- Newsletter
- April 27, 2017
Introduction
The Goods and Services Tax (GST) is soon going to be a reality in India and the government is taking effective steps to achieve its target implementation dated which is 1st July 2017 waiving the existing dual system of taxation of goods and services in the form of VAT, sales and service tax. It will subsume all existing indirect taxes in India. GST has been recognized as one of the most decisive tax reform in the history of tax reforms in India. The GST bill passed in Lok Sabha on 29th March 2017 ratifying the earlier one passed on 8th August 2016 and received nods of the upper house of parliament on 6th April 2017. We shall discuss the latest updates on GST in the coming paragraphs.
Recent Developments
- Four Supplementary bills viz. GST (compensation to States) Bill, 2017, Central GST (CGST) Bill, 2017, Integrated GST (IGST) Bill, 2017 and the union territory GST bill was approved by the GST council during its various meetings held in February and March 2017. These bills were later approved by the union cabinet chaired by the Prime minister of India on 22nd March 2017 before they are presented in the budget session of parliament.
- To involve taxpayers and provide regular updates about the developments, the ministry of finance launched a mobile app for tax payers and stakeholders on 24th February 2017.
- The Central Board of Excise and Customs (CBEC) will soon be renamed as Central Board of Indirect Taxes and Customs (CBIC) and the minister of finance has also approved reorganization of field formations. It shall be operational from 1st June 2017
- The union cabinet also given its nod to the amend the relevant existing legislation for smooth implementation of GST and to annul the Acts which will become irrelevant post implementation of GST.
- GST council has decided a four-tier tax rate viz. 5%, 12%, 18% and 28%, with lower tax rate for essential items and the highest for luxury goods and demerit goods like tobacco and aerated drinks. Council also approved a maximum cess of 15% for highest rate.
- A GST working group have been set up via CBEC order dated 24th March 2017 to examine sector specific issues to identify and address the peculiar issue relevant to sectors.
- The prime minister of India has announced a major public outreach program to enlighten the stakeholders about the provisions and benefits of GST.
Bottom Line
Implementation of GST is in the final stages of completion and it is visible from proactive efforts of governmental authorities. The GST council is already discussing the draft rules for Registration, valuation, input tax credit and transition towards GST. It is now high time for the industry as well as professionals to tighten their belts to ensure they are well prepared before the GST go live on papers.
- VAT
- April 27, 2017
The General authority for Zakat and taxes (GAZT), the regulatory body for taxation in Kingdom of Saudi Arabia (KSA) have recently updated some notable points on their website about Value Added Tax (VAT). It illuminates the stakeholders about various key facts about implementation of VAT.
Key Facts
- Website clearly states that the legislation for VAT in KSA is developed and shall be implemented with effect from 1st January 2018 as planned.
- The standard rate of VAT is 5% on most of the goods but certain essential items will be charged at zero rate or exempted from VAT.
- The authorities shall allow businesses to register for VAT in the second half of the year 2017. The businesses having annual turnover of SAR 375,000 will mandatorily be required to register for VAT. The businesses having annual turnover of SAR 187,500 shall have the option to register voluntarily for VAT.
- It clarifies that businesses will have to file regular VAT returns for VAT charged, VAT collected and the differences between the two. However, the frequency for filing returns have not yet been clarified.
- Book keeping requirements are mentioned but clarifications and technicalities are awaited regarding details of documents and financial statements to be maintained.
Bottom-line
The recently published FAQ’s signifies the strong intentions of KSA to achieve its target date of implementation of VAT in KSA from 1st January 2018. The GAZT is already working on the finalization of VAT policies, and practical issues related to governmental coordination and dealing with increased work load post implementation of VAT. The GAZT is also working on developing its own capabilities and conducting VAT awareness programs for stakeholders.
- Newsletter
- April 27, 2017
India has jumped one spot to rank 8th in the 2017 AT Kearney Foreign Direct Investment (FDI) Confidence Index with 31 percent of the surveyed respondents being more optimistic on economic outlook over the next three years.
