100% Foreign ownership of companies in UAE
Introduction
With effect from June 1, 2021, UAE permitted 100% Foreign ownership of companies in UAE. This is a welcome move for the country because it will open the economy. It will lead to better growth opportunities. The change will affect both the existing companies and the ones planning to enter UAE.
- Virtual visa scheme.
- Retirement program for resident expatriates.
- Virtual Company License.
All these are steps of the UAE government to ease the process of doing business in the UAE. These steps were the attraction avenues for companies, professionals, and people in general. And, the latest step added to this list is an attractive avenue for investors and it is 100% foreign ownership.
The concerned Law – 100% Foreign ownership of companies in UAE
Federal Law No. (2) Of 2015 required companies in mainland UAE to have at least 51% local ownership. Foreign investors could hold at the most 49% stake in UAE companies. Also, branches of foreign companies need to have a UAE national as an agent.
In November 2020, the government released the Federal Decree-Law No. (26) Of 2020. This law eliminated the mandate of 51% Emirati ownership in an onshore company. Also, it revoked the mandate on branches of foreign companies to appoint a UAE agent. This became effective from June 1, 2021.
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Key changes related to 100% Foreign ownership of companies in UAE
Foreign investors will be able to own a 100% stake in commercial companies in the UAE. Such 100% foreign ownership is allowed only in certain industries and business activities. Commercial agencies regulated under Federal Law No. 18 of 1981 on Commercial Agencies are exceptions to these provisions.
The law allows for restriction on 100% foreign ownership rule only in two possible cases:
The law allows for restriction on 100% foreign ownership rule only in two possible cases:
1. Restriction on companies carrying out activities that have a ‘strategic impact’
The Cabinet Resolution No. 55 of 2021, also called Strategic Impact Resolution became effective on June 1, 2021. This resolution defines and lists the activities that have a strategic impact. The law does not permit 100% foreign ownership in these activities. These activities include:
- Security, defense, and military activities
- Banking, insurance, finance, and exchange houses
- Telecommunications
- Hajj and Umra activities
- Quran memorization centers
- Currency printing
- Fisheries services
Companies engaging in these activities need a certain level of Emirati shareholding. Natural and legal foreign persons need to apply for approval for such ownership. This approval is sought from the respective Emirate’s competent authority.
The competent authority forwards the application to the relevant activity’s Federal regulatory authority. The Federal regulatory authority will have the power to accept or reject the application. Besides, this authority will have the power to:
The competent authority forwards the application to the relevant activity’s Federal regulatory authority. The Federal regulatory authority will have the power to accept or reject the application. Besides, this authority will have the power to:
- Define the level of shareholding by an Emirati in the respective company
- Define the number of members of the Board of Directors that the foreign investor can appoint
- Determine any other controls or restrictions for the investment
2. Restriction by the competent authorities at the Emirates level
Each Emirate will issue separate guidelines for foreign ownership restrictions. They will issue separate lists of activities for which 100% foreign ownership is permitted. Only two Emirates – Abu Dhabi and Dubai have released their lists of official activities allowed. The other Emirates may soon follow the lead.
The Emirates may have different guidelines for different aspects of business operations. These aspects include employment of nationals, capital requirements, and many more. Abu Dhabi and Dubai have not mentioned any extra restrictions or requirements.
Diverse guidelines in different Emirates may lead to variation in doing business procedures. This may also affect the attractiveness level of one Emirate over the other. Also, the same sectors might have different foreign ownership rules in different Emirates. This would lead to each Emirate becoming an attractive avenue for specific sector/s.
Besides these changes, other resulting changes are welcoming for the investors. There is no change in the licensing procedure of companies. The only step that has changed is no need to find a local agent/partner for the mainland company. It means the licensing process has become a bit easier.
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100% Foreign ownership of companies in UAE
Positive effects – 100% Foreign ownership of companies in UAE
This change is to encourage foreign investors to invest in the country. The openness of the economy will increase. This will appeal to more international brands to invest in the country. It will give a boost to the business activity and competitiveness of the country. As a result, the economy will improve further and generate more jobs.
This decisive move runs parallel to the build-up to Expo 2020, which will run from October 2021 to March 2022. The international business community will have an extra reason to make their presence in the Expo. The right timing of this decision will give the country a boost in FDI. The key benefits will be as under:
- An escalation in the country’s position as an attractive international investment destination
- An opportunity for UAE to have more global business ideas and operations
- An improvement in the perspective of investors towards Middle Eastern markets
- An upsurge in business establishments in the country in the wake of Expo 2020
- A rise in investment in the country, resulting in the development of the economy
- An improvement in technology, education, and training opportunities
- A rise in job opportunities in various sectors for UAE nationals
- A rise in merger and acquisition activity in the country
- A reduction in the costs for forming a company in UAE
- An increase in the trade activity in the country
Negative effects – 100% Foreign ownership of companies in UAE
A negative impact of this change will be on the free zones of the country. The attractiveness of free zones in comparison to the mainland will reduce. This will apply to certain free zones that do not have anything unique to offer other than 100% FDI. Free zones with relaxed taxation and regulatory structure will not lose their appeal.
Free zones with no extra incentives other than full foreign ownership need to worry. They might lose their attractiveness to investors in comparison to the mainland UAE. Also, there is no permission for companies operating in free zones to trade on the mainland. This factor, together with 100% foreign ownership in the mainland, may lead to a reduction in the charm of free zones.
Changes for existing companies – 100% Foreign ownership of companies in UAE
Existing companies can now assess their shareholding structure. They can change their ownership and shareholding if they want. They have time until January 2, 2022, to adjust their shareholding structure. But, if the company structure changes, then they have to make the necessary amendments as well.
Changes for new companies – 100% Foreign ownership of companies in UAE
Investors considering company formation in mainland UAE will be happy with this decision. Now, investors need not worry about sharing the ownership with a UAE national. They can have full ownership if they engage in specific business activities. With the permission of full ownership of foreign investors, it is easier to form a company now.
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What is your next step?
So, wait no further. Make the most of this opportunity and invest in UAE. If you are already in UAE, then you can restructure your company.
If you have any questions about the new rule of the UAE, you can contact us.
If you are looking for help in forming a company in the UAE, get in touch with us.
How can we help you?
We, Business Setup HQ, are a leading provider of business setup services in the UAE. Our customers trust us for the business advisory services we provide for 100% Foreign ownership of companies in UAE. We provide services to clients operating in various industries across the world. We would be glad to assist you at every step of business formation in the UAE. Our services include:
- Understanding of the UAE laws and legislation
- Support in licensing and registration process
- Obtaining visas and Emirates ID
- Help in finding good office spaces
- Opening a bank account
- Any other necessary services for forming a company
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