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Doing Business in the

United Arab Emirates
Second Edition

Contents
A. Introduction......................................................................................2

I
II
III

Country Background
Free Zones
Status of Shariah Law in the UAE

B. establishing a legal presence in the uae............................3

I
II
III
IV
V

Incorporating a Local Entity

Opening a Branch or Representative Office (Outside a Free Zone)
Setting up a Free Zone Entity
Holding Companies
Commercial Agency Relationship

C. General Legal Considerations..................................................7

I
Doing Business with the Public Sector
II Import & Export Regulations
III Foreign Exchange Controls & Anti-Money Laundering
IV Bribery and Anti-Corruption
V Taxation
VI Employment Law
VII Immigration
VIII Real Property
IX Intellectual Property
X Data Protection and Privacy
XI Governing Law

XII Dispute Resolution

XIII New Competition Law

Appendices.............................................................................................15

1
2

Pros and Cons of Means to Set Up a Legal Presence in the UAE

Companies Law and Free Zone Entities

Endnotes.................................................................................................19

This guide provides an overview of the principal legal issues for foreign
investors considering doing business in the United Arab Emirates (the UAE).

A. INTRODUCTION
(i) Country Background
The UAE is a federation of seven emirates comprising Abu Dhabi, Ajman, Dubai,
Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain and was formed on
2 December 1971.
The UAE federal constitution was permanently accepted in 19961 and provides for
an allocation of powers between the federal government and the government of each
emirate.
The constitution provides the legal framework for the federation and is the basis of all
legislation promulgated at a federal and emirate level. Pursuant to the constitution, the
federal government has exclusive jurisdiction in various substantive matters, including
foreign policy, defence and security. Legislation passed at a federal level has primacy
over the local laws of each emirate. The local government of each emirate is, however,
permitted under Article 113 of the constitution to regulate all local matters which are
not subject to federal legislation or matters which are not expressly reserved in the
constitution to the federal union (examples of such federal matters being foreign affairs,
defence and health). As such, the governments of each individual emirate retain
substantial powers to regulate commercial activities, issue trade licences and effect the
incorporation of corporate entities to the extent that such activity is not already regulated
under federal legislation.
The UAE judicial system varies significantly across the UAE and the free zones. Only
five emirates submit to a federal court system Dubai and Ras Al Khaimah have their
own independent court systems. All of the emirates (except in respect of some of the
free zones) follow uniformly similar rules of civil procedure and evidence, and trials
are decided by a single judge or a panel of three judges, and not by a jury. In addition,
some of the free zones have their own judicial systems, as well as their own rules of civil
procedure and evidence.

(ii) Free Zones

The UAE federal constitution, the federal laws relating to free zones and the powers
reserved by the individual emirates under the federal structure, permit each emirate to
set up free zones for general or industry-specific activities. The purpose of free zones is
to encourage foreign direct investment into the UAE. Free zone entities are not generally
required to have any UAE nationals as owners. This contrasts with most companies
incorporated in the UAE outside of the free zones, where UAE nationals are typically
required to own at least 51 percent of the companys capital.
Various free zones have been set up in the UAE, most of which are in Dubai. Free zones
are authorised to enact their own laws and regulations in specific areas, which in some
cases override federal and emirate law on the subject matter. For example, the Dubai
International Financial Centre (the DIFC), which is a financial free zone within Dubai,
has its own body of law, including corporate law, contracts law and employment law, as
well as its own court system. Unless otherwise stated, references in this guide to matters
of law or practice applicable in the UAE generally refer to the wider UAE outside of the
free zones.

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(iii) Status of Shariah Law in the UAE

Foreign parties contemplating doing business in the UAE often assume that all aspects
of law in the country are governed by Islamic Shariah. While the UAE federal constitution
provides that Shariah is a main source of law, it is not the only source of law and its
application is generally limited to (i) being used by the courts as an interpretative aid
where there is no express provision of legislation governing a particular question; (ii)
religious, morality and personal law matters, particularly involving Muslims (such as
inheritance, divorce, etc.); and (iii) transactions which are intentionally expressed to be
Shariah-compliant, such as Islamic banking transactions. Outside of these rather limited
areas, contractual terms that would be forbidden under Shariah are generally fully
enforceable under the laws of the UAE, including under the UAE Civil Code. For example,
a contractual term in a conventional commercial transaction requiring the payment of
interest (which is a concept that is forbidden in Islam and is contrary to Shariah) is, in
general, valid in the UAE and would normally be enforceable in the UAE courts.

B. ESTABLISHING A LEGAL PRESENCE IN THE UAE

In order to conduct business in the UAE, a foreign investor is required to establish a formal
legal presence (directly or through an agent) within the UAE through any of the following
means:
Incorporating a local entity;
Registering a branch or representative office of a foreign company;
Establishing a free zone entity; and
Entering into a commercial agency relationship.
Further details of each of these means is set out below. A matrix summarising the pros and
cons of the means likely to be most relevant to foreign investors is set out in Appendix 1.

(i) Incorporating A Local Entity

Unlike in many other jurisdictions throughout the world, it is not possible to buy shelfcompanies in the UAE and there is no central companies house where information on
the companies incorporated in the UAE is available. Only the company itself can provide
such information that is filed at the Department of Economic Development (or other similar
agency) of the emirate(s) where the companys offices are located.
As a general requirement, locally incorporated entities must obtain the following licenses:
A trade license from the Department of Economic Development (or other similar agency)
of the emirate(s) where office(s) will be located; and
If applicable, authorisation from the relevant Ministry or government entity with
jurisdiction over the type of business activities to be conducted.2
Locally incorporated entities may be formed under the UAE Civil Code or incorporated
under Federal Law No. 8 of 1984 Concerning Commercial Companies (as amended by
Federal Law No. 15 of 1998)(the Companies Law).3

(a) Entities Formed Under the UAE Civil Code/Establishments

Entities formed under the UAE Civil Code are restricted to carrying out non-commercial
or civil activities these are activities that involve the promotion of the skills and expertise
of the individual(s) conducting the business. Most consultancy services (including the
practice of law, medicine, and research activities), the production of works of art or

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literature, and the sale of agricultural products by farmers are examples of activities that
may be conducted by a UAE Civil Code entity.
The most common form of civil entity used by foreign investors is the professional
services company. Such entities are only appropriate for carrying on service businesses,
such as engineering, medical and consultancy services. The primary benefit of
establishing a professional services company is that such an entity may be 100 percent
foreign owned,4 although a national agent must be engaged by all such companies. The
provisions of the Companies Law do not apply to entities formed under the UAE Civil
Code.

