What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?
The Competition Law requires that entities seek merger clearance from the Ministry if they are contemplating a transaction that:
- will result in the acquisition of a direct or indirect, total or partial interest or benefit in assets, equity, or obligations of another entity to which the Competition Law applies;
- will create or promote a dominant position; or
- may affect the level of competition in the relevant market.
In addition, the Competition Law prohibits entities from entering into agreements or arrangements (which should be broadly construed) the aim, object or effect of which is to restrict competition.
Various regulations enacted pursuant to the Competition Law (Cabinet Decision No. 37 of 2014, the Implementing Regulations and Cabinet Decision No. 13 of 2016 and Cabinet Decision No. 22 of 2016 (the Thresholds Regulations)) set out the market share thresholds for the application of: (i) the de minimis exception (to the prohibition on restrictive agreements and abuse of dominant position); and (ii) merger control rules, as well as the criteria for identifying small and medium undertakings, which are exempted from the Competition Law. The Threshold Regulations set the market share threshold for establishing dominance at 40 per cent of the total transactions in the concerned market.
Certain entities and industry sectors are expressly exempted. These include:
- federal and local government entities, and entities owned or controlled by the federal or emirate governments;
- entities operating in telecoms, financial services, pharmaceutical production and distribution, cultural activities, oil and gas, postal services, including express delivery, electricity and water production and distribution, sewage and waste disposal, transportation and railways; and
- small and medium-sized entities (SMEs). The latter are defined in the Threshold Regulations into three sectors: trade, industry and services.
For the trade and services sectors, an undertaking will be considered an SME if it has 200 or fewer employees and annual revenues do not exceed 200 million dirhams. For industry sectors, the thresholds are 250 employees and 250 million dirhams.
Transparent thresholds are provided in respect of the banking sector, which requires approval for all proposed mergers within the banking sectors from the UAE Central Bank, and acquisition by banks of non-banking related shares exceeding 5 per cent of control. However, these thresholds do not trigger a review based on national interest, and merely represent the general requirement for approval.National interest clearance
What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?
It is possible to apply for an individual exemption from application of article 5 (banning restrictive agreements) and article 6 (prohibiting abuse of a dominant position) of the Competition Law, through notifying the relevant agreement or practice to the Ministry’s Competition Committee by means of the relevant notification form. The application forms for the purpose of individual exemption applications and merger control notifications have been issued by the Ministry. The procedure for seeking an exemption is set out in the Threshold Regulations and involves a written application to the Competition Committee seeking an exemption for a transaction. A merger clearance request is triggered (and must be filed) in cases where there is an ‘economic concentration’, unless an exemption applies, irrespective of whether the parties to the concentration have a formal presence in the UAE. The definition of ‘economic concentration’ is defined broadly under the Competition Law and includes any act resulting in a total or partial transfer of shares from one company to another which allows the company or group of companies to control, whether directly or indirectly, another company or group of companies. The entity seeking the exemption must provide copies of its constitutive documents and financial statements (for the past two financial years). In addition, it must submit an economic rationale for the transaction and its reasons for requesting the exemption. All documents submitted must be in Arabic, but may be accompanied by an English translation. The applicant may identify possible confidential information contained in the materials submitted to the Competition Committee, and in this case must also submit a non-confidential summary of it. Further documents and information can be requested during the proceedings by the Competition Committee. The Competition Committee can request third parties that may possibly be affected by the concentration to submit their comments in this regard within 15 days from the request. To gather additional information and insight on the possible impact of the notified concentration on the market, the Competition Committee can also hold interviews with the relevant undertakings and interested third parties in the course of the proceedings. At present, there are no fees payable for a merger clearance request.
Which party is responsible for securing approval?
For exemptions, the relevant party seeking an exemption must apply. For other cases of notification (such as of dominant position), the interested parties are responsible for seeking and securing approval. As in the case of notifications for exemption, the Competition Committee can request third parties that may possibly be affected by the concentration to submit their comments in this regard within 15 days from the approval request.Review process
How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?
Unlike other international jurisdictions with clearly regulated review processes, the UAE’s informal regulatory regime does not establish specific time frames for the approval of FDI transactions. These may vary significantly, depending on the particular authority involved in granting required approvals.
A specific example of relevant time frames is the response to applications for approval from the Ministry under the Competition Law discussed previously, which will occur within 90 days (135 days if additional information is requested from the applicant). If the Minister does not issue a decision by the specified deadline, the transaction shall be deemed to be authorised.
Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?
Approvals must be sought and granted prior to engaging in a transaction. Heavy fines may be imposed for failure to wait for approval to be granted.
The Competition Law provides for potentially far-reaching penalties in the event of violation. These penalties include: fines of between 500,000 and 5 million dirhams for entering into restrictive agreements or abusing market dominance; and fines of 2 per cent to 5 per cent of the infringing entity’s annual revenue derived from the sale of the relevant goods and services in the UAE for failure to notify a transaction that must be notified pursuant to the Competition Law. Continued violation of the provisions of the Competition Law may result in fines being doubled. The courts may also order the violating enterprise to shut down operations for a period of between three and six months. An entity violating the Competition Law also exposes itself to possible criminal sanctions.Involvement of authorities
Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?
There is no formal review process of FDI transactions in the UAE, and relevant policy considerations inform the general approval process, which also considers economic and cultural objectives. It is common practice to seek informal pre-approval in relation to any transaction requiring government approval. Therefore, foreign investors should contact the relevant authority informally to discuss the envisioned transaction prior to making a formal application. As a result, they will be informally notified of particular aspects of a proposed transaction that, in the reviewing authority’s opinion, will pose a concern. Such informal notification may also include information relating to national security or other concerns that could lead to the rejection of the proposed transaction.
When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?
In general, the starting point is the department of economic development in the applicable emirate. Depending on the proposed business activities, other industry sector authorities may need to be approached.
What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?
There is no legislative guidance with respect to retroactive powers in relation to the approval of foreign investments. However, the government generally enjoys broad powers in this regard and future changes to approve of FDI can occur on a policy basis under the current regulatory environment.