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New laws and regulation in Dubai International Financial Centre

22 November 2018

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The Dubai International Financial Centre (DIFC) adopted several new Laws and Regulations (1) effective from 12th November 2018. These new laws and regulations represent an overhaul of the DIFC’s framework and are applicable to companies incorporated or registered in the DIFC. Furthermore these laws and regulations impact other entities, such as but not limited to various partnerships, non-profit organisations, foundations and trusts.

Background

The DIFC laws and regulations originally were predominantly based on the UK Companies Act 2006, with influences from related common law jurisdictions. Initially some provisions crossed over with the traditional UAE law concept (e.g. LLC structure).

The enactment of the new Companies Law DIFC Law No. 5 of 2018 (Companies Law) includes policy decisions on where to deviate or apply lighter touch than UK or other common law positions. Furthermore it can be seen as part of a broader initiative in line with international best practices, providing a suitable regulatory framework by promoting shareholder and creditor protection whilst creating greater certainty and flexibility for companies.

The Ultimate Beneficial Ownership Regulations (UBO Regulations) is a response to increased focus by national authorities and global regulatory groups, on the importance of combatting money laundering, terrorist financing, bribery and corruption. It is intended to have the effect of safeguarding and promoting the DIFC’s reputation as a stable and responsible financial centre, and to reinforce its commitment to adhere to the highest global standards. It is important to note that the UBO Register is not publicly available.

What are the key changes of relevance?

  • Automatic company re-classification: no more LLCs. Instead a distinction is made between a private company (up to 50 shareholders Ltd), public company (1 to any number of shareholders Plc) and a recognised company (i.e. branch of foreign company Rc). All companies have 30 days to contest automatic conversion.
  • New standard Articles of Association (AoA) have been introduced. Existing AoA will continue to apply to the extent that they do not conflict with the provisions of the Companies Law. Model AoA apply to the extent there is such a conflict. Companies have 12 months to amend their articles to the extent necessary.
  • Enhancement of Director Duties, including without limitation: exercise of independent judgement, consideration of the long-term consequences of their decisions and corporate actions, the interests of the company’s employees and its shareholders and its impact on the community and the environment. If applicable, a Register of Nominee Directors should be maintained and filed with the Registrar within 90 days of the date of enactment.
  • At the time of License Renewal all companies must now file a Confirmation Statement, instead of filing an annual return. This Confirmation Statement will include a confirmation that all details required to be submitted with the Registrar have been so duly notified.
  • Introduction of mandatory annual filing of Audited Accounts, within 7 months of year end. A Director’s report is required for the Plc. The Board of Directors of the Ltd must prepare a financial report each year and preserve a record of it for 6 years. Carve out applicable for Small Private Companies (2).
  • The Ltd has no minimum share capital. The Plc has a share capital of min. US $ 100,000, of which 25% must be fully paid up. Formal pre-emptive rights for existing shareholders of companies have been introduced. Furthermore a provision for the treatment of treasury shares has been made. Plc that has issued debentures must establish and maintain a Register of Debenture Holders within 90 days of the date of enactment.
  • Lease Registration now requires a new form to be signed by both parties and uploaded on the client portal to register any lease. Lease of more than 6 months must be registered within 20 days of entering into the lease agreement.
  • Introduction of a Register of Ultimate Beneficial Owners (UBO), which must be established  within 90 days of the date of enactment for each Registered Person already in existence, or each Registered Person coming into existence after the date of enactment, within 30 days of said date.

UBO Register

In accordance with the UBO Regulations a Registered Person is defined as every Public Company and Private Company, various Partnerships, a Foundation, Recognised Foundation, Incorporated Organisation or any other legal body or structure created by Legislation administered by the Registrar, which is active in the DIFC (3).

For Companies (4) a UBO is a natural person who owns or controls (directly or indirectly):

  • Shares or other ownership interest of at least 25%:
  • Voting rights of at least 25%; or
  • The right to appoint or remove majority of directors.

The UBO register should contain the following UBO Particulars:

  • Full legal name;
  • Residential address;
  • Date and place of birth;
  • Nationality;
  • Information identifying the person from their passport or other governmental-issued national identification document;
  • Date on which the person became an UBO of the Registered Person;
  • Date on which the person ceased to be an UBO of the Registered Person

How will Intertrust Dubai help?

As a DIFC licensed corporate service provider, Intertrust Dubai can assist clients with the initial assessment of classification, subsequent required amendments under the new Company Law. We can also assist with the UBO, Nominee Director and Debenture Holder classification and maintain a register, where applicable.

The Laws and regulations have been enacted as per 12 November 2018. It is a company’s obligation to ensure full compliance with the applicable Laws and Regulations.  DIFC authority reserves the right to inspect the registered office any time and failure to comply with the new laws and regulations will result in a fine imposed on the company.

(1) Non-exhaustive list of the new relevant Laws and Regulations: Companies Law DIFC Law No. 5 of 2018; Companies Regulations ; Operating Law DIFC Law No. 7 of 2018; Operating Regulations; Ultimate Beneficial Ownership Regulations; DIFC Laws Amendment Law, DIFC Law No. 8 of 2018.
(2)A Small Private Company has no more than 20 shareholders and an annual turnover not exceeding US $ 5million.
(3) There are a number of exemptions to which certain requirements of the UBO regulations are not applicable, such as but not limited to Registered Person who has its securities listed or traded on a Reorganised Exchange; is regulated by a Recognised Financial Services Regulator; is  Non-profit Incorporated Organisation which does not engage in certain activities or is established under the law of the United Arab Emirates to perform governmental functions.
(4) Different classification apply to partnerships, Non Profit Incorporated Organisation.
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