(b) Entities Incorporated Under the Companies Law

All locally incorporated companies (other than those formed under the UAE Civil Code)
must be set up in accordance with the Companies Law. The Companies Law requires
companies to adopt one of the following forms:
Limited Liability Companies;
Private Joint Stock Companies;
Public Joint Stock Companies;
Joint Participation Ventures (or Private Unlimited Companies);
Limited Partnerships (or Simple Commandite Companies);
Partnership Limited with Shares (or Share Commandite Companies); and
General Partnerships (or Joint Liability Companies).
Appendix 2 summarises the key differences between the entities set out above.
Of the entities listed above, most foreign businesses choose the limited liability company
as foreigners can exert significant control over them and it requires a relatively small
amount of minimum capital to start up. Previously limited liability companies in Dubai
were required to have a minimum share capital of AED 300,000 and those in other
emirates required a minimum of AED 150,000. However, following an amendment to
Article 227 of the Companies Law,5 shareholders now have the right to determine the
share capital of their limited liability companies, provided that such company will have
sufficient capital to achieve its objects. Such an entity may, however, be inappropriate to
achieve certain business goals. For example, businesses involving banking, insurance
or investment activity on behalf of third parties may only be conducted by a public joint
stock company, and limited liability companies may not offer their shares for public
subscription, which is a central feature of the public joint stock company.

The foreign shareholder may appoint all of the directors;

The foreign shareholder may appoint the general manager;
The foreign shareholder may veto major decisions of the company;
The foreign shareholder may be entitled to all of the assets of the company on winding
up; and
The foreign shareholder may be entitled to more than 49 percent of the companys profits.
In relation to the remaining percentage of profits of the company, it is possible for additional
commercial agreements to be put in place to give a foreign minority shareholder access to
almost 100 percent of the profits.
However, there is much commentary and debate in the UAE about the enforceability of
any contractual side arrangements that may be put in place that purport to confer the full
economic ownership and profits to a foreign minority shareholder, when the constitutional
documents set out a 49 percent to 51 percent split. It is generally difficult to know how a
UAE court would treat side arrangements if asked to consider them, as the UAE courts are
not bound by precedent and do not report on discussions. Likewise, consideration should
be given to the Anti-Fronting Law.7
The Anti-Fronting Law was enacted in the UAE in 2004 and was supposed to come into
force in November 2007. However, a UAE Ministerial Cabinet Resolution deferred such
enforcement until 21 December 2009. Although the UAE Ministry of Economy does not
appear to have provided further clarification on the implementation date or any scheduled
further deferral of this law since the resolution, there are differing and conflicting views on
its current enforceability. As such, enforcement of the law remains unclear.
In summary, the Anti-Fronting Law is designed to prevent fronting, being where a
foreigner is able to undertake any economic or professional activity, which such foreigner
would not be able to carry out under the other effective laws of the UAE, whether
undertaken on the foreigners own account or in a venture with others and enabling such
foreigner to evade applicable obligations. As such, it could be argued that the Anti-Fronting
Law is aiming to prevent the use of nominee and side arrangements with UAE nationals.
Due to the uncertainty over the Anti-Fronting Law, side arrangements remain common in
the UAE but their legality and enforceability remains questionable.

(ii) Opening a Branch or Representative Office (Outside of a Free Zone)

Articles 313 to 316 of the Companies Law permit foreign companies to open branches
or representative offices within the UAE. A branch or a representative office of a foreign
company may be wholly owned by foreigners.

The key limitation on entities incorporated under the Companies Law is that 51 percent
of the capital of a company must be owned by a UAE national. However, certain
services and investment activities are reserved for UAE nationals. For example, only
UAE nationals and companies wholly owned by UAE nationals may supply real estate
services, rental/leasing services relating to cars, services incidental to agriculture,
forestry, farming and fishing, placement and supply of personnel, investigation and
security services, travel agencies and tour operator services, passenger and freight road
transportation and the ownership of pharmacies and medical warehouses.

A branch of a non-UAE company may only be registered in the UAE with the sponsorship
of a local service agent who must be a UAE national or a company wholly owned by UAE
nationals. The arrangement between the company wishing to set up the branch and the
local service agent will be set out in an agency agreement in English/Arabic which has to
be signed before a local notary public (the Sponsorship Agreement). The service agent
has neither power nor responsibility in respect of the branch and the foreign company
would retain full control and benefit over the branch. A local service agent is usually paid an
annual fee in the range of US$20,000 to US$25,000.8

It is possible for the constitutional documents of a limited liability company to allocate

up to 80 percent of the profits of the company to the foreign shareholder in Dubai and
up to 85 percent in Abu Dhabi. The constitutional documents may also incorporate the
following provisions designed to protect the interests of a foreign minority shareholder:

There are no minimum capitalisation requirements for a branch although the foreign
company is required to provide a standard form Arabic bank guarantee from a local bank
(which includes an international bank with a branch in Dubai) in the amount of AED 50,000
(approximately US$14,000) and to show details of its own capitalisation and good standing,
together with its two most recent sets of annual audited accounts.

