This briefing supplements our previous Dechert OnPoint briefings “Alert on New UAE FDI Law,” and “UAE FDI Law Positive List Confirmed” which discussed the introduction of the Foreign Direct Investment Law (Federal Decree-Law No. 19 of 2018) (the “FDI Law”) in the UAE in 2018 and the confirmation of the “Positive List” of economic activities in which up to 100 percent foreign investment would be permitted in 2020.
A new Decree issued this week by UAE President Sheikh Khalifa bin Zayed Al Nahyan will allow foreign nationals to own 100 percent of commercial companies within the UAE without the need for a local UAE national as sponsor. Up until the introduction of the FDI Law, all “onshore” companies (that is companies established outside a free zone) in the UAE were subject to strict foreign ownership restrictions and foreign investors could only hold a maximum of 49 percent of the share capital with a UAE national (or a UAE company) holding as a minimum 51 percent of the shares. The FDI Law relaxed this requirement by allowing increased foreign ownership in certain sectors contained on a “Positive List”.
The new Decree is expected to bring a number of changes to the UAE Companies Law. However, the most significant changes concern foreign ownership and investment, in that UAE onshore companies will be able to be wholly owned by foreign (non-UAE) shareholders. This latest change is a landmark development which will no doubt encourage foreign investment into the UAE and help further diversify the local economy. Foreign ownership restrictions had always been a key concern for investors and having the flexibility of 100 percent foreign ownership both onshore and in the business free zones will help make the UAE a comparatively attractive place for both new businesses and the expansion of international businesses into the Middle East (especially as compared to other jurisdictions in the GCC which still maintain strict caps on foreign ownership). Prior to such change, foreign investors had to rely on beneficial ownership structures and arrangements designed to allow them to own a higher percentage, both in terms of control and economic rights, of UAE companies. A whole industry grew around ways to address limitations on foreign ownership, and the provision of professional nominee services became a lucrative business for a number of service providers. With the new Decree, reliance upon such complex and costly arrangements will no longer be required by foreign players setting up a business in the UAE.
Further details of the new Decree (including any ‘strategic sectors’ which may be excluded from the new rules) are expected shortly.