Questions Concerned International Business Law - Research Paper Example

International Business Law Question No 1 1. Critically Assess The Legal Risks Definitley May be or Will be Exposing Itself To If It Embarks On Exports Of Chocolates To (UNITED ARAB EMIRATES) There are legal risks while exporting to Chocolates to UAE. The geographical position of UAE is such that it acts as a drug transhipment center for drug traffickers considering its nearness to drug producing nations in the Southwest Asia. Further, UAE’s current status as a chief financial hub, facilitates it to be susceptible to money laundering as the informal banking in UAE is still not regulated adequately. (Index Mundi 2010). UAE has banned the import of Coca, which is known as Erythroxylum Coca, which is bush with leaves that includes a stimuli employed to make cocaine. It is to be remembered that Coca is not to be misconstrued with cocoa, which emanates from cacao seeds and is being mainly used in making cocoa butter , cocoa and chocolates. (Index Mundi 2010). Even if you travel to UK or some other destination through UAE or Dubai, it is advisable not to carry Coca with you. For example, if one is found to be carrying a packet of Khas Khas which is a generally used as spice in some Indian sweets and curries, then it will be considered as a serious offense in UAE. Khas Khas is also notoriously called as poppy seed, which can be germinated to grow narcotics (afeem etc.). (Index Mundi 2010). Thus , one should aware recent developments in the laws in UAE about Coca, and the exporter should clearly distinguish it from cocoa ( ingredients for Chocolates) and in other Gulf countries also which have been declared that carrying Coca is punishable with even worse with death penalty or minimum 20 years of imprisonment. If, a case has been booked by mistreating Cocoa as Coca, then the exporter has to incur huge legal fees as lawyers are demanding heavy fees for appearing in the court which may be amounting to AED 100,000 to plead for any innocence in Coca offenses. Everyone who is having business dealing with UAE should consider the significance of this issue and should never ever carry even minutest quantities of the following items when travelling or exporting the same to UAE or other Gulf countries. 1. Coca 2. Khas Khas whether raw, roasted or cooked. 3. While exporting chocolates to UAE, the exporter should clearly mention that chocolates have been made from Cocoa and not from Coca. (Index Mundi 2010). Question No 2 2. For Ultra Educator Software Limited you have to assess what is the best form of corporate entity that i ideal for them in United Arab Emirates? is it best it they have a branch or should they have a wholly owned subsidiary. Representative Office in UAE One of the ways to represent your business in UAE is to have a representative office as it will provide a physical presence of a foreign company in UAE. Such representative office will be wholly owned by the foreign parent company and it can function with the name of its parent company and will not be regarded as an independent legal entity in UAE. The activities that can be carried out at UAE by the representative office will be limited in nature and the maximum number of employees who can work in such as representative office in UAE is restricted to four. Following is the permitted business activities that a representative office can undertake in UAE: customer service, market research , observation of local tenders , advertising , training and supervision of authorised dealers and commercial agents (Noack 2007:70). Branch Office in UAE A branch office is a fully-fledged business form which is authorised to carryon business actively as mentioned in its business license. The Ministry of Economy of UAE allows only trading activities in branch offices if the parent company is the manufacturer or producer of the traded merchandise. A commercial agent’s service is needed for indulging in import/ export business in other products. A branch office in UAE cannot engage in production activities except which is limiting the activities of a branch office to consulting and service (software) activities. (Noack 2007:70). Similar to a representative office, a branch office in UAE requires the employment of a service agent by a branch office. The branch office in UAE is subject to strict regulations as regards to auditing and accounting. The nature of business activities of the branch office has to be mentioned in an exhaustive manner which is subject to approval by the Ministry of Economy of UAE. (Noack 2007:71). Limited Liability Company Foreign investors who want to have a long-run presence in UAE and in adjustment markets can opt for a limited liability company as a business form. A limited liability company (LLC) can be established by corporate bodies or by an individual with a minimum of two shareholders or members with a maximum of 50 shareholders. In case, if the LLC has more than seven shareholders or members, then it has to establish a board of directors with three or more individuals as directors. Within the four months of the closing of respective financial year, a shareholder’s meeting has to be convened. Minimum capital requirements will vary according to emirates and locations and for Dubai, the minimum capital is AED 300,000 and whereas it is AED 150,000 for other destinations in emirates. Capital may be brought in either in the form of cash or assets or in kind. All the branch office and companies situated outside the free zones is required to file annual financial statements with the Ministry of Commerce. I wish to recommend to have a wholly –owned subsidiary in UAE by Ultra Educator Software Limited to carry on the business. If they wish to set up their wholly-owned subsidiary in UAE, if they set up the same in free trade zones, then there is no need to have local agents or shareholders and they can have 100% shareholding in their WOS in UAE. Question No 3 3.What is the procedure for forming that entity? Aspects such as the minimum required directors and shareholders etc needs to be considered Limited Liability Company Foreign investors who want to have a long-run