UAE capital paves the way for incoming foreign firms

With construction in Abu Dhabi providing major opportunities for foreign contractors in the region, Sofia Parra Martinez, a lawyer at Masons Galadari, looks at how licensing issues vary between the UAE capital and its neighbour, Dubai.

COMMENT, Business

It would have escaped few in the region that Abu Dhabi is offering considerable spoils for the region's contractors and consultants, as recently reported in Construction Week.

Intriguingly, foreign contractors will probably find it easier to register a branch office in Abu Dhabi than if they were to establish a branch for the first time in Dubai. Unlike in Dubai, where it is compulsory to submit to a technical qualification procedure with Dubai Municipality before obtaining a ‘functional' commercial licence to operate, foreign contractors can register a branch in Abu Dhabi without undergoing any technical prequalification or qualification procedure. They need only to present certain corporate and financial documentation before the relevant Abu Dhabi authorities and, of course, rent suitable office space before they obtain a "ready for use" commercial licence.

Once a commercial licence is issued, a contractor can obtain a contractors' classification certificate from the competent authority in Abu Dhabi, by approaching the Contractors Classification Office at the Planning and Economy Department. Obtaining the contractors' classification certificate is necessary for those contractors who wish to bid for Abu Dhabi government projects. For those targeting private developers it is not compulsory, although in practice, some private developers will require or encourage contractors to obtain the classification.

The Abu Dhabi approach of allowing contractors to register an entity without prequalification formalities is similar to that in Saudi Arabia, where a foreign contractor may register a branch office without going through any technical qualification procedures. Although like Abu Dhabi, for specific contracts with Saudi government authorities, a classification certificate from the Saudi Contractors Classification Agency is required. This approach is also consistent with Bahrain and Qatar, where there is no specific governmental authority to prequalify contractors as a pre-requisite to registering an entity. But in these countries, a foreign contractor wanting to operate without a local partner will need to have been awarded a contract in order to establish a contracting entity.

Jurisdictions such as Abu Dhabi, Saudi Arabia, Bahrain or Qatar assume that a private developer, which is to place an order with a foreign contractor, has organised suitable prequalification and qualification hurdles to ensure that the contractor being awarded the project has the requisite capability to undertake the works. In Dubai, however, Dubai Municipality has a different approach, requiring that foreign contractors are "qualified" with it. This qualification process involves preparing documentation related to technical capabilities, technical team and experience. In addition, before the foreign contractor's commercial licence can be ‘activated' or ‘functional', the contractor will have to employ a number of senior engineers, provide them with a residence visa and ‘introduce' them to the Dubai Municipality Contractors and Consultants Qualification Office, which will interview them before giving any final approval. Unless all these formalities are complied with, a branch of a foreign contractor cannot undertake construction works in Dubai, whether for private or public entities. Whilst the first approach is arguably more liberal, the second one is clearly based on a wish to ensure a consistent and suitable standard of contracting resource in Dubai.

Consultants are in a different position because a prequalification procedure is compulsory for them in both emirates. Moreover, for such prequalification, in addition to having to demonstrate experience, technical and human resources capabilities, local authorities impose additional requirements as prerequisites to passing the prequalification and to the obtaining of a Professional Consultancy Licence.

In Dubai, the exercise of engineering and architectural consultancy activities is regulated by Local Order No. 89 of 1994. This regulation introduced (by virtue of an amendment in 1999) the possibility for foreign engineering firms to register a branch in Dubai without appointing a local services agent, a special exemption which is always welcomed by foreign firms. On the other hand, the regulation also introduced a number of rules that foreign engineering firms must bear in mind. The most important one being that a limited liability company is not permitted in Dubai as a legal vehicle to undertake engineering and architectural activities. And that any foreign company willing to establish a branch in Dubai has to show 15 years of uninterrupted legal existence, which may be difficult for firms that have undergone restructuring or a change of legal form in their country of origin.

In Abu Dhabi there is no specific regulation relating to the execution of engineering and architectural consultancy activities, although new regulations are being drafted and may be issued in a few months. Until that time the conditions to be fulfilled by foreign consultancy firms wanting to establish a presence in Abu Dhabi are those that the Contractors and Consultants Classification Office require as a matter of practice. Therefore, while a foreign engineering firm willing to establish a branch office in Abu Dhabi is not exempted from the requirement of appointing a UAE agent, the rule of "interrupted legal existence" is only 10 years and in cases of corporate restructuring or change of legal form, the Abu Dhabi authorities may be able to adopt a more flexible approach.

The formation of a limited liability company is not prohibited in Abu Dhabi for consultancy activities and it may be used as a legal vehicle for engineering consultancies. However, the 51% UAE partner must be a qualified engineer. We understand that the new regulations being prepared may allow the formation of limited liability companies for engineering consultancy services with UAE partners who are not engineers.

When planning activities in Dubai and Abu Dhabi, contractors and consultants have to be very careful to consider all the legal aspects related to registration and qualification in both emirates and appreciate the differences practised in those two emirates. With so many spoils on offer, you do not want to find red tape gets in the way.

"Unlike in Dubai, foreign contractors can register a branch in Abu Dhabi without undergoing any technical prequalification or qualification procedure."

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