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Latham & Watkins | Doing Business in the United Arab Emirates

Generally, the parent company of the branch must have been in existence for more than
two years in order to open a branch in the UAE.
The branch must have a certain specified business activity, which must be approved in
advance by the relevant local authorities. The activity of the branch must be the same
activity as the company establishing the branch (or its group). If the foreign entity is a Gulf
Cooperation Council (GCC) entity then no local service agent needs to be appointed.
With regard to trading activities, branches are not permitted to physically deal in or trade
in goods within the UAE other than goods manufactured by its parent or its parents
group. It is, however, permitted to render maintenance and repair services to customers
of its parent company.
It is important to note that approval for the issuance of a licence for a branch depends on
the type of activity the proposed branch intends to carry on in the emirate. It is prudent
therefore to obtain initial approval from the relevant local authorities for the proposed
activities of the branch prior to commencing the incorporation process.
A representative office is more limited than a branch office in the scope of activities that
it is permitted to undertake. A representative office may only conduct marketing and
administrative functions on behalf of its foreign parent. A representative office typically
gathers information on the local market, establishes relationships and solicits orders to
be performed by the parent company. The parent company will generally be required to
engage a commercial agent if it wishes to conduct sales activities within the UAE.

(iii) Setting Up a Free Zone Entity

A key feature of a free zone entity is that it is not subject to the foreign ownership
restrictions imposed by the Companies Law in the wider UAE (although issues of foreign
ownership may still be relevant if the free zone entity is used as a holding company for
assets situated outside the relevant free zone). Free zone entities are also granted certain
ancillary financial benefits (described further in Part C).
A free zone entity will generally take one of the following three forms: a branch or
representative office of a foreign company, a free zone company or a free zone
establishment. There is no minimum capital requirement for a branch or representative
office, while in most free zones, a free zone establishment and a free zone company
are typically required to have a minimum capital of around AED 500,000, but the precise
requirements vary from free zone to free zone. A free zone establishment may be owned
by a single individual or company, whereas a free zone company typically requires two or
more owners.
The key limitation of a free zone entity is that it is generally permitted to conduct business
within its relevant free zone or internationally and is limited to performing solely those
activities specified in its license.9 A free zone entity must typically hold one of the following
licenses issued by the relevant free zone authority: (i) trading license, (ii) service license,
(iii) manufacturing/industrial license. In order for a free zone entity to engage legally in
sales within the UAE (and outside of the relevant free zone), the entity will generally have
to retain a commercial agent or distributor or establish a branch onshore.

incorporated in the DIFC in regional structured finance transactions, availing of the more
international-standard regulatory environment and court system offered by the DIFC.
While exceptions such as these do exist, free zone entities generally have physical
operations within the free zone in which they are incorporated. Most free zones have a
focus on attracting and catering for a particular industrial or economic sector, as evident
in the names of free zones such as Dubai Internet City, Dubai Healthcare City or Dubai
Media City. While the majority of the UAEs free zones are situated in Dubai, free zones
outside of Dubai include the Khalifa Industrial Zone in Abu Dhabi, the Hamriyah Free
Zone in Sharjah and the RAK Free Trade Zone in Ras Al Khaimah.

(v) Commercial Agency Relationship

If a foreigner wishes to import goods into the UAE but does not wish to maintain a
physical presence in the UAE it will generally enter into a commercial agency relationship
with a wholly local owned entity or UAE national. Commercial agents are generally used
by foreign manufacturers and traders who are engaged in the large-scale importation of
goods into the UAE on a regular basis.
Under a commercial agency, the foreign business and the commercial agent agree to
the terms of the sales commission, the territory of the distributorship (at a minimum,
this would be one emirate) and the duration of the relationship. If the commercial agent
registers the contract with the Ministry of Economy and Commerce the agent can obtain
the various protections afforded to agents under the UAE Commercial Agencies Law
(Federal Law No. 18 of 1981, as amended by Federal Law No. 14 of 1988 and Federal
Law No. 2 of 201010). These protections include:
Exclusivity registered commercial agents have the exclusive right to import the goods
which are the subject matter of the agency;
Commissions registered commercial agents are entitled to receive commissions on
the sales they make as well as commissions on sales made in the UAE by the principal
or any other party; and
Termination the principal may only terminate a registered commercial agency
arrangement unilaterally for material reasons. Such reasons must be acceptable
to the Commercial Agencies Committee. In practice, it is very hard to terminate
a registered agency arrangement. Further, a principal may not refuse to renew a
registered commercial agency agreement after its expiry date without the payment of
compensation to the registered commercial agent.
Unregistered commercial agencies on the other hand are not subject to the above
restrictions. There is no formal procedure required for an unregistered commercial
agency to be valid other than parties negotiating and agreeing the terms of their
arrangement.
Generally limited liability companies in the UAE can import and distribute goods in their
own right, but do still need to register to obtain the protections described above.

C. GENERAL LEGAL CONSIDERATIONS

(iv) Holding Companies

(i) Doing Business With the Public Sector

In certain circumstances, entities incorporated in the free zones may be used as offshore
holding companies, meaning that they are used in transactions that do not involve
operations physically situated in the relevant free zone. Examples of this practice include
the use of companies incorporated under the offshore companies regime of the Jebel
Ali Free Zone for use as a regional holding, or as a holding company for the ownership
of real estate assets in Dubai. Additionally, special purpose companies (SPCs) can be

Foreign businesses that do business with the federal government or the government of
any emirate or any other governmental body must comply with public sector procurement
rules as set forth in Financial Order No. 16 of 1975, the Federal Regulation of Conditions
of Purchases, Tenders and Contracts as well as any local procurement rules.

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Latham & Watkins | Doing Business in the United Arab Emirates

(ii) Import & Export Regulations

As a member of the World Trade Organization (the WTO) and as a party to various
regional free trade agreements throughout the GCC, the UAE has low rates of tariffs.
Import duties are normally charged on products imported into the UAE (outside of the
free zones), at rates that can vary according to the nature of the import (e.g., higher
duties apply to alcohol and tobacco products). The duty may be alleviated by exemptions
based on the importers status (e.g., free zone entity, majority owned by a GCC national,
etc.) or exemptions based on the type of product. Generally, foreign parties cannot import
goods into the UAE for the purpose of resale, other than a free zone entity directly for
sale within the relevant free zone or for its own use. Note that there is a 5 percent export
duty for all goods leaving the Jebel Ali Free Zone for Dubai.
There are no duties or tariffs on exports.
The UAE imposes a boycott of trade with Israel.

