December 3, 2007

The UAE is a federation of seven Emirates (Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain).

The currency is the UAE dirham (AED).

Legal System
In establishing the federation, the rulers of the seven Emirates agreed on a constitution which provided the legal framework for the federation and established Islamic shariah jurisprudence as the main (but not the only) source of legislation for the Federation.

The constitution apportions powers between the federal government (based in Abu Dhabi) and the governments of the constituent Emirates. The federal government is entrusted with the task of regulating the principal aspects of the federation. The governments of each Emirate are authorised to regulate local matters not confined to the federal government.

Accordingly, federal laws and local laws have been introduced governing most areas of civil and commercial life in the UAE. In practice, most matters are now regulated at federal level (with those relating to real estate being a significant exemption to this), although local interpretations of federal regulations sometimes differ from one Emirate to another. In the event of a conflict between federal and local laws, the constitution provides that federal law will override the local law of the Emirate.

The Civil Code and the Commercial Code are the two principal federal laws which affect day-to-day business life in the UAE, and these are both based on civil law models, as adopted elsewhere in the Gulf (and which have their ultimate originals in the Napoleonic Code), rather than on the common law.

Court System
The constitution provides for a federal court system, but acknowledges the right of each constituent Emirate to maintain an independent legislative body and judicial authority. Currently, all the Emirates with the exception of Dubai and Ras Al Khaimah have joined the federal court system. Federal laws that apply to all seven Emirates govern rules of evidence and court procedure.

The federal court system comprises a Court of First Instance in each Emirate and a two-tier appeal system. The federal Courts of First Instance are trial courts which are located in each major city. Decisions of one of the Federal Courts of Appeal may be appealed to one of the Courts of Appeal in the Emirate in question, and a further appeal on matters of law can then be made to the Court of Cassation in Abu Dhabi. This court also hears any dispute between the individual Emirates, as well as disputes between the Emirates and the federal government.

The Court of Cassation is ultimately responsible for the interpretation of the Constitution and of the constitutionality of all legislation issued at either federal or Emirate level. The structure of the Dubai court system largely parallels that of the federal system, except that the highest court in Dubai is the Dubai Court of Cassation.

The types of courts, which make up the legal framework for each Emirate, are (i) the civil courts; (ii) the shariah courts and (iii) the criminal courts. Generally, the civil courts have exclusive jurisdiction over civil, commercial, company, insurance, banking and maritime matters.

The shariah courts have exclusive jurisdiction in connection with all family law matters and those relating to personal status. Both courts have non-exclusive jurisdiction in respect of criminal proceedings, although in practice civil courts usually hear most criminal matters. The civil courts are expected to apply, in the following order: first, specific provisions of federal or local law; second, the provisions of usage and custom; and third, the principles of natural justice.

All proceedings are conducted in Arabic. Generally only UAE national lawyers are permitted rights of audience before the courts. For evidence to be admissible within the UAE courts, all documentation must be in the Arabic language and/or duly translated. The Arabic translation, if submitted, is deemed to be the definitive and binding version for the purposes of all proceedings before such courts. All translations carried out for the purpose of submittal before the UAE courts must be prepared and certified by a translator suitably licensed by the UAE Ministry of Justice. Overall, litigation is often viewed as onerous and can be unpredictable.

There is no concept of binding judicial precedent or a formal system of court reporting in the UAE, although an informal system of precedent does operate in the Federal Supreme Court and the Dubai Court of Cassation. Therefore, the decisions of a court in one case will have no binding authority in respect of another.

The Dubai International Financial Centre
A recent amendment to the constitution has allowed the creation of ‘financial free zones’, within the UAE. The key feature of such zones is that the civil and commercial laws of the UAE are specifically stated not to apply within them.

To date, the only such zone that has been established is the Dubai International Financial Centre (DIFC). The DIFC has passed a series of its own laws and regulations which are generally based on common law principles (rather than the civil law system which applies elsewhere in the UAE). The DIFC has its own court system which operates in the English language and is currently headed by a retired English Commercial Court Judge.

Amongst its laws, the DIFC has introduced its own trust law, but this is only able to apply in relation to business carried out in or from the DIFC. The DIFC is, however, principally a wholesale banking market, and only high net worth individuals (defined as those with in excess of $1million worth of free assets) may become private clients of its licensed institutions. No financial institution in the DIFC may accept deposits or deal in the UAE’s own currency, the Dirham.

The DIFC has also established its own independent regulator of financial services within the zone, the Dubai Financial Service Authority (DFSA). Amongst other things, the DFSA regulates the establishment of trust services providers within the DIFC.

Trusts
While common law trusts are generally not accepted in the UAE, as is the case generally in the Islamic world, a waqf is recognised under shariah law and can be considered a form of trust. A waqf is used in Islam to mean the holding of certain property, to preserve it for the benefit of certain philanthropy and to prohibit any use or disposition of it outside that specific objective.

A waqf may be held in perpetuity. It applies to non-perishable property whose benefit can be extracted without consuming the property itself. Waqfs are widely used to hold land and buildings. However, there are also waqfs of books, agricultural machinery, cattle, shares and stocks, and cash money. Waqfs may sometimes be used to secure inheritance.

Property and Inheritance

Real Estate
Traditionally, foreign companies and individuals have not been permitted to own land or real estate in the UAE. This position has recently changed, though, with ownership or long-leasehold rights in certain designated areas being permitted to all non-nationals. The applicable regulations vary significantly between the Emirates. In some instances, citizens of the Gulf Co-operation Council (GCC), enjoy additional ownership privileges.

Inheritance
For UAE nationals, property will devolve on death in accordance with shariah principles. For foreigners, inheritance will be determined in accordance with the applicable laws of their nationality (note: not domicile).

Taxation
There is no personal income tax or corporation tax collected in the UAE (other than in respect of certain foreign banks and oil companies). In addition there are no exchange controls or withholding tax in respect of foreign remittances. There are, however, a number of indirect taxes, including a 5 per cent import duty on non-GCC originated products

 

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