Executive Council Resolution No. (23) of 2020
Approving the Rules, Conditions, and Procedures
Governing the
Establishment of Companies by Government Entities
in the Emirate of Dubai[1]
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We, Hamdan bin Mohammed bin Rashid Al Maktoum,
Crown Prince of Dubai, Chairman of the Executive Council,
After
perusal of:
Federal Law
No. (4) of 2012 Regulating Competition;
Federal Law
No. (2) of 2015 Concerning Commercial Companies and its amendments;
Federal Law
by Decree No. (9) of 2016 Concerning Bankruptcy and its amendments;
Federal Law
by Decree No. (8) of 2017 Concerning Value Added Tax;
Law No. (5)
of 1995 Establishing the Department of Finance;
Law No. (6)
of 1997 Concerning Contracts of Government Departments in the Emirate of Dubai
and its amendments;
Law No. (3)
of 2003 Establishing the Executive Council of the Emirate of Dubai;
Law No. (9)
of 2004 Concerning the Dubai International Financial Centre and its amendments;
Law No. (32)
of 2008 Establishing the Government of Dubai Legal Affairs Department;
Law No. (13)
of 2011 Regulating the Conduct of Economic Activities in the Emirate of Dubai
and its amendments;
Law No. (22)
of 2015 Regulating Partnership between the Public Sector and the Private Sector
in the Emirate of Dubai;
Law No. (1)
of 2016 Concerning the Financial Regulations of the Government of Dubai;
Law No. (4)
of 2018 Establishing the Financial Audit Authority;
Decree No.
(25) of 2008 Appointing Two Deputies to the Chairman of the Executive Council
of the Emirate of Dubai;
Decree No.
(22) of 2009 Concerning Special Development Zones in the Emirate of Dubai;
Decree No.
(1) of 2019 Regulating the Establishment of Companies by Government Entities in
the Emirate of Dubai; and
The
legislation establishing and regulating free zones in the Emirate of Dubai,
Do hereby issue this Resolution.
The following words and expressions, wherever
mentioned in this Resolution, will have the meaning indicated opposite each of
them unless the context implies otherwise:
UAE: |
The United Arab
Emirates. |
Emirate: |
The Emirate of Dubai. |
Government: |
The Government of Dubai. |
Executive Council: |
The Executive Council of
the Emirate of Dubai. |
General Secretariat: |
The general secretariat of
the Executive Council. |
DOF: |
The Department of
Finance. |
Competent Authority: |
A Federal Government Entity
or Local Government Entity that is authorised to issue commercial licences to
Companies. |
Government Entity: |
Any Government Entity
whose annual budget is included in the General Budget or the Supplementary
Budget of the Government. |
Company: |
A commercial company, of
any legal form, that is established pursuant to this Resolution by a
Government Entity, solely or in partnership with others, within or outside of
the Emirate. |
Commodity: |
Any tangible product
offered to consumers. |
Service: |
Any tangible or
intangible work or benefit offered to consumers. |
This Resolution aims to:
1. regulate, in accordance with the relevant
international best practices, the establishment of Companies by Government
Entities through prescribing the rules and procedures that Government Entities
must comply with when establishing Companies;
2. ensure that Government Entities exercise the
functions legally assigned to them, and that they provide their desired services;
3. ensure that the Public Sector does not compete with the Private Sector in conducting Economic Activities
in the Emirate, except where the public interest so requires;
4. give the Private Sector the opportunity to
actively contribute to developing the national economy and achieving
sustainable development; and encourage the Private Sector growth and investment
in various fields;
5. ensure good Governance of the Companies established by Government Entities,
in a manner that guarantees their economic and financial viability and creates an added value to the Emirate
and stakeholders; and
6. ensure that the profits of the Companies
established by Government Entities are utilised in achieving the objectives of
comprehensive development in the Emirate, and provide the Public Treasury with
financial resources that enable the Government and Government Entities to
improve the living standards in the Emirate and provide their desired services
efficiently and effectively.
a.