presence in UAE and in adjustment markets can opt for LLC as a company type. A LLC can be established by corporate bodies or by individuals with a minimum of two shareholders or members with a maximum of 50 shareholders. In case, if the LLC has more than seven shareholders or members, then it has to establish a board of directors with three or more individuals as directors. Within the four months of the closing of the respective financial year, a shareholder’s meeting has to be convened. Minimum capital requirements will vary according to emirates and locations and for Dubai, the minimum capital is AED 300,000 and, whereas it is AED 150,000 for other destinations in emirates. Capital may be brought in either in the form of cash or assets or in kind. All the branch office and companies situated outside the free zones are required to file annual financial statements with the Ministry of Commerce. UAE law stipulates that insurance, banking, financial or insurance companies should be managed as public shareholding companies. In public shareholding companies, the majority of the directors should be UAE nationals and there is fewer elasticity in distribution of profits in public shareholding companies than what is allowable in the case of LLC companies. In case of LLC companies, the foreign equity should not exceed forty nine percent and distribution of profit or loss can be determined in advance. Thus, in LLC companies, UAE nationals should hold a minimum of 51% of shares in LLC companies. The management of the LLC Company can be vested with UAE nationals or with foreign investors or with a third party. In other words, in LLC, all the directors can be foreigners. It is to be noted that as per Federal Law No 8 of 1984 under the UAE’s Commercial Companies Law, UAE nationals must own a minimum of fifty-one percent of all limited liability companies and both private and public shareholding companies. I wish to recommend to have a “wholly –owned subsidiary in UAE” by Ultra Educator Software Limited to carry on the business. If they wish to establish their “wholly-owned subsidiary in UAE”, if they set up the same in free trade zones, then there is no need to have local agents or shareholders and they can have 100% shareholding in their WOS in UAE. Question No 4 4. Does Ultra Educators Software require a local partner for opening their business in UNITED ARAB EMIRATES? Ultra Educators Software Limited is not under obligation to find a local partner if it functions from a free trade zone in UAE. A free zone is a province within a nation (it may be a warehouse, a seaport or an airport or any other designated area) with obviously demarcated borders and has been considered to be outside the country’s Customs' territory. These free zones permit companies to carry out the business efficiently and freely within the laws of the particular authority and offer many advantages. (Oxford Business Group 2008:209). If the investor wishes to set up his business in any of the UAEs free trade zones, then such corporate entity is permitted 100% foreign ownership. For instance, a company can be incorporated and permitted to have 100% foreign ownership in the “Jebel Ali free zone” till the business is carried on within the free zone frontiers. Free trade zones in UAE offer financial incentives to the investors and are given exemption from all duties and taxes charged on production or products. Presently, the UAE offers about 29 active free zones particularising in various industrial activities and approximately nine more in the offspring stage. (Oxford Business Group 2008:209). Companies incorporate in free zones will enjoy the following incentives: 100% foreign stake 100% repatriation of both profits and capital Tax holiday from 15 to 50 years for corporate taxes Free from withholding taxes No personal income taxes. Immunity from custom duties No currency restrictions Each free zone consist its own sovereign authority which administers and helps companies in incorporating their business and also issues them their free trade license. With the help of this license, the company in the free zone is allowed to operate in the particular free zone and also outside the UAE. However, merchandise should be sold through a commercial agent, distributor, representative or the parent company authorised by the particular UAE authority. However, such free trade zone companies can purchase services or products from within the UAE even without a local agent. (Oxford Business Group 2008:209). In UAE, there are following free trade zones for software or IT related companies like Dubai Internet City, Dubai Outsource Zone, Dubai Silicon Oasis, etc. Thus, Ultra Educators Software Limited can start its software operation in any of the above mentioned free trade zone for software companies. Question No 5 5. Is there a Double Tax Avoidance Agreement between UK and UNITED ARAB EMIRATES and how can the companies make use of it. The United Arab Emirates has signed double taxation agreement with many countries, but it has not inked a DTTA (Double Taxation Avoidance Agreement) with Great Britain as on the date. However, UAE government has signed an agreement for the promotion and protection of investment with the United Kingdom of Great Britain and Northern Ireland as early as in 8th December 1992, which came into force 15 December 1993.( Weiler 2005:810). Double Taxation Avoidance Agreements (DTAAs) lists out the regulations for taxation of income by residence and the source nations. Such regulations are prescribed for different varieties of income e.g. dividend, interest, capital gains, royalties, business income etc. Each such category of income is handled by separate Article in the DTAA. Some of the well –known models of DTAAs are UN, OECD , US models and the DTAAs signed between the nations will always based upon such replicas. The articles of such replica DTAAs will lay down the regulations for taxation of income by the residence and the source nations. Each such category of income will be handled by a separate Article in the DTAA. (August 2004). For instance, business income is dealt by the Article 7 of the DTAA. As per this Article, the business income is liable to be taxed in the source nation only if such business is being conducted in the source nation through a Permanent Establishment situated in such nation. The term “Permanent Establishment “(PE) has been defined in the Article 5 of the DTAA. A PE in the source nation is regarded as a substantial participation in the economic life of such a nation, and hence it is considered as a criterion for taxing business income of a non-resident in the source nation. (Rawal 2006:1) Question No 6 6. Are there any other bi-lateral investment treaties? If so what are specific to such treaties. UAE government has signed an agreement for the promotion and protection of investment with the United Kingdom of Great Britain and Northern Ireland as early as in 8th December 1992, which came into force 15 December 1993.