Merger Control Legislation in United Arab Emirates (UAE)

Four pieces of legislation should be read together to understand the framework of antitrust and merger control in the UAE. This legislation significantly interlinks to display the bigger picture for complying with the antitrust and merger control regulatory requirements. The following list details the relevant legislation, and can be called the “UAE Competition Legislation”:

• Federal Law No 4 of 2012 concerning the Regulation of Competition (the “Competition Law”);
• Cabinet Resolution No 37 of 2014 Implementing Regulations of the Competition Law (the “Competition Regulations”);
• Cabinet Resolution No 13 of 2016 on the Rates and Rules Applying to the Competition Law (the “Competition Threshold Rules”); and
• Cabinet Resolution No 22 of 2016 on Unified Definition of Small and Medium Enterprises (the “SME Definition Decision”).

The Competition Law and Competition Regulations regulate merger control, prohibitions on antitrust arrangements, and abuse of a dominant position. Abuse of a dominant position includes predatory pricing, discriminating among customers without objective justification, refusal to supply, limiting production, failure to satisfy demand, and tying arrangements.

The Competition Law further provides that the aim of the law is to protect and enhance competition in the UAE and to combat monopoly practices through: 

• providing a stimulating environment for businesses to enhance efficiency, competitiveness and the interest of consumers, and to achieve sustainable development in the UAE; and
• sustaining a competitive market governed by the market’s mechanisms through the principle of economic freedom by way of banning restrictive agreements, banning the businesses and actions that lead to the abuse of a dominant position, controlling the operations of economic concentrations, and avoiding everything that may create prejudice within, limit, or prevent competition.

Meanwhile, the Competition Threshold Rules define what is meant by “dominance” and set out the relevant antitrust and merger control filing thresholds.

The relevance of the SME Definition Decision, on the other hand, is limited to defining small and medium enterprises exempt from the application of the Competition Law. 

It should be noted that both the Competition Law and the Competition Regulations are, theoretically speaking, largely based on EU Competition Law and reflect many elements of the international best practice norms (including the US). However, it could also be said that the law would only apply if the thresholds under the Competition Threshold Rules are met, which are higher than most (if not all) of the jurisdictions in the Gulf and Middle East regions.

It is important to highlight that antitrust and merger control rules and restrictions under the UAE Competition Legislation (to be discussed later) do not apply to undertakings in Abu Dhabi Global Market (ADGM) or Dubai International Financial Centre (DIFC). This is despite Article 3 of the Competition Law providing that the law shall apply to all undertakings with regards to their economic activities in the UAE and exploitation of intellectual property rights inside or outside the UAE, thereby affecting competition in the UAE.

The reason why the UAE Competition Legislation does not apply to undertakings in such financial free zone areas, can be legally justified via Article 121 of the UAE Constitution, which enabled the UAE federation to create financial free zones in the UAE, and most importantly, to exclude the application of certain federal laws in these financial free zones. Furthermore, Federal Law No 8 of 2004 on Financial Free Zones in the UAE further provides that financial free zones are exempt from all federal civil and commercial laws.

Neither ADGM nor DIFC have separate legislation to regulate antitrust or merger control. Accordingly, it is safe to assume that the UAE Competition Legislation applies only to onshore UAE undertakings and exclude financial free zone undertakings unless the activities or transactions taking place via an undertaking based in either of the two financial free zones (ie, ADGM or DIFC) affect the competition in the UAE mainland, whether directly, indirectly, or through an onshore-based subsidiary.

Sectors and Exemptions

The UAE Competition Legislation applies to all undertakings operating in the UAE, as well as to activities that take place abroad and have an effect on competition in the UAE commercial activities and transactions for both local and international undertakings.

It should be noted that the following are exempt from the application of the UAE Competition Legislation. They are called the “Exempted Activities & Enterprises”.

