United Arab Emirates (“UAE”)

Note the UAE is a Federation of seven Emirates (namely Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah and Fujairah). In addition to applicable Federal laws, each Emirate has its own licensing and regulatory regime.

The most common forms of business vehicles used by for-profit organizations in the UAE is an onshore limited liability company (LLC).

Other common forms of business vehicles include establishing branches of a foreign company and the incorporation of companies in free zones. LLCs provide for limited liability of their shareholders and the ability to trade from the UAE (outside the free zone areas). There are restrictions on the activities that an entity established in one of the free zones of the UAE may carry on outside the free zone area in the UAE.

An LLC is formed by a memorandum of association (memorandum) entered into by the shareholders of the LLC. Each Emirate of the UAE has its own licensing authority.

The law provides that an LLC must have capital that is sufficient to achieve its purpose of incorporation. In practice, the level of the capital will need to be approved by the appropriate Emirate authority.

An LLC must be managed by one or more managers as determined by the shareholders in the memorandum. A manager can be one of the shareholders or any other person. Where an LLC has more than one manager, its meetings are regulated by the LLC's memorandum, subject to which the manager(s) have full power to manage the LLC and make binding decisions on its behalf.

The UAE government published Federal Decree Law 26 of 2020 (Amendment Decree) on 27 September 2020. Pursuant to the Amendment Decree, foreign investors can now own 100 percent of UAE companies based in mainland UAE (i.e., outside of the free zones). However, each Emirate retains the authority to determine which activities may be carried out by a company that is majority foreign-owned.

a. The most common form of company in this instance is an LLC. An LLC can have a maximum of 50 shareholders, thereby allowing multiple owners.

b. There are no organizational forms specifically designed for Social Enterprises in the UAE. The most common for-profit organizational form used by Social Enterprises are LLCs.

No, there is no such requirement with regard to any of the for-profit organizational forms.

The UAE has issued Cabinet Decision No. 2 of 2018 on Corporate Social Responsibility (“CSR Law”). The CSR Law imposes an obligation on certain commercial companies (companies owned partially or wholly by federal or local governments) operating in the UAE to report their contributions made to CSR activities on a digital platform operated by the Ministry of Economy. Furthermore, companies that are not obligated to comply with the mandatory provisions of the CSR Law may opt to follow the CSR obligations.

The UAE does not have organizational forms specifically designed for Social Enterprises.  LLC’s and nonprofits (discussed below) are the common forms of organizations used for social enterprises. 

A public benefit association may be set up pursuant to Federal Law No. 2/2008 Concerning Public Benefit Associations and Civil Society Organizations. Public Benefit Associations are generally used to form organizations that engage in social, religious, cultural, scientific, educational, professional, feminist, creative, artistic activities, or for providing humanitarian services. However, public benefit associations are organized for the purpose of engaging in public interest activities without obtaining material profit. Due to lack of a distinct organizational form for Social Enterprises, private associations (commonly referred to as nonprofits) are commonly formed to operate Social Enterprises. In this note, we have used the term private associations and nonprofits interchangeably. 

Nonprofits licensed in the Emirate of Dubai are authorized to practice non-profit activities in fields such as social, health, educational, cultural, scientific, creative, professional and humanitarian fields and any other fields that seek to achieve public benefit as determined by the Director General of the Community Development Authority (“CDA”). Under the Dubai Private Associations Law, private associations fall under the following two categories:

1. Non-governmental association which comprises of legal entities and individuals practicing any of the non-profit activities specified by the Dubai Civil Organizations Law; and
2. Non-governmental institutions which are formed pursuant to the allocation of a sum of money to carry out any of the activities permitted by the Dubai Civil Organizations Law.

One of the conditions for forming a Nonprofit is that the number of founders shall not be less than (10) ten members which shall include at least two UAE nationals. The CDA Director General has the authority to amend the membership requirements.

A Nonprofit acquires a legal personality upon its license and registration being issued in the private associations record and publication in the Official Gazette.  The license is valid for a period of one year and can be renewed for further periods of between one and three years with the approval of both the CDA and any other applicable third party regulatory authority.

