorities (i.e., the relevant economic departments) of each Emirate were granted the authority to determine a list of activities for which up to 100 per cent foreign ownership is permitted (FDI Activities).

 

The Department of Economic Development in Abu Dhabi and the Dubai Department of Economic Development have already published their list of FDI Activities. We understand that the Department of Economic Development in Sharjah will publish its list imminently.

 

No conditions/restrictions on 100 per cent foreign owned LLCs?

What has changed since September 2018 when Federal Decree-Law 19 of 2018 regarding Foreign Direct Investment (the 2018 FDI Law) was enacted?

 

Pursuant to the 2018 FDI Law, Cabinet Resolution 16 of 2020 was issued which contained a positive list of 122 activities wherein a 100 per cent foreign owned company could be established with certain conditions and/or restrictions. The key conditions and/or restrictions were the requirement to have a specified minimum share capital and a minimum level of Emiratisation of the workforce (to be determined by the Ministry of Human Resources and Emiratisation).

 

The 2018 FDI Law was repealed with effect from 2 January 2021.

 

While the 2018 FDI Law did impose some conditions/restrictions on 100 per cent foreign owned companies, as of now, no special conditions/ restrictions have been imposed by the Economic Departments of Abu Dhabi and Dubai.

 

Other Considerations

While a 100 per cent foreign owned LLC in mainland UAE is an attractive option, there are various other matters to be considered before deciding on an ownership structure for an LLC.

 

1. GCC Customs Exemptions

Goods manufactured in the UAE by 100 per cent foreign owned LLCs under the current customs regime, will not be able to avail the benefit of the 5 per cent GCC customs duty exemption offered to entities which are owned at least 51 per cent by GCC nationals. Exports by a 100 per cent foreign owned company, would not be eligible for national treatment when exported to another GCC member state.

 

2. Tax holiday offered by free zones

Most free zones in the UAE offer a guaranteed tax holiday. For example, the Dubai Airport Free Zone offers a 50-year exemption from all tax (including income tax).

 

If an investor can conduct its business from one of the free zones of the UAE, even if a 100 per cent foreign owned company can be established in mainland Dubai or Abu Dhabi, such an investor may still wish to establish within a free zone in order to benefit from the guaranteed tax exemption.

 

Restructuring of existing LLCs

In addition to the issues raised above, the following points should also be kept in mind while restructuring ownership of existing LLCs:

 

 1. Arrangements with local partners

The terms of any existing arrangements with local partners should be reviewed in advance of triggering any proposed restructuring to ensure that the arrangements permit the foreign partner to request the transfer of the interest in the LLC held by the local partner.

 

2. A UAE LLC with branches in other Emirates

To the extent that there are variances among the Emirates in relation to the permitted FDI Activities, it will be interesting to see if a wholly foreign owned LLC will be permitted to register a branch in a different Emirate even if that Emirate does not have the LLC’s licensed activity on its list of permitted FDI Activities.

 

3. Name of the LLC

If the shares of an LLC are being transferred so that the LLC becomes a 100 per cent owned subsidiary of a foreign investor, note that as per Article 72 of the Companies Law, the name of the LLC will be required to be amended to reflect that the LLC is a single shareholder company. The phrase (One Person Company) must also be added to the LLC’s name. The implications of this change of name on the business operations of the LLC should be considered in advance of any restructuring. It is also worth noting, that under the Decree-Law, it is expected that the Cabinet will issue a Decision determining the procedures for the management of single shareholder LLCs. Once this decision is issued, foreign investors will be required to consider the effects of the decision on the running of their business.

 

Whilst the issues discussed in this inBrief are not an exhaustive list of matters to be considered, before incorporating a 100 per cent foreign-owned LLC or restructuring an existing LLC, they represent some useful and important considerations. For each type of business, careful analysis and planning will be required to determine the most suitable structuring option(s). ■

 

Afridi & Angell’s corporate department has extensive experience in advising on foreign direct investment and corporate restructuring matters. Should you have any questions, please contact the authors or your usual Afridi & Angell contact.