“Investors see India as a vast and diverse up-and-coming market with plans to increase investments there over the near to medium term,” said Vikas Kaushal, Partner and Head of India at AT Kearney.
Investor confidence in India has been growing steadily over the last two years, making it one of the top two emerging market performers on the FDI Index, said the UK-based AT Kearney in the index.
“Reform efforts by the current government have improved the country’s investment environment. This includes the national goods and service tax (GST) reform, the largest non- direct tax reform in India in recent years,” Vikas said.
“India’s vast domestic market is an added attraction for foreign companies. Investors are looking at India’s phenomenal economic performance as a key selling point.
“It is forecast to be the fastest-growing major economy in the world in the coming years, which should provide a variety of investment opportunities to global firms,” he said.
Among the investors surveyed, over half said a successful GST implementation would cause them to significantly or moderately increase their investment in India.
More broadly, 70 percent of the respondents plan to maintain or increase their FDI in India in the coming years, according to Kearney.
India’s government is considering further policy reforms to further boost FDI inflows. A proposal to loosen FDI regulations on the retail sector is being evaluated, in part to support the country’s ‘Make in India’ initiative and bolster the manufacturing industry, said the consultancy.
The government is eliminating the need for FDI approvals in sectors where licenses are also required, such as defence, telecommunications and broadcasting.
- Newsletter
- April 27, 2017
Demonetisation impact was noticeable on the informal sector which was dependent on cash, in the later part of the FY17, said IMF’s Deputy Director for research Gian M Milesi-Ferretti.
International Monetary Fund (IMF) maintained India’s growth forecast at 7.2% in FY18, saying the growth path is on-track with medium-term prospect favourable. However, in an exclusive conversation with Network18’s Marya Shakeel, IMF’s Deputy Director for research Gian M Milesi-Ferretti cited temporary negative consumption shock induced by cash shortages as a speed bump.
He said the demonetisation impact was noticeable on the informal sector which was dependent on cash, in the later part of the FY17 but is likely to felt even in early part of FY18.
“India is still a fast growing large economy in the world and we actually have forecast for India which envisages somewhat faster growth going forward, thanks to the implementation of GST,” he said.
- Article, VAT
- April 24, 2017
VAT Introduction
Value Added Tax (VAT) is an indirect tax levied on supplies. GCC have entered a treaty to introduce and implement VAT and Excise across the GCC to create a wider scope of revenues for the Government. All the countries in the region shall prepare and implement their legislation for VAT based on the basic principles set out under the treaty. The Kingdom of Saudi Arabia (KSA) and United Arab Emirates (UAE) will be introducing VAT with effect from 1st January 2018. It is advisable for the organizations entering long term agreements with their clients, shall have clear clauses about restructuring in cost and prices and terms payment of VAT, post implementation of VAT.
Chargeability
All the supplies of goods and services will be categorized into three categories:
- Supplies chargeable at a Standard Rate of 5%: The standard rate for VAT is kept at 5% across GCC. All the supplies shall be subject to VAT at the rate of 5% if they do not fall under the below two categories. Renting and Buying of commercial property is an example of supplies chargeable at 5%.
- Supplies chargeable at Zero percent: The lawmakers understand that certain necessary items should be charges at lowest possible rate to ensure that it will not burn a hole in the pockets of residents. Necessary goods and services e.g. healthcare and education are kept under this category. The countries can have their own list of items to be charged at zero percent rate.
- Exempt Supplies: The goods and services that will not be subject to VAT are exempt supplies. Local passenger transport, renting and buying of residential property are kept under this category. It is important to note here that the companies providing exempt supplies shall not be required to register for VAT and cannot claim any input credit for the VAT paid on purchases.
