UAE Law and Practice Contributed by: Duncan Pickering, Nicola de Sylva, Sean Cope and Marta Almeida, DLA Piper LLP
it is standard practice to require the contractors to agree to “liquidated damages” (eg, a pre-agreed fixed amount) for delay. Pursuant to Article 340 of the Civil Code, parties can pre-agree to damages that become due on the occur - rence of certain conditions (eg, a breach of contract, or delay). In a formal dispute, the effect of Article 340 is to reverse the burden of proof: it is for the party seeking to avoid, or otherwise amend, any pre-agreed damages to demonstrate that the other party has not suffered (in full or part) because of them. In all cases, the court (or tribunal in the case of an arbitra - tion) retains the discretion to amend any pre-agreed damages, whether of its own volition and/or at the application of a party. Importantly, pre-agreed damages are to be distin - guished from “penalty” clauses under English law. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Construction contracts in the UAE typically provide for: • an “on demand” performance bond, typically for 10% of the contract price; • an “on demand” advance payment guarantee securing the employer’s advance payments under the contract; and • retention of 10% from each interim payment as security for the contractor’s obligations to remedy defects during the defects notification period (or occasionally a bond in lieu of such retention). Company guarantees from a contractor’s parent or group company in favour of the employer are also fairly common, especially where the contracting entity is a special purpose vehicle. 7.6 Liens or Encumbrances in the Event of Non-Payment The Civil Code provides a contractor or consultant with the potential remedy of a statutory lien over property, in circumstances where the contractor or consultant’s work has produced a beneficial effect on the property but the employer has failed to pay for such work. This entitles the contractor or consult -
ant to retain (and not hand over) the property they have improved pending payment for such work by the employer. However, this mechanism remains relatively untested, and contractors and consultants typically rely on contractual remedies for non-payment. 7.7 Requirements Before Use or Inhabitation There are no express requirements to be satisfied under UAE law before a building may be inhabited or used, other than the issue of the “completion certifi - cate”. However, the law is unclear as to whether this requirement relates to the completion certificate from the relevant authority confirming that construction is complete, or to the completion certificate issued by the engineer under the construction contract. In practice, a building completion certificate from the relevant municipality (following inspections of the works by the relevant authorities and civil defence) is usually stipulated as a contractual requirement before construction works can be used and occupied. Since 1 January 2018, VAT at the standard rate (5%) applies to the sale of commercial property (wheth - er such property is newly constructed or not). If the transaction can be treated as a “transfer of a going concern”, the transfer shall not be considered a sup - ply for VAT purposes (hence no VAT will arise). The conditions for obtaining this treatment could be com - plex and require appropriate legal analysis. 8.2 Mitigation of Tax Liability No methods are currently used to mitigate transfer, recordation, stamp or other similar tax liability on acquisitions of large real estate portfolios. For CIT, various forms of business restructuring relief are available. These types of relief can significantly reduce the tax impact of intra-group transfers or trans - fers of a business (or an independent part thereof). 8.3 Municipal Taxes In Abu Dhabi, a municipality fee applies to anyone leasing property, except UAE nationals. Fees are cal - 8. Tax 8.1 VAT and Sales Tax
699 CHAMBERS.COM
Powered by FlippingBook