UAE Economic Substance Requirements – Penalties Imposed by the Federal Tax Authority

The Federal Tax Authority (the FTA) has started to impose penalties on businesses that have failed to submit their economic substance notifications by the set deadline of 30 June 2020 for the financial period ended on 31 December 2019, and the economic substance reports by the set deadline of 31 December 2020 for the financial period ended on 31 December 2019.

 

Pursuant to the Cabinet of Ministers Resolution 57 of 2020 concerning the Economic Substance Requirements (Decision), the FTA has imposed a penalty of AED 20,000 on a licensee who has failed to submit the notification and an amount of AED 50,000 on a licensee who has failed to submit the economic substance report. The Decision empowers the FTA to impose certain other types of penalties on licensees.

 

Article 17 of the Decision provides that a licensee may appeal against a penalty by filing an appeal to the FTA.

 

A licensee conducting a relevant activity (as per the Decision) is annually required to file a notification within six months from the end of the relevant financial period, and an economic substance report within 12 months from the end of the relevant financial period. For a licensee whose financial year ended on 30 June 2020, the deadline to file an economic substance report is 30 June 2021, and if the financial year ended on 31 December 2020, the deadline to file a notification is 30 June 2021.

 

The notification and/or the economic substance report is required to be filed by creating an account on the Ministry of Finance website (www.mof.gov.ae/en/StrategicPartnerships/Pages/ESR.aspx). Additional information on Economic Substance Requirements can also be found on the Ministry of Finance website.

Anti-corruption regulation (UAE chapter) 2021

This edition of “Anti-Corruption Regulation 2020”, provides local expert opinions in key areas of law, practice and regulation for corporate counsel, cross-border legal practitioners, and company directors and officers. This chapter focuses on the United Arab Emirates and addresses topics from; international and domestic law, foreign and domestic bribery, update, and trends along with many more.

COVID-19 measures in Dubai and Abu Dhabi

New measures to curb the “second wave” of COVID-19 cases have been introduced by the Dubai Supreme Committee of Crisis and Disaster Management (the Dubai Committee) and the Abu Dhabi Emergency Crisis and Disasters Committee for COVID-19 Pandemic (the Abu Dhabi Committee).

 

On 1 February, the Dubai Committee announced that, effective the following day and for the duration of the month of February, all pubs and bars in Dubai must close, while restaurants and cafes must close by 1:00 am. Shopping malls, hotels, private beaches in hotels and swimming pools may operate at 70% capacity. Theatres, other indoor venues and sports venues must operate at a maximum capacity of 50%. Entertainment activities in restaurants and cafes are no longer permitted.

 

The Dubai Committee has urged the public to report violations by calling the Dubai Police or by using the Dubai Police App. There have been reports of recent prosecutions for violations, including the imposition of fines.

 

On 7 February, the Abu Dhabi Committee announced that, effective the same day and until further notice, parties and gatherings are prohibited and theatres shall be closed. No more than 10 persons may attend a marriage ceremony or a family gathering, and no more than 20 may attend a funeral or mourning service.

 

Malls are limited to 40% capacity, and gyms, private beaches and swimming pools are limited to 50% capacity. Restaurants, coffee shops, hotels, public beaches and parks may operate at 60% capacity. Taxis and buses may operate at 45% and 75% capacity, respectively.

 

The Abu Dhabi Committee also announced new rules on entry into the Emirate of Abu Dhabi, effective 1 February. Any individual entering Abu Dhabi from another Emirate must enter Abu Dhabi within 24 hours of taking the DPI (Diffractive Phase Interferometry) test instead of 48 hours. The same DPI test result cannot be used for two consecutive entries into Abu Dhabi. Those who entered Abu Dhabi on the basis of a DPI test and who plan to continue their stay for more than 48 hours must take a PCR test on 3rd day following entry and another PCR test on the 7th day.