(iii) Foreign Exchange Controls & Anti-Money Laundering

The UAE does not generally have any currency exchange controls and restrictions on
the remittance of funds. Further, free zone entities are generally expressly permitted to
repatriate 100 percent of their profits from the UAE in accordance with regulations in
place in their respective free zones.
The UAE has recently strengthened its laws relating to the use of criminal proceeds
and terrorist financing activities. As the GCC is a member of the global Financial Action
Task Force (the FATF), the UAE has implemented anti-money laundering procedures
to meet the standards of the FATF. The various free zones also generally have rules on
preventing money laundering. For example, the DIFC requires companies incorporated
in the DIFC to appoint a senior manager as a money laundering reporting officer and to
submit an annual report detailing steps that such company has taken to implement its
anti-money laundering rules.

(iv) Bribery and Anti-Corruption

The UAE has ratified the United Nations Convention against Corruption and has enacted
federal and emirate level legislation to target bribery and corruption.
Bribery of a UAE public official (such term includes all customary government and
ministerial positions and also covers employees of state-owned companies or partially
state-owned private companies) is an offence in the UAE. This applies equally to
the public official and those who offer, accept and facilitate bribes, whether or not
they actually benefit from the bribe. Private sector bribery within the UAE is similarly
prohibited, however the legislation only applies to the person accepting the bribe, not the
person offering or facilitating the bribe. Penalties for bribery can include forfeiture of the
bribe, up to 10 years in prison and fines commensurate with the amount of the bribe.

(v) Taxation
There is no federal corporate or income tax levied in the UAE (except on oil companies
and banks). Certain emirates, including Dubai under the Dubai Income Tax Ordinance
of 1969, have introduced a local income tax; however, these taxes have not been
implemented as of the date of this memorandum. In addition, free zone entities may
be able to benefit from formal tax holidays for periods of up to 50 years (renewable 15
year holidays are common). The UAE has tax treaties (concluded with a number of

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jurisdictions (including GCC countries) which UAE nationals and locally incorporated
entities can benefit from. Currently, there is ambiguity regarding whether, under the laws
of other GCC states whether free zone entities should qualify for the favourable tax
treatment usually afforded to other GCC nationals/GCC-incorporated entities, particularly
where such entities are not majority or wholly-owned by UAE nationals.
There is currently no value added tax or sales tax in the UAE, although the imposition of
a GCC-wide value added tax has been widely discussed for the last several years.
There are also currently no federal personal taxes of any kind in the UAE i.e. no
federal income tax, capital gains tax or inheritance tax. Certain municipality taxes are
levied at the emirate level on designated services.
It should be noted that, while there are generally no direct taxes in the UAE, there are a
number of indirect taxes in the form of government fees. These include land transfer fees
and fees payable to the notary public (since most corporate transactions, including share
transfers generally require the involvement of the public notary or other official body to
grant registration). In addition, certain transfer fees are applicable in the free zones. For
example, the transfer of shares in a free zone establishment (FZE) in the Jebel Ali Free
Zone is subject to a transfer fee of a minimum of AED 20,000 subject to a maximum of
AED 50,000.

(vi) Employment Law

Employment in the UAE is governed by the UAE Labour Law, Federal Law No. 8 of
1980, as amended, which imposes certain minimum standards on employing juveniles,
working hours, vacation and public holidays, sick leave, maternity leave, employee
records, safety standards, termination of employment and end of service gratuity
payments. In January 2011, the Ministry of Labour and Social Affairs introduced, for the
first time, a minimum wage limit for different categories of workers. Employee grievances
are handled by a special programme run by the Ministry, and the Ministry must also be
informed if an employee is subject to the disciplinary code. Pensions and social security
schemes in the UAE are governed by the Pensions & Social Securities Law, Federal Law
No. 7 of 1999, as amended.
Some free zones have their own employment laws and employee grievance procedures
although, generally speaking, these mirror the provisions of the UAE Labour Law. In
some free zones, for example the DIFC, the free zones laws will take precedence over
the federal employment laws.
Most employees working in the UAE, including in the free zones, have written contracts
of employment. The Ministry of Labour requires a standard form contract of employment
to be entered into and filed with the Ministry of Labour. Many employers also enter
into further, more comprehensive employment contracts with their employees. Written
contracts of employment are certainly advisable for any business in the UAE. There is
no employment at will in the UAE (the UAE Labour specifies minimum notice periods for
termination of employees).
Since September 2009, all institutions registered under the Ministry have been required
to make all payments of their workers wages and salaries through the Wages Protection
System. This involves the transfer of monies through a few selected financial institutions
that are authorised and regulated by the government. The Wages Protection System
does not apply to some free zones, for example the DIFC.
UAE federal law also sets out preferences for hiring UAE nationals and, for some
administrative positions, requires that only UAE nationals be employed (e.g., public
relations officers who liaise with the government at large companies, attorneys appearing
in the courts, etc.). If a non-free-zone company has more than 50 employees, it must

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employ a minimum percentage of UAE nationals in accordance with the Emiratization

policy of the UAE Federal Government as originally expressed in Council of Ministers
Order No. 259/1 of 2004 entitled Resolutions on Training and Employment of UAE
Citizens in the Private Sector (the Resolution). The Emiratization policy applies to both
the public and the private sector, and both local and international companies operating in
the UAE are subject to the Emiratization policy in the sectors for which such guidelines
have been formulated. The Emiratization policy quotas are higher in the public sector,
and have recently been amended for the private sector to require a blanket 15 percent
quota of UAE national workers, across all private sector industries. The Resolution
principally tasks the National Human Resources Developing and Employing Authority and
the Ministry of Labour with developing further Emiritization guidelines.
A key provision of UAE federal employment law is a requirement to pay a statutory end
of service gratuity (ESG) to employees upon termination of their employment. The ESG
regime in the UAE takes the place of a formal pension regime. ESG is calculated at a
rate of 21 days salary per year for the first five years service and 30 days for each year
thereafter, up to a maximum amount of ESG equal to two years salary. ESG is payable
as a lump sum on termination of employment. The DIFC has its own ESG regime, which
is broadly similar to that applied in the wider UAE. Share incentive schemes are not
common in the UAE.