Undertakings carrying out the activities or services in the following sectors:

• telecommunication sector;
• financial sector;
• cultural activities (written, audio, or visual);
• gas and petrol sector;
• production and distribution of pharmaceutical products;
• postal services, including express mail services;
• activities related to the production, distribution, and transport of electricity and water;
• activities of drainage, garbage disposal, sanitation, and similar activities in addition to supporting environmental services; and
• land, sea, and air transport sectors and transport by railways and related services.

An exemption is the activities carried out by the UAE federal or local governments and actions initiated by undertakings pursuant to a resolution or authorisation by the UAE federal or local governments or under their supervision, including the actions of undertakings owned or controlled by the federal or local governments. The Competition Threshold Rules clarify that undertakings at least 50% owned by federal or local governments would fall within this exemption. 

Small and Medium Enterprises (SMEs)

For the purposes of identifying which enterprises are considered SMEs and, therefore, are exempt, the SME Definition Decision provides that the following enterprises should be considered SMEs:

Micro enterprises – these are enterprises which meet the following requirements:

• Enterprises in the trading sector either: 

1. 1. have five employees or less; or
   2. generate annually AED3 million or less.

• Enterprises in the manufacturing sector either:

1. 1. have nine employees or less; or
   2. generate annually AED3 million or less. 

• Enterprises in the service sector either:

1. 1. have five employees or less; or
   2. generate annually AED2 million or less.

Small enterprises – these are enterprises which meet any of the following requirements:

• Enterprises in the trading sector either:

1. 1. have 6–50 employees; or
   2. generate annually AED50 million or less.

• Enterprises in the manufacturing sector either:

1. 1. have 10–100 employees; or
   2. generate annually AED50 million or less.

• Enterprises in the service sector either:

1. 1. have 6–50 employees; or
   2. generate annually AED20 million or less.

Medium enterprises – these are enterprises which meet any of the following requirements:

• Enterprises in the trading sector either:

1. 1. have 51–200 employees; or
   2. generate annually AED250 million or less.

• Enterprises in the manufacturing sector either:

1. 1. have 101–250 employees; or
   2. generate annually AED250 million or less.

• Enterprises in the service sector either:

1. 1. have 51–200 employees; or
   2. generate annually AED200 million or less.

Enforcement Authorities

The UAE Competition Legislation provides that the responsibility for enforcement lies with the Competition Department at the UAE Ministry of Economy (the “Competition Department”). The performance of the Competition Department is supervised by the Competition Regulation Committee, chaired by the Undersecretary of the Ministry of Economy (the “Competition Committee”).

Both the Competition Committee and the Competition Department report to the UAE Federal Minister of Economy (the “Minister”), who heads the UAE Federal Ministry of Economy (the “Ministry”).

Notification

Pursuant to the Competition Threshold Rules, economic concentration, such as total or partial alienation, merger, or acquisition, is realised if the total transactions of a certain undertaking in the relevant market are more than 40%. 

For activities or transactions meeting such a threshold, filing the notification becomes compulsory. Otherwise, there is no requirement for a voluntary notification if such a threshold is met.

For the purposes of filing the notification, the filing is made to the Competition Department and attached to it, amongst other things, is an economic report explaining the positive impact of the required exemption. The Competition Department will then assess the requested exemption and submit a report to the Committee. Within 14 days of receipt of the report, the Committee will then send its recommendation to the Minister of Economy, who will decide on the requested exemption within 90 days of notification of the request for exemption. This deadline may be extended by an additional 45 days. If the Minister does not issue his decision by the specified deadline, the notified activity or transaction will be deemed by law to be exempt.

On the other hand, no notification is required if the activity or transaction is relevant to the Exempted Activities & Enterprises.

Failure to Notify

Failure to notify a reportable economic concentration transaction may result in a fine between 2% and 5% of the turnover generated in the UAE by the relevant undertaking during the last financial year or, if such data is not available, a fine will be imposed between AED500,000 and AED5 million.

