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GCC Quarterly Review - Q1 2022

The first quarter of 2022 saw a number of legal developments in the Gulf Cooperation Council (GCC) region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates). Our GCC Quarterly Review – Q1 2022 summarises a selection of the major developments in that period, with links to further reading where available.

ADGM

Consultation on changes to capital markets framework 

2022 may see broad-ranging changes to the Abu Dhabi Global Market’s ("ADGM") capital markets frameworks, if the changes proposed in Consultation Paper No. 1 of 2022 (Proposals for Enhancements to Capital Markets and Virtual Assets in ADGM) issued in March 2022 are enacted. The impact on markets-related activities in ADGM is expected to be significant. The proposed amendments to the Financial Services and Markets Regulation and related Rulebook modules relate to virtual assets, securities, derivatives, commodities and benchmarks. Key points to note include:

  • Capital markets: new Profit-Based and Asset-Based Listing Eligibility Tests are proposed to facilitate issuances by issuers with track records of less than the required minimum of three-years and which are engaged in mining or petroleum exploration or which are ‘start-up’ entities. 
  • Offers and Listings by Mining and Petroleum Entities: changes are proposed to the offering, listing and disclosure framework for mining and petroleum entities, which are capital intensive and require funding throughout their exploration and production phases. 
  • Disclosures: enhancements are proposed to the Continuous Disclosure requirements and are intended to strengthen and clarify obligations concerning the disclosure of inside information.
  • Commodity derivatives: price and position limits are proposed for commodity derivative traders in order to prevent excessive speculation or associated fluctuations in commodity derivative prices.
  • Spot commodity trading: a new regulatory framework regulating spot commodity trading is proposed. 
  • Trading of Emissions Instruments: it is proposed that through a new “Emissions Instrument”, the right to emit certain pollutants can be traded through an emissions trading scheme. 
  • Environmental, Social and Governance (ESG): new reporting and disclosure requirements consistent with leading jurisdictions are proposed. 
  • Virtual assets: there are to be no substantive revisions to the existing regime, but revised rules will allow non-fungible tokens activities to be undertaken in certain circumstances, and impose changes to the requirements on the use, sharing and reuse of public keys. 

Data Protection Law grace period ends

ADGM companies must be compliant with the ADGM Data Protection Regulations 2021, following the end of the 12 month grace period for existing entities in February 2022. ADGM companies must ensure that they have appointed a data protection officer and their policies and procedures comply with the requirements on processing personal data, the responsibilities of data controllers, the rights of data subjects and the transfer of personal data to outside the ADGM. 

You can read more about the ADGM Data Protection Regulations 2021 in our previous issue

DIFC

DIFC Court upholds arbitral award

The judgment in Lachesis v Lacrosse [2021] DIFC CA 005 evidences the Dubai International Financial Centre’s ("DIFC") Courts’ pro-arbitration approach in the context of applications to set aside final arbitral awards on various grounds, such as failure to observe arbitration procedures. 

In the judgment, which was handed down on 29 December 2021, the DIFC Court of Appeal dismissed each ground of appeal – failure to sign the award on each page, incapacity and unfair treatment – and upheld the arbitral award, which was issued following arbitral proceedings seated in the DIFC. Although the arbitral award was not signed on each page by the arbitrators, as required by the rules of the relevant arbitral institution, this was not sufficiently material for the DIFC Court to exercise its power to set aside an award under the DIFC Arbitration Law (Law No. 1 of 2008). The judgment makes clear that the courts will generally not set aside an award if only objections as to formalities or technical matters are made. In this case, the court held that there was an overwhelming case for not setting aside the award, as there could be no sensible doubt that the award was made and approved by the tribunal as a whole and by each of the arbitrators, given that it was signed on the final page by each member of the tribunal named on the first page. The DIFC Court also rejected the argument to set aside the award on grounds of unfair treatment, as effectively seeking a re-run of the merits of the case. The DIFC Arbitration Law requires the parties shall be treated with equality and each party shall be given a full opportunity of presenting his case, and all complaints that this requirement had not been upheld by the tribunal were rejected. 

DIFC launches Fintech-focussed “Studio Launchpad”

As part of its DIFC Strategy 2030, the DIFC has launched “Studio Launchpad”, a new unit to enable collaboration, co-creation and fundraising between Fintech start-ups, scale-ups, investors and corporate venture studios in the Fintech space. Supported by the DIFC’s progressive regulatory environment, Studio Launchpad is intended and build a “Ubiquitous Finance” innovation ecosystem. 

