Dubai is one of seven Emirates of the UAE (the United Arab Emirates). Famous for glittering skyscrapers, dancing fountains, and man-made palm-shaped islands, it is a popular location for both investment and business.
- And yes, it does have vending machines for gold bullion.
- And yes, it did build an indoor ski slope in the desert.
- And yes, it does sell private islands named after countries within an artificial world map. (You can now buy Venezuela, and Sweden is currently up for resale.)
The UAE is located at the eastern end of the Arabian Peninsula. The country is known worldwide for its lavish and jaw-dropping attractions, as well as its wealth in people, culture, and resources. Interestingly, it built a leading international financial hub while retaining strict regulations intended to protect its culture and local companies from foreign exploitation and westernization. This included:
- prohibiting foreign companies from acting independently within the UAE;
- maintaining a Sunday-to-Thursday workweek; and
- restricting haram consumables (such as alcohol) to specific consumers and locales.
In fact, the UAE has in the past jailed foreigners for such violations as “kissing in public” and “bouncing checks”.
So, what has changed? Let’s take the booze first: recognizing that almost 90% of its population is comprised of expatriates, the UAE has done away with licenses to consume, buy, sell, or transport alcohol, as well as the prohibition on Muslims from its consumption. (Federal Decree Law No. 15 of 2020)
As of January 1, 2022, the UAE also adopted a Monday-to-Friday workweek to better fit with global markets. Because Friday is considered a Muslim holy day (reserved for communal prayer and family time), the UAE adopted a half-day on Fridays. In effect, the UAE now has a 4.5-day work week.
Finally, and perhaps most importantly for my clients, the UAE dramatically altered strict laws regulating foreign businesses within the UAE. Under the Federal Law No. 18 of 1981 (as amended, the Commercial Agencies Law), companies operating in the UAE required either 51% Emirati ownership or a local service agent. In practice, this meant that foreign companies either (a) created a minority-owned joint venture or (b) appointed an Emirati commercial representative to conduct business in the UAE.
Minority-owned joint ventures create obvious commercial tensions. Appointing a local agent with extra-contractual statutory rights, however, also created significant risk; among other things, such agreements:
- provided statutory entitlements to commissions on all transactions, irrespective of effort, and
- created agency relationships that statutorily remain in perpetuity – even if the underlying contract(s) terminate of expire! This agency cannot be eliminated absent (1) mutual consent of the parties or (2) “material” reason (left undefined by law and rarely successfully argued in practice).
As of June 1, 2021, the UAE no longer requires that foreign companies have Emirati shareholders or agents. Instead, the amendment allows each Emirate to determine what activities businesses with 100% foreign ownership may carry out in its jurisdiction. As a consequence, Abu Dhabi and Dubai have both identified over 1000 separate commercial and industrial activities to which no such restrictions apply. Of course, the UAE retains the authority to determine activities having a “strategic impact” on the country and therefore requiring some minimal level of Emirati capital participation.
From an economic and legal standpoint, it would be wise for a company to consider extracting itself from existing commercial agency agreements. And, you’re in luck: our attorneys have the experience and knowledge to advise on precisely this issue.
More generally, the experts at the Wallenstein Law Group understand the impact of changing regulations – both in the UAE and abroad – on your business. We are happy to guide you and your company through local requirements to ensure compliance and business prosperity. Contact us today!