Tuesday 31 July 2012

Do firms need to submit regular returns?

An Ancillary Service Provider must submit an annual declaration of compliance within two months of its financial year end. Firms must also notify the DFSA of changes in its name, legal status, address, controllers or financial year end. Ancillary Service Providers must also provide the DFSA with a copy of the report that the AMLO provide must submits annually to the Governing Body of the Ancillary Service Provider.

An Ancillary Service Provider must also notify the DFSA of any breaches of the Laws, Rules or events which may mean that the firm is not compliant with the terms of the Code for Ancillary Service Providers.


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What Rules apply to Ancillary Service Providers in DIFC

These Rules are set out in the Ancillary Service Provider (the “ASP”) module of the DFSA Rulebook. There also exist other Rules applying to particular kinds of Ancillary Services. Anti money laundering provisions are also applicable as set out in the ASP Module of the DFSA Rulebook. The DFSA, however, may waive or modify Rules if such proves to be necessary.

Ancillary Service Providers are also subject to relevant provisions of Federal Law No. 4 of 2002, on the Criminalisation of Money Laundering of the UAE and the UAE Penal Code. The AMLO is responsible for reporting suspicious transactions to the relevant authorities, and the type of business conducted by an Ancillary Service Provider determines the level of anti money laundering requirements which it must apply. The DFSA reserves the right to visit the Ancillary Service Providers and to have their compliance with anti money laundering requirements reviewed.


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What does the DIFC offer?

As a new global jurisdiction for financial institutions, the DIFC offers financial institutions and other companies operating within it a number of important benefits and advantages in a highly attractive investment environment, including:

= 100 percent foreign ownership;

= zero percent tax rate on income and profits;

= the freedom to repatriate capital and profits without restrictions;

= operational facilities encompassing modern office accommodation, business continuity facilities, state of the art technical support and data protection facilities, a low cost environment, and the availability of a skilled labour force and highly trained professionals who can be easily outsourced in the region;

= an extensive tax treaty network for UAE incorporated entities;

= internationally accepted laws and regulatory processes;

= a world-class, independent, regulatory agency working alongside other financial regulatory agencies located in major global jurisdictions;

= a wholly transparent operating environment, complying with global best practices;

= a dollar denominated environment;

= an international stock exchange with primary and secondary listings of debts and equity instruments; and

= a variety of legal vehicles that may be established with capital structuring flexibility.

DIFC licensees will not be subject to the relevant UAE or Dubai financial and banking legislation, except for the UAE Central Bank’s anti-money laundering regulations and the Federal Penal Code, imposed within the UAE, which also extend to the DIFC.

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DIFC Ancillary Service Providers (“ASPs”)

A firm providing Ancillary Services (listed below) must be a body corporate or a partnership (as opposed to being a sole proprietorship or an Authorised Market Institution, which could be an exchange or clearing house) and must be registered if it is to carry on one of the businesses set out below, and it intends to have a permanent place of business at the DIFC.

Moreover, such firms can be formed either inside the DIFC under the Companies Law, Limited Liability Partnership Law or General Partnership Law, or alternatively, outside the DIFC but having a branch office in the DIFC that is registered with the DIFC Companies’ Registrar.

An Ancillary Service Provider is one who provides any of the following:

1.      Legal Services 
Providing Legal Services means the application of legal principles or judgment with regard to the circumstances of another Person who is an Authorised Firm, Authorised Market Institution or Ancillary Service Provider, including but not limited to:

(a) Giving legal advice or counsel to such a Person as to their legal rights or the legal rights or responsibilities of others;

(b) Giving legal advice or counsel to such a Person in relation to any DIFC law or legislation made thereunder;

(c) Drafting or completion of legal documents or agreements which affect such a Person's legal rights;

(d) Representation of such a Person in Court proceedings or in an administrative adjudicative procedure in which legal pleadings are filed or a record is established as the basis for judicial review; or

