The United Arab Emirate (UAE) is a federation of 7 Emirates consisting of Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm Al Quwain and was formed in the early ’70s. Dubai which is one of the youngest emirates amongst all the UAE nations in the Middle East has a high proportion of expatriates employed in a wide range of industries. Despite being an oil-rich state, Dubai has diversified and developed each and every sector of the economy, becoming a regional and global center for business, trade, and finance.
Business opportunities in Dubai is immense, but at the same time there are various compliance needs which need to be complied with. Business setup in Dubai is a very convenient process and this is reflected in recent world banks, Ease of doing business the report, 2020, UAE is ranked at 16th position amongst 190 participating countries across the globe.
This achievement is due to ease of compliance after business setup in Dubai. In this article, we will closely understand the legal & regulatory system of compliance after business setup in Dubai.
LEGAL & REGULATORY FRAMEWORK
The legal system in the UAE is based on principles of civil code & the Shari’ah Law of Islam. Some of the key sources of legal & regulatory framework include:
- The UAE Constitution
- Federal laws and regulations
- Emirate laws and regulations
- Islamic Shari’ah principles
- Free zone regulations
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In addition, certain free zones, primarily the Dubai International Financial Center (DIFC) and the Abu Dhabi Global Market (ADGM), have their own laws and regulations.
On this basis DIFC and ADGM have common law jurisdictions, such laws are also supplemented by each state separately. ADGM has also implemented the Application of English Law Regulation in 2015.
The United Arab Emirates Constitution provides for the allocation of powers between the Federal government & government of each participating Emirate. In addition, the Constitution provides the federal framework and is the basis of all laws promulgated at the federal and emirate levels.
In line with the individual state constitution, the Federal government has exclusive jurisdiction in the matters of foreign policy, defense & security. Legislative rules at a Federal level have primacy over the local laws of each Emirate.
Some other business compliance referred to company incorporation in Dubai is:
1. Companies act regulations
Dubai Company act covers a wide range of requirements which needs to be mandatorily complied by all businesses before & after company incorporation in Dubai.
Before company incorporation in Dubai, a local or foreign investor must adhere to the following business requirements:
- acknowledge & comply with the Company Law and company registration in Dubai in accordance with its provisions
- Attach necessary documents to the Dubai Economic Department (DED) in accordance with the type of business.
- Obtain associated business licenses in accordance that relates to the nature of business
2. Foreign direct investment
The FDI Law of Dubai sets in new business opportunities in Dubai for various Startups & entrepreneurs. It also sets out a “negative list” of 13 sectors that includes insurance, water & electricity, land & airport services, and medicines. It also set out a “positive list” that the UAE Cabinet would promulgate to identify economic sectors and activities where up to 100% foreign ownership would be allowed.
122 business economic activities are sub-divided into 51 industrial activities, 52 service activities & agricultural activities filing the rest. Additional conditions are imposed on the items specified in the positive list that allows up to 100% foreign ownership such as:
- Minimum capital requirements.
- Obligations to employ advanced technology.
- Emiratisation of the workforce; an initiative by the UAE Government to employ its citizens in the public as well as private sectors.
3. Obtaining business license in Dubai
The government of Dubai has been pro-active in taking various steps to simplify the process of the company incorporation in Dubai & obtaining a business license.
The DDED, in partnership with UAE, has introduced a unique concept of getting a virtual commercial license which is being offered by the Dubai Virtual Commercial City. A virtual commercial license can be obtained by an individual (a foreign national who is a tax resident of a jurisdiction other than the United Arab Emirates) by registering a virtual company.
The legal form of the virtual company must be a sole establishment/proprietorship. A virtual company can obtain this license to conduct business in limited spheres, such as:
- Computer programming and IT consultancy.
- Designing activities such as fashion & jewelry design.
- Service activities relating to printing & advertising.
4- Economic substance regulations
The ES Regulations apply to all UAE onshore and free zone companies that are involved in any of the following business:
- Distribution and Services Centres.
- Investment Fund Management.
- Intellectual Property.
- Holding Company.
- Lease Financing.
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Appropriate business Entities should satisfy the test of economic substance in relation to each & every relevant activity carried out. Each Relevant Entity must annually report specified information on it to the designated authority which has issued the business license to demonstrate that it satisfies the economic substance requirements. Failure to meet the economic substance test results in significant penalties (financial or, ultimately, deregistration).
5. Labour & employment rules
The Labour Law Amendment act came into force in September 2019 and it affects the labour market in three important ways:
- Introduces general anti-discrimination provisions of employment.
- Amended provisions in Labour Law that previously accorded differential treatment to male & female employees.
- It enables further promotion of employment of Dubai nationals in the private sector.
6. Reporting requirements
An LLC must keep a record of names, nationalities, date of birth & domiciles of all shareholders, at their respective headquarters. The LLC must also maintain financial records that must be audited by a licensed auditor. Audited financial statements currently do not need to be submitted to any authority.
An LLC is required to annually renew its license and registration with the authorities.
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Chartered Accountant by profession, CA Sanket Agarwal has an experience of above11 years in Cross Border compliance , Import Export , International Taxation & is a passionate content creator.