The New UAE Competition Law: What Does It Mean for M&A?

Business Bay, Dubai

The recently enacted Federal Law No 36 of 2023, also known as the New Competition Law, contains some important changes and much-needed updates to the UAE’s oversight of major transactions. Chief among these:

• Expanded scope.

• Narrowed exemptions.

• Revised merger control process.

• New enforcement mechanisms, including steep fines.

Expanded Scope

The New Competition Law applies not only to economic activity that takes place within the UAE, but also activity abroad that significantly impacts the UAE market. If, for example, a UAE company engages in a transaction in France that affects its provision of goods and services in Abu Dhabi, the New Competition Law will consider the French economic activity as part of its overall analysis.

The New Competition Law also includes revised definitions of two foundational terms. The word ‘establishment’ now expressly includes branches, and the word ‘market’ encompasses digital places.

Narrowed Exemptions

Previously, the UAE’s competition regime exempted entire sectors of the economy, such as financial services, transportation and telecommunications. The New Competition Law removes these carve-outs, except in instances where another regulator has the express authority to oversee anti-competitive practices.

‘Weak impact’ agreements and small businesses no longer qualify for exemption under the New Competition Law. In cases where parties previously concluded an agreement that might now violate prohibitions against restrictive practices, the parties may opt to either revise their contracts or apply for a special exemption from the Ministry of Economy.

The previous exemption for government-owned establishments remains but with important clarifying language. Only entities specifically identified by either a Cabinet decision or the local government will qualify for an exemption, irrespective of the proportion of state ownership.

Revised Merger Review Process

The New Competition Law seeks to improve the oversight of major transactions, which it defines as "Economic Concentrations." An Economic Concentration under the New Competition Law encompasses actions leading to the full or partial transfer of ownership or usage rights in various assets that would result in direct or indirect control over an establishment. Parties planning to engage in such Economic Concentrations must notify the Ministry for approval if certain conditions are met:

• Turnover Threshold: If the total annual sales of the parties in the relevant market during the last fiscal year exceed an amount determined by the UAE Council of Ministers; or

• Market Share Threshold: If the combined share of the parties' transactions compared to the total transactions in the relevant market during the last fiscal year exceeds a percentage set by the Council of Ministers.

This marks a significant shift from the previous regime, where parties needed to file only if their combined market share exceeded 40% - a high threshold. The introduction of a turnover-based threshold is expected to lead to a dramatic uptick in filings.

The New Competition Law also extends the merger review timeline. Previously, parties could file a notification as little as 30 days in advance of a planned transaction. The New Competition Law sets the deadline at 90 days. That said, the Ministry must still render its decision within 90 days of submission of the completed filing, with a possible 45-day extension. Extensions may occur when the Competition Committee requests additional information, temporarily pausing the review process.

During the review, the Competition Committee will assess the transaction's potential impact on competition in the UAE, conducting market research and, in some cases, soliciting public input. Following this, the Minister of the Economy or authorized delegate may:

• Unconditionally approve the transaction;

• Conditionally approve with remedies;

• Reject the transaction; or

• Decline jurisdiction if the filing conditions are not met.

If the Competition Committee does not render a decision within the 90-day review period, absent an extension, the notified transaction will be considered rejected. This differs from the previous law, where the absence of a decision implied approval.

New Enforcement Mechanisms

Parties that meet the New Competition Law's filing requirements but fail to notify the Ministry may face substantial monetary penalties. Fines can range from 2% to 10% of the party's total annual revenues derived from the pertinent product or service in the UAE during the previous fiscal year. If determining relevant revenues is not feasible, the fine will be a fixed sum ranging from AED 500,000 to AED 5,000,000 (approximately USD 136,000 to USD 1.3 million).

Conclusion

Entities previously not required to obtain approval for a major transaction within the UAE may need to file a notification with the Ministry of Economy before proceeding. While the New Competition Law provides the clarity UAE businesses need and the protection its economy deserves, extended timelines may impact how companies approach significant deals in the coming year.