DIFC-specific information setting out the framework for service of claim documents (in relation to domestic and foreign proceedings) within the jurisdiction, and service of claim documents outside the jurisdiction.
This Q&A focuses on Dubai International Finance Centre (DIFC) specific information on all the key issues to consider before issuing or responding to a pre-action better. Furthermore, this Q&A provides country-specific commentary on Practice note, Letter before action (Pre-action or demand letter): Cross-border, and forms part of Cross-border dispute resolution.
This Q&A is DIFC specific information on the legal options available to parties looking to recover a trade debt including ordinary legal proceedings, special fast-track procedures (if any), insolvency proceedings and amicable settlement opportunities.
This Q&A also provides United Arab Emirates commentary on Practice note and Recovery of trade debts: a cross-border overview.
This Q&A provides an overview of the rules of evidence in civil proceedings, including rules on the disclosure obligations of the parties, admissibility of evidence, witness evidence, the standard of proof, as well as issues that arise in gathering cross-border evidence.
DIFC entities have until 1 October 2020 to ensure that their data processing activities are compliant with the new Data Protection Law (DIFC Law 5 of 2020) (the DP Law).
Who is subject to the DP Law?
- • DIFC entities.
- • Non-DIFC entities that regularly engage with DIFC entities as part of a “stable arrangement”, which involve data being processed in the DIFC and/or transferred out of the DIFC.
1. Maintain a record of Personal Data.
2. Delete Personal Data when the purpose for processing ceases.
3. Maintain (written) consents obtained from Data Subject(s).
4. Have in place technical and organisational measures.
5. Have in place a data protection policy.
6. Ensure that notification of processing operations was submitted to the Commissioner.
7. Have in place a legally binding agreement between: (i) Joint Controllers, (ii) a Controller and a Processor, (iii) a Processor and a Sub-Processor.
Additional Guidance – Entities carrying out High Risk Processing Activities
An entity carrying out High Risk Processing Activities has the following additional requirements:
8. Appoint a Data Protection Officer.
9. Submit an Annual Assessment to the Commissioner.
10. Undertake a Data Protection Impact Assessment prior to conducting High Risk Processing Activity.
Transfer of Personal Data outside of DIFC
Personal Data can be transferred outside of the DIFC if it satisfies one of the conditions under the DP Law.
Country with Adequate Level of Protection: Personal data can be transferred out of DIFC if the recipient country has an adequate level of protection. The Commissioner determines the countries that have an adequate level of protection.
Country without an Adequate Level of Protection: If the recipient country does not have an adequate level of protection, then the transfer can be done only if certain additional requirements are satisfied.
Sanctions and Compensation
The sanctions are substantial for non-compliance of the DP Law with the maximum fine ranging from USD 20,000 to USD 100,000 depending on the breach.
Where a Data Subject suffers material or non-material damage by reason of any contravention of the DP Law, the Data Subject may apply to the DIFC Court for compensation from the Controller or Processor in addition to, and exclusive of, any fine imposed on the same parties.
In terms of the apportionment of liability between Controllers and Processors, where the Controller and Processor are held liable for the damages caused:
- A Controller involved in processing that infringes the DP Law shall be liable for damages caused.
- A Processor shall be liable for damages caused by processing only where it has not complied with the obligations specifically directed to Processors or where it has acted outside or contrary to the lawful instructions of the Controller.
- Where multiple Controller(s) or Processor(s) are involved in the processing and where each is responsible for any damage caused by the processing, each shall be held jointly and severally liable for the entire damage. ■
The DIFC has expanded the scope of the common reporting standards, meaning more people must make filings plus increased fines for non-compliance.
With effect from 16 August 2020, DIFC Law 6 of 2020 (the CRS Law Amendment Law) was enacted to amend the Common Reporting Standard (CRS) Law, DIFC Law 2 of 2018 (the CRS Law). This enactment follows the issuance of the new CRS Regulations, which came into effect on 30 July 2020.