Operational Highlights
VAT system in UAE shall be a federal law. Important terms e.g. taxable person, economic activity, input and output tax, reverse charge, tax group, place of supply etc. shall have the same definition for all GCC nations as defined in GCC VAT treaty. UAE shall also use the same. The GCC treaty makes use of reverse charge mechanism extensively, which is justifiable also as they are making a law for multiple countries same in line with European Union.
The detailed rules for supply of goods and services are under the drafting stage and shall be majorly divided into following categories:
- Basic Rules for Goods – Depends upon the location of goods when supply took place
- Special Rules for Goods – Shall be applicable to cross border supplies and for the goods where location of goods cannot be ascertained e.g. Electricity, Water.
- Basic Rules for Services – Shall be applicable on starting point of Service
- Special Rules for Services – Shall be applicable for cross border supplies and electronic supply of services.
Registration for VAT
All the entities have total annual turnover of AED 375,000 are mandatorily required to be registered for VAT. The entities whose total annual turnover of AED 187,500 have the option to voluntarily register themselves for VAT.
Calculation of threshold limits
- Total values of supplies made in current month and eleven preceding months
- Expected value of supplies in subsequent thirty days
- Exempt supplies shall be excluded when calculating value of supplies
- Non-Established taxable persons are also required to be registered for VAT.
Treatment of Imports and Exports
Import of goods for transshipment to GCC shall be chargeable to VAT. The taxpayer should get himself registered in the country where goods and services are supplied to avail the credit. However, if the purchaser is registered, the supplier will not be required to register himself and can take the benefit and the supplies can be charged on a reverse charge basis. Reverse charge is allowed for all intra GCC transactions. It is important to note here that if a GCC country have not introduced VAT, then it will be considered as a non GCC country for VAT purposes.
With an aim to promote exports, the UAE lawmaker have made export outside GCC a zero-rate supply.
Mandatory maintenance of Books and Records
The authority mandatorily requires all VAT registered entities to maintain their financial statements and cash flows. They shall have proper evidence of all the transaction, copy of invoices for purchase, records of payments received and payment made. Further, the entities should maintain a proper record of invoices issued and the invoices shall specifically have mentioned the following information:
- Unique Invoice No.
- Date of Issue
- Time of Supply
- Name, Address and TRN of Supplier
- Quantity of goods and terms of services supplied
- The amount should be in AED for if in foreign currency the rate of exchange and its source.
Reverse Charge
As mentioned above the GCC VAT treaty uses reverse charge extensively and it is allowed for all intra GCC transactions. Also, the payment of VAT to be done by suppliers for the supplies made to offshore person under reverse charge. Also place of supply of goods and services plays a key role in determining the tax liability and whether the liability lies with the supplier or with the purchaser.
VAT Grouping
The branches of a company operating in multiple locations shall come under same group and shall have a single VAT Registration number. This is going to be an intricate issue and more clarification is awaited from the authority.
Treatment of Certain Supplies in UAE
Supplies chargeable at Standard Rate are:
- Oil and Gas
- Buying and Renting of Commercial Property
Supplies chargeable at Zero Rate are:
- Education and Healthcare
- International transport of goods and passenger and supply of related goods and services
- Charity Buildings
- Export of goods and services
- Investment precious metals
Exempt Supplies:
- Local Passenger Transport
- Residential Buildings
- Bare Land
- Some specific financial services
Filing of Returns and Refunds
The GCC treaty allow member nations to have their own time framework for filing of returns from a monthly to yearly basis. In the UAE, VAT returns will be required to filed in every three months. The returns shall be filed in 28 days after end of quarter. All the filing and payment of VAT will be through electronic mode. No cash or cheque payments will be accepted by the authorities. Refunds will also be credited through electronic modes only.
Refunds will not be allowed to tourists. However, international organizations and diplomatic bodies can get refund according to the agreements and arrangements between UAE Government and their home countries.