(vii) Immigration
As a country with a very high percentage of expatriates (85 percent to 90 percent of
the total population) and visiting tourists, the UAE is generally accommodating to legal
immigrants and visitors. Visas are available for business and tourists visits, transit and
residency, and in the majority of cases, an attorney is not required to handle processing
of visas.
Visitors from approximately 33 countries (including the US and UK) can obtain visit
visas upon arrival at an airport in the UAE for no cost. Visitors from other countries can
typically obtain tourist visas from certain hotels or tour operators. Business visitors can
be sponsored by an employer with a business license (e.g., a branch or representative
office, free zone entity, entity under the Companies Law, etc.). Nationals of the other
GCC states do not require a visa.
Employers can obtain residency visas, which last for three years, for a certain number of
employees, as determined by the federal government in relation to particular industries.
For entities located outside of the free zones, employers must register the employment
contract with the Ministry of Labour and Social Affairs before a residency visa can be
issued. In most free zones, the sponsor of each employee is the free zone itself and the
free zone interacts with the federal government directly, which makes the process more
efficient. Once a residency visa is obtained and the employee earns a certain salary, the
employee may sponsor his or her family for immigration, provided that he or she earns a
minimum of AED 4,000 per month.

(viii) Real Property

Except in certain designated freehold areas or certain free zones, real property may
only be owned by UAE (or GCC in certain emirates) nationals or entities that are wholly
owned by such persons. Most foreign residents and foreign businesses lease their
homes and office spaces. However, JAFZA offshore companies are the only offshore
structures permitted to own properties within Dubai and be delivered a title deed.
However, if the JAFZA offshore company is owned by a foreigner then it may still only
own property in certain designated areas.

10

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Entities operating outside free zones are permitted to lease space in the UAE upon
registration as a locally incorporated entity or as a branch or representative office. For
entities operating within free zones, registration within free zones entitles and in most
cases requires one to apply for a lease or freehold from the free zones real estate
authority.

(ix) Intellectual Property

UAE law recognises a broad range of national intellectual property rights, which are
similar in form to those under the UK, European and US systems. By virtue of the UAEs
membership of certain worldwide conventions on intellectual property (e.g. the Madrid
Convention, the WTO, TRIPS, Patent Cooperation Treaty 1970 (the PCT), etc.), there is
also recognition within the UAE of worldwide intellectual property rights. Registration of
intellectual property is handled by the federal Ministry of Economy.
(a) Patents (or Industrial Property)
Patents are protected under the UAEs Industrial Property Law (Federal Law No. 17
of 2002), as amended by Federal Law No. 31 of 2006. The UAE operates under two
systems, the Patent Cooperation Treaty system for domestic patents and the UAE is
also part of the GCC Patent system which provides a mechanism for regional filings of
patent applications within the GCC countries. The GCC is not part of the PCT system,
so patent applications of local interest only should be filed through the GCC system.
The number of patents registered in the UAE annually is very small, and as the UAE
is an importing country, infringement issues are usually dealt with in the US or Europe.
However, it is possible to register patents in the UAE to maximise protection. Obtaining
a grant is expensive and takes a long time, because the examination for patentability is
outsourced. Infringers of patents registered in the UAE are subject to limited damages,
fines and possible imprisonment.
(b) Copyrights
Federal Law No. 7 of 2002 Concerning Authors Rights and Neighboring Rights gives
copyright protection to a wide range of works. Copyrights are protected in the UAE in
accordance with widely accepted international conventions, though there are some
areas (notably in the area of ownership of employee works and the assignment of
future copyright) where UAE law diverges from international norms. For employers it is
important to ensure that copyright works such as software are written by more than one
author so as to avoid the worst consequences of the law limiting the assignment of future
copyright. Before suing under copyright it must be registered. This is largely to establish
title. In the court system, enforcement is based on criminal law principles, which means
that fines are levied, which are often inadequate, but injunctions against future conduct
are not awarded. Damages are per consignment before the court and not generally for all
infringement, and therefore are inadequate.
(c) Trademarks and Trade Names
Federal Law No. 37 of 1992 (as amended by Federal Law No. 19 of 2000 and Federal
Law No. 8 of 2002) gives protection to both trademarks and trade names. Trademarks
and the applications procedures are slow and expensive and not computerised, so
searching is difficult. Registered trademarks are a federal right but business names
are dealt with locally by each emirate, which makes for multilayer protection and
enforcement. The UAE trademark office does not allow filing of multi-class applications
for trademarks. Dubai customs seems to have efficient means of border control, but the
other emirates are less well equipped. In the court system, enforcement is based on
criminal law principles, which means that fines are levied, which are often inadequate,

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11

but injunctions against future conduct are not awarded. Damages are per consignment
before the court and not generally for all infringement, and therefore are inadequate.
There is some discussion about reforming civil procedures.
(d) Confidential Information
UAEs Industrial Property Law (Federal Law No. 31 of 2006), which deals also with
patents and industrial designs, specifically protects trade secrets. The UAEs general
contract law, unfair competition law and various confidentiality provisions in specific
areas of law (e.g. employment law) also protect know how and confidential information.
The absence of a uniform trade secrets law means that there is a degree of uncertainty
as to protection of these rights under UAE law. A particular problem is that the statute
for protecting confidential information is also the statute that protects patents, which
results in conflicts in attempting to resolve competing rights. Consequently the best
protection is through contracts with employees and third parties, and this does seem to
be enforceable. In recent years, both the DIFC and the Ministry of Economy have looked
at issuing a separate draft law on trade secrets, but at the time of writing, neither law
has been enacted. UAE Courts will generally act to prevent the confidential information
of one party being used or disclosed by another party, especially where there are
contractual relations, including contracts of employment.

(x) Data Protection and Privacy

While the UAE constitution and certain federal laws recognise an individual right to
privacy in specific circumstances, the UAE has not established a federal data protection
regime of the type found in jurisdictions such as Australia, the European Union or Hong
Kong.
Notwithstanding the absence of federal laws, the DIFC and Dubai Healthcare City
free zones have both enacted data protection laws and regulations that regulate the
processing, storage and transfer of personal data.
In addition, certain other federal and local laws apply to the security and processing
of personal data in certain circumstances, including in relation to employee records,
financial information, electronic commerce, communications, healthcare and cybercrime.