The
provisions of this Resolution apply to the Companies established by Government
Entities whose annual budgets are included in the General Budget or the
Supplementary Budget of the Government.
b.
The
provisions of this Resolution do not
apply to the Companies established by the Government Entities that
are authorised to invest Government
property and are operating on commercial basis; nor to the Companies established by the
authorities supervising Special Development Zones and free zones, including the
Dubai International Financial Centre.
The activities of the Companies governed by the
provisions of this Resolution will be limited to the production and provision
of the Commodities and Services that are of a commercial nature and that are
directly related to the functions assigned to their establishing Government
Entities under
the legislation in force.
In establishing a Company,
the following rules must be observed:
1.
The core
activity of the Company to be established must be directly related to the main
functions assigned to the concerned Government Entity under the legislation in
force; and this activity must have a positive impact on the sustainable
development plans of the Emirate.
2.
The goal
of the Company to be established must be to produce Commodities, or provide Services, of strategic importance to the Emirate or the
UAE; and the legislation in force, or the public interest, must require that the production
of these
Commodities or provision of these Services be assigned to the concerned Government Entity.
3.
The
Private Sector must be unable to competitively produce, supply, or provide the
relevant Commodities
or Services to the public at high quality and acceptable prices.
4.
Government
intervention must be required by the public interest to promote Competition;
achieve welfare; sustainably provide high-quality Commodities or Services; and provide
multiple choices to the public.
5.
The analysis
of Competition between the Public
Sector and the Private Sector must show that the production and provision of
Commodities or Services by the Company are feasible and do not adversely affect the Private
Sector.
A Government Entity
wishing to establish a Company must follow the following steps and procedures:
1.
The
Commodities or Services that may be offered to the public through Companies
affiliated to the Government Entity must be identified and evaluated in such a manner as to ensure enhancing the quality of these Commodities or Services, and the efficiency of
their production and provision.
2.
The
findings of the identification and evaluation process referred to in sub-paragraph (1) of this Article must be submitted to
the DOF, together with a comprehensive study that includes supporting documents, data, and
statistics covering all aspects related to the Company establishment, particularly the following:
a.
the economic feasibility of establishing the
Company;
b.
a ten-year
financial plan of the Company to be established;
c.
the performance indicators and goals of the
Company to be established;
d.
the proposed capital of the Company;
the methods of raising that capital; the
distribution of the Company’s shares; and the
percentage of the Government Entity's contribution to the capital
where the Company is to be
established in partnership with others;
e.
the proposed legal
form of the Company to be established, based on the
legal forms specified in the above-mentioned Federal Law No. (2) of 2015;
f.
the activity and the objectives of
the Company;
g.
the name, nationality, financial solvency, and track
record of the natural or legal person in partnership with whom the Government
Entity wishes to establish the Company;
h.
analysis of the Competition between
the Public Sector and the Private Sector,
conducted by the Government Entity to show the impact of
establishing the Company on the Private Sector; and
i.
any other data or information required
by the DOF.
3.
The DOF will, in coordination with the General
Secretariat, review the study prepared by the Government Entity in accordance
with sub-paragraph (2) of this Article. The review aims to verify the need for
establishing the Company by the Government Entity, either solely or in
partnership with others; and to determine the best options available in this
respect. The review must include the analysis of Competition between the Public
Sector and the Private Sector, which must be conducted as prescribed by this
Resolution.
4.
The DOF
will, in coordination with the General Secretariat, submit a report that includes
their recommendations on the
Company's establishment to the Chairman of the Executive Council or his First
Deputy to take the appropriate decision on whether or not to approve the
Company's establishment.
5.
Where
the Company’s establishment is approved, the Government Entity will, in
coordination with the DOF and the Government of Dubai Legal Affairs
Department, complete the incorporation procedures prescribed by the Competent
Authority in accordance with the legislation in force.
a.