Briefly, the CRS Law serves to apply CRS on the financial institutions within the DIFC (known as the ‘Reporting Financial Institutions’ in the CRS Law). CRS is a standard developed by the Organisation for Economic Cooperation and Development (OECD) by which the DIFC (and other participating jurisdictions) are required to obtain financial account information from financial institutions and automatically exchange them with the other participating jurisdictions on an annual basis. Under the CRS Law, Reporting Financial Institutions that fail to report such information shall be subject to a fine for non-compliance, ranging between USD 280 (with an additional fine per each day of non-compliance up to a limit) for a minor non-compliance and USD 70,000 for a significant non-compliance. The main purpose behind CRS is to limit tax evasion.
The CRS Law Amendment Law made the following changes to the CRS Law:
- The CRS Law now additionally applies to a Controlling Person (as defined in the CRS Law). This means that where an account with the Reporting Financial Institution is held by an entity, the natural persons exercising control over such entity are also subject to the CRS Law.
- New offences and penalties are introduced in the CRS Law. An account holder or a Controlling Person that provides inaccurate or incorrect self-certifications where he knew or ought to have known to be inaccurate or incorrect shall be fined USD 5,500. A Reporting Financial Institution that fails to obtain valid self-certifications when a new account is set up shall be fined USD 300.
The amendments to the CRS Law are aimed to elevate the compliance requirements of Reporting Financial Institutions thereby aligning DIFC’s legal and regulatory framework with international best practice. ■
The Dubai International Financial Centre (DIFC) has recently launched a new type of license called an “Innovation License”. An Innovation License is available to technology and innovation start-ups for a select number of activities including technology, research and development and software houses. An Innovation License is not appropriate for start-ups who wish to conduct regulated financial activities for which a license from the Dubai Financial Services Authority is required.
Applicants will need to ensure compliance with all the laws of the DIFC as applicable to any other entity established in the DIFC.
The licensing fee for an Innovation License has been significantly subsidized to USD 1,500 per annum. As per the DIFC’s current policy, this subsidy in the licensing fee is available for the first four years and the standard licensing fee of USD 12,000 per annum shall apply thereafter.
A start-up will have the flexibility to lease an independent office or a co-working space/flexi desk. The number of visas which can be sponsored by the start-up will depend on the type and size of facility leased.■
Presidential Directive No. 4 of 2020 (Directive) is the most recent measure taken in the DIFC to ensure proper management in the DIFC during COVID-19.
The Directive, issued on 21 April 2020 with immediate effect, announced employment and workforce measures which shall stay in effect up to and including 31 July 2020 (referred to herein as COVID-19 emergency period).
We will discuss in this inBrief employment measures included in the Directive. In so far as may be required to facilitate the implementation of employment measures included in the Directive, the Directive will supersede other relevant provisions contained in Law No. 2 of 2019 (DIFC Employment Law).
Emergency Employment Measures
During the COVID-19 emergency period, employers may impose one or more of the following employment measures in respect of any of their employees:
• reduction in working hours
• vacation leave
• leave without pay
• temporary reduction in remuneration
• workplace access restriction
• remote working conditions including remote working requirements
To that effect, the following provisions in the DIFC Employment Law shall not apply to employees during the COVID-19 emergency period:
‘Any amendment to an Employment Contract must be in writing and signed by both the Employer and Employee, unless such amendment is of an administrative nature only, in which case the Employer shall be required to record such amendment in writing and to give written notice thereof to the Employee prior to the amendment taking effect.’
‘The Employer may require an Employee to take Vacation Leave on specified days in the current Vacation Leave Year by giving at least seven (7) days prior written notice to the Employee.’
‘Vacation Leave accrues during an Employee’s first year of employment on a monthly basis at the rate of one-twelfth (1/12) of the Employee’s annual entitlement to Vacation Leave.’
Article 4(1)(b)(i) of the DIFC Employment Law, stating the physical location of employees to whom the DIFC Employment Law applies, is deemed to be satisfied for employees who work for employers in or from the DIFC by way of remote working during the COVID-19 emergency period.
