The Administrative penalties for acts committed in violation of the provisions of Federal Decree-Law No. (32) of 2021 – The case of Limited Liability Companies in UAE

by | Mar 18, 2023 | English Topics, Uncategorized

The Administrative penalties for acts committed in violation of the provisions of Federal Decree-Law No. (32) of 2021 – The case of Limited Liability Companies in UAE

Article abstract

There are many administrative penalties that will be applied starting from 05/11/2022 based on Cabinet Resolution No. (102) of 2022 issuing a list of administrative penalties for acts committed in violation of the provisions of Federal Decree-Law No. (32) of 2021 regarding commercial companies, and This applies to limited liability companies, which are as follows:

  1. Failure to keep accounting records (Res 102 – 3) | First time: Written warning | Second time: 15,000 AED | Third time: 30,000 AED | Fourth time: 45,000 AED + Close
  2. The company’s failure to apply international accounting standards and principles when preparing its interim and annual accounts so that it gives a clear and accurate picture of the company’s profits and losses (Res 102 – 45) (Law 32 – 27.3) (Res 77 -11) | First time: Written warning | Second time: 10,000 AED | Third time: 20,000 AED | Fourth time: 30,000 AED + Close
  3. Failure to appoint one or more auditors and determine their fees according to a decision issued by the General Assembly. It is required that the auditor be registered with the Ministry of Economy and licensed to practice the profession by the competent authorities. (Res 102 – 45) (Law 32 – 27.1) (Res 77 – 12) | First time: Written warning | Second time: 10,000 AED | Third time: 20,000 AED | Fourth time: 30,000 AED + Close
  4. Failure to approve the balance sheet and the profit and loss account of the owner by the auditor during the four months following the end of the fiscal year (Res 102 – 45) (Res 77 – 14) | First time: Written warning | Second time: 10,000 AED | Third time: 20,000 AED | Fourth time: 30,000 AED + Close
  5. Distribution of fictitious profits to partners or shareholders (Res 102 – 45) (Law 32 – 30.1) | First time: Written warning | Second time: 10,000 AED | Third time: 20,000 AED | Fourth time: 30,000 AED + Close
  6. Violation of the annual general assembly’s invitation to convene (Res 102 – 28) | First time: Written warning | Second time: 5,000 AED | Third time: 10,000 AED | Fourth time: 15,000 AED + Close
  7. Failure to invite the General Assembly to convene at the request of the Authority, the Ministry or the competent authority (Res 102 – 30) | First time: Written warning | Second time: 10,000 AED | Third time: 20,000 AED | Fourth time: 30,000 AED + Close
  8. Failure to invite a member of the Board of Directors or managers to meetings of the Board (Res 102 – 8) | First time: Written warning | Second time: 3,000 AED | Third time: 6,000 AED | Fourth time: 9,000 AED + Close
  9. Failure to invite the owner through the manager or the chairman of the board of directors and failure to submit an application to the competent authority within seven days calculated from the end of the four-month period specified for the end of the fiscal year to consider approving the balance sheet and profit and loss account (Res 102 – 45) (Res 77 – 17) | First time: Written warning | Second time: 10,000 AED | Third time: 20,000 AED | Fourth time: 30,000 AED + Close
  10. Failure to invite the General Assembly to convene in case of losses (res 102 – 42) | First time: Written warning | Second time: 50,000 AED | Third time: 100,000 AED | Fourth time: 150,000 AED + Close
  11. Refusal to show stakeholders (partners) the company’s data and documents (Res 102 – 7) | First time: Written warning | Second time: 5,000 AED | Third time: 10,000 AED | Fourth time: 15,000 AED + Close
  12. Failure to prepare the corporate governance and discipline system in accordance with professional principles and to be approved by the owner, either directly or through the general assembly. (Res 102 – 45) (Res 77 – 10) | First time: Written warning | Second time: 10,000 AED | Third time: 20,000 AED | Fourth time: 30,000 AED + Close
  13. Violation of the percentage of the contribution of state citizens according to the activities that have a strategic impact (Res 102 – 2) | First time: Written warning | Second time: 100,000 AED | Third time: 200,000 AED | Fourth time: 300,000 AED + Close
  14. Disposal of shares or name in violation of the provisions of the Decree Law (Res 102 – 33) | First time: Written warning | Second time: 20,000 AED | Third time: 40,000 AED | Fourth time: 60,000 AED + Close
  15. Refusal to assist inspectors (Res 102 – 43) | First time: Written warning | Second time: 5,000 AED | Third time: 10,000 AED | Fourth time: 15,000 AED + Close
  16. Non-compliance with the decision to change the trade name (Res 102 – 4) | First time: Written warning | Second time: 500 AED Daily > 5,000 AED Yearly
  17. Delayed regularization. (Res 102 – 44) | First time: Written warning | Second time: 1,000 AED Daily > 10,000 AED Yearly
  18. Non-compliance of the Sharia supervisor and the members of the Sharia Internal Control Committee for companies that apply the provisions of Islamic Sharia (Res 102 – 3) | First time: Written warning | Second time: 7,000 AED | Third time: 14,000 AED | Fourth time: 21,000 AED + Close

