Introduction
The modern United Arab Emirates (UAE) is striving to diversify the economy and minimize the influence of an obscure sector on the development of the country. In this regard, federal legislation stimulates local and foreign investment by providing easier access to the country’s market for foreign companies. This report reviews the existing legal framework that regulates the activities of foreign insurance companies in the UAE. In particular, it examines what forms of partnership are available to enter the market and what legal provisions should be considered. However, with regard to foreign insurance companies, the reformed legislation does not provide significant advantages over the past.
Literature Review
Currently, the UAE is active in enhancing economic development through diversification. This trend is reflected in The Abu Dhabi Economic Vision 2030, which emphasizes that “the Government wishes to see the creation of higher-value employment opportunities, especially for Nationals, and maximizing participation of women in the workforce” (The Government of Abu Dhabi, 2008, p. 5). In particular, the focus is on “enhancing the business environment through further legislative reform and by ensuring that all economic policy is formulated with reference to rigorous data sources and statistical information” (The Government of Abu Dhabi, 2008, p. 5). Thus, the economic development plan implies attracting not only local but also foreign investments for integration into the global economic environment and accelerating the process of diversification of the UAE economy.
Due to existing needs, federal laws have been transformed in recent years to facilitate the entry of foreign companies into the country’s market. The main document that regulates doing business in the UAE is Federal Law No. 2 of 2015 on Commercial Companies (CCL) (Federal Law No. 2, 2015). The document “applies on any economic entity which practice any commercial, financial, industrial, agricultural, real estate or other kinds of economic activity on the mainland” (Business regulations, n.d, para. 4). Exceptions are companies participating in power, oil, or gas sectors, as well as companies wholly owned by federal and local authorities. The activities of these businesses are regulated by other acts and documents. Foreign company activities may also be conducted in Free Zones, which are not covered by Federal Law No. 2 (Federal Law No. 2, 2015). There are also legal features for companies providing private security services (Business regulations, n.d). Thus, insurance companies such as Jordan Insurance Company are governed by CCL.
In modern economic conditions, federal legislation is being transformed to meet current needs. This process is carried out through amending existing laws, in particular, Federal Law No. 2 of 2015. The most significant of these are Federal Decree-Law No. 07 of 2018 and Federal Decree-Law No. 26 of 2020. Federal Decree-Law No. 07 of 2018 changes the attestation process of the Memorandum of Association, which must now be issued in Arabic (UAE President issues Decree, 2018). This amendment is relevant in resolving the claims of partners regarding “the invalidity arising from not writing or attesting the Memorandum or the amendment” (Federal Law No. 2, 2015, p. 5). Federal Decree-Law No. 26 of 2020 declared more fundamental changes to commercial law, as it is aimed at promoting direct foreign investment in the UAE economy (UAE companies law, 2020). In particular, this Decree amended 51 articles of the existing legislation and introduced 3 new provisions (UAE companies law, 2020). In particular, in its modern form, the law significantly facilitates the entry of foreign companies into the UAE market.
The main changes that the Decree implies concern the share of national contribution in foreign companies. Article 10 of CCL stated that “any company established in the State shall have one or more UAE partners holding at least 51% of the share capital of the company” (Federal Law No. 2, 2015, p. 4). This provision did not apply to Joint Liability Companies and Simple Commandite Companies, which is a partnership of UAE nationals. The 2020 amendment declares that Limited Liability Companies (LLC) can be 100% foreign-owned unless they are involved in strategic activities (UAE amends Federal Companies Law, 2020). The list of such activities is determined by the Strategic Impact Resolution No. 55 of 2021 (Sovereign, 2021). This resolution includes insurance in the list of activities of strategic impact (Sovereign, 2021). Additionally, overseas companies no longer need to have a UAE national agent (Sovereign, 2021). Significant changes also affected the conduct of banking and insurance activities.
Prior to the 2020 amendments, the CCL implied strict restrictions on such companies. In particular, Article 11 stated that “only Public Joint Stock Companies may conduct banking and insurance activities” (Federal Law No. 2, 2015, p. 5). The 2020 amendment removes the restriction on investments to third parties and allows other legal entities to conduct banking and insurance services (Sovereign, 2021). In relation to insurance companies, these provisions are the most important. Title 9 of CCL separately regulated the activity of foreign companies in the UAE. In particular, companies registered outside Free Zones could not function without the agent that is UAE national (Federal Law No. 2, 2015). The 2020 amendment changed this article, making it easier for foreign companies to enter the country’s market.
Methodology
The study is a report; therefore, it involves the collection and analysis of theoretical information on the particular case. The main source of collection of the necessary data is the current and relevant legislation adopted by the federal government of the UAE. The chosen approach is the most effective for the purpose of this study, as it allows one to assess the regulatory framework that exists in the country for doing business. The most important aspect is to consider the recent amendments, as well as federal laws and decrees specific to the activities of insurance companies. The research process includes the identification of relevant documents for consideration of the case, the identification of key provisions, and their assessment within the framework of the task.
Results and Discussion
CCL regulates the activities of agents for foreign companies in the UAE. In particular, a foreign company can create a representative office in the country who will act as an agent of the company in the local market (Federal Law No. 2, 2015). According to Article 329, the agent is not financially responsible for the activities of a foreign company (Federal Law No. 2, 2015). All partner losses and profits, in this case, are also reflected in the Memorandum of Association. Representatives and agents of a foreign company “should not enter into contract/write business of their own accord, but rather refer customers to the services/products of their parent company” (Holman Fenwick Willan, n.d, p. 4). Agents or representatives are not a separate company and are not a legal entity; therefore, a foreign company is fully responsible for its activities, as well as losses and profits.
