Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

The relevant legislation consists of Federal Law No. 4 of 2012 concerning the Regulation of Competition (the Competition Law) and its implementing regulations, issued under Cabinet Resolution No. 37 of 2014 (the Regulations). Two more recent Cabinet Resolutions have further clarified the scope of the legislation: Cabinet Resolution No. 13 of 2016 - which in particular defines ‘dominance’ and sets the relevant merger filing thresholds by reference to an at least 40 per cent market share - and Cabinet Resolution No. 22 of 2016 - which defines small and medium enterprises (that are exempt from the Competition Law) by reference to number of employees and revenue, and which vary by sector.

The Competition Law and the Regulations establish a comprehensive regime of both merger control and prohibitions on anticompetitive agreements and abuse of a dominant position. Responsibility for enforcement lies with the Competition Department of the Ministry of Economy, supported by a Competition Regulation Committee, chaired by the Undersecretary of the Ministry of Economy.

The Competition Law is still in its early stages. Although the Law was originally published (and officially came into force) in February 2013, the applicable merger filing thresholds, however, only came into force in August 2016 and there remain certain gaps in the legislation, to be addressed separately through further Cabinet Resolutions. At this stage, there is also no guidance on how the Competition Law may be interpreted and applied in future. The Competition Law and the Regulations are largely based on EU competition law and reflect many elements of EU and international norms. Pending practical experience and further clarification from the authorities, it may be expected therefore that the Competition Law will seek to follow EU precedent.

Scope of legislation

What kinds of mergers are caught?

Merger control clearance is required for transactions that result in the acquisition of direct or indirect control through total or partial transfer (through merger or acquisition) of ownership or benefit in assets, equity, shares or obligations from one entity to another.

What types of joint ventures are caught?

The Competition Law does not deal explicitly with joint ventures. However, the definition of ‘economic concentration’ for the purposes of merger control review (see question 2) is very broad and may apply to a broad range of joint ventures. It is not clear whether, in implementing its new merger control regime, the UAE will seek to follow EU precedent in distinguishing between ‘full-function’ joint ventures (which are notifiable) and ‘non-full-function’ joint ventures (which fall to be assessed under the provisions relating to restrictive agreements). This is an area that may receive further clarification as the Competition Law is brought into force and applied in practice.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

The Competition Law defines a notifiable economic concentration as ‘a total or partial’ transfer of ownership rights, resulting in the ‘direct or indirect control’ of one entity over another, and where the relevant market share thresholds are met (see question 5). Under certain circumstances, it is possible therefore that acquisitions of minority interests will also be caught. However, there is no set threshold for such partial transfers of ownership rights, and the Competition Law and Regulations also do not contain any definition of ‘control’. Consequently, it remains to be seen how this will be applied in practice, and in particular the extent to which the Competition Law will follow EU precedent in this regard.

Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

According to the Law and the recently published merger filing thresholds, merger control clearance is required for transactions resulting in an at least 40 per cent market share and that may affect competition in the relevant market, in particular by creating or enhancing a dominant position.

The first criterion (ie, the reference to a 40 per cent market share) is in line with neighbouring countries in the region that follow a similar model (noting that the Competition Law also provides that the Cabinet may increase or decrease the applicable market share thresholds in accordance with the evolution of the market). With respect to the second criterion, however (ie, the requirement that the transaction ‘may affect competition’), this is more unusual in that it appears to require a substantive competition assessment at the initial stage of deciding whether the deal needs to be notified, and it remains to be seen how this will be applied. It is also not clear whether any increment in market share is required, or whether the threshold may be met by one party alone, even in the absence of any competitive overlap. At this stage it is unclear whether it may be possible to engage informally with the competition authority ahead of a transaction, to determine whether or not a filing would be required. Absent further guidance on this issue, it is likely that, in practice, companies exceeding the relevant market share thresholds would need to notify their deal, irrespective of this additional substantive assessment.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