Conditions for availing VAT Credit
As discussed earlier, the returns shall be filed on a quarterly basis and all the payments of VAT should be made to authority on a quarterly basis. The entities can avail input credit of the tax paid on purchases of raw material and capital goods in determining their tax liability. However, it is important to fulfil the below mentioned conditions for availing input credit:
- The recipient of supplies shall be a taxable person
- The VAT should be correctly charged in the invoices
- The supplies are supplied for eligible economic purpose only
- Proper evidence of the transaction is available in the records.
Appeals
If a person is aggrieved regarding his VAT liabilities, he shall file an appeal within 20 working days. The authority shall response within 20 working days of receipt of appeal. If he is not satisfied with the decision of the authority, he can appeal to the appeal committee within 20 working days. The appeal committee shall consist of one judge and two tax experts.
If he is not satisfied with the decision of appeal committee, he can approach court within 20 working days and the decision of courts shall be binding on the parties.
Violations and Punitive Provisions
The authority has majorly classified violations under two categories viz. administrative and tax evasion violations. Administrative violations will include non-maintenance of proper books and records and tax evasion violations shall be where the assess willingly attempt to evade his tax liabilities. The punitive provisions are in drafting stage and expected to be very stringent and includes prosecution of violators. The Federal Tax Authorities (FTA)’s can visit business for inspection of their records and books.
De- Registration for VAT
The entities shall de-register themselves from VAT in the following conditions:
- Cessation of Economic Activity
- Cessation of taxable transactions
The value of taxable transaction falls below the voluntary registration threshold.
Detailed regulations for De- registration are still awaited.
- Article
- April 21, 2017
Introduction
Jebel Ali Free Zone Authority (JAFZA) is one of the oldest free zone in the country and catering to the needs of thousands of the business and supporting UAE’s objectives of attracting foreign investments and ensuring sustainable developments. It continuously strives to offer the best services for its member without compromising on quality and compliance of law of the region.
In line with its objectives of ensuring sustainable growth and best services for its member, JAFZA has issued a new set of guideline on 23rd May, 2016 which came into force on 24th August, 2016 and shall apply to all the companies registered or registering in the future at the free zone. The new regulations repeal the previous regulations issued for companies registered as free zone establishment and free zone companies in JAFZA. This article aims to highlight some of the major amendments made by these guidelines.
Major Amendments
Some of the significant changes brought in by the new law are
- Commercial Companies Law will be applicable to JAFZA entities
- New structure of the companies introduced
- Limit of minimum share capital abolished
- JAFZA companies can now issue different class of share
- No effect of change of Domicile of Business
We shall discuss all these amendments in brief in the following paragraphs.
Applicability of Commercial Companies Law
The government of the UAE has issued a new commercial companies law which came in force in 2015. Commercial companies law defines the laws applicable to the companies in the mainland of the country and the entities formed in free zones are generally be governed by the regulations issued by respective free zone in this regard. JAFZA regulations now direct the companies to comply with the provisions of Commercial companies’ law and with this the compliance requirements for JAFZA companies will be similar as for mainland companies. However, if the commercial company law is silent matter the rules in JAFZA regulations shall apply to companies registered in the free zone.
Introduction of New Structure of Companies
Until now, the companies can register in JAFZA either as Free Zone Establishment (FZE), Free Zone Company (FZCO) or the branch of a Foreign Company. The new regulations add one additional structure, namely, Public Listed Companies (PLC) as a new type of entity that can be registered in JAFZA. PLC shall have at least two shareholders and can offer its shares to the public subject to regulations prescribed in this regard.
No Requirement to have Minimum Share Capital
The entities registered in JAFZA are required to maintain a minimum share capital depending on their form. The new regulations waive off this requirement and states that the companies should have minimum capital as required for their activities and no minimum amount or limit is prescribed in this regard. It will also be in line with the provisions of Commercial Companies Law.
Issue Different Class of Share
Many free zones do not allow companies registered with them to issue different class of share and JAFZA were no exception to this rule until recent changes. As per the new regulations, the businesses registered in JAFZA can issue a different class of shares, subject to approval by majority of shareholders. An PLC company can do so, if allowed by its Memorandum and Articles of Association.
