Will Your Company Expand To The UAE With Increased Foreign Ownership Levels?
24th July 2019
The United Arab Emirates is becoming increasingly attractive for Foreign Direct Investment (FDI) as it relaxes its restrictions on foreign ownership. Under the Commercial Companies Law, Law No. 2 of 2015, foreign companies are restricted to a maximum ownership of 49% of the shares in a Limited Liability Company (LLC) in the UAE. The law requires that a local partner, either an Emirati individual or a 100% Emirati-owned company holds the majority 51% share. However, in Q4 of 2018, the long awaited Foreign Direct Investment Law, Decree Law No. 19 of 2018 was announced, enabling foreign companies to hold a greater share in onshore companies in the UAE in certain sectors. At that time, only a Negative List had been announced, which contained a list of activities which would not be opened up to increased levels of foreign ownership, and at that time only indications were given as to which sectors were being considered for increased foreign ownership levels.
Positive List announced - which activities will be opened up for increased foreign ownership in the UAE?
It has been announced that 122 activities across 13 sectors will be opened for increased foreign ownership. Of these, activities splits will be as follows:
19 activities from the agriculture sector
51 activities from the industrial sector
52 activities from the services sector
Activities being opened up to increased foreign ownership include: renewable energy, space, agriculture, manufacturing, production of solar panels, power transformers, green technology, hybrid power plants, transport and storage, e-commerce transport, supply chain, logistics, and cold storage for pharmaceutical products, hospitality and food services, information and communications, as well as professional, scientific and technical activities, administrative services, support services, educational activities, healthcare, art and entertainment, and construction.
Will foreign companies be allowed to own LLCs 100%?
It has been indicated that the above activities will be opened up for up to 100% foreign ownership. The governments of each of the Emirates will determine the foreign ownership levels for these activities for their respective Emirate.
What conditions will foreign companies need to meet in order to take advantage of the increased levels of foreign ownership?
For most of the agriculture related activities it will be necessary to have a minimum share capital of AED7.5m.
For most of the industrial related activities it will be necessary to have a minimum share capital of between AED2m - AED100m.
For hospitals it will be necessary to have a minimum share capital of AED100m.
As anticipated, there is an Emiratisation requirement whereby the foreign companies will be required to participate in the Tawteen Partners Club which provides privileges and benefits to member companies. This means the foreign company will be required to employ a certain ratio of Emirati nationals. There are four membership categories: Platinum, Gold, Silver & Bronze which are then sub-divided into High Priority, Medium Priority and Low Priority depending upon the percentage of the workforce which is Emirati and the skills level required and sector of the business.
Other requirements referred to include:
use modern technology and production processes
demonstrate added value
contribute to research and development
fulfil the licensing requirements.
The scope and measurement of the above has not be clarified.
In conclusion, the announcement of the Positive List is encouraging and will be welcomed by larger foreign investors. However, I think the entrepreneurs and micro businesses which have been awaiting this this announcement will be disappointed as most are unlikely to be able to meet the requirements and will therefore need to continue to comply with the current ownership levels in LLCs.
The opening up of foreign ownership levels will be particularly attractive for larger foreign companies looking to establish onshore to work with the government. It will also be attractive to existing onshore companies who may seek to increase their foreign ownership levels.
If you are planning to expand your business to Abu Dhabi or Dubai to take advantage of the increasing levels of foreign ownership, speak to Gateway about how we can help navigate the business set up formalities. To discuss your Abu Dhabi or Dubai company formation, email us: info@GatewayToUAE.com
Written by Jenny Hunt, Founding Partner & CEO
Gateway Group of Companies, Abu Dhabi & Dubai UAE
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