POTENTIAL BARRIERS TO ENTRY IN THE UAE
There are a number of critical considerations, issues and questions confronting companies as they establish, operate and grow a business in the Middle East from a base in the UAE. These include cultural differences, language barriers, influence of Shari’ah law, enforced local ownership rules, as well as choosing the most suitable location and legal entity to match your business requirements.
Today, more than 90% of the urban population of Dubai and more than 75% of the urban population of Abu Dhabi are foreign nationals, the majority from South Asia. English is widely used for business and is the lingua franca of the cities.
Shari’ah is “a principal source of legislation” but many of the laws are secular and Shari’ah is generally not applied to the family law of non-Muslims, or to their inheritance. In addition, there is the DIFC Courts, an independent English-language common law system. Based in the Dubai International Financial Centre (DIFC), it has jurisdiction governing civil and commercial disputes nationally, regionally and worldwide.
Foreign ownership restrictions are contained in the Commercial Companies Law (CCL), which requires that UAE nationals or their wholly owned companies hold a minimum of 51% of the shares of all companies established in the UAE.
A foreign company wanting to do business in the UAE can choose to set up operations as a branch, representative office or registered company, or it can appoint a commercial agent to sell its products in the UAE market or export them. New companies can also choose to conduct their activities from a Free Zone, which is a designated, self-regulated area set up o catalyse economic activity within an emirate and is governed by its own set of rules and regulations. There are around 40 Free Zones in the UAE, with more under development.
The CCL provides for the establishment of the following business entities for foreign investors: joint stock companies (JSC), limited liability companies (LLC), unincorporated joint ventures and branch offices of foreign companies. The CCL does not apply to companies that are established in the free zones.
Free Zones permit certain exemptions on foreign investment and customs duties. An independent Free Zone Authority governs each free zone and is responsible for issuing operating licences. Investors can either register a new company in the form of a Free Zone Establishment (FZE) or simply establish a branch or representative office of their existing company based within the UAE or abroad.
Issues to address when setting up business in the UAE
There are no restrictions on profit transfer or capital repatriation in the UAE. Most Free Zones pledge to maintain this for a substantial term from the time of business establishment.
Document authentication is an administrative requirement for completing transactions across the Middle East. Documents that originate from outside the UAE must typically be locally notarised, attested and certified. When delivered to the UAE, they must further be translated into Arabic and certified by the UAE Ministry of Foreign Affairs (MOFA).
The UAE Labour Law is generally employer-friendly. The vast majority of the private sector workforce is made up of foreign nationals, who require work visa and residence permit sponsorship from their employer. It is relatively straightforward to terminate the employment of foreign national employees but the approval of the public authorities may be required to terminate the employment of UAE national employees. An “End of Service Gratuity” payment must be paid for employees who work for more than one year.
Extreme caution should be exercised in drafting distributor, dealer, agency, franchise or similar agreements. Companies selling their products and services in the UAE need to understand local protections and the agent registration system and to consider the implications if the relationship is not a success.
Laws and regulations regarding foreign property ownership differ between the Emirates. For instance, the Dubai government has permitted freehold foreign ownership of properties in designated areas of Dubai since 2002. Registration of property with the Land Department is critical to claim full ownership. Abu Dhabi, however, restricts freehold property ownership to UAE nationals and, within certain investment zones, non-UAE Gulf Cooperation Council (GCC) nationals. Non-GCC foreign nationals are only permitted long-term leaseholds within certain investment zones.
Copyright Sovereign Media IOM 2016