 

The validity of the PCR test result to enter Abu Dhabi continues to be 48 hours; however, another PCR test must be performed on the 4th day and on the 8th day following entry. The day of entry into Abu Dhabi is considered as day 1. These requirements are not applicable to volunteers in clinical trials or to persons who have been vaccinated.

 

Moreover, all employers in Abu Dhabi have been directed to require their personnel who have not been vaccinated to undergo a PCR test at least once a week.

 

In addition, Abu Dhabi has updated the “green list” of countries for travelers arriving by air. The new “green list” as of 7 February 2021 is:

 

• Australia

• Bhutan

• Brunei

• China

• Greenland

• Hong Kong

• Iceland

• Mauritius

• Mongolia

• New Zealand

• Saudi Arabia

• Singapore

 

Individuals travelling from these countries are not required to quarantine upon arrival; however, they must perform a PCR test on arrival and repeat another PCR test on day 6 following arrival. Persons arriving from other countries as must quarantine for 10 days following arrival and must also take a PCR test on arrival and again on day 8 following arrival.

 

Finally, Ministerial Resolution 21 of 2021, promulgated by the Federal Minister of Health and Prevention and effective 7 February 2021, provides that PCR tests will be given free of cost at all Ministry centers. The provision applies to all UAE nationals and all persons holding UAE visas. ■

 

 

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Please note that new rules and developments are occurring in the UAE on a very frequent basis. These are subject to change without prior notice or formal/public announcement. 

 

 

UAE Majority Shareholder No Longer Required

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

 

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

 

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

 

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

 

We will provide more updates as the story develops. ■

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

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

 

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

 

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

 

Applicability of the Resolution 

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

 

Real Beneficiary

A real beneficiary of an entity is someone:

 

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

 

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

 

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

 

Obligations of UAE Entities

 

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

 

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

 

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

 

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

 

b) place of residence or address for communication;

 

c) passport or identity card details;

 

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

 

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

 

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

 

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

 

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

 

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

 

 

Sharing of Information with the Registrar

 

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

 

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

 

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

 

Confidentiality

 

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

 

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

‘Retire in Dubai’ programme announced in Dubai

Afridi & Angell was pleased to have advised Dubai Tourism on the testamentary and inheritance framework in Dubai in the process leading up to the much-welcomed announcement of the ‘Retire in Dubai’ programme.

 

The announcement, made on Wednesday 2 September 2020 offers resident expatriates and foreigners aged 55 and above an opportunity to retire in the Emirate. As part of the programme, eligible applicants will be provided a Retirement Visa, renewable every five years.

 

The new scheme, unveiled under the directive of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, intends to showcase Dubai as the world’s preferred retirement destination. Led by Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism) in collaboration with the General Directorate of Residency and Foreigners Affairs – Dubai, the global retirement initiative aims to boost economic development in the country and enhance its global reputation as a business investment centre.

 

The initial phase of the programme will focus on UAE residents working in Dubai who have reached retirement age. Interested retirees must apply through the Retire in Dubai website and qualify as an eligible applicant under specified requirements. Applicants must be at least 55 years of age at the time of applying, have valid UAE health insurance and need to meet one of the financial requirements: earn a monthly income of at least AED 20,000 or have savings of AED 1 million or own AED 2 million worth of property in Dubai. Applicants may also make an application for their spouse on the condition the retiree continues to meet the criteria.

 

A competitive offering is confirmed through the collaborative work of Dubai Tourism and their partners in developing key propositions for retirees covering healthcare, real estate, insurance and banking. The newly introduced global retirement initiative revolves around seven key factors that make Dubai the ideal destination for retirees: a unique lifestyle, convenience, recreation, an active and fit society, proximity and connectivity, a world class healthcare system and legacy management with the DIFC Wills Service Centre offering discounts of up to 35-45 per cent on fees for registration of wills.

 

Should you have any questions with respect to applying for a retirement visa or on legacy management matters, please contact the authors or your usual Afridi & Angell contact. ■

A Customs-free access?