Update on recent and proposed amendments to DIFC laws

The DIFC has amended a range of laws, pursuant to the DIFC Laws Amendment Law (DIFC Law No. 2 of 2022). The amendments range from changes to align aspects of DIFC with international best practice and amendments to legislation following public consultation processes. The laws amended include, among others, the Data Protection Law (DIFC Law No.5 of 2020), Insolvency Law (DIFC Insolvency Law No.1 of 2019), Electronic Transactions Law (DIFC Law No.2 of 2017) and the Trust Law (DIFC Law No.4 of 2018). 

Further, the DIFC proposes to amend the Prescribed Company Regulations to expand the current regime, as set out in Consultation Paper No.2 of 2022 launched in April 2022. Under proposed amendments to the Real Property Law (DIFC Law No. 10 of 2018), the powers and remedies of mortgagees in the event of a default by a mortgagor would be clarified and a mortgagee would no longer have a right of foreclosure in relation to secured real estate. 

UAE

Federal corporation tax to be introduced

With effect from 1 June 2023, all businesses in the United Arab Emirates ("UAE") will be required to pay Federal corporation tax for the first time (subject to certain exemptions). Plans for the new corporation tax regime were announced by the Ministry of Finance on 31 January 2022, having been under consideration for several years. The Ministry of Finance consulted on the proposal in a Public Consultation Document on UAE Corporate Tax, which consultation closed on 19 May 2022. The draft law, and implementing regulations, are yet to be published. 

According to the Ministry of Finance Public Consultation Document, UAE companies and foreign companies that have a permanent establishment in the UAE (such as a place of management, a branch or an office) with a taxable income over AED 375,000 or more will be subject to a standard corporation tax rate of 9 per cent. A higher tax rate of 15 per cent will be levied on large multinational corporations with taxable income of more than EUR 750 million in consolidated global revenues. The new corporation tax regime will not apply to partnerships, which will be treated as “transparent” for UAE corporation tax purposes, and there will be exemptions for, among others, Federal and Emirate Governments and Government-owned entities engaged in non-commercial activities, companies wholly-owned by the Federal or an Emirate Government which carry out “a sovereign or mandated activity”, businesses engaged in the extraction of natural resources, charities and investment funds (subject to conditions). Free zone companies (to whom existing tax holidays applicable in the relevant free zone will apply) can benefit from a 0% corporation tax rate. However, where a free zone company has a branch onshore in the UAE, it will be subject to corporation tax on its onshore-sourced income, but will benefit from the 0% corporation tax on its other income. It is expected that a 0% withholding tax will apply on domestic and cross border payments and foreign investors who do not carry on business in the UAE should not be subject to corporation tax. It is also expected that, under the new regime, a UAE corporate shareholder will be exempt from corporation tax on dividends received, and capital gains earned from the sale of shares of a subsidiary company (provided it owns at least 5% of the shares in the subsidiary company). 

Businesses need to assess the financial impact of corporation tax on their profits, to consider tax efficiencies and to ensure their internal processes are ready to meet the requirements to register for corporation tax and file annual corporation tax returns. Transitional rules are expected to be implemented. The Public Consultation Document makes clear that no income tax is proposed for individuals. 

The proposed introduction of the Federal corporation tax regime will fundamentally change the historically low tax environment in the UAE. It evidences another step towards tax regulation at a Federal level, following on from the introduction of the Federal VAT regime in 2017. To date, certain Emirates have imposed corporation taxes on oil companies and branches of foreign banks. The move aligns the UAE regime more closely with aspects of global best practice, by adopting the global minimum effective tax rate under the Organisation for Economic Co-operation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) 2.0 project, agreed in October 2021.

Virtual asset regulation in Dubai

The Emirate of Dubai is the latest jurisdiction within the UAE to regulate virtual assets. Dubai Law No.4 of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai, issued in February 2022, requires an entity carrying out virtual asset activities in Dubai to have a permit from the new Dubai Virtual Assets Regulatory Authority, to have its headquarters in Dubai and to take one of the legal forms approved by the competent authority in Dubai responsible for licensing the entity (which may be onshore in Dubai or in one of the various non-financial free zones within Dubai). The new regime does not apply in the DIFC, which is expected to issue its own regime for crypto assets and security tokens shortly. You can read more about the DIFC’s proposed regime to regulate security tokens in our previous issue.

The definition of virtual assets in Dubai Law No.4 of 2022 encompasses “a digital representation of value that can be digitally traded, transferred or used as an exchange or payment tool or for investment purposes, including Virtual Tokens”. It also includes any digital representation of any other value determined by the Dubai Virtual Assets Regulatory Authority, which has the power to classify and identify Virtual Assets and Virtual Tokens (which term is not defined). 

The range of activities within the scope of new regime is broad and non-exhaustive. Carrying on activities such as providing a Virtual Asset exchange or trading platform (including those using Distributed Ledger Technology), Virtual Asset custody, management or control services or services related to offering and trading in Virtual Tokens, will require a permit from the Dubai Virtual Assets Regulatory Authority.