For transactions that meet the notification thresholds, filing is mandatory and suspensory. However, the Law currently excludes from its application a number of economic sectors, in particular telecommunications, financial services, cultural activities, oil and gas, pharmaceutical production and distribution, postal services including express delivery, electricity and water production and distribution, sewage and waste disposal, and land, sea, air and rail transport. Transactions involving companies in these sectors would not trigger a merger notification to the Ministry, although other considerations relating to separate sector-specific regulatory regimes may apply. Transactions involving small and medium-sized enterprises (as defined under Cabinet Resolution No. 22 of 2016 - see question 1), and entities that are either owned or controlled by the government, are also not subject to notification.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

The Competition Law and Regulations apply to all entities operating in the UAE, as well as to activities that take place abroad and have an effect on competition in the UAE.

Foreign-to-foreign mergers are therefore captured in the UAE where the jurisdictional thresholds are met, regardless of the location or nationality of the parties, subject to the local effects test (ie, the parties must operate in UAE markets or engage in activities abroad that have harmful effects on competition in the UAE).

Are there also rules on foreign investment, special sectors or other relevant approvals?

In general, foreign ownership of UAE onshore companies is limited to a 49 per cent shareholding. These restrictions on foreign ownership require all UAE companies to have a minimum of 51 per cent ownership by UAE nationals at all times. In certain industry sectors, different foreign ownership restrictions, which further reduce the permitted level of foreign ownership, may be applicable. This general rule is subject to certain exceptions in connection with investors who are nationals of states that are members of the Gulf Cooperation Council. Aside from these shareholding restrictions, there is no separate approvals process for foreign investment in the UAE.

However, sector regulators and other government authorities in the UAE retain a certain degree of discretion to approve or reject proposed transactions affecting the UAE. Sector-specific regulation plays an important role with respect to many industry sectors in the UAE. Thus, for example, while the regulated sectors listed in question 6 have been excluded from the scope of application of the Competition Law, investment in these sectors (including in relation to a foreign company operating through a branch in the UAE) will generally require a separate approval procedure to be undertaken with the relevant regulator, in particular to update the company’s UAE licences and registration. Considerations in this context will not necessarily or exclusively be competition-related, and sector regulators and other government authorities retain considerable discretionary powers to reject a transaction where they have concerns, including in relation to national security or public policy.

Notification and clearance timetable

Filing formalities

What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

For transactions that trigger the notification obligation, the Regulations provide that filing must be made at least 30 days prior to the conclusion of the draft contract or agreement bringing about the economic concentration.

It is not entirely clear how this provision relating to a ‘draft contract or agreement’ will operate in practice, and whether the sale and purchase agreement may in fact be signed, with closing conditional on receipt of competition clearance. Parties may be reluctant to approach the competition authority until they have a firm deal, evidenced by a legally binding agreement.

Failure to notify a notifiable transaction may result in fines of between 2 and 5 per cent of the infringing company’s annual revenue deriving from the sale of the relevant goods and services in the UAE. Alternatively, where this cannot be assessed, a fine of between 500,000 and 5 million UAE dirhams may be imposed.

The Competition Law also provides that a court may order the closing down of an infringing establishment for a period of three to six months, with the infringement decision published in daily newspapers.

Further, third parties who have been harmed by an infringement may also seek damages.

As noted in question 1, the Competition Law is still in its very early stages, and there have not been any enforcement cases to date.

Which parties are responsible for filing and are filing fees required?

The Competition Law and Regulations require that the ‘concerned entities’ submit a notification for approval of the transaction. Notification is to be made by one entity, authorised to make the filing by the other concerned entities by power of attorney. While the term ‘concerned entity’ would obviously include the entity or entities acquiring control, and information is also required of the target, it is not clear to what extent responsibility for filing (and any liability for failing to file) may also fall on the business being acquired. This may be clarified in due course through the issuance of further Cabinet Resolutions. The Competition Law and Regulations do not currently mention any filing fees.

