On Monday, the UAE government announced an exciting new reform on the Commercial Companies Law, allowing foreign investors 100% business ownership, effective 1st December 2020.
For decades, most foreign investors in the United Arab Emirates (“UAE”) engaged in commercial trading were under an obligation to be partnered with a UAE national to legally operate their businesses within prescribed areas of the country. This week, a phenomenal reform was introduced by the President of the UAE, His Highness Sheikh Khalifa bin Zayed Al Nahyan, which changes the course in which the UAE is moving.
Under Federal Law No. 8 of 1984, which was effectively replaced by Federal Law No. 2 of 2015 concerning Commercial Companies Law, most foreign investors setting up a limited liability company were obligated to enter into a partnership with a UAE citizen. In such a partnership, the UAE citizen would dominate, holding at least a 51% stake in the company. Now, the new decree abolishes the former business structure and introduces the long-awaited reform.
However, whilst the new reform replaces the old law on the federal level, it simultaneously confers powers to local authorities (i.e. each emirate) to determine exceptions, perhaps based on specific business activities. It will take some time for such exceptions to be announced so the idea of complete ownership is still yet to be confirmed in practice and application within each emirate.
Although the exceptions to the new reform are yet to be announced, foreign investors should take time to consider the possible implications of this change on their existing side agreements, nominee agreements or any other ancillary agreements, whereby their local partner has been remunerated in the form of a fixed fee or other alternative arrangements. For existing businesses, there will be multiple factors to consider before deciding whether to make changes or not.
The new reform demonstrates the UAE’s eagerness to advance in respect of the many commercial and investment opportunities that the country has to offer and this is certainly promising news for anyone looking to set up a new business in the UAE. However, for existing foreign investors, we caution great care and not to hasten in abrogating existing business relationships.
If you would like assistance in reviewing any existing agreements concerning company ownership, or you are looking to set up a new business in the UAE, get in touch on +971 4 441 2031 or by email at email@example.com.
Written by Bahriddini Sultan