Uncategorized – The Legal Boutique

Women Are The Frontrunners In The New Civil Family Law

12:00 pm 24/01/2023

By Roxana Maroun

On October 3, 2022, the legislator has issued the Federal Decree-Law No. 41/2022 on the civil personal status Law for non-Muslims (“Civil Family Law”) which shall apply to non-Muslims who are citizens of the United Arab Emirates, and to non-Muslim foreigners residing in the State, unless any of them insists on the application of their law, with regard to the articles of marriage, divorce, inheritance, wills, and proof of parentage.

However, it cannot pass unnoticed the rights that the Civil Family Law afforded to women, rights that were deprived of them before it. The said Law shall come into force as of 1 February 2023.

These rights have given women equal status with men in a number of fields that can be summarized as follows:

The equality in testimony before the court; the testimony of a woman before the court shall be as valid as the testimony of a man without discrimination.
The woman’s right to make her own decision to marry, without a prior consent of her father or guardian, provided that both husband and wife must have attained at least twenty- one (21) years of age and must explicitly express their consent to the marriage before the authentication judge.
The woman’s right to seek divorce: Either husband or wife may unilaterally seek divorce, without the need to prove damage, from the court without prejudice to their rights related to divorce. The filing of a divorce case is referred directly to the court to issue a judgement at the first session, without referral to family guidance committees.
The woman’s right to ask for sole or joint custody: Women and men are equal in the right to joint custody of a child until he/she reaches the age of eighteen (18) years old, after which the child shall have the freedom of choice, unless (1) the two parties submit an application to the court to grant custody to whoever is capable of achieving the interests of the child in custody, or (2) either of them seeks to waive his/her right to custody in writing before the court, or (3) submits an application to the court for excluding the other party from joint custody and for him/her forfeiting the right to custody for any reason acceptable to the court, such as impediments of eligibility, the danger of the person sharing custody, or the joint custodian having failed to perform his/her duties.
The woman’s right to be equal with men in the distribution of inheritance: Furthermore, a woman uniquely can bequeath all inheritance of a person, if the latter leaves all his estate to her in his will, because the Civil Family Law allowed a person to bequeath all his estate in the State to whomever he/she designates by virtue of his will.

Notwithstanding the foregoing, in case of absence of a will, if the husband is deceased, the law distinguish between two cases: (1) if he had children, in this case, half of his inheritance shall go to the wife, and the other half shall be divided equally between his children, without distinction between males and females, and (2) if he doesn’t have children, in this case, Article 11 of the Law listed the distribution of inheritance between parents or siblings, as the case may be, without mentioning the right of the wife in the relevant case.

Pursuant to the above-mentioned, it is certain that the Civil Family Law granted women several rights and equality with men. However, it is interesting to note that the said Law omitted the rights of women in inheritance if they had no children.

If you have any queries on this topic please do not hesitate to reach out to us on the following email: contact@legalboutique.ae.

Guideline for the role and duties of the director and manager in a DMCC entity

12:00 pm 23/01/2023

By Nathalie Matta

Managers and Directors share similar responsibilities in organizations, but each performs different tasks that help a company operate. Knowing the differences between the roles can help you understand why each is important. This article will guide all the DMCC Companies to know more about the role and duties of the Director and Manager in accordance with DMCC Company’s Regulations and Officer Rules.

Director

A. Who can be a Director:

A company must have at least one Director and this Director must be a natural person unless otherwise agreed by the Registrar in exceptional circumstances. In addition to that, according to section 9 of DMCC Company’s regulations that came into effect on January 2022, a Director must have certain criteria to be accepted such as: the Director has to be above 21 years old, should not have been convicted of a criminal offence, etc.

B. The role of a Director:

The Directors are appointed by the shareholders to manage the Company’s day-to-day affairs. The Directors are effectively the agents of the Company. According to the Officer Rules of DMCC, the Director must implement the overall strategy, business activities and affairs of the Company on behalf of the shareholders. In addition to that the Directors are in charge of the Company’s decisions which should be for the benefit of the Company and its shareholders. The Directors are the ones who appoint the Managers and the secretary, and they make sure that they are fulfilling their duties.