Article Details

On 04/11/2022, the Cabinet of UAE issued Resolution No. (102) of 2022 regarding the list of administrative penalties for acts committed in violation of the provisions of Federal Decree-Law No. (32) of 2021 regarding commercial companies, which comes into effect from the date 05/11/2022. The legislator defined the scope of the decision as including commercial companies that are established in the country, foreign companies, branches of foreign companies, representative offices, and investment funds subject to the provisions of the Decree-Law and the decisions and regulations issued in implementation thereof, and foreign companies that establish a center in the country to conduct any activity therein.

The legal forms that the Cabinet of UAE Resolution No. (102) of 2022 applies to issue a list of administrative penalties for acts committed in violation of the provisions of Federal Decree-Law No. (32) of 2021 regarding commercial companies are as follows:

  1. Limited liability companies
  2. Joint liability companies
  3. Limited partnership companies
  4. Private joint stock companies
  5. Public joint stock companies
  6. Holding companies
  7. Foreign companies, branches of foreign companies, representative offices and investment funds subject to the provisions of the Decree-Law

The provisions of this Resolution do not apply to the types of companies that are excluded from the provisions of the Decree-Law, which are:

  1. Companies exempted by a decision of the Cabinet of UAE
  2. Companies wholly owned by the federal government
  3. Companies in which the federal or local government contributes
  4. Companies that have been excluded from the provisions of Federal Law No. (2) of 2015
  5. Companies exempted from the provisions of this Federal Decree-Law No. (32) of 2021 according to special federal laws
  6. Companies established for the sole purpose of acquisition or merger
  7. Special purpose companies
  8. Companies that are established in the free zones in the country, unless their regulations allow them to conduct their activities outside the free zone in the country.
  9. Professional companies
  10. Civil companies
  11. Foreign companies that are not subject to the provisions of the Decree-Law

The provisions of this decision apply to the types of commercial companies established in the country subject to the provisions of Federal Decree-Law No. (32) of 2021, which are:

  1. Limited liability companies
  2. Joint liability companies
  3. Limited partnership companies
  4. Private joint stock companies
  5. Public shareholding companies
  6. Holding companies
  7. Foreign companies and branches of foreign companies subject to the provisions of Federal Decree-Law No. (32) of 2021
  8. Representative offices subject to the provisions of Federal Decree-Law No. (32) of 2021
  9. Investment funds subject to the provisions of Federal Decree-Law No. (32) of 2021

What are the administrative penalties that will be imposed on the violator in the event that he commits any of the acts that fall in violation of the provisions of Federal Decree-Law No. (32) of 2021 and the regulations and decisions issued in implementation thereof?

  1. In the event of a violation for the first time, a written warning will be given
  2. In the event of a violation for the second time, the administrative fine mentioned in the fines table shall be imposed
  3. In the event of a third time violation, the administrative fine mentioned in the fines schedule shall be doubled
  4. In case of violation for the fourth time, three times the administrative fine mentioned in the schedule of fines and temporary administrative closure for a period not exceeding 6 months, renewable once.
  5. The license and approvals issued to the violator shall be revoked, provided that the violator bears the expenses and costs of removing and treating the damages resulting from the violation in the event that they are not removed or treated.

What are the acts that occur in violation of the provisions of Federal Decree-Law No. (32) of 2021 and the regulations and decisions issued in implementation thereof that pertain to limited liability companies?