Nevertheless, as far as we are aware, the Ministry has never disclosed any penalties that have been imposed for violating an economic concentration transaction. Penalties imposed by the Ministry usually become public when disclosed via the Ministry’s official channels (i.e., websites and social media pages) in addition to the local newspapers, which are likely to pick up immediately on such news.

Types of Transactions

 The Competition Law has three defined terms key to understanding the regulatory framework of merger control in the UAE.

The first definition is “relevant market”, which means “the commodity or service upon whose price, characteristics, and usage aspects are replaceable by other commodities or services to meet a certain need of the consumer in a certain geographic area”.

The second is the definition of “economic concentration”, which is “any act resulting in a total or partial transfer (merger or acquisition) of a property, usufruct rights, rights, stocks, shares or obligations from an undertaking to another, empowering the undertaking or a group of undertakings to directly or indirectly control another undertaking or another group of undertakings”.

As mentioned previously and pursuant to the Competition Threshold Rules, economic concentration exists if the relevant person(s) or undertaking(s) exceeds 40% of the total transactions of the relevant market in the UAE. The definition of economic concentration is wide and includes several types of transactions, such as internal restructuring or reorganisation. The Competition Law does not consider control as a determining factor for triggering the regulatory requirement for notification. Rather, the determining factor will always be whether or not such transactions create dominance or economic concentration.

Transactions not involving the transfer of shares or assets (such as shareholders’ agreements, changes to articles of association, etc) can still be caught under the auspices of the UAE Competition Legislation if considered a “restrictive agreement” or if it leads to an abuse of a dominant position. 

This brings us to the third significant term which is the definition of “agreements”, defined as “agreements, contracts, arrangements, coalitions, or practices between two undertakings or more or any co-operation among establishments or resolutions issued by undertakings’ consortiums whether they are written or oral, explicit or implicit, or public or confidential”.

The Competition Law considers agreements between undertakings which aim to create prejudice within, limit, or prevent competition in the UAE as “restrictive agreements”, especially those:

• specifying the prices for buying or selling commodities or services, directly or indirectly, by creating the increase, decrease or stabilisation that may negatively affect the competition;
• specifying the conditions of buying, selling, or performing of services, and/or any other similar obligation;
• colluding in bids, tenders, practices, or any other supplying offers;
• phasing out or limiting the operations of production, development, distribution, or marketing, or any other aspects of investment;
• colluding to refuse to buy from or to sell or supply to certain undertaking(s) and to halt or impede such undertaking(s) from carrying out their activities or transactions;
• limiting the freedom of commodities or services flow to the relevant market(s) or withdrawing them from the market, including the concealment or storage of such commodities or services unlawfully, abstaining from dealing with such commodities or services or suddenly creating their abundance that may lead to trading such commodities or services with unreal prices;
• dividing markets or assigning clients based on geographic areas, distribution centres, quality of clients, seasons and time, or any other basis that may negatively affect competition; and/or
• taking procedures to hinder the entrance of undertakings to the market, exclude such undertakings from the market, or hinder joining existing agreements or coalitions.

Determining whether any undertaking is abusing its dominant position in the relevant market(s), the Competition Department will consider if such undertaking is:

• imposing the prices or conditions of reselling commodities or services directly or indirectly;
• selling a commodity or performing a service with a price less than the actual cost with the aim of hindering competitive undertakings from entering the relevant markets, excluding them from such markets, or causing them losses, preventing them from continuing their activities in such markets;
• discriminating without justification amongst clients with identical contracts with regards to prices of such commodities or services, or the terms and conditions of buying or selling contracts;
• obliging a client not to deal with a competitive undertaking;
• the total or partial rejection to deal according to the usual commercial conditions;
• unjustifiably abstaining from dealing in commodities or services through buying or selling, or limiting or hindering such dealing that may lead to imposing an unreal price of such commodities or services;
• suspending the buying or selling of commodities or services unless other commodities or services are received in return which, by nature or commercial use, the latter commodities or services to be received in consideration are irrelevant to the original transaction in its normal business course;
• intentionally publishing incorrect information about commodities or prices; or
• decreasing or increasing the available supply of the commodity to create a false scarcity or abundance of such commodity.