( Weiler 2005:810). Some of the main covenants of this investment promotion and protection agreement are detailed below: Each contracting state shall promote and usher constructive scenarios for investors to invest in each of the contracting party's region and shall approve such investments and allow connected activities. (Goode Kronke & McKendrick 2007). A fair and equitable treatment shall be offered to investors, and they should enjoy full safeguard and security for such investments by each of the contracting party. Neither party should indulge in any manner to impair by arbitrary, unreasonable nor discriminatory measures of the administration, use, maintenance, disposal or enjoyment of investments in its regions of investors of the other contracting party. Each contracting state should offer MFN (the Most Favoured Nation) and national treatment status to the investors of from each contracting state. If investment made by the investors of the contracting state has been expropriated by any one state, then adequate compensation should be paid to such investors by that state. Investors of each contracting party will be having liberty to repatriate their investments along with the interest or income earned at any time without any hindrance and delay. Any dispute arising out of any investments made by the investors of each contracting party shall be presented to “adjudication through International Center for Settlement of Investment Disputes (ICSID)” for early resolution of the issue. (Ministry of Finance, UAE 1993). Question No 7 7. Employment issues-Is it mandatory to hire local employees and is it a law that they have to hold key management positions? It is necessary to enter into a national agency agreement with a 100% UAE national owned company or with a UAE national. The UAE agent is regarded to as the sponsor. The UAE national agent is not required to own equity or to participate in the management of the representative or branch office. (Oxford Business Group 2008:209). It is to be noted that many foreign companies are establishing a representative office to develop regional markets outside the UAE. It is to be noted that UAE commercial Companies law requires that a service agent must be employed by the foreign company and such service agent should be an U.A.E national or U.A.E registered company whose 100% ownership is controlled by UAE nationals. Thus, a service agent can act only a liaison agent and there is no need to own any equity and involve in the management decisions of the representative office in UAE. (Noack 2007:70). Ultra Educators Software Limited can also start its WOS in free trade zones as the 100% ownership and management can be carried over by foreigners without engaging a local employee or local director. Question No 8 8. Immigration issues you do not have to discuss this in details but please mention if there are restrictions on employment of British workers In reality, there is no restriction or bar for the British workers to be employed in UAE. As of 2008, there were about 120,000 British nationals residing in UAE. For UK nationals , there is no entry needs of receiving a visa in the UAE and its 7 emirates namely ( “Dubai, Abu Dhabi , Ajman , Sharjah , Ras Al Khaimah , Umm Al Quwain and Fujairah” ) and a free visa will be given on their arrival to UAE which will be valid for 2 months. (Wheeler 1994). The same can be renewed for additional 30 days with payment of fees of Dhs 500. For British nationals who want to take up an employment in UAE, then they have to get a residence visa or employment visa. Such British national should be sponsored by a local company or by the employer for which the British national is working for. A visit visa by a British national can be converted into an employment visa if the British national make a re-entry or apply for such transfer to the immigration department of UAE. An employment visa will normally be issued for 3 years and there will be a medical test and the applicant has to obtain a health card and it should be renewed annually. (Emirates Net Work 2010). List of Reference August Ray. (2004). International Business Law. New York: Prentice Hall. Emirates Net Work (2010). UAE Visa Requirements [online] available from [accessed 8 April 2011] Goode Roy, Kronke Herbert & McKendrick Ewan. (2007). Transnational Commercial Law, Text, Cases and Materials. Oxford: Oxford University Press. Houtte, H.van. (1995).The Law of International Trade. New York: Sweet & Maxwell. Index Mundi (2010). UAE Illicit Drugs. [online] available from http://www.indexmundi.com/united_arab_emirates/illicit_drugs.html[accessed 8 April 2011] Ministry of Finance, UAE (1993). Promotion and Protection of Investments. [online] available from www.mof.gov.ae/Ar/Publication/Documents/Investment/BritainE.pdf[accessed 8 April 2011] Noack Sascha. (2007). Doing Business in Dubai and the United Arab Emirates. London: Grin Verlag. Oxford Business Group. (2008). The Report: Dubai 2008. Oman: Oxford Business Group. Rawal Radhakrishnan. (2006). The Taxation of Permanent Establishments: An International Perspective. New Delhi: Spiramus Press Ltd. Weiler Todd. (2005). International Investment Law and Arbitration: Leading Cases from the ICSID. London: Cameron May. Wheeler S. (1994). The Law of Business Enterprise. 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