(xi) Governing Law

Jurisdictions which have, and rely upon, large bodies of case law (particularly common
law jurisdictions such as the US and England) tend to have more developed bodes of
commercial and corporate law than the UAE. The same is true, to an extent, of other civil
law jurisdictions as well. Laws and cases in the UAE tend not to be as readily available,
or available with reliable English translations, as in these other jurisdictions. Accordingly,
where a foreigner is entering into contracts with a party located in the UAE (other than an
entity connected to federal or emirate governments), it is quite common to see non-UAE
law selected and there is a notable tendency to select English law (or, in some instances,
New York law or the laws of another US state) as an alternative.
Care should always be taken to ensure that the selection of a governing law is made
expressly, that the selection of a governing law extends to non-contractual obligations
arising out of or connected to the relevant contract (where appropriate) and that the
selection and/or the law itself will be recognised in any enforcement action in the UAE.
Parties should also be aware that the selection of a non-UAE law will not prevent
mandatory rules of UAE law impacting on contractual obligations in some circumstances
(especially where contractual obligations are performed in the UAE or where
enforcement is sought in the UAE).

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While it may be helpful as a matter of practice to include such provisions, there can be
no assurance that a foreign jurisdiction or arbitration clause would be recognised by
the UAE courts in practice. The Civil Code and general law in the UAE gives the UAE
courts broad powers to hear and adjudicate matters involving a UAE party, and there is
therefore inevitably a risk that a UAE court could purport to take jurisdiction over a matter
despite an express provision providing for an alternative jurisdiction. UAE legislation
provides that the UAE courts have jurisdiction to hear actions brought against UAE
nationals, UAE corporate entities and foreign citizens having an address or place of
residence in the UAE, irrespective of any agreement between the parties in respect of
jurisdiction and applicable laws.

(xii) Dispute Resolution

(a) Arbitration
International arbitration is the preferred method of dispute resolution for cross-border
transactions relating to the UAE. The primary reason for that, and one of the key features
of international arbitration, is the relative ease with which arbitral awards can be enforced
in countries around the world. That is thanks to the 1958 New York Convention on
the Recognition and Enforcement of Foreign Arbitral Awards, to which well over 140
countries are a party. The UAE acceded to the New York Convention in 2006, which
means that foreign arbitral awards should be as easily enforced within the UAE as
UAE arbitral awards. As a result, many parties doing business in the UAE (both foreign
and locally based) tend to refer any disputes arising out of or in connection with their
contracts to final and binding arbitration.
(b) Dispute Resolution Options in the DIFC
Recently, the DIFC Courts jurisdiction has been significantly expanded to include
jurisdiction over matters which are referred to the DIFC Courts by private parties on a
consensual basis, whether or not such parties are DIFC-domiciled entities, in addition
to jurisdiction over all matters pertaining to the parent companies of DIFC registered
branches.12 The practical effect of these changes is to enable non-DIFC persons to opt
in to the jurisdiction of the DIFC courts, including through the inclusion of forum selection
clauses in ordinary commercial contracts and finance documents, irrespective of a nexus
to the DIFC.
A common concern that remains with respect to DIFC court judgments is the procedure
for enforcement of those judgments. At least within Dubai and the UAE, however,
there are established procedures and codified guidelines which ensure DIFC court
judgments will be adequately enforced by the courts of Dubai or the other emirates of
the UAE. Pursuant to the Protocol of Enforcement between the Dubai Courts and the
DIFC Courts (the Protocol of Enforcement), all judgments, orders and awards issued or
certified by the DIFC courts (for example, in the instance of the certification of a DIFCLCIA arbitration award13) will be enforced by the Dubai Courts provided that the relevant
judgment or order has been translated into Arabic and constitutes a final judgment.
Crucially, the judge recognizing and executing the judgment at the Dubai Courts has
no authority to review the merits of an order or judgment during any enforcement
proceeding. The procedure established by the Protocol of Enforcement essentially
facilitates the conversion of a DIFC court judgment into an order of the Dubai Courts.
Thereafter, automatic enforcement can be achieved not only onshore in Dubai, but in
the other Emirates of the UAE, who as a constitutional matter are required to enforce the
orders of the courts of other Emirates within the union.

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APPENDIX 1
Nevertheless, it remains an open question as to whether the courts of other GCC states
will similarly enforce an order of the DIFC Courts that has been converted into a Dubai
Court judgment by virtue of the Protocol of Enforcement. In theory, there is a treaty
based instrument which should support pan-GCC enforcement the GCC Convention
for the Enforcement of Judgments and Judicial Notices and Delegations (the GCC
Convention). This provides that all member states shall ensure that their domestic courts
enforce the final judgments of the courts of other member states. However, the GCC
Convention authorizes the courts of member states to reject enforcement if the judgment
in question is deemed to be contrary to the provisions of Islamic Sharia, the provisions
of a member states constitution or public order.

Pros and Cons of Means to Set Up a Legal Presence in the UAE

Means

Pros

Cons

Incorporating a Limited
Liability Company (under
the Companies Law)

Allows entity to conduct a broad range of activities in

all of the UAE (other than in the free zones).

At least 51 percent of the companys capital has to be

owned by UAE nationals. However, the foreign owner
may seek the following protections in the constitutional
documents:

Allows entity to conduct business with federal and

local governmental bodies (without the involvement
of a commercial agent or national agent).
Separate legal entity from its foreign owner.

The right to appoint all of the directors

The right to appoint the general manager
The right to veto major decisions

(xiii) New Competition Law

The right to all of the assets of the company on a

winding up

On 23 February 2013, the new Competition Law14 came into force in the UAE, although
there is a six-month transitional period expiring on 23 August 2013. The Competition Law
applies to enterprises (any natural or legal person or consortium) engaging in economic
activity or holding intellectual property rights in the UAE. Where economic activity occurs
outside the UAE but has the ability to affect competition in the UAE, these practices and
agreements will also be subject to the Competition Law.
A number of entities and sectors are excluded from the legislation, including federal and
local governments, state-owned enterprises and small and medium sized enterprises.
The following sectors have also been carved out of the legislation: telecommunications,
financial services, cultural activities, pharmaceutical, utilities, waste disposal,
transportation, oil and gas, and postal services.

