UAE's New Maritime Law:Easing Nationality Restrictions and Introducing Dual Flagging
Transport & Insurance Focus
The maritime sector, a cornerstone of economic development and international trade within the United Arab Emirates (UAE), has long awaited a significant legislative overhaul.
Law Update: Issue 366 - Transport & Insurance Focus
Yasser MadkourPartner,Transport & Insurance
Giannis PetrasAssociate,Transport & Insurance
Fares AbdullahAssociate,Transport & Insurance
The maritime sector, a cornerstone of economic development and international trade within the United Arab Emirates (UAE), has long awaited a significant legislative overhaul. The introduction of Federal Decree by Law No. (43) of 2023 (the “New Maritime Law”) marks a significant advancement in maritime regulation within the UAE, with the intention of placing the UAE on the global stage as a key maritime hub. The New Maritime Law not only modernises vessel registration and eases nationality restrictions, but it also advances the framework regarding maritime safety, thereby positioning the UAE at the forefront of legislative initiatives of this sort. This article delves into the primary aspects and broader implications of the New Maritime Law, comparing it with its predecessor, Federal Law No. 26 of 1981, while highlighting provisions related to the easing of nationality restrictions and the novel introduction of dual flagging.
Historically, the UAE's maritime commercial activities were regulated by Federal Law No. 26 of 1981. This legislation established the basic rules and procedures for maritime operations within the UAE, covering aspects such as vessel ownership, registration, and liability. However, the maritime industry has undergone significant changes over the decades, which necessitated a more modern and comprehensive legal framework to accommodate the evolving needs of global and regional maritime logistics and trade.
One of the landmark changes brought about by the New Maritime Law is the relaxation of nationality restrictions for registering vessels under the UAE flag. Previously, vessel ownership and registration under Federal Law No. 26 of 1981 were tightly regulated with stringent requirements on the nationality and domicile of vessel owners. The new legislation broadens eligibility criteria, allowing UAE residents, Gulf Cooperation Council (GCC) nationals, or entities with a domicile, headquarters, or ship management office in the UAE to own vessels. This represents a significant policy shift aimed at making the UAE maritime sector more inclusive and appealing to a wider array of investors and operators and is expected to enhance the attractiveness of the UAE flag for international shipping companies and vessel owners by simplifying administrative procedures and offering competitive advantages. This provision opens up new opportunities for foreign investors and operators to benefit from the UAE's strategic location, infrastructure, and services, while also contributing to the UAE's maritime economy and security.
We also note that the New Maritime Law does not differentiate between mainland UAE companies and companies established in the various free zones within the UAE. Thus, foreign investors/shipowners can utilise the new UAE flagging regime through the incorporation of a free zone company. However, even though the New Maritime Law does not provide any difference in treatment between mainland and free zone UAE entities, each relevant free zone authority sets its own requirements with respect to licensing, regarding the permitted activities, as well as the regulation of shipowning, chartering, and operation, amongst others, which means that there are various strategic considerations in selecting such free zone for each shipowner. Nevertheless, the New Maritime Law opens up this window.
Another feature of the New Maritime Law is the introduction of dual flagging, a concept previously not accommodated under the repealed maritime law. Articles 18 and 19 of the New Maritime Law set forth the conditions under which vessels, whether foreign-flagged or UAE-flagged, can achieve dual registration. This move offers enhanced operational flexibility and strategically positions the UAE as a more attractive flag state, potentially increasing the number of vessels flying the UAE flag.
Thus, under the specific requirements set forth in the New Maritime Law, as expected to be expanded upon and/or clarified with the issuance of the Executive Regulations, the UAE flag may function in such dual registration settings as both the primary flag, as well as the secondary/bareboat flag. As we can understand, the UAE lawmakers did not hesitate in moving forward multiple steps with the introduction of the New Maritime Law, as they did not only stop at the easing of nationality restrictions, but went further introducing concepts such as dual-flagging, amongst others, aiming to modernize the whole breadth of the UAE maritime framework.
Comparing the old and new laws, the most striking difference lies in the approach to vessel registration. The old law adopted a more restrictive and cumbersome stance, imposing strict conditions on the nationality and domicile of vessel owners. The former law also did not deal comprehensively with the registration of newbuild vessels, whereas the New Maritime Law provides a detailed framework in multiple articles for the registration of vessels under construction.
However, the reforms of the New Maritime Law extend beyond mere registration, touching upon critical areas such as maritime safety, environmental protection, and the resolution of maritime disputes. The new law places a stronger emphasis on adhering to international maritime safety standards, promoting sustainable maritime practices, and providing efficient mechanisms for dispute resolution. These provisions reflect the UAE's commitment to aligning its maritime operations with global best practices.
The UAE was already an attractive jurisdiction for shipowners and operators due to its advantages in corporate structuring and tax frameworks. However, in the current vessel-owning structured where UAE companies were involved, the UAE companies hold vessels under foreign flags, due to the fact to that ownership of a UAE company was not sufficient; the natural person which was the ultimate shareholder was necessary to be a UAE national (or at least a majority shareholder). With the easement of nationality restrictions, we expect to see a swift, with the election of the UAE flag for vessels which are owned under such structures.
In conclusion, the implications for the UAE's maritime sector are significant, with the legislation poised to attract foreign shipowners in the UAE, as well as to result in key investments in maritime infrastructure, technology, and services.
For further information,please contact Omar N. Omar, Giannis Petras and Fares Abdullah.
Published in March 2024