What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

Once a notification has been received and all the formal requirements fulfilled, the Ministry will issue a notice to the notifying party confirming that the notification is complete and starting the timetable for review.

From then, the Minister must issue a decision on the concentration within 90 days, which may be extended by an additional 45 days. If no decision is issued during this period, the concentration will be deemed approved.

Notification under UAE merger control law is suspensory, meaning that the parties cannot close prior to clearance.

Pre-clearance closing

What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?

Closing before clearance, or any other form of integration before clearance (gun jumping), may result in a fixed fine of between 50,000 and 500,000 dirhams. Other penalties, including the temporary closing down of the establishment for three to six months, or damages claims by affected third parties, may also be applicable (see question 9). As mentioned, the Competition Law is still in its very early stages and there have been no enforcement cases to date for failing to notify, or for closing before clearance.

Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?

As noted in question 7, the Competition Law and Regulations do not distinguish between mergers involving local or foreign entities. While there has not been any enforcement practice to date, in the future, it cannot be excluded that sanctions would apply in the context of foreign transactions, where these meet the notification thresholds in the UAE.

What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

As noted in questions 7 and 13, the Competition Law and Regulations do not distinguish between mergers involving UAE-based or foreign entities, and a transaction that triggers the notification requirement in the UAE should therefore not be closed prior to obtaining clearance, regardless of the location or nationality of the parties.

As there is currently no enforcement practice of the new Competition Law in the UAE, it is not clear whether and to what extent ‘hold-separate’ or other arrangements, by which the UAE business alone might be made subject to merger clearance in the UAE, may be deemed acceptable by the UAE authorities. These and other possible solutions will need to be tested with the Ministry as competition law and practice develop in the future.

Public takeovers

Are there any special merger control rules applicable to public takeover bids?

Mergers and takeover bids relating to public companies listed on the Abu Dhabi Securities Exchange or Dubai Financial Market are subject to discretionary prior approval from the Emirates’ Securities and Commodities Authority and to filing with the relevant stock exchange and potentially with other local regulators in the relevant emirate. Stake building in public companies is also subject to discretionary approval.

The Competition Law, however, does not deal specifically with the issue of public takeover bids, and there are therefore no special merger control rules applicable in this context.

Documentation

What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?

The procedural requirements for a merger control filing are set out in the Regulations. Notification must be made in Arabic using the official form from the Ministry and three copies submitted. The following documents must also be appended to the filing, for both the acquirer and the target (including a certified translation of each document that is not originally in Arabic):

  • memorandum or articles of association;
  • draft share or asset purchase agreement;
  • audited financial statements for the past two financial years; and
  • details of shareholders and their levels of shareholding.

The notifying parties must also submit a report on the economic dimensions and the competition effects of the concentration. This includes, in particular, a requirement to identify upfront any potential competition issues resulting from the transaction, and to suggest possible remedies.

Investigation phases and timetable

What are the typical steps and different phases of the investigation?

The timetable for review is 90 days from receipt of a complete notification, which may be extended by a further 45 days. The Competition Law and Regulations do not currently provide for an expedited review process. This may in part be explained by the fact that the merger control regime is intended to apply only to those transactions that, prima facie, are likely to raise competition concerns, therefore making an expedited review less likely. It remains to be seen, however, whether in practice, faster clearances may be obtained.

What is the statutory timetable for clearance? Can it be speeded up?

Once a notification has been received, a review of the transaction will be undertaken by the Competition Regulation Committee, which may hold meetings with the notifying parties and with other stakeholders. The Committee may also seek the views of third parties and other authorities in the UAE.

After it has completed its review (within a maximum 135 days from receipt of the notification), the Committee will submit a report on the transaction to the Minister of Economy, with a recommendation on the appropriate resolution to be issued. As in other jurisdictions, the transaction may be either approved or prohibited, or alternatively approved subject to conditions.