A foreign company can also establish a branch office in the UAE, which is also regulated by the provisions of the CCL. on the contrary, they are completely independent entities that have the right to enter into contracts and are also responsible for losses during the partnership (Holman Fenwick Willan, n.d). At the same time, the parent company must comply with the regulations of the Insurance Authority and have a minimum capitalization to conduct business. There is also a standard form of partnership for insurance companies, a public joint-stock company, but its formation requires a minimum of five members (Federal Law No. 2, 2015). Although the 2020 amendment allows the formation of an LLC, with regard to strategic activities, which include insurance, it is not clear how the authorization of the activity can occur and what conditions for partnership are established.
The activities of agents or branches of the company are regulated by various laws. In addition to the CCL, the listed company types must comply with the provisions of the Insurance Authority Decision No. 25 of 2014 Concerning the Financial Regulations for Insurance Companies (Insurance Authority United Arab Emirates, 2014). Insurance company contracts are regulated by Federal Law No. 5 of 1985 on the Civil Transactions Law (Civil Code) (Federal Law No. 5, 1985). The activities of companies must be properly licensed in the UAE.
To obtain a license, the foreign company must enter the national agency agreement or with a company that is 100% owned by UAE nationals. All companies conducting insurance activities in the UAE are regulated by the Insurance Authority. Additionally, different Emirates have separate bodies, such as the Dubai Health Authority or the Sharjah Health Authority (Wakerley & Barlow, 2020). However, foreign companies may not be regulated in the UAE but are regulated by their country’s jurisdiction (Wakerley & Barlow, 2020). To be licensed, a foreign company must meet the provisions of Article 4 of the Insurance Authority Board of Directors’ Resolution No. 27 of 2020 Concerning the Instructions for Licensing Insurance Producers (Insurance Authority Board, 2020). The company must also comply with Article 3 of Cabinet Resolution No. 42 of 2009 Concerning Insurance Company Minimum Capital Requirements (Cabinet Resolution No. 42, 2009). Thus, the company must first obtain permission to operate in the relevant Department of Economic Development of the Emirates, and after initial approval, apply to the Ministry of Economy. The ministry must be provided with documents in accordance with the CCL regulation, as well as a bank deposit.
All disputes between branch directors or agents are resolved under f the Memorandum of Association. However, when disputes arise outside the scope of this document, the preferable method is international arbitration (Latham & Watkins LLP, 2017). In this case, the solution can be enforced by a foreign parent component or agent/branch. Disputes that arise can also be resolved at the Dubai International Financial Center (DIFC) (Latham & Watkins LLP, 2017). However, in this case, the enforcement of decisions in relation to foreign companies is not regulated by certain guidelines outside the UAE.
Conclusion
The report achieved the goals that were originally set and provides a fairly detailed overview of the legal framework available for partnership with a foreign insurance company in the UAE. The main difficulty with regard to the entry of foreign companies into the UAE market is the choice of a company form that is quite limited for this sector. Although the recent amendments have made it easier for foreign companies to partner with local businesses, these conditions do not apply to insurance as the activity with a strategic impact. In this case, the company must comply with all the conditions that are provided by the provisions of the CCL. However, the tweaks made partnerships with agents and the opening of branches for insurance companies available, which is a significant advantage.
Recommendations
Based on the report, Jordan Insurance Company can be recommended to consider opening a branch in the UAE. This form of the partnership will ensure a sufficient level of autonomy, as well as comply with all regulatory requirements. Companies need to take into account that validity in the UAE requires both prior approval and minimum participation of local capital from them. All of these features need to be considered for compliance with regulatory features.
References
Cabinet Resolution No. 42 of 2009 Concerning Insurance Company Minimum Capital Regulations [PDF-file]. Web.
Business regulations. (n.d). The United Arab Emirates’ Government portal. Web.
Federal Law No. 2 of 2015 on Commercial Companies [PDF-file]. International Labour Organization. Web.
Federal Law No. 5 of 1985 on the Civil Transactions Law of the United Arab Emirates State. Ministry of Justice. Web.
Holman Fenwick Willan. (n.d). A guide to setting up a business in the UAE: The legal requirements [PDF-file]. Holman Fenwick Willan. Web.
Insurance Authority Board. (2020). Insurance Authority Board of Directors’ Resolution No. (27) of 2020 Concerning the Instructions for Licensing Insurance Producers [PDG-file]. Insurance Authority. Web.
Insurance Authority United Arab Emirates. (2014). Board of Directors’ Decision Number (25) of 2014 Pertinent to Financial Regulations for Insurance Companies [PDF-file]. Insurance Authority United Arab Emirates. Web.
Latham & Watkins LLP. (2017). Doing business in UAE: A guide to the financial, business and legal considerations for doing business in the UAE (3rd ed.) [PDF-file]. Latham & Watkins. Web.
Sovereign. (2021). UAE opens up to 100% foreign ownership of companies. Sovereign. Web.
The Government of Abu Dhabi. (2008). The Abu Dhabi economic vision 2030 [PDF-file]. Actvet. Web.
UAE amends Federal Companies Law. (2020). EY. Web.
UAE Companies Law: What do the amendments mean for your business and for new foreign investors? Web.
UAE President issues Decree amending Commercial Companies Law. (2018, September 16). Emirates New Agency. Web.
Wakerley, S., & Barlow, J. (2020). Insurance and reinsurance in the United Arab Emirates: Overview. Thompson Reuters Practical Law. Web.