UAE legal reforms – new UAE Commercial Register

Introduction - 2021 Reforms

In Q4 2021, as part of its 50th Year Anniversary, the UAE announced some of the broadest changes to its legal landscape in many years. It also introduced major practical changes, not least announcing the change of the working week for the public sector from Sunday-Thursday to Monday-Friday – a move that we expect the private sector will follow. In this series of articles, we summarise some of the key changes introduced in the Q4 2021 reforms.

A table listing out the key new or updated laws can be downloaded here.

This article discusses Federal Decree Law No. 37 of 2021 on the Commercial Register (the New Law).

The New Law reintroduces the concept of a centralised companies registry for all businesses operating in the UAE (other than the DIFC and ADGM). This doesn’t sound like a major move, but in fact, this has the potential to materially change the nature of regular business activities and transactions in the UAE.

Background

From an international investor’s perspective, one of the defining features of business in the UAE and wider Gulf Region is the lack of publicly available information regarding businesses operating in the region. This has been a significant positive for those businesses that prefer to maintain confidentiality around their business dealings, but it also causes difficulties for other businesses and international investors who are more used to transacting in transparent jurisdictions.

This looks set to change. Buried in amongst the reforms announced in 2021, the UAE has announced Federal Decree Law 37 of 2021 on the Commercial Register (the “New Law”), which could bring about one of the biggest changes to the UAE business environment we have seen in years. In brief, this New Law seeks to unify the commercial registers of the UAE into a single set of publicly searchable registers.

In many jurisdictions it is common to have a centralised register of all businesses operating in that jurisdiction, for that register to be publicly available and for it to be legally reliable. This allows business partners, investors and other interested parties to be able to run preliminary independent checks on counterparties, obtain independent “Know Your Client” information and satisfy their internal risk protocols. However, this isn’t the case for the UAE.

The UAE is a Federal system comprising seven independent Emirates – Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al-Quwain. Each Emirate has its own corporate registry and regulator – the relevant Department of Economic Development (“DED”) for that Emirate. Within each Emirate there are varying numbers of freezones with over 30 freezone areas across the UAE. Those freezone areas have their own separate licensing entities and registries (the “Freezone Authorities”). The freezones are largely split into two groups – the financial freezones (being Abu Dhabi Global Market (the “ADGM”) and the Dubai International Financial Centre (the “DIFC”)) and non-financial freezones (being all of the others).

As a result, there are a multitude of different corporate registers and licensing bodies for businesses operating across the UAE, those registries are not currently synchronised and they are not all publicly searchable. This means that companies with the same name and trading name could be operating alongside each other, registered in different Emirates or different freezones, causing significant confusion and in some cases Intellectual Property claims. This also means that it is not possible to search a single database to confirm if a company registered anywhere in the UAE is currently in existence.

New Law

The New Law applies across all Emirates of the UAE and to all non-financial freezones and effectively forms a concept of two separate registers that pool information for all businesses in the UAE (other than DIFC and ADGM) – these are the Commercial Register and the Economic Register.

The Commercial Register

Each DED and non-financial Freezone Authority (which the New Law refer to collectively as “Competent Authorities”) must maintain a Commercial Register of all businesses operating under its purview. This is in fact already largely in place, however the New Law goes much further in formalising these registers.

The New Law has standardised the minimum information requirements that must appear on those Commercial Registers. These Commercial Registers must now contain:

• the name and proof of identity and address of the founders (shareholders) of each business entity;
• the name, address and trading activities of each business entity;
• the authorised signatories/directors/managers of each business entity;
• details of the shareholdes/members and the amount of its capital;
• the legal form of the business entity;
• basic contact information; and
• any other information that might be specified in the Implementing Regulations.

No business shall be permitted to operate in the UAE unless it is registered in the Commercial Register. When registered, each business entity will receive a Registration Certificate and a Commercial Register number. The Implementing Regulations will determine the circumstances where the Commercial Register number should be displayed by the business entity. Our expectation is that this will be similar to the Company Number in the UK, where (for example) the name, trading activities, address, shareholders and other details of a business entity could change over time, but the Commercial Register number should remain permanent to enable easier identification.

The Commercial Register shall include:

• details of mortgages (and similar security) registered over the business entity. The obligation and process for registering these details will be determined in the Implementing Regulations; and
• decisions of UAE courts regarding any bankruptcy filings against the business entity, dismissal of managers, dissolution cases, restrictions against trade and similar cases. These rulings will be automatically informed to the Competent Authority by the relevant Court and it will be the Competent Authority’s obligation to note these cases on the register (i.e. this is not an obligation on the business entity to update its registration detail, rather this will happen automatically).

The business entity (or “applicant for registration”) shall be liable to ensure the information on its Commercial Register is accurate and up to date. While the drafting is not entirely clear, the New Law appears to envisage that business entities cannot rely on incorrect or out of date registration details to defend claims from third parties who will be able to rely on the details in the Commercial Register.

Importantly, it is envisaged that members of the public will be able to search the Commercial Register, at both the Competent Authority website and also the Ministry of Economy website, and can obtain registration extracts for any business entity registered on the Commercial Register. The Implementing Regulations will specify what information will be publicly available. However, the requirement that some information at least will be publicly searchable, and that there will be a standardised approach to disclosing information publicly (on a centralised basis via the Ministry of Economy), is a major step forward for the UAE and business operating in the country. It paves the way for a much more transparent business environment and should be welcomes as a positive step.

The Economic Register

The Ministry of Economy shall maintain a separate Economic Register. This is only managed and maintained by the Ministry of Economy (and not locally by the Competent Authorities). The Economic Register will include all information that is registered on the Commercial Register, plus other information to be specified by Implementing Regulations. We anticipate that this additional information that will only appear on the Economic Register will include things such as annual audited accounts, tax returns/registrations, ultimate beneficial ownership and economic substance filings and so on.

The Economic Register is also expected to include updates and amendments to a company’s information, whenever such information is updated on the Commercial Register. We expect that the purpose of forming two separate registers is to allow the Ministry of Economy to have more control over what information will be made publicly available, and what would remain confidential. This would enable the Ministry to keep some more sensitive financial information for business entities confidential from the public (for the time being at least) while allowing the Ministry to comply with the UAE’s information sharing obligations under the OECD BEPS Initiative and to better position the UAE to implement structures to improve its position in terms of combatting money laundering.

It is expected that the setting-up of the Commercial Registers and the Economic Register is likely to cause various implementation challenges at Federal and Emirate Level, including but not limited to Commercial Register and Economic Register integration challenges between the Competent Authorities and the Ministry of Economy.

Outlook

The New Law has the potential to materially change the nature of regular business activities and transactions in the UAE. Once established, the Commercial and Economic Registers could be upgraded by policymakers in the UAE to include further information on UAE registered entities, it could be integrated with the Emirates Movable Collateral Registry and other registers in the UAE to form a centralised register for each business entity’s information. It will also allow a coordinated approach to ensuring no duplication of company names or trading names and reduce some of the existing confusion that is commonplace in that regard, while boosting ease of doing business by enhancing the ability of trading partners to more easily satisfy KYC requirements for dealing with UAE-registered counterparties. As noted above, overall this should be seen as a significant positive step for UAE businesses and third parties that they engage with.