C. The duties / responsibilities of the Director:

This section tackles the general duties and obligations of the Director and the seven more specific duties which the Director must follow according to the DMCC Officer’s Rules.

i. General Duties

Confidentiality. A Director can disclose the Company’s confidential information in a very delicate way and solely for the benefit of the Company.

Compliance with other applicable laws and regulations. The Director has a duty to make sure that the Company is complying with all the applicable laws, regulations, rules and policies such as environmental regulations, anti-corruption legislation, etc.

ii. Specific Duties

Every Company has its own rules and regulations but there are six broad duties that the Director must follow.

— To act within the powers. The Director must act within the scope of the powers set out in the constitutional documents of the Company such as appointing/removing a Manager/secretary, borrowing funds, etc.

— To act lawfully. Every act and decision made by the Director must be done in a lawfully way and in a way that promote the success of the Company.

— To have independent judgment. The Director must not be influenced by others which means that all the decisions must be made independently and objectively.

— To act with reasonable care, skill, and diligence. The Director must use the same care, skill and diligence that would be used by a reasonable person who is in the same position.

— To avoid conflicts of interest. The Director must not have a direct or indirect interest which conflict or may possibly conflict with the interest of the Company. If a Director has a direct or indirect interest in a transaction or arrangement and the Director declares its interests in this transaction or arrangement, a conflict of interest will not arise, provided the Director complies with any actions set out by the other Directors or by the Shareholders (as the case may be) to mitigate such conflict.

— To not accept benefits. The Director must not accept benefits from third parties.
In the event where the Director fails to comply with any of the above-mentioned duties, he will be considered in a position of breaching his duties.

Manager

A. Who can be a Manager:

According to the Officer Rules, a DMCC Company must have a Manager. Sometimes the Manager is referred to as the licence Manager since the Manager’s name appears on the commercial/trade Licence. In addition to that, as stated in section 55 of DMCC Company’s Regulations a person must meet certain criteria to be appointed as the Manager of the Company. The Manager must be a natural person, must be above 21 years old, should not have been convicted of a criminal offence, etc.

B. The role of the Manager:

The role of the Manager may be specified in the constitutional documents of the DMCC entity but in general, the Manager helps the Director to manage the day-to-day operations of the entity.

C. Duties/Responsibility of the Manager:

— To act within the powers. When appointing a Manager, the DMCC entity must choose a person who has sufficient experience and can commit to his duties that will apply regarding the nature and size of the DMCC Entity’s business. In addition to that the Manager must act in accordance with the powers granted to him/her.

— To act in accordance with the license. The Manager must operate with the permitted activities set out in the License.

— To deal with the employee. The Manager must deal with all the employment matters in a reasonable and fair way.

— To communicate with the Registrar. The Manager shall communicate with the DMCC Registrar regarding any issue or queries.

— To cooperate with the Directors. The Manager must cooperate and update the Directors on all the matters that they may impact their duties as Directors.

In the event where the Manager fails to comply with any of the above-mentioned duties, he will be considered in a position of breaching his duties.

Can a director also be a manager in DMCC?

Yes, a Company may appoint the same person to serve as Director and Manager, but the roles and obligations of each position remain independent and attached to the relevant position.

We hope that this article provided you with a clear understanding on the difference between these two positions.

If you have any queries on this topic, please do not hesitate to reach out to us on the following email: contact@legalboutique.ae

Wage Protection System in UAE — Update (Ministerial Decision)

12:00 pm 20/01/2023

By Roxana Maroun

Background

After the UAE ministerial decision No. 598/2022 concerning the Wages Protection System (“WPS”) came into effect, Employers/Establishments were prohibited from arbitrarily delaying or abstaining the payment of wages.

The said decision required all Employers/Establishments enrolled with MOHRE to pay their Workers on their due date through the WPS approved by the Ministry, or any other systems prescribed in this regard, and to provide all evidence required to prove the payment of wages of their Workers.