The Federal Decree-Law 19 of 2018 on Foreign Direct Investment (the FDI Law) permits majority foreign investment in certain business sectors and activities. Although majority ownership is attractive, it is not the only factor that a potential foreign direct investor should consider.

One additional factor is whether the proposed business would qualify for the 5 per cent GCC customs duty exemption that is discussed below. Customs-exempt access to the larger GCC market could be a critical factor to the success of a business.

COVID-19: Entry into the Emirates of Dubai and Abu Dhabi

On 12 September 2020, the UAE Ministry of Health and Prevention (MoHAP) reported 1007 new COVID-19 cases in the UAE. With the number of cases rising both within the UAE and in most other countries, the UAE government has reiterated the importance of adhering to preventive guidelines and has further placed safeguards, particularly in Abu Dhabi, to ensure that those traveling to the UAE are confined to prevent the transmission of the virus.

 

Currently, individuals traveling to Abu Dhabi from outside the UAE must first update the details of their visas on the website of Federal Authority of Identity and Citizenship (ICA) and confirm their entry to the UAE. (The same is true of passengers arriving in the UAE via airports other than those in Dubai). An instant response message from the ICA with a “green status” indicates that the entry has been confirmed by the ICA. A message with a “red status” indicates that the request to enter the UAE has been rejected and the applicant must wait for a few days to re-apply. Travelers who are not UAE nationals or holders of UAE residence visas are not permitted to enter. Following receipt of the “green status” message, the traveler can proceed to book a flight and comply with any additional requirements of the airline. Most important, a negative COVID-19 PCR (Polymerase Chain Reaction) test result must be provided at the airport and must not have been taken more than 96 hours prior to departure. The test result must be printed and be either in English or Arabic. The test must be conducted at a UAE government approved testing center.

 

Upon arrival at Abu Dhabi airport, travelers will be tested again for COVID-19. Unlike in Dubai, passengers arriving from certain jurisdictions (no published list is as yet available) are made subject to a mandatory institutional quarantine of 14 days (irrespective of the test results, whether positive or negative) at a government facility. The traveler is also mandated to wear a tracker provided by the health officials. After 12 days of the 14-day quarantine, travelers are required to re-test themselves and with the confirmation of a negative test result (usually received by message) they are permitted to return the tracker and formally end the quarantine. Additionally, upon entry, travelers are required to sign an undertaking at Abu Dhabi airport to comply with the rules and guidelines of the UAE authorities and also to install the AlHosn App to assist the authorities in contact tracing.

 

Last month, the Dubai government announced that travelers by air to Dubai are required to first obtain approval online from the General Directorate of Residency and Foreigners Affairs in Dubai (GDRFA). Travelers (those having a Dubai residence visa) must now apply for the approval via the new smart platform of GDRFA Dubai on https://smart.gdrfad.gov.ae/ and provide the details of their visas. Travelers must submit to the airline and the airport a printed negative COVID-19 PCR test result in English or Arabic which again must not have been taken more than 96 hours prior to departure. Upon arrival, travelers will be tested again at the Dubai airports. Post-arrival, a home-quarantine is mandatory in Dubai until the results of the PCR test are obtained, if negative. However, a traveler who tests positive must self-quarantine for 14 days from the time of arrival in Dubai. Similar to Abu Dhabi, a signed undertaking and a declaration to abide by the rules and install the DXB Smart App, a contact tracing app, must be submitted at the time of arrival at Dubai airports. Unlike Abu Dhabi, foreigners without UAE residence visas may enter the UAE via Dubai’s airports.

 

Within the UAE, those traveling into Abu Dhabi from any other Emirate must also provide a negative PCR test result or a negative DPI test (Diffractive Phase Interferometry) both conducted no earlier than 48 hours prior to their entry into Abu Dhabi. Individuals who will then stay in Abu Dhabi for six consecutive days or more must also take a PCR test on the sixth day of each visit to the Emirate.

 

The UAE government has further reiterated that failing to comply with the rules and guidelines shall attract heavy fines and can also lead to criminal prosecution if the offense is repeated. ■