Change of Domiciliation
The new regulations allow the foreign companies to register in JAFZA without having to apply as a new registration. In simpler terms, their operations will be transferred to free zone without registering as a new company and they can have their legacy of being an older company just changing their domicile.
Conclusion
The new regulations are a welcome step as they allow companies to enjoy more freedom and at the same time putting the responsibility of self-governance and complying with Commercial Companies Law to be in line with companies registered in the mainland of the country. Many international companies may find it a more lucrative option now as they can transfer their operations without losing their old identity.
If you are looking to set up a company in Jebel Ali Free Zone reach us at [email protected]
- Article
- April 17, 2017
Introduction
The UAE has been a prodigy of the phenomenal changes for maintaining the balance of safe and protective environment at an individual as well as at an institutional level. Following the same gradation, UAE has announced amendments to the UAE Penal code (Law no. 3 of 1987) by Emiri Decree No. 7 of 2016. This article shall highlight the major amendments brought in and their impacts.
Major Amendments and their Impacts
| Article No. | Old Provision | New Provision | Impact |
| 5 |
The definition of a public official is provided in this article. It shall include all the persons as mentioned in the list provided in this article any other person who perform works related to public services. |
The new provision broadens the definition of “Public Official” by including the persons working with the judiciary and security apparatus and employees of companies which are wholly or partly owned by the local or the federal Governments. The fine for the crimes committed by public official shall not be more than AED 500,000. |
Larger category of persons will now be included in the purview of the Penal code. The higher limit for imposing fines on public officials found guilty is increased to 10 times, which shall now enforce companies in becoming proactive to restrict their representatives from committing any crime. |
| 227 |
Any public official or a person entrusted for public services shall be liable to punishment of temporary imprisonment if he found guilty of willfully harming properties of public office or of any third party entrusted to such public authority. |
Imprisonment and fine up to AED 10,000 or either of them shall be imposed if a Public official is found guilty of harming public properties or the properties of public office or of any third party entrusted to such public authority. |
The new provision expands the scope of punishment to include the public funds and properties. Accordingly, a public official shall be extra cautious in handling the public properties and funds. |
| 234 |
Article 234 provides for a penalty of temporary imprisonment to a public official who accept any form of gifts or reward for performing or refrain from performing a part of his duty. |
The amended provision closes the loopholes existed in previous provision. It now provides for prosecution of foreign nationals. |
This amendment has bought UAE laws in line with international laws to prosecute persons guilty of bribery or misappropriation of public funds. |
| 238 |
A convict of bribery shall be liable to pay a fine of at least AED 1,000. |
As per the amended provision the convict is liable to payment of fine of at least AED 5,000. |
Increasing the minimum fine by 5 times will discourage people into involving into bribery. |
Conclusion
The amendments to the UAE Penal code clearly reveals lawmaker’s intolerance towards any act of bribery or misappropriation of public funds. UAE being the business hub and a signatory of the United Nation’s treaty is against corruption and maintains a zero-tolerance policy towards any harm to public funds or property. Any public official involved in harming public property or property of a third party shall prepare himself for hefty fines and imprisonment. The stringent punitive provisions shall help UAE to achieve its objective of safety of public money and assets and prohibit bribery and misappropriation of public funds in any form.
- Article, VAT
- April 17, 2017
Introduction
The UAE is all set to launch VAT which will be applicable to most of the business in the country with effect from 1st January, 2018. Preparations are in full form and authorities are leaving no stone unturned for successful implementation of the law in the country. Though business in the country are apprehensive that they will now have to share a part of their earning with state, but VAT in UAE is not discouraging for multinational corporations operating here. We shall discuss how it is beneficial for MNC’s and giving them a reason for earning higher Profits after tax (PAT).
Why and How?