(e) Negotiation of legal rights or responsibilities on behalf of such a Person; but excluding acting as a lay representative authorised by an administrative agency or tribunal, serving as a judge, mediator, arbitrator, conciliator or facilitator; and participation in employment negotiations, arbitrations or conciliations.
2.      Accountancy Services
Providing Accountancy Services means the application of accounting principles or judgment with regard to the circumstances of
another Person who is an Authorised Firm, Authorised Market Institution or Ancillary Service Provider, including but not limited to the following:

(a) Performing audit, examination, verification, investigation, certification, presentation or review of financial transactions and accounting records for such a Person;
(b) Preparing or certifying reports on audits or examinations of books or records of account, balance sheets, and other financial, accounting and Related documents for such a Person ; or
(c) Advising such a Person on matters relating to accounting procedure and the recording, presentation or certification of  financial information or data, including financial information or data required by legislation applicable in the DIFC.

3.      Market information Services

Providing Market Information Services means providing broadcast, online or other services which provide real time information on the prices of Investments on the basis of which Persons conducting Financial Services are or may be accustomed to deal in those Investments. A Person does not Provide Market Information Services if that Person is an Authorised Market Institution.

4.      Compliance Services 

Providing Compliance Services means providing advice, consultancy or other services, to another Person who is an Authorised Firm, Authorised Market Institution or Ancillary Service Provider in relation to compliance matters arising from, or interpretation of the Regulatory Law 2004, the Markets Law 2004 or the Law Regulating Islamic Financial Business 2004 or any legislation made there under. A Person does not Provide Compliance Services in circumstances where the Person providing the advice, consultancy or other services falls within the definition of Providing Legal Services or Providing Accountancy Services.


5. Local Services Office

Operating a Local Services Office means:

(a)      Seeking, or offering generic advice to, potential customers with a view to the provision of Financial Services , either directly  or by a Member of the same Group, from an establishment outside the DIFC ; or

        (b) Marketing and other activities relating to (a), but not falling within the definition of Financial Services in GEN chapter 2.

A Person does not Operate a Local Services Office if that Person is an Authorised Firm.

5.      Management Office 
(1) Operating a Management Office means managing one or more Members of the same Group who are Regulated Financial

     Institutions.

(2) A Person does not Operate a Management Office if that Person is an Authorised Firm.


 Note that an Ancillary Service Provider cannot be registered unless it nominates and puts in place two “Designated Persons”;a Principal Representative and an Anti Money Laundering Officer (AMLO), both who should be ordinarily resident in the United Arab Emirates. The DFSA must be satisfied that these persons are ‘fit and proper’, and the Firm shall bear the consequences of failing to ensure that such is the case. If a Firm appoints one person only to perform both roles, then the DFSA must also be satisfied that that person can perform adequately and without an unacceptable conflict of interests.

An Ancillary Service Provider may not carry on any Financial Services in the DIFC unless it is also licensed as an Authorised Firm, and the DFSA shall take action against any violations of this limitation.


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Monday 30 July 2012

What are the DIFC application fees

The application fees vary according to the provided Financial Services, and the number of employees holding

Authorised Individual status. The maximum overall application fee is capped at US$150,000.
The Financial Services application fee will range from US$ 10,000 to US$ 50,000 depending on the
Financial Services a firm intends to conduct.
The application fee for each Authorised Individual is US$ 1,000 (up to a maximum of US$ 50,000).
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REGULATING OF EMIRATES MONEY CHANGING BUSINESS IN THE U.A.E.( RESOLUTION NO. 123/7/92)

Having perused the provisions of Federal Law No: 10 1980 concerning the Central Bank, the Monetary system and Organization of Banking;
And resolution No. 31/2/1986 regarding regulating of the money changing business in the UAE. ;
And in accordance with the Board of Directors Resolution at its meeting held on 14/11/1992;
Resolved as follows

Article 1                       DEFINATIONS
1.1   For the purposes of the resolution:-

