Business is Distinctive
Business in the UAE is complicated by the distinct character of each emirate. The commercial aspirations of Dubai Emirate mean that in most quarters there is a definite will to conduct business at a Western-style pace. This does not mean that traditional courtesies are waived.
Business visitors will find that in Abu Dhabi, where there are fewer commercial pressures, the pace is more measured and the atmosphere more traditional. In the smaller emirates, except Sharjah, the pace of business is altogether more traditional. Sharjah, with its rapidly growing industrial sector, to a great extent follows the Dubai mode. So lessons learned in one emirate are not necessarily applicable in another.
The application of uniform federal standards and regulations, which started in the 1980s, has increased in speed in the first half of the 1990s. But discrepancies and procedural differences still persist.
Business Law is evolving
In the UAE, business activity is regulated by individual emirates as well as by the federal government. In practice, the detail of business registration is the responsibility of each emirate, while the laws that govern that activity come from the federal authorities.
Since 1993, there have been a number of legal reforms aimed at creating a framework able to accommodate the country’s commercial aspirations. Most notable is the commercial code which came into effect at the end of 1993 and covers a wide range of banking and commercial activities. Also significant are new laws on copyright, patents and trademarks which came into force in 1993. They are:
Commercial transactions law. The commercial transactions law (federal law number 18 of 1993) covers banking and commercial transactions on a scale unprecedented in prior legislation. It contains provisions on who may lawfully conduct business in the UAE; subject to certain exemptions for GCC nationals or companies operating in free zones. No one other than UAE nationals may do so unless in conjunction with UAE partners in line with the requirements of the commercial companies law which stipulates a minimum 51 per cent local ownership.
The commercial code also introduces a new legal basis for mortgages over a wide range of assets, both tangible and intangible and contains detailed provisions concerning bankruptcy and receivership.
Banking transactions are fairly comprehensively covered including current accounts, bank loans and guarantees, the discounting of commercial paper, trust receipts, deposits of securities and detailed rules on cheques, bills of exchange and promissory notes. In addition, the commercial code permits lenders to receive interest on commercial loans subject to certain limitations, a clarification welcomed by banks.
Companies Law, Federal law number 8 of 1984, came into effect in its amended form in January 1989 and has been applicable to all companies formed since that date. In particular, the companies law requires all companies to be at least 51 per cent owned by UAE nationals and to take one of the seven forms specified by the law.
Companies formed prior to 1989 did have the benefit of a number of grace periods to give them time to comply with the provisions of the law. The last grace period expired at the beginning of 1994 and has not been renewed. The companies law is now unequivocally applied to all local companies irrespective of when they were formed. A number of substantial amendments to the companies law were under consideration as the practical guide was being published, although it is not clear when they will be introduced, if at all. Foreign investors who are unsure of how the companies law now affects their interests should seek advice from their local legal advisors.
The professional companies law. This was due to come into effect at the end of 1994. Professional companies – companies where the knowledge of the partners is the main asset (for example, lawyers, engineers, accountants, hairdressers) – are not covered by the commercial companies law. The new law provides that UAE nationals must own at least 25 per cent of professional companies. The law will be applicable immediately to all new professional companies formed after it has come into effect. Professional companies already in existence will have a grace period of five years to adjust.
National Ownership is Required
Under the companies law, at least 51 percent ownership by UAE nationals is required for all UAE establishments, except where the law requires 100 per cent local ownership as in the case of, for example, commercial agencies. The companies law is not applicable to Free Zone Entities or branches established in the free zones generally. As mentioned, it is not applicable to professional companies, which, in due course, will need to be 25 per cent owned by UAE nationals.
Taxation in the UAE
There is no corporate tax in the UAE. The only exceptions are oil producing companies and branches of foreign banks.
It is highly unlikely that direct taxation will be introduced in the UAE in the near future. However, it is possible that one day Dubai emirate may introduce some form of direct taxation as its oil reserves dwindle.