The right to more than 49 percent of the profits16

Can take up to several months to set up. Certain
licenses, e.g. for industrial activities, will take longer.
Must employ a specified number of UAE nationals if
employ more than 50 people and fall within the scope of
the Emiritization guidelines.
No general minimum capital requirement.
Opening a Branch Office

Quicker than incorporating a local entity.

More activities permitted than for a representative
office.

The structure of the Competition Law is similar to the regime in the European Union,
broadly covering: (i) restrictive agreements (including those that price fix and limit the
free flow of goods), (ii) abuse of dominance, and (iii) merger control.15

A branch office may only engage in activities that do

not constitute commercial business, which typically
means that branch offices are limited to professional
activities (although an exception has developed
in practice for branches engaged in the sale of
products manufactured by its parent company).
Not a separate legal entity from the foreign owner.
Must engage a UAE national agent to act as a
service agent who will handle sponsorship and
government paperwork.

Fines will be imposed where the Competition Law is not followed or breached, and
where companies repeatedly breach the law, such penalties may be doubled. In addition
to the imposition of fines, the courts have the discretion to shut down establishments
found in breach of the law for a period of between three to six months.

Limited to employing the number of foreigners

permitted under its business license.
Opening a Representative
Office

Quicker than incorporating a local entity.

May only handle marketing and administrative

functions on behalf of a foreign parent.
Not a separate legal entity from the foreign owner.
Must engage a UAE national agent to act as a
service agent who will handle sponsorship and
government paperwork.
May only employ up to three or four foreigners.

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APPENDIX 1

APPENDIX 2

Pros and Cons of Means to Set Up a Legal Presence in the UAE

Companies Law and Free Zone Entities

Means

Pros

Cons

Type of Entity

Setting up a Free Zone

Entity17

100 percent foreign ownership permitted.

Generally, a free zone entity is permitted to conduct

business solely within its relevant free zone and
limited to performing solely those activities specified
in its license.18

Limited Liability
Companies19

Private Joint Stock

Company20

Public Joint Stock

Company21

Joint Participation
Ventures22

Minimum Ownership
percent for UAE
Nationals24

51 percent.

51 percent.

51 percent of shares26 (pre

and post-public issuance).

51 percent of capital must

be contributed by the
local partner

Liability

Limited

Limited

Limited

Joint

Minimum Capital
Requirement

No requirement

AED
2,000,000

AED 10,000,000

No requirement

Number of Founding
Members/Partners

Two to 50

At least three

Three to 15

At least two

Management or Director
Restrictions
(by Nationality)

No restrictions

Chairman must be a UAE

national

Chairman must be a UAE

national

No restrictions.

Majority of directors must

be UAE nationals

Majority of directors must

be UAE nationals

Geographical proximity to entities carrying out similar

activities.
Commitment to zero taxes for a period of at least 15
years (renewable for an additional 15 years).
Full repatriation of profits and capital expressly
permitted.
Sponsorship process for employees is streamlined
through the free zone authority.

Each free zone authority is limited in the scope of

activities it may authorise (e.g., only licenses for
media and IT services in the Dubai Media City, etc.)
Many free zones require an actual physical presence
in the free zone (e.g., leasing office space and at
least one employee).
It is difficult and expensive to obtain space in the
popular free zones (e.g., DIFC, Sharjah Airport
International Free Zone).

Commercial Agency
Relationship

Does not require establishment of a physical

presence in the UAE.

Third party handles all aspects of the foreign

business in the UAE.
Once a commercial agency contract is registered
with the Ministry of Economy and Commerce:
Exclusivity registered commercial agents have
the exclusive right to import the goods which are
the subject matter of the agency.
Commissions registered commercial agents are
entitled to receive commissions on the sales they
make as well on sales made in the UAE by the
principal or any other party.
Termination the principal may only terminate
a registered commercial agent for material
reasons. Further, a principal may not refuse to
renew a commercial agency agreement after its
expiry date without the payment of compensation
to the registered commercial agent.

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APPENDIX 2
ENDNOTES

Simple Limited
Partnerships

Partnership
Limited with Shares

General Partnerships23

Free Zone
Establishments24

Free Zone Companies

Must have at least one

general partner who is a
UAE national

Must have at least one

general partner who is a
UAE national

100 percent.

None. Can be 100

percent non-UAE owned

None. Can be 100

percent non-UAE owned

Limited partners can be

both UAE and foreign
nationals

Limited partners can be

both UAE and foreign
nationals

Joint for UAE nationals

Joint for UAE nationals

Limited for foreign

nationals

Limited for foreign

nationals

No requirement

AED 500,000

1 The UAE federal constitution was established as a temporary legal framework for the union
of the seven emirates in 1971. In 1979, a draft permanent constitution was prepared which
provided for the unification of the judicial systems and armed forces of each of the individual
emirates into combined federal entities. Dubai refused to accept the unification of either its
courts or military forces under a federal umbrella until 1996, when it acceded to the unification of
military forces only. The UAE federal constitution was permanently accepted by Dubai and the
other emirates after the unification of military forces in 1996. Dubai continues to maintain its own
court system which is not subject to oversight from the Supreme Court of the UAE.
2 These business activities (and the relevant government agencies) include, among others, the
following: industrial projects (Ministry of Finance and Industry), engineering consultants and
related technical services (municipality authority of the relevant emirate), law firms (Rulers
Court of the relevant emirate), banking and financial services (UAE Central Bank), recruitment
agencies (Ministry of Labor and Social Affairs); sea cargo, freight forwarding and cargo clearing
(Department of Ports and Customs).