To conclude the above, the triggering factors to consider whether transactions not involving the transfer of shares or assets are a restrictive agreement or an abuse of a dominant position would be:

• whether the relevant undertakings meet the threshold identified in the Competition Threshold Rules, which is always the first step; and
• if yes, determine whether the activity or transaction captures any of the above prohibitions.

Jurisdictional Thresholds

There are three jurisdictional thresholds under the Competition Law and the Competition Threshold Rules, which, if met, then require the regulatory notification requesting exemption in addition to the other obligations and restrictions under the UAE Competition Legislation. These jurisdictional thresholds are as follows:

• “restrictive agreements”, if such agreements represent 10% or more of the total transactions of the undertaking in the relevant market with regards to a specific product and/or service;
• “dominant position” is assumed if the market share of an undertaking exceeds 40% of its transactions in the relevant market with regards to a specific product and/or service; and
• “economic concentration” is when the economic concentration transaction leads the undertaking to control more than 40% of the total transactions in the relevant market with regard to a specific product and/or service.

It is worth mentioning that “total transactions‟ are defined under the general principles of EU competition laws (on which the Competition Law is significantly based) as the total value of sales of goods or services in the relevant market. On the other hand, no special jurisdictional thresholds would apply to particular sectors, and the above applies across all sectors and regions in the UAE. It is important to reiterate that the jurisdictional thresholds do not apply to Exempted Activities & Enterprises.

Calculations of Jurisdictional Thresholds

 None of the UAE Competition Legislation has identified how jurisdictional thresholds are calculated (including how sales or assets booked in a foreign currency are converted or if the threshold is based on the book or fair market value). There is also no sufficient data, due to the absence of case law, to understand how the Competition Department would carry out such calculations.

The absence of case law could be justified by:

• the high jurisdictional thresholds usually not met by the undertakings based or doing business in the UAE, and accordingly do not require any filings or notifications requesting exemptions; 
• the huge volume of economic concentration transactions and activities taking place in financial free zones, such as ADGM or DIFC, exempted from the UAE Competition Legislation;
• many of the undertakings are carrying out activities that are categorised as Exempted Activities & Enterprises; and
• the several incentives provided by the UAE government to promote the UAE as a regional hub leading to relaxing some of the regulatory restrictions usually found in developed markets, which, at the same time, would not apply to the UAE, considered one of the most competitive emerging markets in the Gulf and Middle East regions.

Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds

It is important to clarify that an “undertaking” is defined under the Competition Law as “any natural or legal person conducting an economic activity or any person in connection with such persons or any grouping of these persons regardless of their legal form”. No other definitions are provided under the UAE Competition Legislation with regards to corporate entities or individuals, or group-wide.

This means that the undertaking meeting the threshold could be the undertaking directly involved in the economic concentration transaction or activity, or it could be a parent or holding company based outside the UAE.

Strictly speaking, the undertaking that is directly carrying out an economic concentration transaction or activity in a relevant market, whether based inside or outside the UAE, and meets the jurisdictional threshold, as an entity and not as a group, will have to notify the Competition Department requesting an exemption.

However, if we apply the same principles used in the EU, the calculation of the jurisdictional thresholds should be carried out after consolidating the turnover of the transactions of the group as a whole, not just the undertaking that is a party to the transaction.

Unfortunately, due to the absence of case law and the regulatory guidance on the calculation methodology, it is unclear if the Competition Department would strictly follow the wording of the Competition Law or apply the same interpretation followed under the general principles of EU competition laws, including the method of reflecting changes in the business during a reference period (such as other acquisitions, divestments, or business closures).

Therefore, the safe approach is to consult the Competition Department prior to concluding an economic concentration transaction where there are grounds to believe that the jurisdictional thresholds are met at the group level but not at the level of the undertaking.