An employer wishing to apply any of the above measures can do so without the prior consent of the affected employee. The employer is required, however, to give five days prior notice in writing to the affected employee.
COVID-19 Related Sick Leave
Under the Directive, sick leave taken by an employee during the COVID-19 emergency period as a consequence of having contracted COVID-19 or for being placed in quarantine shall not count towards sick leave entitlement of the employee as stated in the following provision of the DIFC Employment Law:
‘An Employee is entitled to Sick Leave of sixty (60) consecutive or intermittent Work Days in aggregate in a twelve (12) month period. Any references in Articles 35 and 36 to a twelve (12) month period shall be deemed to be the same period as referred to in this Article 34(1).’
Additionally, employees in this case shall be entitled to 100 percent of their daily wage for the duration of the sick leave and may not be subject to any of the above emergency employment measures if those measures were not imposed on them prior to taking a COVID-19 related sick leave.
Finally, the following provision of the DIFC Employment Law shall not apply in the case of a COVID-19 related sick leave:
‘Where an Employee takes more than an aggregate of sixty (60) Work Days of Sick Leave in a twelve (12) month period, the Employer may terminate the Employment Contract with immediate effect on written notice to the Employee.’
The following provisions of the DIFC Employment Law (both inclusive) do not apply to employees that are working remotely during the COVID-19 emergency period:
‘General duties of Employers
1) An Employer has a duty to ensure, as far as is reasonably practicable, the health, safety and welfare at work of all its Employees.
2) An Employer shall provide and maintain a workplace that is free of discrimination and victimization and without risks to an Employee’s health and safety.
3) An Employer who contravenes Articles 43(1) or (2) is liable to a fine as set out in Schedule 2.’
‘No penalties for preventing health and safety risks
An Employer shall not dismiss or otherwise penalise, directly or indirectly, any Employee for:
1) carrying out activities that may reasonably be considered to prevent or reduce risks to health and safety in the workplace where the Employee has been specifically designated to do so; or
a) taking reasonable steps to avert serious and imminent danger or for refusing to return to
b) the place of danger until the danger no longer exists.
2) An Employer who contravenes Article 53(1) is liable to a fine as set out in Schedule 2.’
Visa and Permits of Terminated Employees
During the emergency period, employers may defer the cancellation of residency visas of terminated employees provided that the employer continues to provide basic medical insurance and accommodation (where the terminated employee is dependent on the employer for accommodation) until the cancellation of terminated employees’ visas. No other core benefits or rights shall accrue in favour of terminated employees who remain on an employer’s sponsorship during the COVID-19 emergency period.
The following provision of the DIFC Employment Law shall not apply in the case of terminated employees during the COVID-19 emergency period:
‘If an Employee is sponsored for UAE residence visa purposes by their Employer, the Employer and the Employee must cooperate to ensure the cancellation of the Employee’s UAE residency visa as soon as reasonably practicable following the Termination Date and by no later than thirty (30) days following the Termination Date.’
DIFC Available Employee Database
The Government Services Office in the DIFC shall create and maintain the DIFC Available Employee Database (Database) consisting of employees that have been terminated or those that are surplus to employers’ need during the COVID-19 emergency period. This Database may be shared with any other competent authority maintaining a virtual labour market during the COVID-19 emergency period. DIFC employers wanting to employ new employees during the COVID-19 emergency period may search the Database.
Gratuity Payment Protection
The Directive ensures that end of service gratuity payments will not be adversely affected by the implementation of any of the Directive’s emergency measures. For purposes of Article 66(1) and Article 66(6) of the DIFC Employment Law, gratuity payments during the COVID-19 emergency period for all employees will be calculated by reference to an employee’s basic wage as at 29 February 2020.