There are restrictions on the financial resources of Nonprofits, which shall only comprise of the organization’s members' subscriptions, returns of the activities, services and investments the Nonprofit is licensed to conduct, and donations, subsidies and grants received by the Nonprofit (as approved by the CDA). Furthermore, the Nonprofit must provide information on its financial sources, how its finances will be utilized and the measures it shall implement to monitoring its expenditure. These reporting requirements are to be filed on an annual basis.

The Dubai International Financial Centre (“DIFC”) is a free zone in Dubai that allows Nonprofits to be formed and operate in its jurisdiction, pursuant to the Non-Profit Incorporated Organizations Law 2012 (as amended by DIFC Law No. 8/2018). A DIFC non-profit incorporated organization shall only engage in approved activities and shall not engage in activities for the purpose of commercial or financial gain for its founding members or other members and it shall not distribute profits or revenues to its members.

Social Enterprises that are organized as Nonprofits enjoy the same tax and registration benefits as other nonprofits and have the same burdens and restrictions, and there is no lesser reporting or faster formation process for Social Enterprise nonprofits as compared to other nonprofits. The license registration fee and renewal fee vary for a Nonprofit formed in mainland Dubai in comparison to a Nonprofit formed in the DIFC.

Not every type of business venture may be eligible to form as a nonprofit, as they are subject to the licensing requirements under the law and, primarily, must be formed for the purpose of undertaking “societal development” activities.   

For instance, an organization that engages in micro-finance activities may not necessarily qualify for being registered as a Nonprofit with the CDA.

Due to the stringent licensing and establishment regulations for NGOs, entities that operate as Social Enterprises often tend to use an LLC structure. The absence of corporate income tax encourages Social entrepreneurs to use an LLC structure rather than the Nonprofit/private organization route.

Due to the lack of a distinct organizational form for Social Enterprises, Nonprofits are commonly used for social enterprises and they are, as far as we are aware, not treated differently.  There are no “hybrid” forms of Nonprofits in the UAE.

Federal Law No. 13/1976 Concerning Cooperative Associations (“Cooperatives Law”) regulates the formation, licensing and operation of cooperatives in the UAE.  Under the Cooperatives Law, membership is optional and restricted to UAE citizens.  Members have equal rights and obligations regardless of the shares owned by them.

There are restrictions on the distribution of dividends, with a holder of shares in the cooperative not receiving dividends in excess of 10% of the nominal amount and the distribution of net profits must be based on the volume of transactions of each member with the cooperative.

The Cooperatives Law also offers certain exemptions, these include the following: (i) exemption on registration fees; (i) exemption on all taxes and fees due on contracts and deeds relevant to the cooperative’s formation, registration and amendment of bylaws; (iii) exemption of customs fees concerning tools and equipment imported serving the cooperative's objectives. Please note, in the event the cooperative disposes such tools and equipment to third parties within one year of importation, it shall be subject to the customs tariff in force at the time of importation of the equipment.

If a Social Enterprise decides to form as a Nonprofit or use the form of an LLC, it would not be subject to any additional reporting requirements (other than the reporting requirements that a Nonprofit and LLC has to follow) by virtue of them being a Social Enterprise.

Social Enterprises formed as a private organization in Dubai report primarily to the CDA, while for-profit Social Enterprises report to the Department of Economic Development in the Emirate of its incorporation.  

The UAE does not follow a system of binding precedent.  As a consequence, the reporting of court judgments is not well developed. There is not much relevant case law or jurisprudence addressing Social Enterprises.

The Securities and Commodities Authority (“SCA”) has issued a board decision adopting the Corporate Governance Guide that applies to public joint stock companies (“PJSCs”) listed on the Abu Dhabi Securities Exchange (“ADX”) and the Dubai Financial Market (“DFM”).  The guide sets out the ESG requirements to be adhered by PJSCs.