The UAE Government is diversifying its sources of revenue generation and introduction of VAT is a major reform, as this word “TAX” was an alien to many residents in the country till now. The government is taking an implementing suggestions for diversifying sources of revenues from international institutions. As per a statement made by a senior Government official, UAE is applying best international practices for increasing revenues and coordinating financial policies with sustainable growth. This approach shall inject confidence into the UAE’s economy and investment environment.
UAE is introducing VAT at a rate of five percent and the average rate of VAT around the world is around fifteen percent. Hungary has the highest VAT rate of 27 percent amongst OECD nations. Accordingly, UAE is offering a significantly lower rate of VAT and multinational corporations can still save heavy amount in comparison to VAT rate in their home country. As per the reports published in a leading daily newspaper of the UAE, many top-level executives are happy with the UAE government’s decision to introduce VAT. Therefore, it is now important for businesses to learn the requirements and adjustments that will be required to me made for preparation and filing of VAT returns.
It is important to note here that as VAT is a tax on consumption, so the ultimate burden of tax is generally borne by the end consumer. Businesses only collect VAT on behalf of the Government and submit the same at regular intervals. But, what is more important is that international players find middle east market as growth leader and see a larger scope of penetration to generate higher figures.
What should be your Strategy?
The UAE Government has signed more than 100 treaties for the avoidance of double taxation with different countries and more than 60 agreements for protecting and promoting investments. So, the lower tax rates may benefit if the double tax avoidance agreement is already signed between UAE and your home country as rate of five percent is the lowest around the world.
Conclusion
Introduction of VAT may burden with businesses with additional compliances but that will also bring more transparency, which shall be beneficial in the long run. Secondly, UAE still retains its position of low tax jurisdiction and lesser tax legislations. So, VAT is not unfavorable for multinationals as they can still save high amounts that they otherwise be paying to the government in their home country.
- Article
- April 17, 2017
The different type of entity set up in Jordan is governed by the Companies Law of 1997 [Law No. 22 of 1997. And it amendments As of the Official Gazette No. 57 dated 1/11/2006]. Basically, it includes Jordanian entities holding a Jordanian nationality, foreign entities having the nationality of the parent company. Also, the Foreign entities are further classified as operating and non-operating to be considered as an extension of the parent company.
Jordanian Companies
There are two types of Jordanian Entity that can be set up in Jordan – namely Private Shareholding Companies (‘PSC’) and Limited Liability companies (‘LLC’). The PSC type of companies can operate on a permanent basis and can carry out the activities as mentioned in the company registration documents.
The only distinction between the two entities is the capital requirement. A PSC can be formed with a minimum share capital of Fifty Thousand (50,000) Jordanian Dinars whereas an LLC requires to have a share capital of at least One (1) Jordanian Dinars. Also, it is important to note that LLC companies have limitations of requirement to adhere to the Companies law prescribed standard-Form and requirement to follow a strict Memorandum of Association and Articles. However, PSCs are more flexible form which can also adapt a Memorandum of Association and Articles as per the requirement and approved by the shareholders of the said entity.
The Foreign Investment regulation (Regulation No. 77 of 2016) of Jordan regulating all the investment made by non-Jordanian in the country provides for restriction on ownership in the economic sector in which the said PSC or the LLC operates – which are mainly three types:
- Complete Prohibition of foreign ownership
- Foreign ownership restriction of maximum 50%
- Foreign ownership restriction of maximum 50%
As per the amended Foreign Investment regulation non-Jordanian businessman is allowed to invest in any type of entity without any restriction, provided the proposed business activity is not subject to fulfillment of particular criteria.
Place of set up: Customs Area and Special Zone
The Foreign Investment regulation of Jordan (Law No. 30 of 2014) the main objective is to encourage the foreign investment, so that the country as a whole can derive the benefit of it. In order to achieve the said objective and attract the foreign investor the foreign investment law provides for designated Zones were upon establishment of business get special advantage and ease of doing business.