The DOF
will, in coordination with the General Secretariat, study and evaluate the
analysis of Competition between the Public Sector and the Private Sector, conducted by the Government
Entity, to determine the feasibility of the production and provision of the
Commodity or Service by the Company to be established, and the extent to which
it achieves the public interest.
b.
The Competition
analysis process aims to enable the Government to determine whether it is
better to produce and provide the Commodity or Service directly by the
Government, by the Company to be established, or by the Private Sector.
c.
The
Competition analysis will cover several factors, including, but not limited to, performance improvement
potentials, quality enhancement, cost reduction, operational risk reduction,
enhancement of workforce planning, optimal utilisation of human resources,
and retention of competent personnel.
After establishment
of the Company, the Government Entity must conduct a Competition analysis once
every (3) three years at most in order to ensure efficiency and sustainability;
and must submit the results of this analysis to the DOF to review the same in coordination
with the General Secretariat.
The
Companies to which this Resolution applies will be subject to all federal and
local legislation in force, including the legislation regulating commercial
companies, Competition, bankruptcy, good Governance, and Partnership between
the Public Sector and the Private Sector; as well as the financial regulations.
Without prejudice to the obligations of
Companies under the legislation in force, a Company established pursuant to the
provisions of this Resolution must:
1.
follow the rules of fair Competition with companies that are owned by the
Private Sector, so that it does not enjoy any preferential advantage resulting
from being wholly or partially owned by the Government Entity;
2.
ensure
the sustainability of its financial resources so that it does not obtain, after
its establishment, any financial support from the Government; and ensure that
the prices that it charges cover the total cost of the Commodities it produces, and the Services it provides, and further secure a fair return
which achieves a reasonable and acceptable profit margin;
3.
maintain
its full financial independence from the Government Entity which owns
the Company in whole or in part; and not mortgage or
otherwise encumber any Government assets held in the Company's name or obtain loans against the
security of the
Government Entity’s assets or property;
4.
not
exploit its monopolistic or dominant position, which enables it to act
independently of the normal restrictions that may be imposed by competitors,
suppliers, and consumers, in any pricing, production, distribution, or other
processes. This includes, but is not limited to, setting a price that is below
the cost; offering some consumers unjustified terms and facilities; or refusing
to supply Commodities or Services to some customers without justification, in order to drive some
competitors out of the market or to increase market share; and
any similar practices;
5.
not
crowd out companies that are owned by the Private Sector, or exert a negative
impact on Competition or on the appeal of the Emirate’s investment environment. This includes
controlling a large share of the local market in a manner
that prevents the
establishment or expansion of companies owned by the Private Sector;
6.
pay all
the taxes, fees, prices, tariffs, and other financial charges prescribed by the legislation applicable
to commercial companies;
7.
comply
with the federal and local legislation regulating commercial companies or
governing their activities and business; and
8.
coordinate
with the concerned entities to provide work opportunities for UAE nationals.
The Government and
Government Entities must not take any legislative or regulatory action that
favours the Companies to which the provisions of this Resolution apply. This
includes limiting their procurement of Commodities or Services to those
supplied or provided by the Companies; or issuing any circulars or directives
to oblige Government Entities, companies owned by the Government or by
Government Entities, or companies owned by the general public to deal
exclusively with these Companies.
a.
The pricing of Commodities and
Services provided by Companies are subject to the following rules and
provisions:
1.
A balance must be maintained between
the Company's strategic goals, namely
achieving the mission and key objectives for
which it is established, and its financial goals,
namely achieving an acceptable profit margin and
covering the total costs.
2.
Notwithstanding the provisions of sub-paragraph
(a)(1) of this Article, and subject to the DOF prior approval, a Company may,
in special cases, give priority to the strategic goals over
the financial goals, or vice versa. For example, a
Company may provide a Commodity or Service to a larger segment of the community
at a price below or above the market price in order to
change the consumer behaviour pattern in the market to achieve certain economic
or social goals.
3.