ADX and DFM are members of the Sustainable Stock Exchanges Initiative, a platform that encourages corporate transparency on ESG (environmental, social and corporate governance) issues.

In the UAE, Social Enterprises are not subject to specific ESG requirements.

Except as stated in paragraph 9 above, there are no ESG requirements that apply to investors.

No major investor classes are required to look at ESG issues.

In addition to the Corporate Governance Guide, listed PJSCs must comply with the Global Reporting Initiative standards and the sustainability standards that are issued by DFM and ADX.

Whilst large companies may consider ESG issues when making their investment decisions, it is not a legal obligation to do so.

Generally, investors tend to consider factors (other than profit) such as political and social stability, availability of skilled workforce and infrastructure.

In the UAE, the funding for for-profit companies engaged in social impact activities is the traditional investment route. However, there are certain instances where for-profit entities engaged in social impact activities are granted government funding. Please see query No.4 on page 16.

Under UAE law, only non-profit organizations may undertake non-profit activities and thereby receive grants and charitable investments. For a non-profit organization in Dubai to raise funds, it must obtain prior approval from the Dubai Islamic Affairs Charitable Activities Department, Dubai.

Under the Dubai Private Associations Law, a private association is prohibited to collect donations or advertise on the collection of funding without obtaining the prior written consent of the authority.

For-profit impact investments have been increasing in the UAE and investors are becoming more familiar with them. Many prominent companies are undertaking funding that have a social impact as well. A few examples include;

1. DEWA’s AED 100 billion Dubai Green Fund to finance environmentally-friendly projects at favorable interest rates; and
2. DP World’s sustainable development financing framework, which enables the company to issue green, social, or sustainability bonds and to utilize the proceeds to finance social and environmental sustainability projects.

Government funding and support are gaining traction in the UAE.  A few examples include:

1. The Abu Dhabi Ma-an’ social incubator program offers social entrepreneurs’ investments and a stipend, mentorship and networking opportunities to develop their innovative ideas for social impact into a Social Enterprise or not-for-profit association.
2. The Government of Abu Dhabi has launched the Ma’an grants program which provides eligible social organizations and not-for-profits with financial assistance to build and grow their organization and thereby increase their social impact.
3. Ma’an Social Investment Fund is the first fund of its kind in the region that aims to tackle the most pressing societal challenges in Abu Dhabi and provide a sustainable source of funding for social causes and providing a fundraising platform for social causes.

Not that we are aware of.

Listed PJSCs are required to prepare and publish an annual sustainability report that sets out the company’s long-term strategy and its impact on the environment, society, the economy and governance (“ESG”). The report must address the company’s ESG impact, specifically, it must address the following:

1. impact of the company’s operations on the environment and the communities in which it operates;
2. how the company’s policies and operations contribute or could contribute to social justice, the well-being of workers and employees and its surrounding community;
3. how the company is contributing to the economic benefit of society; and
4. the impact of the company’s operations on the local economy.

Atmah, the GCC regions first social impact bond was piloted in 2020 in Abu Dhabi as part of an agreement signed between the Department of Community Development, the Authority of Social Contribution (Ma-an), Aldar Education, Aldar Properties and Zayed Higher Organization for People of Determination, to support the employment of people of determination. The social impact bond will be used to launch a new vocational pilot training program.

As of date, this is the only social impact bond launched in the UAE.

There are restrictions on Nonprofits obtaining donations.  The Emirate of Dubai has issued a decree (Decree No. 9/2015 On the Organization of Fundraising in the Emirate of Dubai) on fundraising which applies to all donations collected in any way and for any purpose in Dubai. Please note, this also includes the special development zones and the free zones (including DIFC).

Pursuant to the decree, for an organization to raise funds, collect donations and advertise on fundraising activities, it has to first apply for a fundraising license from the Islamic Affairs and Charitable Activities Department. The department shall review the application and issue its decision within fifteen days from the date of submission. It is to be noted, the application shall be considered rejected in case no decision is issued within the above stated time period.

