By: Germela Team
Since its establishment, the United Arab Emirates (“UAE”) has implemented several measures to attract business and investment in the country. The latest strategic step to relax the rules governing foreign ownership in UAE companies, was the introduction of the long-awaited Foreign Direct Investment Law (“FDI Law”) in 2018.
In general, foreign investors wishing to establish a company in the UAE mainland can only hold up to 49% of the share capital in the company. To date, exceptions were only permitted in designated free zones where 100% foreign ownership can be obtained. Now, with the enactment of the FDI Law the UAE is paving the way to relax the restriction of foreign ownership.
In this article, we aim to shed some light on the FDI Law and its impact on foreign ownership in the UAE.
WHAT THE LAW SAYS:
In accordance with article 2 of the FDI Law, the core aim of this piece of legislation is to promote and develop the investment environment and attract foreign investment in the UAE. For this purpose, the UAE Cabinet shall form a direct investment committee (“Committee”) which shall propose economic sectors in which greater levels of foreign investment will be permitted (“Positive List”). Based on the proposals of the Committee, the FDI Law grants the UAE Cabinet the authority to add sectors of the economy to the Positive List. At present, no Positive List has been issued by the Cabinet yet. In accordance with the FDI Law, the Positive List shall be established based on the following criteria:
Strategic Plans in the UAE
Best profit and value for the UAE economy
Innovation in the economy
Providing job/training opportunities for UAE nationals
Use of modern technology
Positive impact on the environment
Expertise and competence of the investor
Impact on Emirati owned companies
Furthermore, 100% foreign ownership may only be permitted in sectors which do not appear in the so-called negative list of the Law (“Negative List”). The Negative List of the FDI Law currently includes the following activities:
Banking and financing activities
Land and air transport services
Fishing and related services
Water and electricity provision
Publishing and printing services
Labour and recruitments services
Oil exploration and production
Postal and telecommunications services
Retail medicine (private pharmacies)
The above-mentioned sectors of the Negative List may be amended and replaced by the UAE Cabinet from time to time.
Although the FDI Law does not clarify in which economic sectors greater foreign investment will be permitted, the introduction of the Law is a significant development to contribute to the attractiveness of the UAE as a business hub.
We will continue to monitor the implementation of the FDI Law and will communicate any announcement of the UAE Government confirming the Positive List.