Summary

The legal framework for a much anticipated foreign direct investment regime in mainland UAE came into force on 24 September 2018 in the form of Federal Decree No. 19 of 2018 On Foreign Direct Investment.  The law provides an exemption to UAE foreign ownership restrictions, permitting up to 100% foreign ownership in mainland companies undertaking qualifying activities.

Those qualifying activities (known as the “Positive List”) were recently announced with publication of Cabinet Decision No. 16 of 2020 (“Cabinet Decision No. 16”) and include 122 activities that fall within the service, industrial and agricultural sectors. 

Cabinet Decision No. 16 sets minimum capital requirements together with other controls and conditions for most activities included on the Positive List.  Minimum capital requirements for the majority of service sector activities, as well as Emiratisation requirements for all sector activities, remain to be determined under applicable legislation. 

Cabinet Decision No. 16 also prescribes two legal forms for qualifying businesses to take, notably a limited liability company or private shareholding company.

Authorities in each Emirate have discretion to determine the relevant ownership percentage (as well as any additional controls and conditions required) to undertake each activity within their Emirate. 

We expect that, as applications are progressed with Emirati authorities, details of this welcomed regime will be further developed.  

On 24 September 2018, the legal framework for a foreign direct investment regime in mainland UAE came into force in the form of Federal Decree No. 19 of 2018 On Foreign Direct Investment (the "FDI Law").  The FDI Law provides an exemption to UAE foreign ownership restrictions, permitting up to 100% foreign ownership in mainland companies undertaking qualifying activities. 

By way of background, foreign ownership restrictions are enshrined in UAE Federal legislation requiring that at least 51% of the share capital of UAE mainland companies is owned by UAE nationals or companies wholly owned by them.  Foreign participation, consequently, may not exceed 49%. 

To qualify under the foreign direct investment regime, the business must (a) fall within any of the approved economic sectors and activities (known as the “Positive List”), (b) take the prescribed company form, and (c) comply with specified minimum share capital requirements as well as certain restrictions and conditions (including Emiratisation requirements). 

While the FDI Law does not identify the activities on the Positive List, it specifies those that are excluded from the regime (known as the “Negative List”).  Activities on the Negative List are not available for foreign ownership and remain subject to the default UAE Federal restrictions.   Notable examples of activities on the Negative List (as may be amended from time to time) include the following:

• Exploration and production of petroleum products;
• Investigations, security, military sectors, manufacturing of arms, explosives and military equipment, devices and clothing;
• Banking and financing activities, payment systems and dealing with cash;
• Insurance services; and
• Medical retail such as private pharmacies.

For the full Negative List, please click here.

Official announcement of the Positive List occurred in March 2020 with publication of Cabinet Decision No. 16 of 2020 on the Determination of the Positive List of the Economic Activities and Sectors in which Direct Foreign Investment is Permitted and Ownership Percentages Thereof (“Cabinet Decision No. 16”).  Cabinet Decision No. 16 identifies 122 activities that fall within the service, industrial and agricultural business sectors.  Notable examples of service sector activities on the Positive List (as may be amended from time to time) include the following:

• Legal consultancy offices;
• Accounting, bookkeeping and auditing activities; tax consultancy;
• Architectural and engineering activities and related technical consultancy services;
• Medical and dental practice activities;
• Veterinary activities;
• Computer programming, consultancy and related activities;
• Scientific research and development;
• Retail sale in non-specialised stores (except cooperative associations);
• Advertising;
• Construction of buildings;
• Civil engineering;
• Electrical and plumbing works and other construction activities;
• Education;
• Hospital activities;
• Hotel management;
• Restaurant management;
• Creative activities and drama shows (theatre); and

For the full Positive List, please click here.

Cabinet Decision No. 16 also prescribes the minimum capital requirements together with other controls and conditions for most activities included on the Positive List such as:

• for the service sector, restrictions on specific activities;
• for the industrial and agricultural sectors, requirements to use modern technology, achieve a high added-value yield, contribute to research and development, and satisfy the requirements set by the licensing authorities in UAE; and
• for all sectors, employment of a minimum number of UAE nationals in accordance with applicable legislation.

While minimum capital requirements have been set for activities in the industrial and agricultural sectors, for the majority of the activities in the service sector, they remain to be determined under applicable legislation.  It is worth pointing out that the capital requirements that have been specified are substantial, ranging from AED 2 million (for the manufacture of musical instruments) to AED 100 million (for retail sale in non-specialised stores and hospital activities).  That said, we understand that in-kind consideration may be accepted by relevant authorities in satisfaction of at least part of the minimum capital requirements. 

Cabinet Decision No. 16 prescribes two company forms for a business to take, and they are: (a) limited liability company and (b) private shareholding company, including companies with a single (foreign) shareholder. 

While the FDI Law permits up to 100% foreign ownership for qualifying activities (despite the wording of Cabinet Decision No. 16 which states that “[foreigners] shall have 100% ownership”), foreign ownership may be approved in any lesser percentage.  Ownership percentages are at the discretion of the relevant authorities in each Emirate, and they will determine the precise percentage permitted (as well as any additional controls and conditions required) for each activity.  As of the date of this Brief, we are not aware of any foreign ownership percentages or additional controls and conditions that have been attributed to any activity on the Positive List by authorities in any Emirate. 

In respect of activities that have neither been expressly permitted (on the Positive List) nor expressly excluded (on the Negative List), the relevant Emirati authorities have discretion to approve up to 100% foreign ownership on a case by case basis. 

As of the date of this Brief, we are not aware of any companies incorporated under this regime, although foreign wholly owned companies have been constituted in Dubai and Abu Dhabi prior to implementation of the FDI Law by special permission from the Ruler of the Emirate in which they operate.  Such companies may benefit from the incentives and guarantees under the regime provided that their positions and obligations are reconciled according to the conditions and requirements of the legislation. 

The foreign direct investment regime is a much anticipated and welcomed initiative by the UAE.  Many well-known international brands interested in benefiting from the incentive have submitted applications to authorities, and as these are progressed, further details of the regime will be established.  We will provide additional updates on these further developments.