The Dubai Virtual Assets Regulatory Authority will be affiliated with The Dubai World Trade Centre (“DWTC”) Authority. The DWTC is to become a dedicated hub for emerging industries related to virtual assets, blockchain, cryptography, and decentralised ledgers and oversee a new regulatory framework of virtual asset legislative and enforcement policies, according to an announcement by the Dubai Virtual Asset Regulatory Authority (VARA) in December 2021. The DWTC Authority and the Securities and Commodities Authority (“SCA”) signed an agreement in September 2021 which established the framework enabling the DWTC Authority to issue the approvals and licences for the conduct of financial activities relating to crypto assets within the DWTC free zone. It is understood that the SCA will handle the regulatory oversight of the issuance, offering, listing, and trading of crypto assets as well as the licensing of the associated financial activities that fall under DWTCA's jurisdiction, but the responsibilities and powers of the Dubai Virtual Assets Regulatory Authority will include preparing the strategic plans for regulating virtual asset services in Dubai, regulating and authorizing Virtual Asset Service Providers, and supervising and controlling the issuance and offering of Virtual Assets and Virtual Tokens. How the Dubai Virtual Assets Regulatory Authority and the SCA will co-ordinate their licensing and supervisory relating to virtual assets, in practice, remains to be seen. The Dubai Virtual Assets Regulatory Authority is expected to closely coordinate also with the UAE Central Bank.

The new Dubai virtual assets regime follows Federal regulations on crypto assets introduced in 2020 by the SCA (SCA Board of Directors’ Decision No.23 of 2020 concerning Crypto Assets Activities Regulation) (read more…) and the ADGM Financial Services Regulatory Authority (“FRSA”) regime for “virtual assets” incorporated in the Financial Services Markets Regulations 2015 (FSMR) and Rulebook modules introduced in 2018. 

You can also read about developments in the fintech sector in our blog, FintechLinks.

New law regulates digital services in Dubai 

A new law regulates the provision of digital services to customers by both government-related entities and non-government-related entities in Dubai (including the DIFC). Dubai Law No.9 of 2022 Regulating the Provision of Digital Services in the Emirate of Dubai came into force in March 2022. The law regulates the rules and controls to be taken into consideration when providing digital services, including applicable technical and regulatory requirements, applicable financial regulations and methods of electronic payment, cybersecurity and data protection. The law makes clear that digital transactions have the same status as transactions entered into in person. Under the new regime, the General Secretariat of the Executive Council, the Dubai Digital Authority and the Dubai Electronic Security Centre are expected to issue standards to which digital services providers must adhere, privacy requirements, accessibility and language requirements, and identification technologies, which will align with the Federal Decree-Law No.46 of 2021 On Electronic Transactions and Trust Services (the “Electronic Transactions Law”). You can read more about the Electronic Transactions Law in our previous issue.  

Businesses have a one-year grace period to comply with the new regime. 

Revised corporate governance rules for listed public companies

Corporate governance rules for companies whose securities are listed on the Dubai Financial Market (“DFM”) or the Abu Dhabi Securities Exchange (“ADX”) have been amended by SCA Decision No. 6/R.M/2022 Amending Some Provisions of Public Joint Stock Companies Governance Guide Approved by the Securities and Commodities Authority Decision No. 3/R.M/2020. 

A key change relates to the make-up of the Board of Directors. The company’s Articles of Association must include provisions regarding determine Executive Board members, Non-Executive Board members and Independent Board members, provided that at least one-third of Board members shall be non-executive Independent Board members who have the technical skills and experience required to serve the interests of the Company. When selecting Non-Executive Board members, the company must consider that a Board member is able to dedicate adequate time and effort to his/her role and that such role is not in conflict with his/her other interests. The provisions regarding the appointment of a representative, or representatives, to attend and vote at general assembly meetings on behalf of shareholders have also been adjusted, and address matters such as the power of attorney by which a shareholder may authorise a representative, voting instructions and in person attendance at the meeting. 

New DIAC Arbitration Rules

The Dubai International Arbitration Centre’s (“DIAC”) new Arbitration Rules are now in force and apply to arbitrations which commence after 21 March 2022. 