The exempt categories

The above-mentioned Decision excludes the following from the purview of the WPS:

A. Certain categories of Workers:
1. The Worker with a wage-related labor complaints referred to the judiciary.
2. The Worker against whom an absconding report has been filed.
3. The new Worker within a period of (30) days from the due date of payment of the Wage.
4. The Worker who is on leave without pay during that leave period; provided that the evidence required by the Ministry is submitted in accordance with the due process.
5. Seafarers working on board ships through a request submitted by the Establishment.
6. Foreign Workers working in foreign Establishments or their branches inside the State who receive their Wages outside the country, after the approval of the Workers and through a request submitted by the Establishment.
B. Certain Establishments that carry out the following activities:
1. Fishing boats owned by individual citizens.
2. Public taxis owned by individual citizens.
3. Banks
4. Places of worship.

Implementing the procedures

The Employers/Establishments are required to pay the wages of Workers on the due dates as set out in the Employment Contract. In the event a Worker is granted leave without pay for any period, the Employer/Establishment is required to notify MOHRE. The Worker’s wage shall become due starting from the first day of the month following the end of the period based on which the wage is set in the Employment Contract. If this period is not specified in the Employment Contract, the Worker’s wage shall be paid at least once every month.

Consequences of defaulting

Unless the Employment Contract provides a shorter period, the Employers/Establishments who fails to pay wages within the first 15 days from the due date, shall be considered late, and the following actions shall be taken:

The Employers/Establishment shall be followed up electronically to ensure its commitment to paying the Wages of its Workers, by the due date.
The Employers/Establishment shall be notified of its default, in the third and tenth days following the due date.
In the seventeenth day following the due date, the work permits for the Employers/Establishment shall be suspended and the defaulting Employer/Establishments shall be listed in the Electronic Monitoring and Inspection System and the schedule of inspection visits (in case the Establishment is employing 50 and more Workers).
One and a half months after the due date, the concerned Public Prosecution shall be notified and its data shall be transferred to the competent authorities at the Federal and local levels to take legal measures and conduct follow-up by the competent teams in the MOHER (in case the Establishment is employing 50 and more Workers).

Furthermore, If the Employer/Establishment repeats the same violation within six months, an administrative fine shall be imposed, and the Establishment shall be reclassifyed into the third category in accordance with the Ministerial Decision No. (209) of 2022. The classification of the establishments under the third category, happens in the event of committing one or more of the above-mentioned violations. However, the Establishment shall not be reclassified under the category that it qualifies for according to the standards of classification approved at the Ministry, until after termination of the classification under the third category, and upon rectification and adjustment of all violations committed thereby, in addition to the payment of the due fees and fines.

If you have any queries on this topic, please do not hesitate to reach out to us on the following email: contact@legalboutique.ae.

UAE Corporate Tax Briefing

12:00 pm 19/01/2023

By Rima Ghalayini

There has been international pressure from the OECD to onboard as many countries to sign up to global tax framework arising from the recognition of imbalances in the global economy and especially large multinationals that structure their companies across multiple jurisdictions, taking advantage of the various tax regimes in each to avoid taxes. This has created, according to the OECD, distortions and unfair practices which impact the global economy. The OECD has sought to build a consensus with major countries to address these issues, which lead to a global tax treaty agreement under BEPS Pillar 2 enacted in 2021. Over 150 global signatories have signed the BEPS Pillar 2 treaty wherein signatory countries agreed to a minimum rate of corporate tax at 15% for multinationals. However, under this framework, all signatories to this treaty will also introduce corporate income tax across their own economy.

The UAE as signatory to OECD framework in 2018, and the BEPS Pillar 2 framework, has resulted in the adoption of UAE Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses (the “Corporate Tax Law”).

The UAE regime seeks to leverage global best practices aligned to OECD BEPS Pillar 2 but at the same time continue the UAE’s strategy to remain a leading destination for inward investment with a competitive corporate tax regime.