Any shortfall of gratuity payment by employers who terminated employees subsequent to 1 March 2020 and prior to the issuance of this Directive shall be rectified by the employer topping up the shortfall. ■
Below is a summary of key relief and operational measures implemented by the DIFC since 1 April 2020 and the time of this inBrief, 6:00 p.m. on Saturday, 11 April 2020.
Dubai Financial Services Authority (DFSA) announces relief measures
On Tuesday, 7 April 2020, the DFSA announced a number of relief measures to support their clients during this time of stress and uncertainty. These measures are aimed at both new firms setting up in the DIFC as well as existing authorised firms.
Regulatory relief measures for new firms setting up in the DIFC include:
• More time to complete the application and authorisation processes
• A 50 per cent reduction in application fees for the remainder of 2020 and flexibility in requirements for permanent premises
• A waiver of registration fees for domestic funds for the remainder of 2020
Regulatory relief measures for existing authorised firms include:
• An extension of time for filing a number of returns and reports
• Additional time, where reasonable, for submitting annual accounts and financial statement auditors report (with the exception of reporting entities)
• Flexibility in meeting authorised individual obligations
• A waiver of fees for applications relating to authorised individuals
• Temporary relief from capital requirements
• A waiver of fees for applications for waivers and modifications and all automated late return fees for the remainder of 2020
• A waiver of the listing fees for new SME issuers in the DIFC for the remainder of 2020
In addition, the DFSA has agreed to extend policy consultation periods as well as the time periods within which entities must meet new requirements.
Click here to access a copy of this announcement on the DFSA website.
While DIFC Courts’ (the Courts) employees are operating on a work-from-home remote basis, the Courts is fully operational with no interruption to service. Remote access is available to all services through the Courts’ fully integrated digital eCourt platforms including e-Registry, e-Bundling and e-Hearings.
Practitioners and Courts’ users are encouraged to email the e-Registry for all enquiries. They are also encouraged to take advantage of the e-Bundling platform which is available through the e-Registry. Hearings will be conducted by judges remotely via teleconference or video conference, as appropriate.
Doors of the Courts and Registry offices will remain physically closed until 26 April 2020 (or, pending further notice).
DIFC Wills Service Centre
Through a press release on 5 April 2020, the DIFC Courts confirmed that it has developed a new system for the registration of Wills via video conference. The new system allows the testator and two witnesses to join on the video conference call from different locations. The system also allows an approved Will to be directly uploaded on the system and to be signed electronically.
Upon booking the appointment, the testator will have to upload the following documents:
1. Approved draft Will
2. Clear copy of the testators’ passport (and Emirates ID if applicable)
3. Clear copy of the witnesses’ ID’s (passport or any other form of ID; front and back if using Emirates ID)
4. Signed and dated Guardianship Witness Statements (if applicable)
The Will to be registered should be sent at least two working days before the appointment. All information of the Will should be complete as they cannot be added once the Will has been uploaded except the signature sections for the testator and witnesses. The Will will be electronically signed during the video conference.
All Will registrations can be booked on the appointment portal.
DIFC Business Stimulus Initiative
On 1 April 2020 the DIFC has announced a new Business Stimulus Initiative (Initiative) in line with Dubai Government’s economic stimulus programme. The Initiative took effect on 1 April 2020 for a period of three month until 30 June 2020. Relief measures contained in the Initiative include:
• All lease payments are deferred for three months with a six-month payment plan.
• Annual licensing fees for new entities that submit the Application for Incorporation / Registration during the three-month period from 1 April 2020 until 30 June 2020 will be waived.
• A 10 per cent discount of the total license renewal fee for all DIFC registered entities that are due for renewal during the three-month period from 1 April 2020 to 30 June 2020. The discount does not include data protection fees and DFSA fees (if applicable).
• A reduction of freehold transfer fee from 5 per cent to 4 per cent, for all properties within the DIFC jurisdiction, for sale or purchase of property (or any part thereof) that takes place within the period from 1 April 2020 to 30 June 2020 where the transfer is registered with the DIFC Registrar of Properties within 30 days, at the latest, after the expiry of the said three-month period.