A)  “Licensed person “means any natural or juridical person authorised to conduct money changing business under this resolution.

 b) “License “means license issued by the Central Bank for the carrying of exchange business
 

 c) “ money changing business “ means the purchase and sale of foreign currencies in the form of banknotes and coin , the purchase and sale of traveler cheques , the handling on remittance business in both the local and foreign currencies and other matter approved by the Central Bank.
 

d) “Exempted person” means an established entity to which the definition of commercial bank in Federal Law No. (10) of 1980 is applicable and which is licensed by the Central Bank under said Law.


e)  “Juridical person” means an established entity in accordance with and recognized by the Federal of the UAE and the law of the Emirate in which it is so incorporated or an entity established in and recognized under the Law of another Jurisdiction.


1.2   The terms defined in the Federal Law No. (10) of 1980 shall, unless otherwise defined herein, bear the same meaning when used herein.



ARTICLE    2   License Requirements
No person, whether natural or juridical , shall carry no money changing business in the UAE unless he is licensed in writing by the Governor of the Central bank to do so in accordance with this resolution or unless he is exempted from the provisions thereof

ARTICLE 3 APPLICATIONS FOR THE LICENSE

Any natural or juridical person may submit an application for the license to the Central Bank. Such application shall be made in the form prescribed from time to time by the Central Bank and shall be accompanied by the following document.

A)     A statement setting out the nature and scale of money changing business which the applicant intend to carry on, any plan of the application for the future development of that business and the particulars of the applicant arrangement for the management of that business

B)      Name of applicant and his address , a brief statement about applicant and a copy of his passport and in the case of UAE nationals a copy of the UAE identity Card.

C)      An undertaking to provide in case the application is approved a bank guarantee drawn in favour of the Central Bank equal to 50% of the capital of the applicant

D)     An undertaking to comply with the provisions of Federal Law No. (10) of 1980 regarding money changing business and all resolution , instructions , directives circulars other communication issued by the Central Bank in relation thereto and an undertaking to subject his records and document to to the examination, audit and supervision of the Central Bank.

E)      Any other information or document require by the Central Bank for the purpose of processing the application

Article 4                                         Conditions for granting of license

4.1 The central Bank may, after studying an application duly made in accordance with this resolution and after being provided with all such information, document and reports as may be required, grant or refuse to grant the license

4.2 A license shall not be granted unless the following criteria are fulfilled with respect to the applicant:-

a) Paid up capital of the applicant is not less that DH 1,000,000(Dirham’s one Million) if the applicant is in respect of the purchase and sale of foreign currencies in the form of banknotes and coins, the purchase and sale of travelers  cheques, and other matters approved by the Central Bank, and not less than DH 2,000,000 (Dirham’s one Million) if the applicant include conduct of money changing business as defined in this resolution including handing of remittance business of both local and foreign currencies ;  the opening of each additional branch would require an increase in the paid-up capital

b) The applicant is a U.A.E. national of not less than 21 years of age who is of sound mind and in case of applications  made by companies the share of U.A.E. nationals in the capital shall not be less than 60% of the total paid up

c) That no commercial bank should manage the license person whether such a bank is local or foreign

4.3 No license shall be granted unless the applicant disposes of the necessary personal reliability and    professional qualifications as determind by the Central Bank as follows

a) Personal reliability:

The applicant, or any of the founding members, shall be of good conduct and behavior and shall not have been convicted for any offence involving dishonor or dishonesty or violence, and shall not have failed to honor his liabilities towards banks or other creditors and shall not have been declared bankrupt or reached a settlement with his creditors nor has been subjected to attachment of his assets or put under judicial receivership.

` b) Professional qualifications;

4.4 In approving or rejecting an application for a license made by any company consideration shall be given to any matters relating to another company within the same group of companies as the applicant or regarding any manager or controller thereof as concerns personal reliability or professional qualifications.