The Corporate Tax Law comes into effect June 2023, giving businesses time to understand and prepare for the new corporate tax regime.

UAE Corporate Income Tax Highlights

Corporate Income Tax Rate:	0%-on taxable income up to AED 375,000 9% on taxable above AED 375,000
Scope:	Applies to: Legal persons incorporated in the UAE or foreign persons managed in the UAE (branch) Natural persons conducting business or commercial activities under a trade license (professional companies/ establishments) Non-Resident persons carrying out business via a permanent establishment. Essentially any entity or agent or person physically present in UAE conducting business on behalf of a foreign company creates a legal tax presence. For example, a salesperson or agent in the UAE engaged by a foreign entity creates permanent establishment
Exempt Persons:	Federal and Emirate governments Wholly government owned UAE companies that carry out a sovereign activity Businesses in extraction and exploitation of UAE natural resources Charities and other public benefit organizations persons and investment funds
Tax Base	Corporate Tax applies on worldwide income Based on accounting net profit subject to: Exemptions Non-deductible items or limitations Tax losses can be carried forward and used to offset income of other group company
Income Not subject to Corporate Tax:	Investment in real estate Salary /employment income Dividends, capital gains, other income earned from owning shares or other securities Generally speaking, passive income, investments, salary income is excluded from Corporate Tax; Active income will be subject to Corporate Tax.
Determination of Corporate Tax Payable	Final Taxable income is determined as follows: Net Profit as per financial statement Less (-) deductible expenses, interest expense, depreciations, etc. plus (+) any adjustments to income Less (-) Foreign Tax Credit (if applicable)
Exemptions:	The following are exempt from Corporate Tax: Domestic dividends including dividends paid by a Free Zone person benefiting from the 0% Corporate Tax regime Foreign dividends /capital gains if UAE shareholder with 5% of the shares of the subsidiary and foreign subsidiary is subject to Corporate Tax of at least 9% Capital gains from sale of shares in a Free Zone person If Free Zone person is a holding company Substantially all of its income is from shareholdings in subsidiary companies that meet participation exemption conditions
Losses:	Tax Losses can be carried forward and used to offset income of other group companies Losses can be offset by up to 75% of taxable income in future tax periods Same shareholders holding at least 50% of share capital or same business carried on by new owners
Exclusions to Loss Relief	Losses incurred before the effective date of Corporate Tax Law Losses incurred before a person becomes a taxpayer for UAE Corporate Tax purposes Losses incurred from activities or assets which generate income from UAE Corporate Tax Losses incurred by a FZ person that are not attributable to a private enterprise in the mainland
Compliance	Companies must file Corporate Tax return and pay the applicable tax within 9 months of the end of the tax period Companies are not required to file provisional Corporate Tax filings or advanced Corporate Tax payments (only final filing) Non-compliance penalties apply: Fixed penalties for non-reporting Interest penalties for non-payment Penalties for infringements
Transfer Pricing	Transfer pricing will be implemented in the UAE. Related/connected parties must act on arms’ length basis based on fair commercial value to ensure profit and attributable profit is actually realised. In this respect: Disclosure Form must be filed; and Supporting documents to provide clarity on structure and individual commercial agreements with related parties (must be documented)
Tax Groups	Tax Groups under the Corporate Tax Law are distinct and separate from tax groups under VAT.Under the Corporate Tax Law, the following apply for tax groups The Parent company should hold at least 95% of the shares in subsidiaries; and all subsidiaries will need to be submitted to the FTA to create a tax group A notice signed by the parent company and all subsidiaries will need to be submitted to the FTA Neither the parent company nor any of the subsidiaries can be an exempt person/ Free Zone person that benefits from the 9% Corporate Tax rate Single taxable person: The parent company will be responsible for the administrative and payment of Corporate Tax on behalf of the tax group Disclosure requirements – The parent company will have to consolidate the financial accounts of each subsidiary for the relevant tax period and eliminate intragroup transactions
Disallowable expenses and other considerations	Interest Expenses – up to 30% of EBITDA Related party payments to FZ persons Entertainment expenses – 50% Administrative penalties, recoverable VAT & donations to non-approved organizations disallowed Employee salaries allowed; but director salaries deductions are capped

Application of UAE Corporate Tax Law on the Free Zones

The Free Zones have a special role in UAE economy and there are many of them. Free Zone entities are required to register and report, and while Free Zones are not exempt from corporate tax regime, they can benefit from Zero Rated Corporate Tax.

