Doing Business in Dubai

1. Introduction

There are many ways in which foreign entities (individuals or companies who are not nationals of the UAE) can seek to establish a business presence in Dubai. In the following summary of a recent article by Jerry Parks of legal consultants Taylor Wessing, we provide a useful guide to the options available.

2. Methods of doing business

The principal ways by which a foreign entity might consider establishing a business presence in the UAE are by means of –

A branch or representative office of a foreign company,
A limited liability company
A professional partnership
A Free Zone entity

Except in relation to Free Zone entities, it is generally necessary to enter into some form of agreement with a UAE national or a company wholly owned by UAE nationals.

2.1 Branch or representative office

It is possible for a foreign company to establish:-

A federally registered branch
A federally registered representative office
A locally registered branch office

Federal registrations fall within the jurisdiction of the UAE Commercial Companies Law whereas local registrations fall within the jurisdiction of the relevant Local Order applicable in each Emirate. The distinction lies in the fact that under the federal jurisdiction either a trading branch office or non-trading representative office license may be obtained, whereas under local jurisdiction only a non-trading branch office license may be obtained.

2.2 A Limited Liability Company

The most common form of commercial company adopted by foreign companies is the Limited Liability Company. The law currently provides that in most cases at least 51% of the total shareholding in a limited liability company must be held by a UAE national (or a company wholly owned by UAE nationals). There are exceptions providing that certain activities, such as real estate-related businesses, can only be conducted by entities that are 100% locally owned. A reduction in this minimum local shareholding requirement is anticipated to be enshrined in the new Commercial Companies Law, but a timetable for the issue and application of that law has not yet been fixed.

2.3 Professional Partnership

Professional business is defined as ‘work based on investing mental talents and acquired information.

The conduct of professional business is governed by Local Orders in each Emirate. If a non UAE national person or a corporate body wishes to conduct professional business, a UAE national local service agent must be appointed.

2.4 A Limited Liability Company

The UAE boasts several Free Zones. The attraction for some of establishing an entity in one of these areas is that there is no UAE national shareholding requirement. The Free Zone authorities also generally guarantee investors that they will not be liable for corporation tax for a specific period of time. Free Zone entities are not liable for import or export duties for goods imported into and exported out of the Free Zone.

A Free Zone entity can take one of four forms

A branch office of a foreign company
A Free Zone establishment
A Free Zone Company
A Free Zone Offshore company (in Jebel Ali Free Zone only)

3. Intellectual Property

Considerable progress has been made in the protection of intellectual property rights in the UAE. In early 1993 three federal intellectual property laws were implemented, namely the Trade Marks Law, the Patents Law and the Copyright Law. The UAE has become a party to the Paris Convention for the Protection of Industrial Property (1996), the TRIPS Convention (1997) and the Patent Cooperation Treaty (1998). These laws afford protection to owners of marks and works by the imposition of criminal sanctions on persons who seek to counterfeit, imitate or use without consent the marks or works of others. Furthermore, penalties such as fines, imprisonment or, in certain cases, the closing down of establishments or companies in breach or the confiscation or destruction of goods are prescribed by these laws.

The Ministry of Economy & Commerce is responsible for the registration of trade marks, the Ministry of Finance & Industry is responsible for the registering of patents, designs and models and the Ministry of Information and Culture is responsible for the registration of copyright works.

The periods of initial protection vary - 10 years for trade marks, 20 years for patents, 10 years for designs and models and the life of the author (50 years plus) plus 50 yrs for copyright works.

Assignments and licences of intellectual property are recognized under the law provided that any such assignment or licence is registered with the concerned authority. Furthermore, the Patents Law expressly allows for pledges of patents and for such pledges to be noted on the register. It has also become possible to mortgage copyrights.

With the rapid growth of e-commerce, many countries have created a separate register for the registration of domain names. In the UAE the United Arab Emirates Network Information Centre is the local registry of top and second level domain names. In addition, the Ministry of Economy & Commerce has intimated that it will accept applications to register domain names in the same manner as for trademarks.

4. Employment Law

In the following article, Jerry Parks of legal consultants Taylor Wessing, provides a useful guide to employment laws in the UAE.

Employment contracts and relations in the UAE are subject to and governed by Federal Law No. 8 of 1980 (as amended by Federal Law No. 12 of 1986). This law applies to all employers and employees in the private sector and relates to all companies formed under the UAE Commercial Companies Law, branch and representative offices of foreign companies and owners of sole proprietorships operating in the UAE.

Contract - The basic information to be included in a labour contract is as follows:

date of commencement;
nature of the work to be performed;
location in which the work is to be performed;
duration of the contract (fixed term or open ended);
amount of salary; and
Date of execution of the contract.

Probation - A probation period may be agreed not exceeding 6 months during which the contract may be terminated without notice and without end of service benefits becoming payable to the employee.

Termination - The situation regarding the termination of labour contracts differs according to whether it is fixed term or open-ended:

In the case of fixed term contracts termination may be effected by the employer prior to the expiry of that term on one month's notice. In those circumstances compensation is payable to the employee in the amount of that employee's salary for a period of 3 months or the remainder of the term of the contract, whichever is the lower. The employee is also entitled to gratuity.

In the case of open-ended contracts termination may be effected by the employer on giving one month's notice with no compensation payable to the employee. However, the employee is still entitled to gratuity.

Gratuity - The calculation of gratuity differs according to whether the contract is for a fixed term or is open-ended:

In the case of fixed term contracts, employees who complete at least one year's service are entitled to gratuity at the end of their contractual service period or upon earlier termination by the employer calculated as follows:

21 days salary for each of the first 5 years; and
30 days salary for each additional year.

An employee who resigns before the expiry of his contractual service period is not entitled to gratuity unless he has completed 5 years continuous service in which case he is entitled to full gratuity for the whole employment period.

In the case of open-ended contracts where the employee has completed at least one year's service, if that employment is terminated by the employer the employee is entitled to gratuity calculated as follows:

21 days salary for each of the first 5 years; and
30 days salary for each additional year.

An employee who resigns after completing one year's continuous service under an open-ended contract is entitled to a proportion of the gratuity set out above calculated as follows:

Continuous service in excess of 1 year but not more than 3 years - 1/3 gratuity;
Continuous service in excess of 3 years but not more than 5 years - 2/3 gratuity;
Continuous service more than 5 years - full gratuity.

Summary dismissal - The law sets out certain circumstances in which an employer may summarily dismiss an employee without payment of compensation or gratuity. These include failure to carry out basic duties notwithstanding warnings, disclosure of trade secrets, committing of criminal offences and being drunk or otherwise intoxicated during working hours.

It is not uncommon for expatriate employees working in the UAE to have parallel labour contracts - i.e. their existing UK contract subject to a UK governing law and a separate short form of UAE contract subject to UAE law entered into for the purposes of filing with the Ministry of Labour. The UAE courts will however regard as null and void any agreement, which purports to deny the employee, the minimum protection set out in the UAE Labour Law. Whilst in some circumstances the entering into of parallel employment contracts cannot be avoided, we would advise that in relation to employees hired specifically to work in the UAE, they be employed locally on UAE contracts tailored to suit the employee's position.

5. Work permits and residence visas

6. Taxation

7. Property

We hope that this brief summary is helpful to those considering establishing a business presence in Dubai. Needless to say, this article can only serve as a guide, and specific legal advice must be taken in relation to any proposed venture.

March 2005