What does the relaxation of foreign ownership rules in the UAE mean for franchising?

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The Cabinet of Ministers of the United Arab Emirates (UAE) recently issued Federal Law No. 18 of 2017, which amended certain provisions of the UAE commercial companies law (Federal Law No. 2 of 2015) (the CCL). The new law came into force on 28 October 2017.

Under the CCL all onshore UAE limited liability companies are required to have at least 51 per cent of their shares owned by a UAE national. The new law gives the UAE government express powers to relax this requirement with respect to certain companies and sectors. It remains to be seen which sectors will be impacted by the new law, but based on previous government statements we expect it to cover a limited number of strategically important sectors such as technology and the environment.

This is a significant development which is likely to lead to increased levels of foreign investment in the UAE, in line with the government's intention to attract more foreign investment into the UAE and the region. 

What does it mean for franchisors?

  • A buyout option may now be enforceable, when previously, due to FDI controls, franchisors were unable to buy out their franchisee.
  • Joint ventures with golden shares may need to be restructured so that true equality is established between the local investor and the foreign licensor.
  • Reluctant franchisors should pause and think again. It may be worth waiting until the sector list is published before committing to a franchise relationship.

It is not yet clear when a resolution will be issued to determine which companies and sectors will be affected by the new law, but we will be monitoring this and will issue a further alert as and when there are any developments. 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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