UAE Foreign Investment Law Change
by Affiniax | DEC 07, 2018
The UAE Government has now enacted Federal Decree-Law No. 19 of 2018 (“FDI Law”) in furtherance of its objective to allow increased foreign shareholder participation in UAE mainland registered companies beyond the current restriction of 49%. To date, foreign investors wanting to own UAE businesses wholly, or to have a majority stake, have been limited to registering their companies in UAE freezones or by limiting their operations to a branch/representative office. Free-zone registered companies and branch/representative offices have limitations to their trading and investment activities in the UAE. Previously foreign investors have often found structuring business for commercial activities in the UAE challenging.
The FDI Law does not represent a wholesale change to business investment in the UAE and, to avoid doubt, it does not allow 100% foreign ownership across all sectors of the economy. Rather, the FDI Law introduces a framework under which the UAE Government (acting through a newly formed FDI Unit and FDI Committee in addition to the existing licensing departments of the Department of Economic Development), may designate certain sectors of the economy as being available to more than 49% foreign ownership. These are deemed to be “priority” economic sectors and are in furtherance of Federal Decree-Law No. 18 of 2017 (an amendment to the UAE Commercial Companies Law) which gave scope to the UAE Cabinet to authorise foreign investors to have an increased shareholding in companies within certain sectors.
FDI Unit and FDI Committee
The FDI Law provides, in summary, for the establishment of:
- by decision of the Ministry of Economy, an FDI Unit, which shall, amongst various responsibilities, be charged with: (i) proposing FDI policies, priorities and programmes; (ii) building a base of investment data and information; (iii) consolidating and facilitating registration/licensing procedures for FDI projects;(iv) promoting/advertising the FDI environment; (v) preparing periodical reports on the FDI environment in the UAE; and (vi) attracting FDI to vital/strategic sectors; and
- by decision of the UAE Cabinet, a FDI Committee, charged with studying and recommending to the UAE Cabinet, amongst others things: (i) a list of economic sectors that may benefit from additional levels of foreign ownership (“Positive List”); and (ii) adding to the list of sectors that shall not be open to additional levels of foreign ownership (“Negative List”).
- The FDI Law does not explicitly define the economic sectors or business activities in which foreign ownership beyond the current 49% limitation may be permitted. Rather, it provides that a Positive List will be developed by the FDI Committee, based on certain key criteria including:
- Strategic plans in the UAE
- A return on investment for the UAE economy
- The business’ approach to UAE innovation
- Emirate national’s job and training opportunities
- The impact on other Emirati owned businesses
- The reputation and competence of the foreign investor
- The investment into and the use of modern technology
- Positive impact on the environment
The permission of foreign ownership is therefore based on discretion by the FDI and the award of the business licences will occur on a case by case basis. The FDI Law also provides that the conditions of investment will prescribe:
- The legal form of entity which may be established
- The percentage of capital capable of being owned, hence there may be a requirement for some Emirati national ownership of a minority investment;
- the minimum capital to be invested (with any conditions or controls attaching to this investment); and
- a prescribed Emirati workforce/employees to be engaged by the company.
The FDI Law sets out a number of sectors/activities in the Negative List, which the FDI Committee shall be able to add to. Currently, the Negative List includes:
- Exploration and production of petroleum products
- Hajj and Umrah services (including labour supply and recruitment)
- Insurance services
- Banking & finance activities and payment/cash handling systems
- Postal, communication and audio-visual services
- Water and electricity services
- Land and air transport services
- Commercial agents services
- Retail medicine (private pharmacies)
Other Welcome Measures
The FDI Law also provides assurances that profits generated in the UAE from any FDI investment, the proceeds from a liquidation of the investment and funds collected from the settlement of any dispute can be transferred out of the UAE, subject always to existing legislation. This would appear to give comfort and assurance to foreign investors that the UAE’s longstanding friendly investment culture will continue to apply.
Please contact Affiniax Partners for any advice with respect to registering a business with the new FDI entitlements.