Foreign-to-Foreign Transactions

Foreign-to-foreign transactions by way of sale, acquisition, or merger (whether shares or assets) are captured under the auspices of the UAE Competition Legislation once the jurisdictional thresholds under the Competition Threshold Rules are met, regardless of the location or nationality of the parties, and subject to the local effects test (ie, the parties carrying out their activity or transaction in a relevant market or engaging in activities or carrying out transactions that have harmful effects on competition in the UAE).

In general, 100% foreign ownership of UAE onshore companies is allowed, subject to restrictions or prohibitions on foreign investment for companies engaging in activities which have a strategic impact.

The Economic Departments in the Emirates of Dubai and Abu Dhabi have published lists of more than 1,000 commercial and industrial activities which do not have a “strategic impact”. Companies incorporated in these Emirates that are engaged in non-strategic activities are open to full foreign ownership.

Market Share Jurisdictional Threshold

There are no market share jurisdictional thresholds in the UAE, only a jurisdictional threshold. If it is met, notification becomes compulsory pursuant to the Competition Law and in accordance with the Competition Regulations.

Joint Ventures

Joint ventures are subject to the same restrictions and prohibitions applicable to any other activity or transaction. As long as the joint venture does not contain any condition making such arrangement a restrictive agreement or an economic concentration, the joint venture will not trigger any of the regulatory requirements under the UAE Competition Legislation to notify the Competition Department requesting an exemption. 

If the joint venture is labelled as a restrictive agreement or an economic concentration, the filing of the notification becomes a regulatory requirement. 

It is clear that filing the regulatory notification is first subject to meeting the jurisdictional threshold under the Competition Threshold Rules as an initial step and even prior to checking whether the joint venture is defined as a restrictive agreement or an economic concentration.

Conclusion

The United Arab Emirates (UAE) has established a comprehensive framework for antitrust and merger control through a set of interconnected legislations known as the “UAE Competition Legislation.” These include the Competition Law, the Competition Regulations, the Competition Threshold Rules, and the SME Definition Decision. The primary objective of this legislation is to protect and enhance competition in the UAE and prevent monopoly practices.

The UAE Competition Legislation covers a broad range of sectors but provides exemptions for certain industries, such as telecommunications, finance, cultural activities, and others. Small and Medium Enterprises (SMEs) are also exempted from some provisions.

The enforcement of the UAE Competition Legislation lies with the Competition Department at the UAE Ministry of Economy, overseen by the Competition Regulation Committee. Economic concentrations meeting specific jurisdictional thresholds are subject to compulsory notification to the Competition Department.

While the UAE Competition Legislation reflects international best practices, it has higher jurisdictional thresholds than many Gulf and Middle East jurisdictions. Additionally, undertakings within financial free zones like ADGM and DIFC are exempted from the legislation due to the UAE Constitution and other laws.

The UAE’s Competition Law defines relevant terms such as “relevant market“, “economic concentration” and “agreements” to understand the regulatory framework for merger control. The legislation prohibits restrictive agreements and abuse of a dominant position, aiming to maintain fair competition in the market.

Despite the absence of case law and limited penalties disclosed for non-compliance, businesses are advised to comply with the UAE Competition Legislation to avoid potential fines and ensure a competitive and fair business environment.

In conclusion, the UAE has established a robust and comprehensive merger control framework through its Competition Legislation, aimed at fostering competition, protecting consumers’ interests, and promoting sustainable economic development in the country.

How GLA can help?

With our in-depth understanding of the merger control regulations and our commitment to providing tailored legal services, GLA can help clients to seize opportunities, ensure compliance, and navigate the complex legal framework. Contact us to discuss how our legal expertise can unlock growth and success for your business in the dynamic UAE economy.

Author:  Yousef Al Amly, Partner

For further information, please contact Alex Saleh (alex.saleh@glaco.com) and Yousef Al Amly (y.alamly@glaco.com).