On 2 July 2019 the United Arab Emirates (UAE) Cabinet announced the relaxation of foreign ownership restrictions for 122 business activities specifically in the manufacturing, agricultural and services categories. This follows the issuance of the new Foreign Direct Investment (FDI) Law in September 2018 to open up the UAE mainland market to foreign investors. A comprehensive list of the business activities that are subject to the relaxation of foreign ownership restrictions (referred to as the Positive List) is set out in the Annex hereto.
What does this mean for your business?
Revised percentage of foreign ownership permitted to be determined
Whilst the UAE Cabinet allows up to 100% foreign ownership for each of the listed business activities, the Department of Economic Development (DED) of each of the respective Emirates has the discretion to determine the extent to which a foreign investor can have a different proportion of ownership of the local business – it is not necessarily a given that a business would automatically qualify for full 100% foreign ownership.
At the moment, the Dubai DED is considering applications on a case-by-case basis from companies with activities included in the Positive List. However, the Dubai DED has indicated that, to the extent that any company is permitted to have 100% foreign ownership, the company would need to appoint a UAE national (or a company wholly owned by a UAE national) to act as the local service agent of the company.
It is not yet clear what approach will be taken by the other respective Emirates.
As indicated in the Positive List, there are certain conditions imposed on a number of the business activities in order to take advantage of the relaxation of the foreign ownership restrictions. These include:
- Companies that are licensed to conduct certain of the business activities are required to maintain a minimum share capital;
- Companies that hold a license to conduct some of the business activities are required to join the Tawteen Partners Club, which requires companies to commit to certain Emiratisation targets set by the UAE Ministry of Human Resources and Emiratisation (MOHRE); and
- There are other conditions specific to certain business activities as detailed in the positive list, such as:
- The application of the rule to certain construction-related activities being restricted to companies that develop large-scale infrastructure (e.g. airports and highways); and
- (ii) The imposition of requirements regarding the use of modern production technologies and contribution to industry related research and development for certain agricultural activities.
How does this apply to existing businesses in the UAE?
It is not yet clear to what extent existing businesses would be able to take advantage of this new cabinet decision. However, such companies would not be prevented from making an application to the DED of the relevant Emirate.
However, please note that there are a number of factors that an existing business would need to consider in deciding whether to implement a restructuring or a transition in light of this change to the law. For example, the extent to which you are contractually able to exit or alter your current nominee arrangement, as well as other employment, tax, compliance and regulatory issues.