The Designated zones are further classified as Development Zone and Foreign Zone. In case the Company is registered by the foreign Investor in a zone they get various advantages like wavier on requirement to have local Jordanian as Partner, reduced tax rates, etc. Also, a company registered in a particular free zone can carry out those business activities as allowed in the said special economic zone. Some of the other advantages of setting up company in special designated zone are remittance of all or part of the investment in the foreign capital, profits and revenue earned via the business operations and liquidation of the investment as on when required subject to fulfillment of regulatory requirement.
Bottom-line
The Jordanian Investment Commission the regulatory body responsible for the registration and licensing of entities which want to set up business in Jordan are trying the make the foreign Investment Law relaxed and a create more welcoming environment for the foreign Investor.As the entities operating outside the zone are not granted the tax exemption and other advantages also are required to have a local Jordanian national as a partner. Thus, the businesses planning to expand their operation in Jordan are required to consider the type of entity and also the Zone to derive the available benefits of the foreign Investment Law.
If you are looking to set up a company in Jordan reach us at [email protected]
- Article
- April 17, 2017
Introduction
Pledging of shares is a very important topic for financial institutions and banks all around the world. It also has significance importance for foreign investors in United Arab Emirates (UAE). Until recently, the pledge over shares of onshore Limited Liability companies of UAE have been a very debatable topic during the application of Commercial Companies Law prior to enactment of Commercial Companies Law, 2015. New Pledge law was also enacted in UAE on 12th December, 2016 and shall come into force from 15th March, 2017. This article aims to discuss the major amendments bought in Commercial Companies Law, 2015 regarding share pledge and executions against partners. It shall also touch some relevant changes brought in by Pledge Law.
Regulations for Share Pledge
Article 79 of Commercial Companies Law, 2015 deals with pledging of shares by a commercial company in UAE. It is a substitute of Article 230 of previous law. Article 230 of previous company law dealt with assignment of shares only whereas Article 79 deals with pledge of shares as well as assignment of shares. It explicitly provides that shares can be pledged to third parties.
Process for Pledging the shares
The process of pledge of shares can be divided into following steps:
- Drafting the agreement for pledge of shares, in accordance with the provisions of law and memorandum and articles of association of the company.
- Notarization of Share pledge agreement
- Registration of the agreement with Department of Economic Development (DED) of respective emirate.
Provisions for Execution against Pledged shares
As the new law allow companies to pledge their shares as security against the debt and if the pledger fails to repay the debt within the specified time, the pledgee shall be entitled to enforce the pledge. We shall discuss the provisions related to execution against partners’ share in LLC and the procedure for the same in the coming paragraphs.
Article 20 of the Commercial Companies Law, 2015 deals with provisions related to execution and majorly have the same content as Article 17 of previous law. It allows creditor to satisfy his debts from profit of debtors’ shares which was not provided for in the former law.
Further, Article 81 of the new law bring significant amendments and provides for execution against partner’s share in the company.
Procedure for Execution against Partner’s Share in company
The procedure for execution against partner’s share in company can be divided into following steps:
- The creditor should initiate the execution proceedings against the pledged shares, including the profits thereto.
- If the creditor is unable to satisfy his debt through the profits of the shares, he may target the sale of the share.
- Actual sale shall be carried only after negotiating and reaching on an agreement with the debtor and company about the method and terms of sale of shares.
- If the parties fail to reach on an agreement, the creditor must apply to the competent court seeking public auction for sale of shares.
- The proceeds of sale shall be used to satisfy the debts.
The Bottom Line
The Commercial Companies Law, 2015 has effectively resolved major issues related to pledging of shares of companies registered in UAE but there are still many loose ends that needs to be tightened. Like, right to pledge shares are still not available to Limited partnerships and Joint Liability companies. Also, the law does not allow pledging of shares to banks and financial institutions, which is bottleneck in getting access to more competitive option for financial leverage for modern day companies.
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