ARTICLE 5 NOTICE OF GRANT OF LICENCE OR REFUSAL OF APPLICATION

Where the Central Bank grants a license or rejects an application for a license, it shall give written notice to the applicant accompanied by reasons in case of rejection

 ARTICLE 6 SCOPE OF LICENSE

In a license issued by the Central Bank the following shall be observed:
It shall be granted for a period of one year, renewable thereafter; and

b) lt may contain such conditions as the Central Bank may deem appropriate.

 ARTICLE 7 REVOCATIONS, RESTRICTION AND VARIATION OF LICENSE.

7.1 The Central Bank by a resolution of its Board shall have I the right at any time to revoke, vary, restrict or withdraw any condition imposed on any license after obtaining the comments of the licensed person on the reasons calling for such revocation, variation, restriction or withdrawal.

7.2 The Central Bank by a resolution of its Board shall have the right to revoke the license if:

a) lt appears to the Central Bank that there has been a breach of any of the continuing obligations referred to in Article 8 herein below, or if any condition of the license is not complised with; or

b) The licensed person is in breach of this Resolution or Federal Law No. (10) Of 1980 or any instructions or circulars issued by the Central Bank or if any of the conditions of license is not fulfilled or is incapable of fulfillment; or

c) The Central Bank has been provided with false misleading or inaccurate information by or on behalf of the licensed person or any director, controller or manager of it; or

d) The interests of customers or potential customers of  the licensed person are in any other way threatened,  whether by the manner in which the licensed person is coducting or intends to conduct its affairs or for any  other reason; or

e) An order for the liquidation of the business of the licensed person or any of its major shareholders has been made by a competent judicial authority; or

f) A judicial receiver or manager or any similar officer of the licensed person‘s undertaking has been appointed; or

g) A bankruptcy order or judgment has been made in respect of the licensed person; or

h) The licensed person did not commence its exchange business within six months from the date    of      licence; or

i) The licensed person suspends its activities for a period of three consecutive months;

j) The licensed person, in the opinion of the Central Bank, is unable to pay its debts as they fall due or the value of its assets is, in the opinion of the Central Bank, less than the amount of its liabilities, taking into account its contingent and prospective liabilities; or

k) Execution or other process is issued on a judgment decree or order to sell his assets or part thereof by any  court and is returned unsatisfied in whole or in part or exceeds DH 1,000,000 (One million dirham); or

l) The relevant local authorities withdraw any license issued in favors of the licensed person.

ARTICLE 8 CONTINUING OBLIGATIONS

8.1 The licensed person shall fully abide by the following obligations:-

a) That the total of his assets shall not, at any time, exceed ten times the paid up capital, and the capital  shall not, at any time, be less than the limits approved  in accordance with Article (4) (2) (a);

b) That the management of the licensed person be conducted by such persons as have been previously      approved by the Central Bank;

(C) That the licensed person`s legal status, its ownership and capital shall not be altered without the prior written approval of the Central Bank;

d) That the licensed person shall not merge or amalgamate or enter into a joint venture with any person or entity, without the prior written approval of the Central Bank;

e) That money changing business shall only be conducted from such premises as are previously approved by the Central Bank, and no other non-money changing activity of whatsoever nature is undertaken in the same premises and that such premises shall not be relocated without the approval of the Central Bank;

f) That the trade name, for the licensed person, shall not include the word "Bank" "Financial Institution", "investment /Commercial /Real Estate Company" or any other description that indicates activities other than money changing business;

g) That branches of the licensed person shall not be established without the prior written consent of the Central Bank and no permission for a new branch shall be granted unless the financial conditions of the licensed person are sound and the licensed person is not in breach of any condition;

h) That the licensed person appoints such licensed auditor as is acceptable to the Central Bank and maintains proper accounting records and submits these in such from as required by the Central Bank;

) That dealings between the licensed person and his customers shall be supported by official receipts for all money changing transactions and, that a notice advising customers of the necessity for obtaining receipts regarding all sales or purchases of foreign currencies or travelers  cheques or remittances  conducted through the licensed person, and that  another notice declaring rates applicable to currency  sales and purchases must be prominently displayed at the premises of the licensed person;

