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]

ــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــــ

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.

Definitions

Article (1)

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.

Objectives of this Resolution

Article (2)

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.

Scope of Application

Article (3)

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.

Activities of Companies

Article (4)

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.

Rules for Establishing Companies

Article (5)

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.

Procedures for Establishing Companies

Article (6)

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.

Competition Analysis

Article (7)

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.

Frequency of Competition Analysis

Article (8)

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.

Applicability of Legislation in Force

Article (9)

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.

Obligations of Companies

Article (10)

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.

Legislative Equality

Article (11)

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.

Rules for Pricing Commodities and Services Provided by Companies

Article (12)

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.

Mechanism for Following up the Annual Performance of Companies

Article (13)

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.

Termination of Companies

Article (14)

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.

Compliance

Article (15)

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.

Issuing Implementing Resolutions

Article (16)

The Director General of the DOF will issue the resolutions required for the implementation of the provisions of this Resolution.

Repeals

Article (17)

Any provision in any other resolution will be repealed to the extent that it contradicts the provisions of this Resolution.

Publication and Commencement

Article (18)

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.