National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
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incorporated in the UAE must be established as public shareholding corporations under the
UAE Companies Law and must be registered with the Federal Ministry of Economy and Trade.
(Khan and Walker, 2010; Hashmi, 2007)
Article 1 of Federal Law No. 6 of 1985 concerning banks, financial institutions and investment
companies defines Islamic banks, financial institutions and investment companies as “those
companies whose Articles and Memorandum of Association include an obligation to apply the
Islamic Sharia Law and that their operations would be conducted pursuant to Islamic Sharia
Law”. Islamic banks and financial institutions (including licensed branches and offices of
foreign Islamic banks and financial institutions and investment companies) are exempted by
virtue of Article 4 of Law No. 6 of 1985 from some of the prohibitions imposed on conventional
banks. These include carrying out commercial or industrial activities or acquiring, owning or
trading in goods; acquiring immovable property for its own account; and having interest rates
being paid by banks on deposits and the rate of interest and commission being collected from
customers (Al Tamimi & Company 2016)
In the UAE, insurance is governed at a Federal level by the Insurance Authority (IA) established
according to Federal Law No. 6 of the Year 2007 (the Insurance Law) which replaced the
Federal Law No. 9 of the Year 1984 concerning Insurance Companies and Agents. The law
applies to cooperative insurance, takaful insurance, reinsurance and insurance in general
(Panchal, 2016). The IA has issued Board of Directors’ Decision Number (26) of 2014 Pertinent
to Financial Regulations for Takaful Insurance Companies.
The Federal Law No. 4 of 2000 established the UAE Securities and Commodities Authorities
(SCA) and empowers it to issue regulations, regulate the securities and commodities markets,
receive reports and complaints relevant to the activities of the markets, and to impose
penalties for non-compliance. SCA have issued Authority’s Board of Directors’ Decision No (16)
of 2014 Concerning the Regulation of Sukuk that regulates issues related to the Sukuk market
(SCA, 2014).
Tax regimes and impact on Islamic finance
There are barely any taxes related to financial institutions (FIs) in the UAE. In some limited
areas of tax that banks and financial institutions may be subject to, there is no difference
between conventional and Islamic FIs (Khan and Walker 2010). However, foreign commercial
banks are subject to taxation at the national level. Normally they have to pay 20 per cent tax on
their net income. (Khan and Walker 2010)
Dispute Settlement/Conflict Resolution Framework and Institutions
All of the Emirates, with the exception of Dubai and Ras al Khaimah that have retained their
own courts, form part of the federal judicial system. UAE Federal Law No. 5 of 1985
concerning Civil Transactions (the ‘Civil Code’) together with Federal Law No. 18 of 1993
concerning Commercial Transaction Law (the ‘Commercial Code’) sets out the main provisions
for civil and commercial transactions in the UAE (Ahmed, 2016). Accordingly, UAE courts apply
the laws of the UAE in determining the case. The UAE courts are more likely to simply rely on
the terms of the contract and are not obliged to take the Shari’a pronouncements of SSBs of
Islamic financial institutions into consideration when determining a case (Ahmed, 2016).