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The UAE business environment can be very lucrative and even predictable if care is taken to understand the influences working on an individual market at any one time. Keeping an ear to the ground and maintaining a steady physical presence is invaluable.
Visiting business people are advised to consult the many sources of commercial intelligence, including embassy lists, the chambers of commerce, official gazettes and tender lists. UAE national businessmen are the best source of information, and the ideal man in a business development role will usually be the one with excellent contacts in the local business community. Given the right high-level contacts it is possible to hear of projects ahead of the rest and long before tender documents can be officially purchased. The UAE is one of the most open and freely competitive markets in the world and although the authorities want to do business on the basis of quality and value for money, much still depends on this inside knowledge.
Personalities play a significant role in contract award. The knowledge, accessibility and reputation of one's local associate is often a vital factor in determining the outcome of fierce bidding between large numbers of international companies.
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.
The Dubai government set up an Economic Department in 1992 with the express purpose of facilitating and encouraging the development of trade and industry in the emirate. It functions as a one-stop shop for business registration. If it receives correctly completed documents and approvals from the respective authorities in time, then a business licence is issued within a few days.
In order to speed up the procedure, representatives from the Chamber of Commerce & Industry, Dubai Municipality, Civil Defence and a notary public all provide their services at the Economic Department. In addition, staff at the Economic Department liaise with the federal Economy & Commerce Ministry and follow up applications themselves.
However, there are categories of business that require approval from other authorities: manufacturing institutions are subject to approval by the Finance & Industry Ministry and financial institutions from the Central Bank. The Economic Department was working on a plan for future co-ordination with these authorities to further facilitate the registration process as the practical guide was being published.
In addition, the Economic Department is in charge of strategic economic planning for the emirate of Dubai, the organisation of industry and trade, the execution of statutes relating to commercial and industrial activities, developing the natural resources of the emirate and diversifying its sources of income.
To achieve this, it is in charge of preparing and maintaining the commercial register, protecting industrial and commercial property rights, organising commercial agents and mediators, commercial advertising, and decisions on the establishment or expansion of factories.
It is also responsible for the promotion of the emirate's industrial products and the investment of national and foreign capital in commercial industrial projects. It can recommend government participation in development projects and represents government interests in national companies. Finally, it co-ordinates with federal government departments in the implementation of federal laws related to commerce and industry.
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.
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.
The law sets out the requirements for shareholders, directors, minimum capital levels and incorporation procedures. Mergers, conversions of licenses and the dissolution of companies are also covered. The seven categories of business organisation permitted are:
The Dubai government does not presently encourage the establishment of simple partnership and share commandite companies. Otherwise, all entities formed under the companies law must be at least 51 per cent owned by UAE nationals.
Jebel Ali Free Zone has special legal status allowing companies established there to be offshore, or outside the UAE for legal purposes. Incentives include 100 percent foreign ownership, no corporate taxes for 15 years renewable for an additional 15 years, 100 percent repatriation of capital and profits, no personal income tax, no currency restrictions, no recruitment or administration problems, abundant energy, excellent facilities at Dubai Ports Authority's two modern terminals, no import or export duties payable within the zone, first class communications and an attractive working environment.
All licences are issued by the Jebel Ali Free Zone Authority (JAFZA) and are valid for the period the company holds a lease from JAFZA, but are renewable annually.
Other recent legal developments of note relate to intellectual property. The key pieces of legislation are:
A list of 70 foodstuffs are exempt from tariffs, as are medicines, agricultural machinery, pesticides, fertilisers, periodicals, wood, unstrung pearls, unworked silver and gold, iron and steel for use in construction, and raw or partially worked materials for use by local manufacturers. Goods produced within the GCC are also exempt. There is no duty payable on goods destined for Jebel Ali Free Zone.
For a product to qualify as a national product and receive GCC customs exemption, at least 40 percent of the product's final value added must be made locally. The factory must be licensed by the Ministry of Finance & Industry and there must be 100 per cent or minimum 51 per cent UAE national or GCC ownership of the producing plant.
An appeals desk has been established at the federal customs directorate to hear claims from importers for goods to be classified as duty free, chairman of the UAE customs council and director-general of Dubai customs Obaid Busit said in December 1994. Busit said that the UAE had successfully resisted pressure from other GCC states for a 5 percent minimum duty. The increase in tax on tobacco to 50 per cent is to be implemented later in 1995, he added. A federal law raising tobacco tax was passed on 2 November but only comes into effect when it is published in the official gazette (MEED 25:11:94). Computerisation of customs services to cut the time to process papers from 45 minutes at present is due to take place in January.
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.
There are no exchange controls and the UAE dirham is freely convertible. The dirham is linked to the US dollar and the rate is $1=Dh 3.67.