0% Corporate Tax (zero rated)	Applies to Free Zone entities operating Outside UAE Within same Free Zone Any other Free Zone Free Zone Companies and Mainland Group entities (branch income) (Associated payments made by Mainland entity will not be deductible under UAE Corporate Tax) Sale of goods by Free Zone companies to Mainland companies that are importing goods to mainland Passive received income from Mainland companies (interest, royalties, dividend, capital gains)
9% Tax Rate	Will apply to FZ transactions with other mainland UAE companies FZ and mainland branch on income received on mainland (continue to benefit from 0% Corporate Tax rate on its other income)
Compliance:	Register and file 0% Corporate Tax return Audited statements to claim 0% Corporate Tax benefit Free Zone benefitting from 0% cannot form a Tax Group Free Zone can elect to be part of regular Corporate Tax regime; Once regular status is granted, it will be permanent

UAE Withholding Tax

The UAE has not introduced a withholding tax under the Corporate Tax Law and accordingly 0% withholding tax will apply on the following:

UAE income earned by foreign company not attributable to a UAE
Mainland UAE income earned by a Free Zone person
Dividends and other profit made by Free zone person to a mainland UAE shareholder

Future Action

In light of the above, companies should conduct an impact assessment of their business and business group, as applicable and identify gaps and opportunities including a review current legal structures and transactional documents and accordingly prepare a plan and roadmap to be followed to prepare for the introduction of the Corporate Tax Law.

A comprehensive legal review should include:

How best to structure a company/group to benefit from tax groups and/or relief offered under the Corporate Tax Law,
How best to structure contracts, transactions and revenue set up to benefit from provisions under the law (whether under tax relief provisions, 0 rated tax, or tax groups);
Free Zone and Mainland entities and relationships; and
Transfer pricing considerations to ensure compliance

If you have any queries on this topic please do not hesitate to reach out to us on the following email: contact@legalboutique.ae

Fines for Failure to Comply with the New Emiratisation Rate in Private Sector

12:00 pm 18/01/2023

By Nathalie Matta

The UAE government has recently issued a new Ministerial Resolution (No. 279 of 2022) that came into effect on the 1^st of January 2023 (the “New Law”) where companies registered with the Ministry of Human Resources and Emiratisation (“MOHRE”) shall have the obligation to get to the minimum emiratisation rate of 2 percent annually (the “Emiratisation Rate”). Incentives will be provided to companies who will reach the Emiratisation Rate whilst fines will be imposed on those who do not comply. This article will help you understand the key issues related to the Emiratisation Rate, the obligation to comply with such Emiratisation Rate and the fines that will be imposed for non-compliance.

Background on Emiratisation Law

Emiratisation law is the rule implemented by the UAE government that promotes the participation and employment of UAE nationals in the workforce. The Emiratisation Law applies to private sector companies registered with MOHRE (the “Target Companies”) and does not apply to free zone companies and MOHRE exempt companies. The law is also part of the NAFIS program which is a government program that makes Emirati human resources more competitive and provide them with the skills they need to work in the private sector.

The previous emiratisation quota was as follows:

Banks: 4%
Insurance: 5%;and
Commercial entities with more than 50 employees: 2%

New Law

Starting January 2023, all Target Companies employing more than 50 employees shall have the obligation to increase their current Emiratisation Rate by 2 percent annually to be able to reach in 2026 10% Emiratisation rate( the “Emiratisation Target Rate”) . Based on the Emiratisation Rate, the MOHRE will categorize the Target Companies as follows:

a) Category 1

Target Companies are required to achieve at least one of the following objectives to fall under this category:

i. increase their Emiratisation Rate annually not less than 3%
ii. hire and train at least 500 UAE nationals employed per year;
iii. being a startup company owned by a young UAE national, or
iv. being a qualifying training and employment center.