  1. Violating the percentage of the contribution of state citizens according to the activities that have a strategic impact (a fine of 100,000 dirhams) (Res 102 – 2)
  2. Non-compliance of the Sharia controller and members of the Sharia internal control committee for companies that apply the provisions of Islamic Sharia (a fine of 7,000 dirhams for the Sharia auditor and each member of the Sharia internal control committee) (Res 102 – 3)
  3. Non-compliance with the decision to change the trade name (a fine of 500 dirhams daily and a maximum of 5,000 dirhams annually after the end of 30 working days from the date of notification of the decision to change the trade name) (Res 102 – 4)
  4. Failure to keep accounting records (a fine of 15,000 dirhams) (Res 102 – 5)
  5. Refusing to show the stakeholders (partners) the company’s data and documents (a fine of 5,000 dirhams) (Res 102 – 7)
  6. Not inviting a member of the Board of Directors or managers to meetings of the Board (a fine of 3,000 dirhams for the director, the chairman of the Board of Directors or his representative) (Res 102 – 8)
  7. Violation of the annual general assembly’s invitation to convene (a fine of 5,000 dirhams for the director, the board of directors or their representatives) (Res 102 – 28)
  8. Not inviting the general assembly to convene at the request of the authority, the ministry or the competent authority (a fine of 10,000 dirhams for the director, the chairman of the board of directors or his representative) (Res 102 – 30)
  9. Disposing of the shares or the name in violation of the provisions of the Decree-Law (a fine of 20,000 dirhams for anyone who disposes of the shares in violation of the rules established in the Decree-Law) (Res 102 – 33)
  10. Not inviting the general assembly to convene in case of losses (a fine of 50,000 dirhams for the director, the chairman of the board of directors, or his representative) (Res 102 – 42)
  11. Refusal to assist the inspectors (a fine of 5,000 dirhams for the director, the chairman of the board of directors, his representative, the company employee, or the auditor who refuses to provide documents or information) (Res 102 – 43)
  12. Delayed regularization (a fine of 1,000 dirhams per month and a maximum of 10,000 dirhams annually) (Res 102 – 44)
  13. Violation of the provisions of the Decree-Law and the decisions implementing it, for which no administrative penalty was specified in this decision (a fine of 10,000 dirhams). These actions may include actions related to practices related to accounting, auditing and governance:
    • The company’s failure to apply international accounting standards and principles when preparing its interim and annual accounts so that it gives a clear and accurate picture of the company’s profits and losses. (Res 102 – 44) (Law 32 – 27.3) (Res 77 – 11)
    • Distributing fictitious profits to partners or shareholders (Res 102 – 44) (Law 32 – 30.1)
    • Failure to prepare the corporate governance and discipline system in accordance with professional principles and to be approved by the owner, either directly or through the General Assembly (Res 102 – 44) (Res 77 – 10)
    • Not appointing one or more auditors and determining their fees according to a decision issued by the General Assembly, and it is required that the auditor be registered with the Ministry of Economy and licensed to practice the profession by the competent authorities. (Res 102 – 44) (Law 32 – 27.1)
    • Failure to approve the balance sheet and the profit and loss account of the owner by the auditor during the four months following the end of the fiscal year (Res 102 – 44) (Res 77 – 14)
    • Failure to invite the owner through the manager or the chairman of the board of directors, and failure to submit a request to the competent authority within seven days calculated from the end of the four-month period specified for the end of the fiscal year to consider approving the balance sheet and the profit and loss account (Res 102 – 44) (Res 77 – 17)

The final conclusion

In light of what has been clarified of essential information regarding limited liability companies, the companies in the United Arab Emirates must know the new legal obligations that boards of directors, managers, or partners must adhere to so that the company does not fall under fines, closure, or revocation of granted licenses.

How Abdelhamid & Co can help?

We, in Abdelhamid & Co Certified Public Accountants & Auditors, have professional expertise and legal knowledge of legislation related to accounting and auditing. In light of the above, keeping accounting books on a regular basis and keeping all documents and evidences supporting all financial transactions, as well as auditing accounts and approving financial reports by an approved auditor has become an essential and indispensable practice and cannot be postponed because dispensing with these obligations would expose the boards of directors or owners in limited liability companies to the risks of imposing fines that will be imposed through inspection and closure teams by the competent authorities.
Regardless of the fines that will imposed by the competent authorities, attention to the quality of financial reports and the preservation of documents and evidence that support the financial transactions of the company is a vital matter that boards of directors or owners must be keen on because in the absence of financial reports in the company, the company will certainly be on its inevitable path towards failure and the final responsibility will fall It is the responsibility of the boards of directors or owners

Article resources

  1. Federal Decree-Law No. (32) of 2021
  2. Cabinet Resolution No. (102) of 2022 (Official English translation not available as of 18/03/2023)
  3. Cabinet Resolution No. (77) of 2022 (Official English translation not available as of 18/03/2023)
  4. Legislations Regulating the Economic Sector in the UAE

Article related services:

  1. Cloud accounting and bookkeeping service
  2. Financial statements compilation service
  3. External audit service
  4. Internal audit service

About the Author

Abdelhamid M. Abdelhamid
| Partner & Managing Director
| (ACPA, IACPA & VCD) – (International Arab Certified Public Accountant)
| Emirates Association for Accountants & Auditors – EAAA Fellow Member – Reg. No.: 124
| International Arab Society of Certified Accountants – IASCA Fellow Member – Reg. No.: 1361
| Ministry of Economy Working-Auditors Record – Reg. No.: 956
| FTA Tax Agent – TAAN No.: 20033908

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