Out-Law Guide 5 min. read
07 Mar 2023, 4:40 pm
There are a number of important competition law and merger control considerations for foreign firms looking to do business in the United Arab Emirates (UAE).
Competition law in the UAE is governed by the Federal Law No 4 of 2012 as well as supporting regulations such as the Implementing Regulations of 2012, Cabinet Decision No 13 of 2016 and Cabinet Decision No 22 of 2016 (together, the UAE Competition Law). The UAE Competition Law introduces standard international competition law principles and focuses on merger control, restrictive agreements and abuse of dominance.
The UAE Competition Law applies broadly, covering a range of commercial transactions, known as an ‘economic concentration’, and includes total or partial – and direct or indirect – mergers, acquisitions, joint ventures, and assets or proprietary rights. A key consideration for foreign companies when deciding whether to make a merger filing in relation to a proposed transaction is whether that transaction meets the economic concentration threshold test which is set out in legislation.
Transactions that meet the threshold are those in which the combined market share of companies which are party to the transaction exceeds 40% of the total transactions in a relevant market for goods or services that are interchangeable based on their price, characteristics and usage, in a particular geographic area. Although no subsequent legislation, regulations or guidance has identified how such threshold is calculated, “total transactions” could be interpreted as being the total value of sales of the products or services pertaining to a particular market based on the application of the principles of EU competition law, on which the UAE Competition Law is primarily based. When calculating market shares, parties could potentially look to their annual turnover and apportion the value that relates to the products or services in the relevant markets affected by the transaction.
Even foreign companies which are incorporated or have activities outside of the UAE proposing to enter into a transaction covered by the UAE Competition Law would need to make a mandatory filing with the Competition Department if their activities may have harmful effects on competition in the UAE
Merger filings are also required for proposed transactions where the economic concentration would affect competition in the UAE market or enhance a pre-existing dominant position. Given the lack of clarity about application of this limb of the economic concentration test, in practice companies likely to exceed the relevant market share thresholds would be advised to notify their deal to the Competition Department at the UAE Ministry of Economy regardless of any additional assessment in relation to the proposed transaction.
If the jurisdictional thresholds are met, the companies together will be required to make a prior merger notification to the Competition Department in writing, for which no fee is payable but certain explanatory forms and transaction documents must be submitted. As with any other jurisdiction where merger control is a consideration, the timing required for preparing and submitting a notification should be noted and factored into deal timeframes.
In particular, the transaction must be notified to the Competition Department in writing within at least 30 days from the date of concluding a draft agreement contemplating the transaction – and at least 30 days prior to completion of the transaction. The Competition Department is then given a review period of 90 days from the date of filing, which may be extended by a further 45 days, after which the decision to approve or oppose the transaction is made.
It is possible for approval to be given subject to conditions. The review process is suspensory: parties are not permitted to complete the transaction until merger approval is obtained; or until the review period has expired without a decision being made – in which case the transaction is deemed approved. A merger review decision can be appealed.
Foreign and financial free zone companies, which are generally understood to fall outside of the remit of competition legislation, should note in particular how broadly applicable the UAE Competition Law is. Even foreign companies which are incorporated or have activities outside of the UAE proposing to enter into a transaction covered by the UAE Competition Law would need to make a mandatory filing with the Competition Department if their activities may have harmful effects on competition in the UAE.
Given the uncertainties involving practical application of the jurisdictional thresholds, it would be prudent to consult the Competition Department in relation to potential merger notification requirements for a particular transaction. However, the regulator is not mandated to respond to any informal requests. Given the consequences of failing to notify a merger, merging parties should consider carefully whether to make a filing if there is even a small likelihood that the transaction could be deemed a notifiable economic concentration for the purposes of the legislation.
The UAE Competition Law also prohibits any restrictive agreement with a UAE counterparty or which affects the UAE and which restricts or prevents competition. This includes price-fixing; determining conditions for sale or supply of services; colluding in bids, practices and supplying offers; market sharing/allocation; and limiting the free flow of goods or services.
The law also bans a party with “dominant position” in a market sector – defined as a market share exceeding 40% – from engaging in “abusive conduct”, namely behaviour that prejudices, limits or prevents competition. This includes: imposing, directly or indirectly, prices or conditions for the reselling of goods or services; predatory pricing; discriminatory pricing/contract terms; obliging a client to not deal with competitor; refusal to conduct transactions in accordance with standard market practices; refusal to supply; tying or bundling arrangements; intentionally publishing incorrect information; and altering the supply of goods to create artificial scarcity or abundance of supply.
It should be noted that there are a number of companies and types of transactions which are automatically exempted from the remit of UAE Competition Law. These are:
The UAE Competition Law contains various sanctions designed to deter entities from engaging in anticompetitive behaviour. This includes significant financial penalties that are unprecedented in previous UAE legislation and range from AED 500,000 (US$136,100) up to AED 5,000,000 (US$1,361,000) depending on the severity of the breach. These fines also apply to ‘gun jumping’ infringements, where a notifiable transaction is completed without obtaining prior merger approval, and where the relevant annual turnover of the merging entities’ goods or services cannot be determined. Otherwise, a gun-jumping penalty for failing to notify a transaction can be between 2% and 5% of the infringing company’s total annual UAE turnover relating to sale of the relevant goods or services.
The court is also able to order that a business be closed for a period of no less than three months and no more than six months upon conviction. Entities can also be subject to civil claims for damages arising from violations of the UAE Competition Law as well as penalties under any other applicable laws and/or be “blacklisted” by public bodies for competition risks, which could lead to negative publicity.
Co-written by Kate Iliff and Tadeusz Gielas of Pinsent Masons.
17 Feb 2023