Saturday, April 23, 2005

Doing Business in the United Arab Emirates

Background

The United Arab Emirates (UAE) is composed of seven Emirates: Abu Dhabi, Dubai, Sharja, Ras El-Khaima, Umm al Quwain, Ajman and Fujaira. In 1971, the rulers of the seven emirates agreed to establish a constitution, which became the basis of federation. They occupy the southern corner of the Arabian Peninsula. Abu Dhabi, the capital, occupies 86.7% of the total area of the UAE. The total population of the UAE is 2.95 million, 80% of them are non-nationals. The religion of the Emirates is Islam, but Christianity, Hinduism and other religions co-exist. The official language is Arabic, though other languages such as English, French, Hindi and Farsi are also spoken.

The overall performance of the UAE’s economy is heavily dependent on oil exports, which account for over 30 percent of total gross domestic product (GDP). Growth in real GDP was 6.4 percent in 2004, partially due to higher crude oil prices. For 2005, real GDP growth is projected to reach 6.5 percent. The non-oil segment of the UAE’s economy also is experiencing strong growth, particularly the petrochemicals and financial services sectors which contribute around 70 percent of the UAE’s total GDP, and about 30 percent of its total exports.

In recent years, the UAE has encouraged construction of new hotels, restaurants and shopping centers, and expanding airports and duty-free zones. The UAE has been a member of the World Trade Organization (WTO) since 1995, and has one of the most open economies in the region. It began negotiations in March 2005 with the United States on a possible free trade agreement.


The Legal System

The constitutional federation of the United Arab Emirates calls for the establishment of a high court (Cour de Cassation) modeled on the French highest court. It also calls for the establishment of two other layers of judiciary: the Courts of First Instance and the Courts of Appeal.

Although Islam is the source of legislation in the UAE, the civil courts have been granted competence to review disputes in connection with commercial transactions. Islamic (Shari’a) law is applied on matrimonial disputes such as marriage, divorce, alimony, custody and inheritance. In Abu Dhabi, however, Islamic Courts are given competence to issue rulings on commercial disputes and criminal offences.

In the UAE, much legislation have been enacted into law in such matters as the Labor Law (1980), the Agency Law (1981), the Maritime Law (1981), Commercial Company Law (1984), Civil Transaction Law (1985), Penal Code (1987), the Law of Criminal Procedure (1992), the Law of Evidence in Civil and Commercial Transactions (1992), the Civil Procedure Law at the Federal Courts (1992), the Protection of Intellectual Property Law and the Rights of Authors (1992), the Patent Law (1992) and the Commercial Transactions Law (1993).


Selling in the UAE

Mostly appointing a commercial agent/distributor does selling goods and services in the UAE. Other methods are used also, such as direct sales to the end-user, establishment of a joint venture with a local firm, or selling through a licensing or franchising agreements.

It is advantageous to an exporter to appoint different commercial agents or distributors for different emirates. Exporters with diverse product lines or services may have to appoint multiple agencies and distributorships to handle their businesses. Agents act on behalf of the exporter, they do not buy the products or services, and instead they get commission or other form of compensation. Distributors on the other hand, buy directly from the exporter and warehouse the product at their facilities and re-sell at a profit.

The UAE legal system does not distinguish between an agent and a distributor, they are referred to as commercial agents. Your legal counsel should make sure that the agreement specifies in detail the definitions of the terms used. The Ministry of Economy and Commerce handles registration of commercial agents. This is a Federal law applicable throughout the United Arab Emirates.

An agency agreement may be terminated, however, a government committee may interfere should a dispute between the parties arise. Usually, the committee rules in favor of the local agent. In most cases, compensation to a local agent is granted.

The terms and conditions of a contract should be clearly defined, it should include the geographic territory to be covered by the agent, verification of licenses given to the agent to operate and the terms of the expiration of the agreement, all have to be agreed upon in advance. That makes a competent attorney indispensable.

Some firms may decide to set up an office in the UAE. To do so, the firm must have a local sponsor, and the emirate of domicile must license it, before beginning business activity. Banks and financial institutions are required to get approval from the Central Bank of the UAE. Insurance companies and related agencies get their approval from the Ministry of Finance and Industry and pharmaceutical and medical products from the Ministry of Health.

All firms intend to do business in the UAE, are required to be registered with the Chamber of Commerce in each of the emirates where the business in licensed to operate. Chambers of Commerce in the UAE is part of the government and membership is mandatory.

Companies wish to establish offices to directly conduct business in the UAE are required to go into joint-venture agreements with local nationals owing at least 51% of the ventures, except professionals or artisans where 100% foreign ownership is permitted. To establish an office in the UAE, the law requires the following documents:
· Articles of association of the company
· Certificate of Incorporation
· A resolution of the board of directors of the company to set up the office and practice activities in the UAE. The resolution also gives the power of attorney to the representative to establish an office and to submit the required applications to the local government authorities
· The last two audited balance sheets of the foreign company together with the auditor’s report, any other documents which proves the sound financial position of the company
· A copy of national agent/sponsor agreement duly authenticated
· Photocopies of the passport of the national agent/sponsor
· A valid lease agreement of the company’s office premises

All the above-mentioned documents should be notarized and authenticated by the concerned governmental authorities.


Need for a local attorney

One of the most important issues to any firm contemplating establishing agency relationship in the United Arab Emirates is their ability to terminate a registered agency. Some companies have paid considerable amounts of many to buy their way out of an agreement. The law in the UAE provides the right for local companies to maintain their agencies irrespective of any specific performance the parties have agreed to. It may be impossible to get the authority approve the termination of an agency regardless of any justified cause, even if it is proven that the agent did not perform his obligations. The best protection is to conduct a serious research on the prospective agent, and to consult with a competent local attorney.

Gabriel Sawma

© Copyright 2005, Gabriel Sawma. ALL RIGHTS RESERVED.
For interviews on international law, the Middle East and Islamic (Shari’a) law, or for the material covered by this article, please contact the author. Tel. 609-275-6321or E-mail gabrielsawma@yahoo.com

This website is researched, edited, published and maintained by Gabriel Sawma.
The materials contained on this website are for general information purposes only and are subject to disclaimer. The reader should not consider this information to be an invitation for an attorney-client relationship, should not rely on information provided herein and should always seek the advice of competent counsel.

3 comments:

hanumant said...



Hi, thank you very much for help. I am going to test that in the near future. Cheers



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