The Central Bank regulates and licenses loan-based crowdfunding activities in the UAE. The Central Bank’s regulation applies to crowdfunding companies that engage in loan-based crowdfunding in the UAE, irrespective of where the hosting platform is located. Please note the Central Bank’s regulations do not apply to the DIFC and ADGM.

We note that Dubai Next has launched its crowdfunding platform which aims at offering an integrated digital platform to innovators from diverse nationalities in Dubai to secure required funding to launch their projects.

In the DIFC, the Dubai Financial Services Authority (“DFSA”) has launched a regulatory framework for loan and investment-based crowdfunding platforms. Equity crowdfunding platforms are already subject to regulation by the Dubai Financial Services Authority within the Dubai International Financial Centre (DIFC).  There are no other crowdfunding regulations in the UAE that specifically apply to Social Enterprises. 

The UAE does not have a federal corporate income tax regime.  Taxes are determined on a territorial basis in each Emirate and in practice, corporate income tax is currently only enforced on foreign oil companies (engaged in upstream petroleum activities) and branches of foreign banks.

Furthermore, free zones in the UAE (that have their own taxation rules) typically offer tax holidays to businesses set up in the free zone. These tax holidays are for a period between 15 to 50 years and are considered to be renewable.  Therefore, most entities registered in the UAE, whether an LLC or Nonprofits are currently not required to file corporate income tax returns.

Under the current tax regime in the UAE, tax exemptions, double taxation of gains, expenses deductibility for contributions made to a Nonprofit have limited practical relevance.

Social Enterprises and Nonprofits may be subject to Value Added Tax (“VAT”).  VAT is imposed on most supplies of goods and services in the UAE. Therefore, VAT is chargeable on goods and services supplied by Nonprofits in the UAE if the Nonprofit is considered to be a chargeable person.

Where an activity is performed by a Nonprofit that is acting in its charitable capacity and it makes no charge for the supply of goods or services concerned, the activity would ordinarily not be treated as being liable to VAT as there is no charge unless the supply is treated as a deemed supply (please see below).

As stated above, under the current tax regime in the UAE, tax benefits for contributions made to Social Enterprises have limited practical relevance.

Tax benefits for Social Enterprises have limited practical relevance.

We are not aware of any such reciprocal recognition of tax-exempt status.

The UAE does not have regulatory sandboxes for social enterprises.  That said, the UAE has a regulatory sandbox in the fintech field.

The ADGM has established RegLab, a regulatory framework that provides a controlled environment for fintech participants to develop and test innovative fintech solutions. 

The DFSA has created its own regulatory sandbox, known as the DFSA Innovation Testing License (ITL) Programme, which allows participants to test new and innovative financial products, services and business models.

The UAE government has recently been active in launching initiatives through which it provides certain incentives to small businesses.  

Pursuant to Federal Law No. 2 of 2014 On Small and Medium Projects and Enterprises, the UAE government aims at providing support and enabling the development of small and medium-sized enterprises (“SMEs”) in order to support the national economy. All federal agencies shall allocate 10% of their purchases of goods, services and contracts to SMEs.

 SMEs can register in the federal supplier register to apply for all government bids and tenders proposed by federal government entities. The government also offers incentives such as a 50% discount on first-time registration in the federal supplier register, free registration renewals, exemption for SMEs from paying the registration fees for the first two years from the establishment date.

In the Emirate of Dubai, Dubai Law No. 23/2009 On the Mohammed Bin Rashid Establishment for the Development of Small and Medium Enterprises applies to SMEs. Under this law, all government bodies, establishments and companies owned by the Government of Dubai and in which it holds more than 50% of the shares shall undertake to allocate 5% of its procurements to SMEs and shall prioritize, subject to certain conditions, registered SMEs for tenders offers and bids.

The Dubai Government has also launched the Mohammed bin Rashid Fund for Small and Medium Enterprises. The Fund aims to maximize financing solutions for innovative businesses and encourage Emirati entrepreneurs. The Fund offers Emirati nationals between 21 and 65 years of age, a loan depending on their funding needs. The Fund also aims at providing seed capital loans to startups and credit scheme loans, which will be offered through banking partners and guaranteed by the Fund to both startups and existing businesses.