As a reward, the MOHRE will set work permit fees at a maximum of AED 250 for two years. Employees from the UAE and the GCC will be exempt from these fees.

b) Category 2

Target Companies that do not achieve the objectives required for category 1 yet still meet the Emiratisation Rate will fall under category 2.

The MOHRE will set work permit fees for this category at AED 1,200 for two years. Employees from the UAE and the GCC will be exempt from these fees.

c) Category 3

Includes the Target Companies that fail to comply with the Emiratisation Rate. The fines in below section (Fines for non-Compliance) will be imposed on the Target Companies under this category.

Calculation of the Emiratisation Rate Percentage

The Emiratisation Rate shall be calculated based on the total number of UAE nationals working in the Target Company compared to the total number of Skilled Employees (as defined below) employed in such company provided that at least one UAE national is employed against 50 Skilled Employee in the Target Company and such Emiratisation Rate shall be maintained for the whole year.

For the avoidance of doubt an employee is qualified as Skilled Employee if below conditions are fulfilled:

a) The employee’s professional level is one of the following:
- i. Level 1: Legislators, managers, and business executives
- ii. Level 2: Professionals in scientific, technical and human fields
- iii. Level 3: Technicians in scientific, technical and humanitarian fields
- iv. Level 4: Writing professionals
- v. Level 5: Service and sales occupations
b) The employee has obtained a certificate higher than the secondary certificate or an equivalent certificate;
c) The certificate is attested by the competent authorities; and
d) The monthly salary (excluding commission) of the employee is not less than AED 4,000.

Below table will clarify how the Emiratisation Rate shall be calculated based on the total number of skilled Employees in a Target Company:

Number of Skilled Employees in a Target Company that Employ more than 50 Employees	Minimum number UAE Nationals employees
0 to 50 Skilled Employees	One (1) UAE National
51 to 100 Skilled Employees	Two (2) UAE National
101 to 150 Skilled Employees	Three (3) UAE National
More than 151 Skilled Employees	One (1) UAE National for every 50 Skilled Employees

It is imperative that the Target Companies ensure that UAE nationals employed are provided with all the necessary tools and training to perform their employment duties.

Target Companies need to ensure that each UAE national employed:

a) holds a valid work permit and employment contract;
b) is registered with the General Pensions and Social Security Authority;
c) is paid through the Wages Protection System;
d) the relationship between the UAE national and the Target Company is a contractual relationship satisfying all the terms and conditions of the UAE Labor Law.

Fines for Non-Compliance

A monthly fine of AED 6000 (the “Monthly Fine”) per UAE National employee falling short of the quota will be imposed on the Target Companies who fail to fulfil the minimum required Emiratisation Rate unless the minimum Emiratisation Rate is achieved within two months. The Monthly Fine will be increased progressively by AED 1000 per month each year.

If the Target Company fails to pay the Monthly Fine at the beginning of each year (the “Due Date”), its work permit applications may be suspended. In the event the Target Company continue to fail to pay the Monthly Fine after 2 months from the due date, the work permit and the renewal work permit applications of the Target Company and the companies owned by the owner of such Target Company may be suspended.

In addition, two consecutive years of violation can lead to the reclassification and downgrading of the Target Company to Category 3 (as mentioned in section New Law).

In the event, the Target Company commits any fraud or provide incorrect data documents or information, an administrative fine of not less than AED 20,000 and not more than AED 100,000 will be imposed per UAE national employed.

The Target Company may file an objection to the Grievance Committee regarding any decision or fine imposed on the Target Company.

Future Action

If you are a mainland company with more than 50 employees you should aim to meet the Emiratisation Target Rate or alternatively have made provision in your company’s account for the imposition of the fines mentioned above.

If you have any queries on this topic, please do not hesitate to reach out to us on the following email:
contact@legalboutique.ae