More on the DIFC Business Stimulus Initiative and a list of FAQs can be accessed here.
On 11 January 2020 a new leasing law was introduced in the Dubai International Financial Centre, Law 1 of 2020 (the New Law); and on 14 January 2020 the associated regulations were issued (the Regulations).
The New Law and Regulations are an important development for the DIFC. We expect that they will have a positive impact on the real estate market. The New Law is more comprehensive than the previous law (Law 10 of 2018) and brings the DIFC into alignment with the detailed onshore Dubai leasing law set out in Law 26 of 2007 (as amended by Law 33 of 2008); Decree 43 of 2013; and Decree 26 of 2013.
In this InBrief we look at the major changes that will impact landlords and tenants in the DIFC under the New Law.
Application of the New Law
The Regulations have now clarified that the New Law applies to all leases in the DIFC which were entered into prior to the date of commencement of the New Law, except where provisions in the New Law requires compliance with time and notice periods which are incapable of being applied to such leases (Regulation 4.1). In addition, it is important to note that the New Law does not apply to the following two types of leases:
1. A lease of premises which are used primarily for serviced apartments or hotel inventory leased as part of a hotel; or
2. A lease which is entered into by the parties to a Mortgage of the Leased Premises in accordance with the terms of the Mortgage.
A Lease has been defined in the New Law as “a lease under which a person lets premises, which includes a sublease and any form of agreement (howsoever described) that gives a legal right of exclusive possession of premises to the occupant for a specific or ascertainable term in exchange for another consideration.”
As such, the New Law applies to all residential, retail and commercial leases in the DIFC.
The New Law gives tenants of residential premises greater rights by introducing:
- a new security deposit scheme;
- a requirement for entry condition reports; and
- rules governing rent increases.
The new security deposit scheme
The key elements of the new security deposit scheme, which is only applicable to residential leases, are as follows:
1. If a landlord of residential premises chooses to charge the tenant a security deposit, then the security deposit must not exceed 10% of the rent.
2. A security deposit may only be used to compensate the landlord after a residential lease has ended for the following purposes:
a. non-payment of rent;
b. damage to the residential premises, excluding fair wear and tear; or
c. damages for breach of contract, inclusive of direct, indirect and consequential losses.
3. A landlord who receives a security deposit must pay it to the DIFC Registrar of Real Property within 30 days.
4. The Registrar must hold all security deposits in an escrow account.
5. On the expiry or earlier termination of a residential lease:
a. if the landlord and the tenant agree on the amount of the security deposit to be refunded to the tenant, then they must sign and lodge a release form with the Registrar;
b. but, if the landlord and the tenant disagree on the amount of the security deposit to be refunded, then either party may notify the Registrar of the existence of the dispute, and the dispute will be resolved by the Court.
6. The Registrar will only pay out an amount of the security deposit in accordance with:
a. a release form signed by the landlord and the tenant agreeing on the amount of the security deposit to be refunded; or
b. a order of the Court.
The New Law defines a “Court” as the DIFC court or any specific tribunal created for dealing with disputes under the New Law. Under the previous law, the DIFC Small Claims Tribunal had exclusive jurisdiction over tenancy disputes in the DIFC where the claim amount did not exceed AED 500,000. We assume that this tribunal will continue this role under the New Law, including resolving disputes arising under the new security deposit scheme. However, we expect that a further regulation will be made by the Board of Directors of the DIFCA under the New Law to clarify this issue.
For residential leases, a landlord is now required to give a tenant written notice of a proposed rent increase at least 90 days prior to the expiry of the residential lease. If the landlord fails to give this notice, then the rent increase will be invalid.
Given that Dubai is expecting an increase in rental unit demand as a result of its new long term visa initiatives, dropping rents and Expo 2020, the New Law is a welcome development which may stimulate the property market by attracting more businesses and individuals to rent in the DIFC.
If you require more detailed information, please do not hesitate to contact Afridi & Angell. ■