By: Ludmila Yamalova, Managing Partner, HPL Yamalova & Plewka DMCC
Companies registered and doing business in the U.A.E. must understand and appreciate the legal context in which they operate. The U.A.E. corporate legal framework is based, among other things, on its own historical, cultural, religious and political factors. As such, many of the country’s laws, policies and practices are unique to the U.A.E. and, perhaps, not obvious or even understandable to foreign businesses first. This is especially so because the U.A.E. is generally perceived as a business friendly and welcoming place to live and work, with the standard of living and diversity of the population matching some of the world’s most developed and progressive countries. Many businesses do not appreciate the country’s differences or understand its particularities until they start facing problems, claims or fines.
The list of most important factors and, therefore, most common mistakes that businesses in the U.A.E. face are numerous and multi-faceted. They start from the regulations that allow foreign businesses to set up in the U.A.E. And, range from, among other things, immigration, employment, communication, financial, intellectual property and media laws and practices.
Requirement of Proper Trade License
First of all, all foreign businesses or individuals wanting to conduct business in the U.A.E. must be licensed in the U.A.E. This means that they have to be properly registered with the relevant economic authority, be it under the Department of Economic Development (DED) of a particular emirate or any of the country’s many free zones. This is governed by the U.A.E. federal law, in particular, Law No. 8 of 1984 (as amended) and which is otherwise known as Companies Law.
This applies to anyone who wishes to do any type of commercial or business activity. In theory, even activities such as selling baked goods, tutoring, babysitting and web design – those that are often associated with free lancers, students, stay-at-home moms, or part timers – require a trade license. Furthermore, it is essential that the licensed activity reflects the actual activity or activities of the business.
Noteworthy, certain licensing activities are restricted and either reserved solely for U.A.E. nationals, government or semi-government companies or require secondary approvals. For example, there are restrictions for companies operating in the fields of oil exploration, exploitation, marketing and transportation; companies operating in the fields of electric power generation, gas production, water desalination and all associated activities such as transportation, distribution and so on. Other industries may also be limited to foreign ownership by virtue of a specific decrees issued by a relevant government authority. Some such examples include real estate brokerage companies, recruiting agencies and travel agencies – all such companies must be fully owned by a U.A.E. national.
Also, certain industries which require special professional certifications, such as health, academic, financial, legal, food and beverages, sports, etc., require secondary approvals from relevant government authorities that regulate those industries. As such, only those businesses that can establish their requisite credentials and meet other requirements would qualify. As the threshold is often high, there are many businesses which conduct activities without having a proper trade license.
All those who engage in business activities either without a trade license or without an appropriate license face severe penalties. Penalties can range from financial, to criminal to deportation. Furthermore, under various legal theories, companies who deal with either businesses or individuals who are not properly licensed are also often held liable and penalized.
Importance of Abiding by Immigration Policies
The other important aspect of doing business in the U.A.E. is to understand and strictly follow the country’s immigration policies. Immigration law is mandated at the federal level and is, therefore, uniform across the country.
The law requires that all foreigners working in the U.A.E. have an employment visa and proper sponsorship. This means that all companies must ensure that all of their employees are properly sponsored under their visas. Companies are also obligated to ensure that, when they engage services of third party providers or contractors, that those individuals are also properly sponsored. In other words, companies will be held liable for inducing others to break the law by working illegally.
Violation of immigration policies leads to very strict penalties. Companies are fined in the amount of AED 50,000 for each illegally employed individual and for each occurrence. Furthermore, repeated violations can result in the suspension and then ultimate cancelation of a company’s trade license.
Sensitivity of Communication and Media Laws
A company must be careful and vigilant in how it communicates with the public. This includes information on its website, marketing materials, social media or any other publicly available information. The same principles apply to both general communications about the company and those about the company’s products and services. Importantly, actions and communications of the company’s employees can also be imputed to the company. Furthermore, forwarding and sharing communications of others that contain any such messages are equally illegal.
A company or any of its employees who disseminate information that is either false or inaccurate or can be considered defamatory or offensive can be held liable under various U.A.E. legal theories. Communications with the public are governed by a multitude of laws, including, among other things, U.A.E. Law No. 5 of 2012 (Cyber Law), U.A.E. Law No. 15 of 1980 (Media Law), U.A.E. Law No. 18 of 1993 (Consumer Transaction Law), Law No. 64 of 2006 (Consumer Protection Law), U.A.E. Law No. 37 of 1992 (Trademark Protection Law) and Federal Law No. 3 of 1987 (Penal Code). Companies and individuals violating any of these communication laws could be held either criminally or civilly liable or both.
Some of the general guidelines as to what constitutes illegal communications are as follows. First of all, one must not communicate any information that may violate UAE’s standards of morality and proper conduct. It is illegal to disseminate anything that threatens the UAE’s public morals, principles of Islam or the state. It is equally illegal to disseminate pictures that contain irreverence to Islam or other religions. All public communications, including social media, must show respect to the UAE’s leaders, its government and its institutions. All communications that may belittle or criticize the UAE’s cultural and social customs are also forbidden. It is also illegal to communicate any threats of violence or engage in hate speech, including content containing graphic or gratuitous violence.
In general, there should be no posting of potentially inflammatory content. Similarly, unauthorized communication of people’s private information, such as addresses, telephone numbers, or national identity numbers or images or videos that are considered private under the UAE law could be held illegal. It is also illegal to impersonate users in a manner that is misleading or is intended to be misleading.
The U.A.E. legal system zealously guards and protects principles of honour, privacy, morals, religion, reputation and the like. Any communications that may be perceived to be offensive or inaccurate can be considered defamation. In the U.A.E., defamation, in turn is a criminal offense under the Penal Code.
Violations of any of these laws or principles usually result in swift and grave consequences. For companies, the penalties are usually significant monetary fines and suspension or cancellation of a trade license. For individuals, the penalties include monetary sanctions, imprisonment and ultimately deportation.
False Advertising
Companies must also be aware that false advertising is illegal under the U.A.E. law, although it is not yet as strictly enforced. This applies in particular to traders and service providers. The relevant laws that apply to false advertising are the U.A.E. Commercial Transaction Law, Consumer Protection law and Trademark Law.
Thus, the Commercial Transaction Law prohibits traders from disclosing matters inconsistent with reality. Traders therefore may not make false statements when engaging in commercial activities such as advertising for profit, broadcasting television or recordings, or advertising activities when practiced as a profession. Injured parties are entitled to damages in default for fraud or misrepresentation when marketing, spreading, or publishing false information. They may also seek additional damages or remedies provided by other laws. Victims could also seek to recover damages from any person engaged in the business of supplying information to commercial houses, who knowingly or through gross negligence supplies untrue statements.
Similarly, the U.A.E. Consumer Protection Law regulates price manipulation and promotes free market economics/pricing. The law enables each Emirate to monitor price increases, protect against monopolies, and stop the display or promotion of counterfeited commodities that would inflict damage or loss on consumers. A supplier may not disclose matters inconsistent with the reality regarding the origin, description, or other matters pertaining to a good or service’s nature or importance. Additionally, a Supplier may not resort to any misleading means with the intent thereby to deceive customers.
The Trademark Protection Law covers traditional (ex. registered company logos) and non-traditional trademarks (ex. trade dress, sound marks, etc.) and addresses trademark registration, transfers, and penalties for infringement. Violation of the Trademark Protection Law carries monetary fines and imprisonment. Additionally, the Trademark Protection Law provides injured parties the ability to seek preliminary injunction, destruction of goods, or damages from those who violate the law. These fines and prison sentences increase for repeat offenders.