Yes. As noted above, non-profit activities are exclusively undertaken by Nonprofits which are established in accordance with the law governing private associations.  Further, private associations/Nonprofits are subject to different compliance requirements from traditional enterprises For example, a Nonprofit’s funds must be deposited in the Nonprofit's account, held with a licensed national bank; (ii) the Nonprofit is obligated to inform the CDA within 10 days of funds being deposited into its bank account, (iii) Nonprofits are required to submit annual plans and programs of work, marketing material to the CDA, and (iv) audited accounts must be submitted yearly.

The Department of Community Development in Abu Dhabi and the Community Development Authority in Dubai are the competent authorities that oversee the activities of Nonprofits in the two Emirates. On the other hand, the Department of Economic Development is the competent regulatory authority for overseeing the activities of for-profit companies in the UAE.

The CDA is responsible for licensing Nonprofits and their branches in Dubai, investigating complaints against Nonprofits, identifying violations and proposing legislation regulating Nonprofits. 

Under the Dubai Private Organizations Law, a private organization may be dissolved if it is unable to meet its financial obligations.

An LLC must be licensed by the relevant emirate level authority. Once all necessary documentation is in order, the registration and licensing process take approximately ten working days. However, it can take longer if the subject license requires the approval of an additional regulatory body. The costs for registering an LLC start at AED 25,000 and may vary based on the type of license.

The Dubai Private Organizations Law does not indicate the timeframe and filing fees to form a private organization. There will be additional expenses for leasing premises and obtaining permits from other applicable authorities.

That being said, the Dubai Private Organizations Law requires the application for establishment of a Nonprofit to be submitted to the CDA and the said authority shall have 30 days to issue its decision. This period may be extended once and the application shall be considered rejected if the decision is not issued within this period. On obtaining preliminary approval the applicant has to complete the final licensing procedures.

With regard to Nonprofits, they have to be approved by the CDA, as explained above.   SMEs have to be registered to participate in the various schemes offered by the government.

Certain Social Enterprises based in UAE are certified by organizations outside the UAE. For instance, UAE-based Social Enterprise Palestyle, is certified by Social Value & SROI (Social Return on Investment) the UK.   As far as we are aware, there are no certifications issued by the UAE Government. 

Due to strong encouragement from the UAE Federal Government as well as the Governments of Abu Dhabi and Dubai, the UAE is emerging as a dynamic hub for start-ups.

There are about 14 certified incubators in Dubai with one of them being the Hamdan Innovation Incubator. These programs offer a platform for entrepreneurs to test their start-ups. The DIFC Fintech Hive and ADGM RegLab, encourage and provide a controlled environment for entrepreneurs to develop and test innovations in the fintech field.

Social Enterprises that register as Nonprofits are closely monitored and heavily regulated in the UAE and face barriers in scaling their operations. Furthermore, these Nonprofits cannot raise funding without seeking approval from the CDA.

On the other hand, companies undertaking for-profit impact activities are easier to incorporate and less regulated.  It is, therefore, easier for them to form and flourish in the UAE. However, the lack of a specific license for Social Enterprises does have an impact on obtaining funding from social investors.

Whilst there are organizations such as Ma-an’ that have recently set up a social incubator program, that focuses on encouraging innovation and entrepreneurship to develop solutions to social, cultural, or environmental challenges, there is not sufficient data available to assess the impact of social enterprises in the UAE.

Generally, there are no laws in the UAE that are obstructive to the formation of Social Enterprises. However as stated above, in practice, with regards to Nonprofits, the process of their establishment is long and difficult. 

Not that we are aware of.

In our view, a separate category of license should be introduced for Social Enterprises. This is likely to have an impact on creating more visibility for Social Enterprises which in turn may improve access to capital, particularly patient capital from social investors.

ESG requirements should be adopted as part of general corporate governance practices.

Nothing that we can think of.