Substantive assessment

Substantive test

What is the substantive test for clearance?

The substantive test for clearance is set out in the Competition Law and the Regulations, which provide that a notifiable transaction will be approved if it shall not affect competition negatively or if its positive economic impact would outweigh any negative effect on competition. The first test is phrased in rather general terms, and for now there is no guidance on how it will be applied in practice; while the second test appears to pave the way for the consideration of efficiencies.

The Regulations further specify the list of criteria according to which the Competition Regulation Committee will evaluate the anticipated effects of a transaction on competition. These include factors that are commonly found in other jurisdictions, such as the level of actual and potential competition, the likely impact of the transaction on market concentration (with, specifically, reference being made to the likelihood of the emergence of a ‘dominant position’ on the relevant market), price levels and barriers to entry. The impact of the transaction on ‘innovation, creativity and technical efficiency’, as well as its impact on consumers’ interests, are also explicitly stated to be taken into account in the merger control assessment.

In addition to the above, other non-competition-related factors may also be taken into account in the merger control assessment. Of particular note is the Regulations’ explicit reference, in the merger control assessment, to the extent to which the transaction will ‘contribute to the promotion of investment, exportation or supporting the capacity of national entities to international competition’. Such a clear ‘national champions’ policy is unusual in the context of existing competition law frameworks, and it remains to be seen how this will be applied in practice - and particularly how this policy factor may interplay with the UAE’s other international obligations, for example in the context of its accession to the WTO.

Is there a special substantive test for joint ventures?

There is no special substantive test for joint ventures. Unlawful coordination between independent parents may be assessed under the provisions relating to restrictive agreements and practices (article 5 of the Competition Law).

Theories of harm

What are the ‘theories of harm’ that the authorities will investigate?

The factors set out in the Regulations for the assessment of a notified concentration (see question 19) suggest that the Competition Regulation Committee will look beyond the sole question of market shares and dominance, and will take into account a wide range of factors to carry out an economic analysis of the anticipated effects of the merger on competition.

Non-competition issues

To what extent are non-competition issues relevant in the review process?

See question 19. The Regulations specifically envisage that industrial policy, and in particular ‘the promotion of investment, exportation or supporting the capacity of national entities to international competition’ will be a relevant consideration in the assessment of a notified concentration, where the merger might otherwise lead to a lessening of competition.

Pending application of these rules in practice, however, it is not clear how the Competition Regulation Committee will balance such public interest considerations against the potential detriment to competition resulting from the notified transaction.

Economic efficiencies

To what extent does the authority take into account economic efficiencies in the review process?

Where a transaction is likely to lead to a lessening of competition, the Competition Law explicitly paves the way for the taking into account of efficiencies, by requiring the Committee to consider whether any positive impact from the transaction may exceed its detriment to competition. Further, the Regulations explicitly provide that ‘the potential impact on innovation, creativity and technical efficiency’ should be part of this assessment.

However, as there is as yet no practical experience of the Competition Law, the extent to which the Committee is likely to be willing to take these and other efficiencies into account, as well as the related burden of proof on the notifying parties, remains to be determined.

Remedies and ancillary restraints

Regulatory powers

What powers do the authorities have to prohibit or otherwise interfere with a transaction?

Following the review of a notified concentration, the Competition Committee has the power to either prohibit the transaction, or alternatively to approve it subject to conditions. In the latter case, the Competition Law and Regulations further provide that the Minister of Economy may revoke the approval of a concentration (i) if it is found that the circumstances under which the approval has been granted no longer exist, (ii) if the parties fail to comply with any commitment on the basis of which conditional approval was granted or (iii) if information provided during the review process is shown to have been misleading or incorrect.

While the ability to revoke a competition clearance is common to most other competition law regimes, where the parties either fail to observe agreed commitments or are otherwise shown to have provided false or misleading information, the reference in (i) to a potentially wider change in circumstances is unusual and may warrant further clarification from the authorities.