Joint

No requirement

Limited

AED 1,000,000

Limited

AED 500,000

3 There is an exception to this general rule for entities that are (a) specifically exempted by
the federal Cabinet of Ministers from the requirements set forth in the Companies Law; and
(b) operating in any of four sensitive industries: oil and gas, electricity and gas production,
water treatment and transmission, distribution or other related activities thereof. Entities under
subsection (a) are subject to specific requirements imposed by the federal government, and
those under subsection (b) are subject to specific requirements imposed by the relevant emirate
(and federal government), on an ad hoc basis.
4 Certain activities, even if carried out by professional services companies, are restricted to
UAE nationals and companies wholly owned by UAE nationals (e.g. real estate agency and
brokerage activities, and education activities).
5 The UAE Federal Government issued a Federal Decree on 10 August 2009, amending Article
227 of the Companies Law. The amendment applies retroactively to limited liability companies
set up on or after 1 June 2009.
6 The amendment to Article 227 impacts certain other provisions of the Companies Law.

At least two

At least three

At least two

One

Between two
and five

Must be managed solely

by UAE nationals

Must be managed solely

by UAE nationals.

Must be managed solely

by UAE nationals.

No nationality requirements
however at least one of the
directors and the company
secretary must be resident
in Dubai

No nationality
requirements however at
least two of the directors
and the company
secretary must be
resident in Dubai

Article 255 of the Companies Law requires a limited liability company to retain 10 percent of
its net profit in each year in order to create a statutory reserve, thus leaving the remaining 90
percent of profits to be distributed as dividends. Once the statutory reserve amounts to half of
the share capital of the company, the shareholders may suspend the retention of such profits,
thus allowing all future profits of the company to be distributed as dividends. If a limited liability
company is established following the above legislative amendment with a minimal share capital,
it is likely that the shareholders will have a larger pool of funds to be distributed as dividends, as
the retention of half of the share capital ought to be easier and quicker to attain.

Article 289 of the Companies Law, which relates to the dissolution of a limited liability company,
provides a trigger event for dissolution by the shareholders if the company sustains losses
amounting to one half its capital. Any new limited liability company incorporated with a minimal
share capital amount may easily reach the losses prescribed in this Article resulting in the
winding up of the company (unless the shareholders elect to recapitalise the company).

7 UAE Ministerial Cabinet Resolution No.229/12 of 2007.

8 However, there is a growing practice in Dubai whereby local service agents are not required in
certain circumstances.
9 The relevant licence will be issued by the free zone authority regulating the free zone in which
the company is incorporated. In certain instances, a free zone entity may be able to apply for
an additional licence from a UAE authority that has jurisdiction outside of the free zone (for
example, the Dubai Department of Economic Development) if it is conducting certain kinds of
permissible business in a particular emirate outside of the free zone of incorporation.
10 The 2010 amendments to the UAE Commercial Agencies Law strengthen the protection
afforded to UAE nationals agents. The 2010 amendments remove the concept of a principal
being able to unilaterally deregister a fixed term agency arrangement upon expiry of the fixed
term.

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19

11 The Commercial Agencies Committee is a special committee, reintroduced by the 2010

amendments to the UAE Commercial Agencies Law, that is charged with the duty of reviewing
terminations of agency arrangements.
12 Dubai Law No.12 of 2004 as amended by Dubai Law No.16 of 2011.
13 The Protocol of Enforcement extends to arbitral awards issued by the DIFC-LCIA, however,
these awards must first be ratified by the DIFC courts before being enforced by the Dubai
Courts.
14 Federal Law No.4 of 2012
15 In respect to merger control, at present the Competition Law contains a market share test,
however, the precise threshold has yet to be determined by the UAE Cabinet. The expectation is
that this will follow later this year.
16 Refer to section B(i)(b) above.
17 In most free zones there are three permitted forms that a free zone entity can take: a free zone
company, a free zone establishment and a free zone branch. A free zone establishment and free
zone company are required to have minimum capital of at least AED 500,000 in some free zones
(and a higher threshold in others). Typically, a free zone company must have more than one
owner whereas a free zone establishment may have a single owner. A branch has no minimum
capital requirement, but is more limited in the types of activities that it may conduct as compared
to the free zone establishment or free zone company.
18 Free zone entities with service licences have been known to provide services outside of
their free zone. Free zone entities with trading or industrial licences generally require a local
distributor or commercial agent to sell goods outside the free zone and within the UAE.
19 This is the preferred form of entity for foreigners wishing to enter the UAE (outside of a free
zone). This is primarily because of the relatively small capital requirements and the flexibility to
decide how management decisions will be made and how profits will be distributed, irrespective
of the foreigners equity holding. One important limitation is that it cannot be used to transact
the following activities: banking, insurance or investment for a third party, which are restricted to
public joint stock companies.
20 The rules governing a private joint stock company are the same as the rules governing the
public joint stock company, except that public joint stock companies are permitted to issue
securities to the public.
21 The UAE federal government has encouraged certain high-profile projects to be undertaken
via a public joint stock company in order to allow the issue of shares to the public. Further,
any company carrying on banking, insurance or investment for a third party must be a public
joint stock company. Note that in the case of some listed public joint stock companies, higher
local ownership restrictions may be imposed or may be included in the companys articles of
association.
22 Joint participation ventures are often formed by foreigners who wish to set up in the UAE on a
short-term basis to carry out a specific project, often with government bodies. Each participant
in the venture will generally conduct business in its own name. The major drawback of a joint
participation venture is that the liability of the participant who is conducting business is unlimited.
In addition, if the liability of other participants is disclosed to third parties, each participant will be
liable to third parties as if it were a general partner.
23 Foreigners are not permitted to join a general partnership.
24 There are general requirements as each free zone will have individual rules and regulations.
25 GCC Nationals may own 100 percent of entities incorporated in the UAE as a matter of law.
26 At least 20 percent and no more than 45 percent of the initial capital must be owned by the
founders.

20

Latham & Watkins | Doing Business in the United Arab Emirates

For more information, please contact Villiers Terblanche, Ahmad Anani

or your Latham representative.
Villiers Terblanche
Office Managing Partner
+971.2.813.4848
villiers.terblanche@lw.com

Ahmad Anani
Deputy Office Managing Partner
+971.4.704.6350
ahmad.anani@lw.com

Al-Mirsal
Please visit www.al-mirsal.com to view Lathams Middle East blog,
which is produced in English and Arabic and highlights industry and
legal developments relevant to the region.

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