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2015.08.28 - United Arab Emirates: New corporate legislation of the UAE - Federal Law No 2 of 2015


The earlier UAE corporate legislation - Federal Law No 8 of 1984 - has been in effect in the United Arab Emirates for over 30 years.

On 1 July 2015, a new corporate legislation - Federal Law No 2 of 2015 - was approved. It regulates the procedure for the establishment and maintenance of companies in the UAE jurisdiction.

Important to note that the companies established in free trade zones (free zone companies, free zone establishments), as well as international (offshore) companies continue to operate in accordance with the relevant law of a particular emirate as before. The new federal law, similar to the previous legislation, regulates the establishment and operation of mainland companies.

At the same time, whereas the previous corporate law did not apply to companies established in free trade zones, the Federal Law No 2 of 2015 contains provisions governing those FZCs which in practice carry on business outside the particular free zone.

Similar to previous law, the new legislation retained the requirement that at least 51% of shares in the mainland companies must be owned by the UAE resident.

Other details set forth in the Federal Law No 2 of 2015:

  1. The concept of a holding company, which was not contained in the previous legislation, is now implemented. A holding company is an entity that does not perform its own business, but operates through its subsidiaries.
  2. A higher liability of directors and managers of UAE companies is stipulated for the infringements committed by them. In particular, the new legislation states that the clauses in the company’s bylaws and other corporate documents that exempt the directors from their personal liability, are deemed to be ineffective.
  3. The obligations of companies for the maintenance of accounting documentation and preparing of financial statements are now set more certainly. Accounting records must be kept at the company’s registered address for at least 5 years. The financial statements have to be prepared in accordance with the international accounting standards, and must fully reflect the company’s financial situation. For failure to comply with the reporting regulations, the law provides for penalties up to AED 100,000.
  4. Registration of a company is now allowed with a single shareholder, i.e. – a sole individual or a legal entity may own a mainland UAE company.

International Overseas Services comments:
The United Arab Emirates increase their role as a jurisdiction where to operate a business and develop commercial activities at the international level. Both large multinational corporations as well as medium and small enterprises nowadays prefer to locate their business operations in the UAE.

The new commercial law continues the existing UAE course for the development of business environment in accordance with the current business trends and globalization of the financial market. UAE legislators have carefully prepared this new corporate law with consideration of the growing business operations in this jurisdiction over recent years.

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