R) That a licensed person authorized to issue drafts shall issue them in its own name and drafts must be signed by duly authorized signatories;

k) That the licensed person shall not encumber any of its assets without the prior written approval of the Central Bank;  

l) That any partner of the licensed person shall not withdraw any amount from the business in excess of   his share of the net annual profit;

m) That shareholders, partners, directors, managers, or controllers of the licensed person may not borrow from or lend to the licensed person and they may not have current accounts or any other accounts with the licensed person;

n) That the licensed person shall submit to the Central Bank, within a period not exceeding three months from the date of closing of its financial year, a signed copy of its year end audited accounts, including the auditors 3 report thereon; the financial year of a licensed person must begin on 1st January and end on 31 st December;

o) That the licensed person shall provide, upon the  Central Bank‘s request, all data, information or & statistics, at any time and for any specified period and such information shall be identical to the records of the licensed person and it shall be regarded and treated as confidential information;

p) That the licensed person shall obtain the necessary local licenses and commence its activities within six months of the date of issuance of the license by the Central Bank under this Resolution and the Central Bank shall be provided with a copy of the license issued by the local authorities as soon as it is obtained;

q) An application for renewal of license shall be made within a period of not less than two months before the expiry of the original license or any renewal thereof.

r) The licensed person shall at all times comply with all the laws in force in the U.A.E. including the Civil Law, Companies Law and Criminal Law, and in particular the provisions relating to counterfeit coins and banknotes of which provisions any contravention shall be duly reported to the authorities concerned.

ARTICLE 9 SUPERVISION
The Central Bank reserves the right to inspect the activities of the licensed person at any time it finds it appropriate to ensure adherence to the provisions of this Resolution.

ARTICLE 10 AMENDMENTS 
The Central Bank may make the amendments it deems necessary to this Resolution.

ARTICLE 11 APPLICATIONS AND OPERATION
11.1 This Resolution shall apply to all money changers operating in the U.A.E. which are licensed under this Resolution or Resolution No. 31/2/1986 made on 16.7.1986. All existing money changers in the U.A.E. are required to reconcile their positions with the provisions of this Resolution within one year from the date of its issue. The Governor may extend the said period by such period or periods not exceeding three months, provided adequate reasons are furnished.

11.2 U.A.E. Central Banks Board of Directors Resolution No. 31/2/1986 dated l6.7.l986 is hereby repealed and replaced by this Resolution which shall become operative from the date of its issue.

ARTICLE 12 INTERPRETATION OF THIS RESOLUTION.
Any clarification or interpretation of the provisions of this Resolution may be sought from the Governor of the Central Bank whose interpretation shall be final

ARTICLE 13
This Resolution shall be communicated to whomsoever is concerned with its execution and in shall be published in the official gazzeue in both Arabic and English.


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Sunday 29 July 2012

Are there any restrictions on the type of individual client an Authorised Firm can have?

The DIFC caters mainly for wholesale markets and institutional investors. Therefore, investment firms or banks should ensure that customers meet the criteria set out under the definition of a ‘Client’ in the COB Module of the DFSA Rulebook. A broad description as to who qualifies as a client covers a Person who the Authorised Firm has determined, prior to the establishment of a relationship, is:

(a) An individual who:
(i) has at least $1 million in liquid assets and has provided the Authorised Firm with written confirmation of this fact;
(ii) Appears to the Authorised Firm , after analysis, to have sufficient financial experience and understanding to participate in financial markets; and
(iii) Has consented in writing to being treated as a Client;

(b) An individual who:
(i) Is an Employee of the Authorised Firm ; and
(ii) meets the conditions in (1)
 (a)(ii) and (iii);

(c) An Undertaking which has had, or any of whose Holding Companies or Subsidiaries has had, in the last two years, called up share capital or net assets of at least $5 million. In the case of a limited liability Partnership calculated without deducting loans owing to any of the partners;

