UPDATE – FDI in UAE
17 Jul 2019

UPDATE – FDI in UAE

17 Jul 2019

Update on Federal Decree No. 19 of 2018 (The “New Investment Law”)

By Serena Jackson (with Karim Salem) – Al Dahbashi Gray

The UAE recently announced a significant increase in the types of business where 100% foreign ownership is permitted. In future, the types of business will be determined by a newly formed Foreign Direct Investment Committee, chaired by His Highness Sheikh Mohammed bin Rashid, Ruler of Dubai and Prime Minister of the UAE.

In the recent past, most sectors required whole or majority ownerships for “onshore” companies, with only free zone companies and certain professional partnerships able to be entirely foreign-owned.  The new announcement allows 100% foreign ownership in companies across 13 different sectors, including construction, manufacturing, agriculture, renewable energy and entertainment. While there are still restricted sectors, notably in oil production, banking and insurance, these are becoming the exception rather than the rule.

Allowing for FDI in main on-shore businesses in the UAE, this decision could be a game-changer for the UAE economy.

Background

While the UAE operates and recognizes free zones where foreign investors can own up to 100% of their company, the same was not true outside the free zones, proving a challenge for companies entering the UAE looking to attract clientele and business on a national scale.

Looking to increase its GDP and, at the very least, maintain its position as one of the largest receivers[1] of foreign direct investment in the Middle East and North Africa (MENA) region, in late 2018 the UAE issued a decree that sought to lighten limitations on foreign ownership of UAE based and registered companies. The resultant Foreign Direct Investment Law (“New Investment Law” No. 19 of 2018) provided a framework for the Cabinet of the UAE to permit foreign shareholders to own up to 100% of companies in specifically designated sectors.

The New Investment Law therefore initiated a move in the right direction with regards to opening business operations and opportunities for non-nationals. The New Investment Law sought to redefine the UAE’s investment landscape and combat the development of a stagnant economy. It appeared to go hand in hand with other reforms such as the allowance of long-term residency options for investors and professionals in the country.

Limitations of the New Investment Law

The New Investment Law permitted foreign investment in sectors of the economy if those sectors do not appear in a ‘negative list’ and specific sectors on the ‘positive list’ would be given the privilege of operating under the new law.

Whilst the 2018 decree listed a number of sectors in the ‘negative list’ including oil production, banking and insurance, no such sectors were listed in the ‘positive list’. FDI was therefore not immediately permitted pursuant to the New Investment Law.

UAE Cabinet Meeting of 2 July 2019

The UAE Cabinet meeting of 2 July 2019 formed the FDI Committee, which has the right to create, alter, remove or add any economic sector to the ‘positive’ and ‘negative’ lists.

It announced that 100% foreign ownership of businesses in 122 economic activities across 13 sectors were approved to appear on the ‘positive list’. Sectors such as agriculture, renewable energy, construction, manufacturing and entertainment are now on the ‘positive list’. [2]

Looking To The Future – FDI In The UAE

As per the new legislation, these business ventures with FDI must integrate smoothly with the strategic plans of the UAE and look to increase innovation and employment opportunities for UAE nationals. The government is also looking to ensure there is a positive impact on the environment and a tactical use of technology and technological developments. Overall, the ‘positive list’ is determined at the discretion of the FDI Committee and looks to streamline success between foreign and local investors.

While this recent approval for inclusion of activities on the ‘positive list’ was made by a nation-wide cabinet, each local government (throughout the seven Emirates) reserves the right to decide on the appropriate percentage of ownership in each respective field. In some cases, and some Emirates, certain activities may require an Emirati shareholder, as foreign ownership may have increased from the original 49% possible for a foreign investor but may not reach 100%[3].

Despite these limitations, this New Investment Law allows for foreign businesses and investors to increase their scope of possibilities within the now broader economy of the UAE. However, it is also written to ensure that local interests are protected and continue to be fostered and developed. Future ramifications of this legislation appear to be mostly positive. The UAE is hopeful that this will not only ease the possibility of doing business but that it will encourage businesses to make the UAE their base and headquarters for operations.

 

[1] “Foreign Direct Investment, Net Inflows (BoP, Current US$).” Data. Accessed July 11, 2019. https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?locations=ZQ&most_recent_value_desc=true.

[2] Mohammed, HH Sheikh. “In a Cabinet Meeting…” Twitter. July 02, 2019. Accessed July 11, 2019. https://twitter.com/HHShkMohd/status/1146036928892080128.

[3] Planning to Set up a Business – The Official Portal of the UAE Government. Accessed July 11, 2019. https://www.government.ae/en/information-and-services/business/planning-to-set-up-a-business.

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