Foreign Direct Investment Law Set to Strengthen UAE as the Prime Business Hub
Published on November 5th, 2018.
The most common question we have been asked recently is: “Do I still need a local sponsor and can my company be 100% owned?”
The answer it seems is not very clear cut at this stage. It would appear that the UAE government is constantly working towards improving the competitiveness of the UAE on the global business stage. Enforced local ownership has long been a barrier to entry for many international companies, which has resulted in many of them delaying or cancelling regional expansion plans.
The United Arab Emirates has just become an even more attractive destination for doing business. In May 2018, the first announcement revealed proposed plans to boost foreign investment into the United Arab Emirates. One of the main strategies is to implement 100% foreign ownership for certain business industries and ownership.
The long awaited new Federal Law No. 19 of 2018 Foreign Direct Investment (the FDI Law) announced by his Highness Sheikh Khalifa Bin Zayed Al Nahyan has just been published in the UAE Official Gazette.
There has been much speculation regarding the FDI Law with regards to its content, eligibility and the benefits to foreign investors. The ultimate aim of the FDI Law is to open the UAE mainland market to foreign investors and strengthen its place as the leading foreign investment hub for doing business in the region.
Article 10 – UAE Commercial Companies Law (CCL) specifies that a Limited Liability Company must have a minimum of 51% share capital owned by a UAE national or 100% wholly owned UAE Emirati Company (also known as a corporate nominee) in order to establish a company in mainland/onshore UAE. In 2017, the UAE Government amended CCL to permit the UAE Cabinet flexibility to authorize greater levels of foreign ownership to certain companies and industries.
The FDI Law will introduce a framework where foreign ownership can increase above the current 49%. The UAE Cabinet will set out the requirements and processes regarding increasing foreign ownership above the current 49% allowed. This will be applicable to certain business sectors and industries.
WHICH AUTHORITIES WILL CARRY OUT THE IMPLEMENTATION OF THE FDI LAW?
The FDI Law established a new Foreign Direct Investment committee (the FDI Committee), directed by the Minister of Economy, and a Foreign Direct Investment unit (the FDI Unit), that will be established within the Ministry of Economy. The aims and objectives of the FDI Unit is to set strategies and policies related to foreign direct investment into the UAE. The FDI Committee will be entrusted with making proposals to the Cabinet on matters related to the implementation of the law.
WILL THE FDI LAW PERMIT 100% FOREIGN OWNERSHIP FOR COMPANIES BASED IN MAINLAND UAE?
The FDI Law is expected to enable 100% ownership, yet it will not apply to all sectors. A set percentage of foreign ownership permitted under the FDI Law has yet to be determined by Cabinet Resolution (the Resolution). The Resolution will state whether 100% of foreign ownership will be granted under Article (7) of the FDI Law, or if there will be a lower percentage (example a local joint venture partner) to be a prerequisite.
WHO CAN BENEFIT FROM THE FDI LAW?
It is yet to be determined the entity types and minimum capital requirements that will fall under the FDI Law. The UAE government are yet to issue a Positive List (the PL) stating the relevant business activities and sectors that the United Arab Emirates will permit to be conducted as a foreign direct investment.
The UAE government will be issuing the PL specifying the activities and sectors, including the Emirates in which such activities are allowed to be conducted as a foreign direct investment. The FDI Law does not contain any details as to which sectors of the economy will appear in the PL and grants the UAE Cabinet the authority to issue decisions which add sectors of the economy to the PL.
It is anticipated that once a sector of the economy is added to the PL the UAE Cabinet will declare the specific requirements surrounding the shareholders or the company. At Creation we anticipate there are several announcements such as:
minimum capital requirements
restrictions or requirements for the type of legal entity
Permit greater levels of foreign ownership than currently allowable within certain Emirates
Authorisation regarding the level of foreign ownership to a particular sector (it could be 100% or less than 100%)
In addition, the FDI Law will issue a Negative List (the NL) of certain activities that will not be permitted under the foreign direct investment regime. The UAE Cabinet may add additional sectors to, or at any time remove certain sectors from, the NL. The sectors of the economy that are listed in the Negative List are:
Oil exploration and production
Investigation, security, military services
Financing and banking activities
Water and electricity provision
Fishing related services
Post, telecommunication and other audio visual services
Road and air transport
Printing and publishing
Commercial agency services
Medical retail and pharmacies
The FDI Law contains a range of other provisions addressing what constitutes capital invested in the UAE, dispute resolution and penalties. Over the coming months, Creation will publish further updates on the changing foreign direct investment landscape in the UAE. The FDI Law is open to interpretation and we expect further clarity in the coming weeks.
Creation has a dedicated, specialist Foreign Direct Investment team, with extensive experience of advising foreign investors on corporate structuring and related issues in the UAE. If you have any questions, please contact your usual Creation contact or email email@example.com