UAE Corporate Law: A shifting Landscape

It all started when Federal Law No.2 of 2015 was enacted, amending the legal regime that governs local and foreign companies under Federal Law No.4 of 1984. These changes have impacted on several corporate practices including the governance of private and public companies, their legal structure, dissolution, liquidation, mergers and acquisitions, and applicable penalties. As the UAE financial markets were thriving to maintain a certain balance and companies were generally trying to mitigate their losses, a new legal framework was implemented with enhanced and more complex regulations.

Following that, the UAE transformed its tax policies and adopted a new set of laws to restructure the previous regime into a new model that all companies and businesses must abide by. With the exception of specific business sectors in certain emirates, the imposition of tax, as general rule, was something that local businesses were not accustomed to. This meant that for foreign investors, in addition to the obligation of partnering with local agents and sharing their profits, they would also have to move from a tax-free environment to a full integrated tax system in their year-end financial calculations.

With the coming into effect of the new tax legislations, a number of UAE free zones, where tax was not previously applicable, have now seen their situation change as not all of them were designated areas exempt from tax. For entities established in those free zones, they were/are able to benefit from all the previous corporate advantages, but are no longer exempt from, paying tax. However, another legislative step was taken in the capital, whereby the Abu Dhabi Department of Economic Development announced the launch of the first phase of a Dual Licenses Initiative, to enable companies operating offshore in the Emirate’s free zones to carry out their commercial activities onshore in Abu Dhabi. This means there will be no requirement to have a local agent or partner and for most of the businesses provides greater exposure to the mainland market.

In another step to make it easier for businesses to carry on their operations onshore, the legislator removed the obligation of having to lease premises for certain activity types, provided specific conditions were met. Tajer Abu Dhabi was originally launched by the Abu Dhabi Department of Economic Development in 2017 allowing Emiratis to establish businesses relating to 100 different activities without the need of physical presence. The electronic service also sped up the licensing process with licenses granted in only two steps; entering data and paying fees after a review of the application.

In July 2018, the Abu Dhabi Department of Economic Development announced another expansion of its Tajer licensing package by opening it up to all GCC nationals and UAE residents and increasing the number of eligible activities to 1,057, all exempted from having a physical presence. The Abu Dhabi Department of Economic Development also expanded the acceptable legal formats under the Tajer Abu Dhabi license to three: establishment and one-person company for Emiratis and GCC nationals, and limited liability company for residents in partnership with Emiratis.

The evolution of the country’s corporate laws did not stop there, very recently, a landmark law, Federal Law by Decree No.19 of 2018, allowing foreign investors to own 100 percent of companies in the UAE, limited to specific industries, was issued and is expected to be fully implemented by the end of 2018. This is the latest in a string of legislative developments aimed at stimulating the economic growth in the UAE.

The legal landscape has almost drastically changed over recent years for both onshore and offshore businesses, going from a demanding set of requirements to a flexible and commercial platform. It is certainly an important change, in the sense that, despite the difficult market conditions, a general balance is still in place to help out thriving businesses in mitigating their losses.