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November 25, 2020

UAE now allows 100% ownership by foreign nationals

by CA Shivam Jaiswal in Compliance Law

UAE now allows 100% ownership by foreign nationals

The UAE has been successfully diversifying its economy, particularly in Dubai, but still remains heavily reliant on revenues from petroleum and natural gas, which continue to play a central role in its economy, especially in Abu Dhabi. Dubai and Abu Dhabi are already recognised as two of the most powerful business and financial hubs in the world by international investors who are lured by the incredible possibilities offered in terms of finance, trade and commerce, plus the famous ‘can do’ attitude and the low tax environment in these destinations. However, even with the increasing growth in the UAE economy, there were major restrictions on foreign investments.

What were the restrictions on foreign investments in UAE?

As per the Commercial Companies Law, Law No. 2 of 2015, foreign shareholders were limited to owning a maximum 49% in a ‘limited liability company’ (LLC) operating as an onshore UAE business. This requires an Emirati individual or 100% Emirati-owned company to hold the balance 51% share as a local sponsor.

Those that wanted to acquire the remaining stakes had to apply to individual emirates, which decided on the matter on a case-by-case basis.

What amendments were made in the foreign investment rules?

  • UAE scrapped the need to have UAE nationals as sponsors, thus allowing expatriate (a person residing in a country other than their native country) investors 100% ownership with effect from December 1, 2020.
  • The new law amended 51 articles and added new ones, mostly focusing on the regulation of provisions of establishing companies with limited liability shareholding.
  • The move was in line with a federal law issued by President His Highness Sheikh Khalifa Bin Zayed Al Nahyan and which amended Law No. 2 of 2015 on companies and their shareholding.
  • The long-awaited 100% ownership by foreign nationals of companies licensed and registered in the UAE was allowed by Cabinet Resolution No. 16 of 2020.
  • The decree, in addition, supersedes the UAE Federal Law No. 19 of 2018 on Foreign Direct Investment (FDI Law).
  • It also includes certain provisions and regulations related to limited liability and joint stock companies aimed at attracting foreign capital and further boosting the local economy.
  • The decree grants relevant local authorities a set of powers, including setting a specific percentage of Emiratis in the capital allocation and boards of directors of companies, approving requests to establish companies -except for joint stock companies- and identifying fees & charges according to the policies adopted by the UAE Cabinet.
  • The new amendments allow non-joint stock companies to engage in investment activities on behalf of third-parties if laws governing these activities allow it.
  • The amendments included some provisions for organising the business of a company with limited liability and also one-person entities.

Setting up a Committee to propose activities of strategic impact

The decree also authorised the cabinet to set up a committee that includes representatives of the relevant authorities with a view to proposing activities of “strategic impact” and the measures required to licence companies that operate in such areas.

Upon the recommendation of the committee, the Cabinet will stipulate what activities shall be considered of strategic impact and the required measures for licensing such companies.

Power provided to the Securities and Commodities Authority

  • The decree empowers the Securities and Commodities Authority to establish the controls and procedures required for evaluating in-kind shares and the names of stakeholders attending the general assembly meetings of companies.
  • It also allows the appointment of board members who have the expertise and are not stakeholders, without stipulating a specific percentage, as well as the dismissal of a chairman or any other board members if a judicial judgement is issued against them for committing fraud or misuse of power.
  • The decree enables stakeholders to sue a company in civil court over any failure of duty that results in damages.
  • Concerning capital increases or decreases in public companies, the decree enables the company to approve its capital increase through issuing bonds and converting them into shares.

Minister of Economy welcomed the new move

Abdullah bin Touq Al Marri, UAE Minister of Economy, said the new decree is an additional step in a series of efforts that the UAE is taking to raise the readiness of the national economy and prepare for the future by developing commercial and investment opportunities and increasing the competitiveness of the business environment, in line with the rapid economic changes and developments taking place in the global economy.

His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, announced the amendments to the law, noting that the UAE now enjoys a fertile legislative environment for the establishment of businesses in order to enhance the UAE’s competitiveness. The amended law allows natural and legal persons to establish companies without the need for a specific nationality. The law, however, will not apply to some companies that are excluded based on decisions by the Cabinet and those that are either wholly-owned by federal or local governments or their subsidiaries. 

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