(d) a trustee of a trust or pension fund which has had in the last two years assets of at least $5 million calculated by aggregating the value of the cash and Investments forming part of the trust's or fund's assets, but before deducting its liabilities;

(e) a properly constituted government, government agency, central Bank or other national monetary authority of any country or jurisdiction;

(f) a public authority or State Investment body;

(g) a supranational organisation whose Members are either countries, central banks or national monetary authorities;

(h) an Authorised Firm or Regulated Financial Institution ;

(i) an Authorised Market Institution, regulated Exchange or regulated clearing house;

(j) an Undertaking which is a Holding Company or Subsidiary of an undertaking in (h) or (i) with that undertaking’s consent;

(k) a Body Corporate whose Shares are listed or admitted to trading on any regulated Exchange of an IOSCO Member country; or (l) a Restricted Profit Sharing Investment Accounts1 or Special Purpose Vehicle. (2) Any Person who does not meet the criteria in (1) is a Retail Customer.

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Are any financial activities prohibited in the DIFC?

The Federal Decree and the General Module (GEN) of the DFSA Rulebook and the Conduct of Business Module (COB) of the DFSA Rulebook describe prohibited financial activities, including deposit taking from the State’s markets; dealing in UAE Dirham’s by banks; insurance business with individuals; and direct insurance of risks located in the UAE.

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How is setting up in the DIFC different from setting up in Dubai?


The basic principle for setting up anywhere in the UAE is that entities setting up in the UAE must have at least 51% of the company’s shares owned by UAE national(s). Branches of foreign companies may be issued with licenses providing that UAE nationals are engaged as sponsors to carry out promotion, advertising and marketing activities for the business, but not actual trading activities within the UAE. Therefore, in principle, it is not possible for international companies to carry out their trading or service activities in the UAE without local participation.
Notwithstanding, the DIFC allows for the establishment of 100% foreign owned companies, whether as a branch of an already existing foreign company or as a 100% incorporated company within the DIFC.
Further, the companies undertaking the financial services will not be subject to the laws and regulations of the UAE Central Bank regulations instead will be governed by the DFSA laws and regulations.

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Procedure for setting up in DIFC Dubai & applicable legislation

Licensing Requirements for Financial Institutions at DIFC:
Financial Institutions are required to provide:

1. A business plan;
2. Names of key staff, major shareholders (above 5%) and controllers, as well as confirmations as to their   fitness and propriety to conduct the Institution’s business
3. The organizational structure of the proposed institution;
4. Information on operating systems and controls;
5. The Institution’s compliance system and internal audit functions;
6. Anti money laundering procedures and controls; and
7. The financial position and regulatory history of the applicant institution.

Successful applicants, whether incorporated in the DIFC or branch operations, will be subject to all laws, regulations and rules administered by the Dubai Financial Services Authority (the “DFSA”), which is an independent authority acting as the DIFC Regulatory authority, responsible for regulating financial services and licensing entities to carry out those services . Only applicants registered as non-DFSA regulated businesses will not be subject to DFSA regulation.

 

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UAE Banking System

The UAE has a central bank that oversees and regulates all financial institutions carrying on business in the Emirates. There are a wide variety of banks and financial institutions in the UAE offering a broad range of financial services. One of the most recent business initiatives of Dubai has been the establishment of the Dubai International Financial Centre whose primary goal is to fill the large gap that exists between the large European financial centres and those in the Far East and in addition to the normal broad range of financial services offered, the DIFC will include a regional financial exchange and a base for reinsurance operations. Virtually all of the financial institutions carrying on business in the UAE have an established global network and most of the local and foreign banks offer all banking services expected by the international business community and accounts for both companies and individuals can be maintained in most foreign currencies. Although the currency used in the UAE is the AED, international companies are free to conduct their business dealings in any currency and many of the international banks with branch operations in the UAE are in a position to offer foreign currency accounts.