As under the previous Arbitration Rules introduced in 2018, the DIFC remains the default seat of arbitration, rather than onshore Dubai (unless otherwise agreed by the parties). Seating the arbitration in the DIFC means that the DIFC Court will be the relevant court for the purposes of confirming the validity of an arbitral award and ordering its enforcement against a respondent’s assets. This is often attractive to international parties for several reasons. The DIFC Arbitration Law (Law No. 1 of 2008) is based on the UNCITRAL Model Arbitration Law. The DIFC Courts are common law courts and operate in the English language. Ratified arbitral awards can be referred to the courts onshore in Dubai (or other Emirates in the UAE) under reciprocal enforcement arrangements, regionally in the GCC and MENA region under enforcement treaties, and internationally under the New York Convention. Awards issued following arbitration proceedings seated in the DIFC usually offer a smoother enforcement process onshore in the UAE than foreign awards. The DIFC no longer has its own independent arbitration institution, following the consolidation of the DIFC-LCIA Arbitration Centre under the umbrella of DIAC. It is anticipated that further guidance of the impact of this consolidation on arbitrations already commenced under the DIFC-LCIA Rules. You can read more about the consolidation of the DIFC-LCIA Arbitration Centre and the DIAC in our previous issue

Other key points addressed in the new Arbitration Rules include the parties’ legal fees, which can now be awarded as part of the arbitral award, expedited proceedings in certain circumstances and the consolidation of claims.

Grace period to upgrade SCA licences to end
 
SCA licence holders were required to have upgraded their current financial services licences by 17 May 2022, in line with the new licensing regime set out in the SCA Rulebook and adopted by SCA Decision No.13/R.M of 2021.
 
You can read more about the new SCA Rulebook in our previous issues here and here


Saudi Arabia

Private Sector Participation Law implementing regulations

Implementing regulations under the Private Sector Participation Law (the “PSP Law”) have been approved by the National Centre for Privatisation & PPP (“NCP”), the body responsible for enabling the privatisation of a range of important sectors in support of the Kingdom’s Vision 2030 ambitions.

The PSP Law, enacted in July 2021, provides a comprehensive framework for the regulation of arrangements between the Saudi Government and private sector entities in relation to the provision of infrastructure and other public services projects, including public private partnerships (“PPP”). Government approval is required for private sector participation (“PSP”) projects. The NCP consulted on the draft implementing regulations in June 2021.

The implementing regulations under the PSP Law address issues such as:

  • de minimis value thresholds for PSP projects, which must be met in order for the PSP Law to apply; 
  • the processes for obtaining Government approvals (such as from the NCP) required for a PSP project;
  • procurement methods; the default route for the procurement of PSP projects is public competition, although procurement by limited competition, direct contracting and unsolicited proposals may be possible under certain circumstances;  
  • the requirements for each phase of the public competition procurement process (which comprise the Expression of Interest phase, the Pre-qualification Phase, and the Request for Proposals phase), as well as provisions regarding the award of the contract and commercial and financial close; and
  • the assessment of competition issues.

You can read more about privatisation initiatives and the PSP Law in our Guide to investing in Saudi Arabia

Anti-concealment law compliance grace period ends

Businesses in Saudi Arabia in which foreign nationals and companies have invested were required to be compliant with the Anti-Commercial Concealment Law (Saudi Arabia Royal Decree No. M4/1441 dated 19 August 2020 and Saudi Arabia Cabinet Decision No. 785/1441 on the Approval of the Anti-Commercial Concealment Law) by 16 February 2022. The grace period for rectification of breaches was extended until February 2022, having been originally due to end in August 2021. 

You can read more about the Anti-Commercial Concealment Law in our alert.

Implementation of Personal Data Protection Law postponed

Compliance with the Personal Data Protection Law will be required by March 2023, following a year-long extension to the implementation date. This is to allow for more detailed consideration of the proposed implementing regulations, which were the subject of public consultation in March 2022. The Personal Data Protection Law was issued in September 2021.

GCC

Oman enacts new data protection law

Oman’s new data protection regime will come into force in February 2023, following a one-year grace period for compliance from the date of enactment of Royal Decree No.6 of 2022 promulgating the Personal Data Protection Law in February 2022.  The new law sets out the framework for processing personal data, and it addresses the consent of data subjects, rights of data subjects (including as to the provision of information), the creation of a new register of data processors and controllers, and the requirement to appoint a data protection officer. There are some exclusions, including the processing of personal data where it is in the interest of national security or public interest. 

Qatar regulates payment services

The Qatar Central Bank will now regulate payment services and the participants in those systems, for example, banks and other payment service providers pursuant to Circular No. 23 of 2021 (the “Payment Services Regulations”). Regulated services include e-money issuances, merchant acquiring services and certain other services, such as payment portals. Payment service providers providing regulated services in Qatar must have a license from the Qatar Central Bank (although banks that are already licensed by the Qatar Central Bank do not need to apply for an additional licence) and comply with the operational requirements imposed under the Payment Service Regulations, such as those relating to risk management and anti-money laundering.  The new regime came into force in September 2021.

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