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10 Aug 2021

United Arab Emirates foreign direct investment update: New developments regarding 100% foreign ownership

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Several significant developments have taken place recently concerning foreign direct investment as a result of the amendments introduced last year to the UAE Commercial Companies Law, Federal Law No. 2/2015 (the "CCL").  The most recent is the long-awaited issuance of Cabinet Decision No. 55/2021 on the Determination of the List of Strategic Impact Activities (the "Cabinet Decision"). 

This Cabinet Decision, along with the announcements made by several Emirates listing the approved licenced activities open to 100% foreign ownership (the "Green Lists"), have already begun to change the landscape of private investment in the UAE.  In this BriefingNote, we examine these developments and their implications for existing shareholders and new investors.

For a summary of all the key amendments introduced to the CCL last year, please refer to our previous BriefingNote.

Background

One of the most significant amendments introduced last year to the CCL is the amendment to Article 10, which came into effect as of 1 June 2021. This amendment affects direct foreign ownership of onshore UAE companies by removing the fundamental default requirement of 51% UAE national ownership of an onshore company.  The amended Article 10 now provides for, amongst other things, a decision by the UAE Cabinet setting out the activities that have a "strategic impact" and the controls necessary for licensing companies doing business in these activities.  Providing they do not conflict with the activities of strategic impact as set out in the UAE Cabinet's decision, the competent authorities of each Emirate can determine the specific percentage of UAE national participation in the capital and/or the boards of companies to be incorporated in their jurisdictions.

Activities with strategic impact

Recently, the UAE Cabinet gazetted its decision, listing the following seven categories of activities with strategic impact: 

  • Security and defence activities and activities of a military nature;
  • Banks, money-changing establishments, finance companies, and insurance activities;
  • Printing cash currency;
  • Telecommunications;
  • Hajj and Umrah services;
  • Holy Quran memorization centres; and
  • Fisheries-related services.

Except for the category of fisheries-related services, which does not permit any foreign investor participation, all the activities described above allow for foreign investor and UAE national participation in a company's capital as determined by the applicable regulatory authority.  In addition, the Cabinet Decision permits foreign investor and UAE national membership on the board of directors of a company, with the percentage of such contribution to be set by the applicable regulatory authority, as well.

Accordingly, the Cabinet Decision also lists the applicable regulatory authorities that will ultimately determine the specific percentage of UAE national participation required in the companies engaged in these activities. 

To engage any of the applicable strategic activities, a foreign investor must first apply for a licence with an Emirate's relevant department of economic development, which will in turn submit the application to the appropriate regulatory authority for its review.  If the regulatory authority approves the application, it will also determine the percentage of national contribution that it deems required. 

Business activities open to 100% foreign ownership – The Green Lists

Even prior to the gazetting of the Cabinet Decision, the departments of economic development of the Emirates of Abu Dhabi and Dubai respectively published lists of business activities that are available for up to 100% foreign ownership within their jurisdictions.  In addition, the Ajman Department of Economic Development also published a list of activities, and it has been reported that the other Emirates will follow suit.

Abu Dhabi

The list published by the Abu Dhabi Department of Economic Development sets out over 1,100 commercial and industrial activities that include, among other things, retail and wholesale trading, the provision of repair and maintenance services and manufacturing across various sectors and industries.  

A copy of the list of activities open for 100% foreign ownership in Abu Dhabi is available here.

Dubai

In early June 2021, Dubai Economy also announced a list of over 1,000 commercial and industrial activities open for 100% foreign ownership.  Similar to the Abu Dhabi Department of Economic Development's list, this list also includes a wide range of activities across many sectors and industries.  In addition, Dubai Economy has also stated that pursuant to its guidelines, no additional fees, guarantees or capital are required for full foreign ownership. 

A copy of the list of activities open for 100% foreign ownership in Dubai is available here.

What do these developments mean going forward?

Existing onshore companies engaged in a business activity listed in a Green List

Foreign shareholders of an existing onshore company may consider restructuring their company's capital to increase the level of foreign ownership if their company's licenced business activities are listed in the Green List of the Emirate in which the company was incorporated.   

As part of this restructuring process, foreign shareholders will need to commercially negotiate with their local UAE partners to reach an agreement with respect to the transfer of the UAE partners' shares.  Often there are shareholder arrangements in place and/or provisions in a company's Memorandum of Association that entitle foreign shareholders to call upon the local partners to sell their shares should there be a change in law.   

New companies that will be engaged in business activities listed in a Green List

Foreign investors interested in setting up or investing in a new onshore company that will conduct activities listed in the Green List of the relevant Emirate of incorporation may do so with or without UAE national partner participation. 

What if the business activity is neither listed in a Green List or the Cabinet Decision?

Although Article 10 of the CCL was amended to remove the default requirement for having 51% UAE national ownership of an onshore company, the amendment allows the competent authority of each Emirate to determine the specific percentage of UAE national participation in a company.  Therefore, the question remains as to whether these authorities will nevertheless require at least 51% UAE national participation for companies that are engaged in business activities not listed in either the Cabinet Decision or a Green List. There is anecdotal evidence to suggest that competent authorities may, at their discretion, be open to 100% foreign ownership for business activities that are neither on the Green List, nor on the Cabinet Decision.

Other considerations

Currently, the commercial and industrial activities included in the Green Lists vary from one Emirate to another; and therefore, not all the same activities may be available for up to 100% foreign ownership in every Emirate.  Consequently, a question remains whether a company wholly owned by foreign shareholders in one Emirate would be permitted to open a branch in another Emirate that would not otherwise permit the business activities of company to be open for 100% foreign ownership.

In addition, foreign shareholders and investors should note that to be open to 100% foreign ownership in an Emirate, all of a company's licenced business activities must be included in that Emirate's Green List.

How we can help

In summary, the issuance of the Cabinet Decision and each of the Green Lists are indeed welcome developments that will encourage increased private investment in the UAE.  While there still may be certain questions concerning the implementation of this new FDI regime, we nevertheless have seen new investors entering the market and existing companies restructuring their ownership.

As such, if you have any questions or concerns regarding these recent developments or you have a question with respect to structuring your business in the UAE, please do not hesitate to contact any of the team members listed below or your usual contact at the firm.

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KEY CONTACT

Diwakar Agarwal

Diwakar Agarwal
Partner

T:  +971 4407 3905 M:  +971 52 120 3149 Email Diwakar | Vcard Office:  Dubai

Sean Angle

Sean Angle
Partner

T:  +971 4 407 3902 M:  +971 55 224 4061 Email Sean | Vcard Office:  Dubai

Sandeep Dhama

Sandeep Dhama
Partner

T:  +971 4 407 3906 M:  +971 55 552 0869 Email Sandeep | Vcard Office:  Dubai

Toufic Safie

Toufic Safie
Senior associate

T:  +971 4 407 3926 M:  +971 56 296 0760 Email Toufic | Vcard Office:  Dubai

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