Foreign companies may sell goods to companies in the UAE by concluding transactions directly with importers and traders who are already established in the market. However, in the case of high volumes of business, a more permanent form of representation may be desired.
Companies wishing to sell to the UAE without establishing an office may prefer to appoint a commercial agent. This is covered by Federal Commercial Law 18 of 1981 as amended by Law 14 of 1988. The law states that the agent must be a UAE national or a company 100 per cent owned by UAE nationals. He must be registered in the Commercial Agency Registry kept by the Ministry of Economy & Commerce.
The procedure is as follows:
If the agency agreement is signed outside the UAE:
A sole UAE agent may be appointed in each emirate or defined area of the country. A commercial agent is entitled to territorial exclusivity enforceable by infringement commissions.
Although the term of the agreement may be limited to a specific period, it is not permissible for the principal to terminate the agreement without the agent's approval, except for reasons considered valid by the commercial agencies committee of the Ministry of Economy & Commerce.
Failure to renew an agreement without justifiable reason may require compensation for the former agent.
There are various procedures for setting up corporate entities: Limited liability companies (Dubai). To do this, the following procedure should be followed:
Branches and representative offices of foreign companies (Dubai). To establish a branch or representative office in Dubai, a foreign company should:
Branches and representative offices of foreign companies (Abu Dhabi). Individual expatriates and foreign companies wishing to do business in Abu Dhabi have to enter into agreement with a UAE national according to one of the following options:
The procedure is as follows:
A non-participant UAE sponsor does not have a share in the capital and is not liable for any loss or obligation towards others. He or she shall be entitled to 25 per cent of the annual net profit if the activity undertaken is trade. Commission on income from contracting companies is fixed according to the size of contracts.
Trade license (Abu Dhabi). The procedure is as follows:
Special, general or national license from the Jebel Ali Free Zone Authority (JAFZA). All procedures can be completed within 30 days where no environmental issues are concerned. The process is as follows:
For a general license, the following documents are also required: a valid trade license from Dubai Economic Department, and a Dubai Chamber of Commerce & Industry membership certificate (if applicable).
Free zone entity (FZE). The procedure is as follows:
The establishment of any business or industrial activity must pass through the Chamber of Commerce & Industry of the relevant emirate. The chambers represent the private sector and protect its interests.
Their role is to organise commercial and industrial affairs, collect relevant information and statistics, produce publications, and organise conferences and exhibitions within each emirate.
The chambers' affairs and performance are supervised by a board of directors composed of 21 members appointed by the relevant government. Five board members are on the executive board and the other members form various sub-committees.
The Abu Dhabi Chamber of Commerce & Industry is situated in the Chamber Tower on the Corniche Road. The chamber was established in 1969 and has had a branch office in Al Ain since 1978.
Under Law 6 of 1976, all nationals and foreign persons, be they individuals, companies, or establishments practising commercial, industrial, financial or contractual activities within the emirate, whether they are branches or agencies, temporary or permanent, shall have to join the chamber.
The opening of a purpose-built building in the spring of 1995 is the highlight of the decade for the Dubai Chamber of Commerce & Industry. The magnificent new head office is opened to mark the 30th anniversary of the chamber's foundation. The Dubai Chamber's work falls under the following headings: foreign relations, registration and documentation, industrial affairs, administration and finance and legal affairs.
This is situated in Al-Boorj Avenue. By late 1994, it had 9,902 professional members, 9,340 commercial members and 495 industrial members.
Federation of the UAE Chambers of Commerce & Industry
PO Box 3014, Abu Dhabi, UAE.
Tel: +9712 214144. Fax: +9712 339210.
Abu Dhabi Chamber of Commerce & Industry,
PO Box 662, Abu Dhabi.
Tel: +9712 214000. Fax: +9712 215867
Dubai Chamber of Commerce & Industry,
PO Box 1457, Dubai.
Tel: +9714 2280000. Fax: +9714 2211646.
Sharjah Chamber of Commerce & Industry,
PO Box 580.
Tel: +9716 5541444. Fax: +9716 5541119.
Fujairah Chamber of Commerce & Industry,
PO Box 738.
Tel: +9719 2222400. Fax: +9719 2221464.
Ras Al-Khaimah Chamber of Commerce & Industry,
PO Box 87.
Tel: +9717 333511. Fax: +9717 330233.
Ajman Chamber of Commerce & Industry,
PO Box 662.
Tel: +9716 7422177. Fax: +9716 7427591.
Umm Al-Qaiwain Chamber of Commerce & Industry,
PO Box 436.
Tel: +9716 7656915. Fax: +9716 7657056
Canadian Business Council Dubai & the Northern Emirates
P.O. Box 52472. Dubai, U.A.E.
Tel: +971-4-359-2625. Fax:+971-4-359-1026