New Penalties Law for Errant Onshore UAE Companies 2023

UAE Cabinet’s Newly Introduced Penalties

Last month, the UAE Cabinet implemented Cabinet Resolution No. 102. This Cabinet Resolution concerns the Administrative Penalties Regulations that aim to address violations of the Provisions of Federal Decree-Law No 32 of 2021 (for Commercial Companies).

According to the Penalties Law, UAE onshore companies that violate certain provisions of the UAE Federal Decree-Law No. 32 of 2021 (related to Commercial Companies) must pay penalties.

UAE Penalties Law – Whom does it affect?

Entities formed on onshore UAE, including partnerships and joint stock companies come under the purview of the New Penalties Law. What are these penalties and how much are they?

This blog will discuss the most important penalties that onshore LLC’s may face. Let us get started.

Key Sanctions Under the Penalties Law for LLCs

The New Penalties Law in the UAE has many sanctions. Shareholders and decision-makers in Limited Liability Companies must understand these sanctions to ensure proper compliance and smooth functioning of their companies.

1) Ownership:

Companies that fail to comply with the required UAE national ownership percentage or appointing a minimum number of Emirati Board of Directors (if the company conducts activities with strategic impact) must pay an AED 100,000 penalty.

2) Sharia Controller:

Sharia Controllers and each member of the Internal Sharia Control Committee of an LLC (Limited Liability Company) company will be fined AED 7,000 if they do not abide by the provisions of Islamic Sharia.

4) Trade Name Change:

An AED 500/month will apply to LLC’s that do not comply with the authority’s decision to change their trade names. The concerned authorities will impose the fine after the end of 30 working days from the decision’s notification date (total should not exceed AED 5,000/year).

5) Accounting Registers:

LLC’s that fail to maintain accounting registers must pay an AED 15,000 fine.

6) Data Control:

An LLC must allow a shareholder to access the following information:

• Minutes of the general assembly meetings.
• Books and documents
• Transaction related documents
• Other documents involving LLCs (Limited Liability Company) and stakeholders

LLC’s that refuse shareholders to access the above information will have to pay an AED 5,000 fine.

7) Board Meetings:

Chairman, Board of Directors of LLC’s or their representatives that fail to invite other Directors or members of Board of Directors must pay an AED 3,000 fine.

8) General Assembly:

Directors or Chairman of the LLC’s board will have to pay an AED 5,000 fine if they fail to organize the annual general assembly meeting. If the Ministry insists on a general assembly meeting and the above people fail to organize a meeting, the fine amount would be AED 10,000.

9) Losses:

A Director or Chairman of the board or their representatives in an LLC will have to pay an AED 50,000 fine if the company’s losses equal 50% of its capital. Fines also apply if the LLC fails to invite the general assembly to convene in accordance with the UAE Companies Law.

10) Memorandum of Association (MOA):

An LLC company that fails to amend its MoA to align with the provisions of the UAE Companies Law will have to pay an AED 1,000 penalty per month. The penalty will be effective a year after the UAE Companies Law is implemented (i.e., 2nd January 2023).

11) Inspectors:

If the Chairman or the Board of Directors of an LLC, their representatives or its auditor fails/refuses to provide the concerned authority inspectors with information to conduct their duty, conceals information or misleads them then an AED 5,000 will apply.

12) Share(s) Disposal:

Any individual that disposes of an LLC company’s shares while violating the terms of the UAE Companies Law will be subject to an AED 20,000 fine.

13) Miscellaneous:

Violations not specified in the UAE Companies Law, or the provisions of rules, regulations or decisions issued in line with them will attract an AED 10,000 fine.

What can NR Doshi and Partners do for you?

Now, we know what the New Penalties Act is but unless companies align their operations with the act it is of no use. Presently, most onshore companies do not have a clear idea of how the implementation of the New Penalties will be. However, the enactment of the act is proof that the authorities will monitor LLC companies’ activities and act against companies that do not ensure adequate compliance.

NR Doshi and Partners is a renowned accounting and business consulting firm that specializes in diverse financial services. With over 35 years of experience in the GCC (Gulf Cooperation Council) belt alone, we can help you understand the provisions of new laws and regulations (including the New Penalties Law) and others while creating the framework for adoption of the same within your organization.

By aligning your LLC company’s operations with the New Penalties Law, you can breathe easy and focus on business expansion and other productive activities. Eventually, you will easily comply with the UAE Companies Law and other laws, New Penalties Law, and other acts. Most importantly, nobody in your organization will have to worry about non-compliance, missing meetings, documentation, and other legal obligations.

Neglecting legal obligations and being unaware of the latest laws and industry updates could cost you thousands of dirhams in penalties plus the risk of sanctions being imposed by the UAE authorities. Ensuring compliance with new rules and regulations is always a challenge. Not every company is the same. At NR Doshi and Partners, our experts understand that every company is unique.

Our experts will talk to managers and decision makers in your organization. Once we understand the challenges of their business, we conduct a SWOT analysis and create a customized strategy. These strategies will help you streamline your operations, optimize productivity, and ensure compliance with newly implemented rules in the UAE.

For more information about our services, call us on +971 4 352 8001 or email us at enquiries@nrdoshi.ae.