Further, as noted in question 11, during the duration of the review process (which can last up to 135 days), the suspension obligation applies, and parties may not take any step towards consummation of the transaction pending clearance.

Remedies and conditions

Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?

Yes. Approval of a transaction may be conditioned on the fulfilment of certain pre-approved remedies. The Competition Law and Regulations do not currently detail whether the Committee is likely to favour only structural remedies, or whether behavioural remedies may also be considered. In addition, as noted in question 16, the parties are required at the outset, in the notification form, to provide suggested remedies to counter any competition concerns.

What are the basic conditions and timing issues applicable to a divestment or other remedy?

Neither the Competition Law nor the Regulations specify conditions or the timing relating to the implementation of remedies.

What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?

Not applicable, as there is currently no public record of enforcement practice under the UAE Competition Law, although the authority is now accepting notifications.

Ancillary restrictions

In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?

The Competition Law and Regulations do not specifically cover the topic of ancillary restrictions, and so there is currently no guidance on this issue, pending enforcement practice of the Competition Law.

Involvement of other parties or authorities

Third-party involvement and rights

Are customers and competitors involved in the review process and what rights do complainants have?

Yes. The Regulations provide that the Competition Regulation Committee may seek the views of parties that may be affected by the transaction and other stakeholders, to assist with its review of the transaction. In particular, the Committee may send information requests to such parties (to which they must respond within 15 days), as well as hold meetings with them to seek their views and recommendations on the transaction.

With respect to complainants, the Competition Law and Regulations provide that any concerned person may submit a complaint to the competent authority concerning any violation of the Law. The complaint shall be made in writing, using a form prepared by the Ministry for that purpose, and identifying, in particular, the name of the complainant and respondents, the provisions of the Law claimed to have been violated, as well as relevant facts and evidence to support the complaint. The Committee, on accepting the complaint, shall notify the defendant and all interested parties within 10 days. It is not clear from the Competition Law and Regulations, however, what the time frame is within which complaints may be submitted, in the context of a transaction.

Publicity and confidentiality

What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?

The Regulations provide that the Competition Regulation Committee will keep a special register of notifications. Where information is to be treated confidentially, the parties must submit a non-confidential summary of the notification, sufficient to clarify the content of the confidential data. It remains to be seen in practice how much detail will be expected in relation to this non-confidential summary.

In addition, the Competition Law explicitly makes it a duty for the Ministry to ensure the confidentiality of information received and reviewed in the context of notifications. Breaches of confidentiality by Ministry personnel are punishable by a fine of 50,000 to 200,000 dirhams.

Cross-border regulatory cooperation

Do the authorities cooperate with antitrust authorities in other jurisdictions?

As there has been as yet no enforcement practice of the Competition Law, there is no track record of the Competition Regulation Committee cooperating with antitrust authorities in other jurisdictions.

Judicial review

Available avenues

What are the opportunities for appeal or judicial review?

Resolutions issued by the Minister, including merger control decisions, may be appealed within 60 days of the decision. The Competition Law and Regulations do not contain further details in relation to the appeals process.

Time frame

What is the usual time frame for appeal or judicial review?

See question 32.

Enforcement practice and future developments

Enforcement record

What is the recent enforcement record and what are the current enforcement concerns of the authorities?

As has been noted above, the Competition Law is still in its early stages. However, given the relatively long list of current exclusions from the Law (see question 6), it is to be expected that, in its initial enforcement phase, the Competition Regulation Committee will focus on a much more limited number of sectors. Businesses operating in sectors that are not excluded may therefore be particularly at risk.

Reform proposals

Are there current proposals to change the legislation?

There are currently no proposals to change the legislation, although as noted above, further clarity is still expected to be provided with respect to a number of practical aspects relating to the implementation of the Law.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?

A limited number of notifications have been submitted and cleared by the Authority. There is currently, however, no public record to access the notifications made and clearances issued.