100% foreign ownership of UAE companies comes a step closer

New law will allow companies to apply to government body for foreign ownership greater than 49%

A new foreign direct investment law, which will allow increased levels of foreign ownership of companies incorporated in the United Arab Emirates, was hailed as a ‘really positive development’ this week.

The new law follows an announcement earlier this year by Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Dubai ruler, in which it was pledged to allow applicants from certain sectors to apply for 10-year UAE visas and 100 per cent foreign ownership of UAE companies.

It also comes on the back of the news last week that the UAE has jumped 10 places in the World Bank’s Ease of Doing Business report, to number 11 globally.

The latest new law, the Foreign Direct Investment Law, which has just been published in the UAE Official Gazette, clarifies that foreigners will be allowed to apply for higher than the currently permitted 49 per cent ownership of their UAE incorporated businesses, up to 100 per cent, according to a statement from law firm Clyde & Co.

It is not yet clear which industries will be impacted, but Clyde & Co said that those which do not appear on a ‘negative list’ will be able to apply to the government’s newly-established FDI Unit for higher than 49 per cent foreign ownership.

The negative list sets out 14 sectors including oil exploration and production, banking and financing activities, water and electricity production, pilgrimage and umrah services, as well as medical retail including pharmacies where ownership levels will remain restricted.

A ‘positive list’ of industries in which companies will be permitted to apply for increased foreign ownership has not yet been published, but the new law allows the UAE Cabinet discretion to add sectors to it in the future, as well as adding or removing industries from the negative list.

Those on the positive list are expected to also be subject to requirements, such as differing levels of foreign ownership, up to and including 100 per cent, minimum capital levels and Emiratisation policies. The law applies only to UAE-incorporated, onshore companies, with companies based in offshore free zones subject to a different legal regime.

Benjamin Smith, a corporate partner at law firm Clyde & Co, who described the move as a ‘really positive development’ for the UAE, said in a phone interview on Monday: “The law seems to set out an expedited process for improving higher levels of foreign ownership where you are included in the positive list, than if it does for sectors of the economy where you are not included in the positive list.

“We will have to see how this unfolds in practice, it looks like where you are on the positive list, there will be a smoother and perhaps faster process of licensing than if you are not on the positive list.”

The FDI Law follows an amendment to the UAE Companies Law in 2017, when it was decided that the UAE Cabinet can issue resolutions under which greater levels of foreign investment would be permitted, said Smith.

“It does not clarify the sectors of the economy in which increased levels of foreign ownership will be allowed, but it does provide the legislative infrastructure for those decisions to be made, and in that respect, this law is quite a significant development,” he said.

“For the first time now, there is a regime in place, and a process in place, under which investors will be able to apply to have greater levels of foreign ownership than is currently the case.”

Smith said there was a regional trend across the GCC towards increasing the permitted level of foreign ownership of companies.

Saudi Arabia, which is on a drive to attract more foreign investment into the kingdom in order to achieve its development goals under its Vision 2030, also announced in 2017 that it would allow 100 per cent foreign ownership for businesses in the health and education sectors.

In a statement last week, UAE Minister of Economy Sultan bin Saeed Al Mansoori, said Law 19 of 2018 on FDI ‘represents a quantum leap in the business environment in the country, strengthening its attractiveness to FDI’.

Smith said the attractiveness to investors would depend on what conditions are attached to the new higher levels of permitted foreign ownership.

“If a foreign investor is interested in having a 100 per cent stake, it will need to understand what the conditions are that are attached to these increased levels of foreign ownership are,” he said.

“If the levels of capitalisation are competitive, and Emiratisation requirements for that industry are appropriate and reasonable, it would be attractive for that investor.”

The negative list of industries is as follows:

• Oil exploration and production
• Investigation, security, military (including manufacturing of military weapons, explosives, dress, and equipment)
• Banking and financing activities
• Insurance
• Pilgrimage and umrah services
• Certain recruitment activities
• Water and electricity provision
• Fishing and related services
• Post, telecommunication and other audio visual services
• Road and air transport
• Printing and publishing
• Commercial agency
• Medical retail (including pharmacies)
• Blood banks, quarantines and venom/poison banks

Zawya