A fair rate of return must be achieved by setting,
in view of the competitive price rates in the market, prices that cover the
total cost of Commodities or Services but are less than their monopolistic
prices. Meanwhile, justice must be ensured for all concerned parties, namely
the Government, the general public, and competitors.
4.
For the purpose of determining the fair rate of
return referred to in sub-paragraph
(a)(3) of this Article, a Company must adopt a multi-faceted pricing approach. This approach
must take into account not only economic aspects such as profitability,
economic impact, and efficiency, but also other aspects such as social justice,
quality of life, well-being, and environmental
sustainability.
b.
The Company must conduct a periodic review of the
prices of its Commodities and Services,
where necessary, to ensure achievement of the intended objectives for which it
is established.
a.
A
Government Entity that establishes a Company must submit to the DOF an annual report
in respect of each Financial Year of the Company, within the first quarter of
the year following the end of that Financial Year. The report must include the
outcomes of the Company's business and activities, the extent of achievement of its objectives, and the measurement
of its key performance indicators.
b.
The
annual report referred to in paragraph (a) of this Article must
cover:
1.
the strategic aspects, including, but not
limited to, the achievement of planned
strategic goals and objectives; promotion of the welfare of the public; cost-of-living
related aspects, conducting
business, the provision of public services; curtailing monopoly; non-crowding
out of the private sector; analysis of the Competition
between the Public Sector and the Private Sector in the
production and provision of the Commodities or Services; and achievement of the
Emiratisation percentage targets; and
2.
the financial aspects, including, but not
limited to, the extent to which the financial objectives have been achieved;
the revenues and expenditure; the profits and losses;
investments; and risk management.
c.
The DOF will, in coordination with the Financial
Audit Authority and the General Secretariat, review the annual report referred
to in paragraph (a) of this Article, and submit the necessary reports on the
review findings to the Chairman of the Executive Council to issue the relevant
directives as he deems appropriate.
a.
Without
prejudice to the legislation in force in the Emirate, a Company to which this
Resolution applies will be terminated by way of liquidation, sale, or merger
pursuant to a resolution of the Chairman of the Executive Council or His First
Deputy. This resolution will be issued upon the recommendation of the DOF and
the General Secretariat, in coordination with the Government Entity that owns
the Company in whole or in part, and based on the annual performance reports
and the analysis of Competition between the Public Sector and the Private
Sector, in any of the following cases:
1.
where the Company is financially unsustainable, and
incurs frequent financial losses or
is unable to compete in the market;
2.
where it is established that the Company is
crowding out companies that are owned by the Private Sector;
3.
where the Company's existence has a
negative impact on Competition or on the appeal of the Emirate's
investment environment;
4.
where the Company deviates from its key
objectives; or
5.
where the main purpose for establishing
the Company ceases to exist.
b.
The Government Entity which owns, in whole or in part, the
Company to be terminated in accordance with the provisions of paragraph (a) of
this Article must, in coordination with the DOF, develop a clear and specific
time plan not exceeding two (2) years to cancel the Company's registration with
the Competent Authority, dissolve it, and liquidate it.
Companies
that are owned by the Government Entities to which this Resolution applies and that
exist by the effective date of this Resolution must comply with its provisions
within two (2) years from that effective date.
The Director General of the DOF will issue
the resolutions required for the implementation of the provisions of this
Resolution.
Any provision in any other resolution will
be repealed to the extent that it contradicts the provisions of this
Resolution.
This
Resolution
will be published in the Official Gazette and will come into force one (1)
month after the date on which it is published.
Hamdan
bin Mohammed bin Rashid Al Maktoum
Crown
Prince of Dubai
Chairman of the Executive
Council
Issued in Dubai on 16
August 2020
Corresponding
to 26 Thu al-Hijjah 1441 A.H.
©2020 The Supreme Legislation Committee in the Emirate of Dubai
[1]Every effort has
been made to produce an accurate and complete English version of this
legislation. However, for the purpose of its interpretation and application,
reference must be made to the original Arabic text. In case of conflict, the
Arabic text will prevail.