In addition to the regulation of the UAE banks and banking system by the UAE Central Bank, there is a strict rule of confidentiality that prevails within the UAE banking system subject to the UAE recently enacted Federal Law No. (4) in 2002 in relation to the incrimination of money laundering. Under this law all money derived from drugs, piracy, terrorism, illegal arms trade, theft, fraud, embezzlement and even violations of environmental laws will be considered proceeds derived from money laundering activities. As a result of this recent enactment there is a certain degree of transparency in the UAE banking system similar to other sophisticated and well developed banking systems around the world including the automatic reporting to the Central Bank authorities by financial institutions of every financial transaction in excess of Dhs 40,000 (approximately $10, 900 U.S.).

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Manufacturing Joint Venture

There  are  numerous manufacturing operations that  have  been  commenced in  Dubai in the  last 10 years and there are a large  number of manufacturing operations slated  for Dubai. Many of these  ventures will be  the  result of  a  non-UAE company with manufacturing expertise, know-how,  patents  and   unique manufacturing processes joining together with one or more UAE  nationals or local companies to expand their  manufacturing operations in  the  Middle East and   beyond. Our Corporate group has substantial experience with all of the  issues and documentation involved in structuring a manufacturing joint venture in Dubai and other  Emirates starting with the letter  of intent or MOU through to the successful  production of the venture's new  products. Whether your  company is  simply exploring the  opportunities open  to manufacturers who want to do  business  in  Dubai or  other   Emirates  or  you  require assistance with a specific joint  venture transaction, any member of  our  Corporate Commercial  Department would be pleased to  assist and advise you  at any  stage of the  process.

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REAL ESTATE JOINT VENTURES

Many of  the  issues  discussed in  this  brochure may  well apply to  real  estate projects in the  Emirates involving parties from different jurisdictions which might be described as an international real estate joint venture involving two   or  more parties joining together to  construct one  of  the  many   large  real  estate projects underway in Dubai and  other Emirate. In a real  estate joint venture the  "product" is the  project (be  it a hotel, tourist destination, infrastructure or  other  real  estate development) and  the parties from different jurisdictions bring different expertise and  abilities to the  project. The Property group in our  firm has a broad range expertise in international real  estate joint ventures both within and outside of the  United Arab  Emirates  and  additional information in  this  area can be provided upon  request

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Saturday 28 July 2012

Controlled foreign Corporation

|In certain joint venture situations certain co-venture partners will be anxious to ensure that the income of the joint venture entity is not attributed back to one of the co-venturers due to their home jurisdiction tax rules based on an assertion that the joint venture entity is a "controlled foreign corporation" or a "foreign affiliate" (and other similar terminology used by various jurisdictions for income attribution purposes). Again, the legislative structure of the UAE companies law is sufficiently flexible to enable such problems to be addressed. For example, in such an instance it would be advisable for any such co-venturer ("A Co.") running a risk of the joint venture entity being deemed a "controlled foreign corporation" to have the share ownership of the joint venture entity structured as follows. Rather than A Co. being a directparticipant in the joint venture, an offshore purpose trust ("JV Purpose Trust") would be created with A Co. as the "enforcer" to JV Purpose Trust. JV Purpose Trust would in turn cause an offshore IBC to be incorporated which in turn would acquire the relevant share ownership in the Dubai joint venture company ("DubaiCo"). Under existing U.S. taxation rules DubaiCo would arguably not be deemed a controlled foreign corporation of A Co. for the reason that the JV Purpose Trust has no beneficiaries and no settlor. Despite the fact that A Co. is the enforcer to the JV Purpose Trust, that should not result in DubaiCo being a controlled foreign corporation of A Co. Such an ownership structure may very well permit A Co. to accomplish its goals and it is generally possible for the JV Purpose Trust instrument to be drafted in such a way to ensure that A Co. participates in the joint venture financially through consultancy and/or other similar fee arrangements.

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