Foreign ownership in the UAE: positive lists mark positive step forward

We previously discussed the introduction of major changes to the UAE’s Commercial Companies Law (Federal Law No. 2 of 2015, the “CCL”). The most significant of those changes, allowing 100% foreign ownership of “onshore” companies in the UAE, has now been implemented with effect from 1 June 2021.

This is a historic milestone in the UAE as it marks a significant shift away from the previous default requirement of majority ownership of an onshore company by UAE national(s). While there are still a number of details to be confirmed regarding how the new regime will work in practice, we have summarised what we know so far.

What we know so far

The Department of Economic Development (“DED”) of each Emirate has discretion to specify which business activities will be open to 100% foreign ownership. So far Abu Dhabi DED and Dubai DED have each published an extensive ‘positive’ list of cross sector commercial and industrial activities that are eligible for 100% foreign ownership (over 1,100 in Abu Dhabi and over 1,000 in Dubai). Ajman DED has confirmed that it has approved over 1,000 activities for 100% foreign ownership and Sharjah DED has advised that it will implement its full foreign ownership policy in June 2021.

Across all Emirates, the new rules will not apply to any companies carrying on activities with a ‘strategic impact’ and such companies will continue to be subject to the current local ownership requirements. The Federal government is yet to confirm which activities will be deemed to have such ‘strategic impact’.

As at the date of this article, so far only Dubai DED has issued any guidelines clarifying the procedures for foreign ownership, which includes the following:

1. no additional fees, guarantees or capital will be required in order to obtain foreign ownership;
2. for existing businesses carrying out activities where full foreign ownership is now available, the status of those businesses will remain unchanged unless updated in accordance with the requirements of its existing Memorandum of Association;
3. professional activities will still require a local service agent;
4. branches of foreign companies will not need an Emirati agent;
5. an existing limited liability company cannot be converted into a sole proprietorship, but its licence can be transferred to a one-person company with limited liability;
6. 100% foreign ownership does not apply to commercial agencies (which will continue to be regulated by thee Commercial Agencies Law); and
7. new businesses can be registered directly through the DED’s Business Regulation and Licensing department, or applications can be made through the online portal on the “Invest in Dubai” website.

We understand that as at 3 June 2021, Dubai DED had received 59 applications to take advantage of the new rules.

The nature and extent of any restrictions or conditions that may be imposed on the ability to obtain 100% foreign ownership (if any) in other Emirates are not yet known. However, a statement from Sharjah DED noted that its decision to allow such foreign ownership will include “no requirements such as specific capital or any additional fees for foreign investors”. Given the discretion granted to the DED in each Emirate, it is likely that different approaches may be taken in different Emirates.

Positive step forward

The foreign ownership restrictions in the UAE have widely been viewed as the most limiting factor in setting up a business in the mainland. The significant limitation of those restrictions is therefore a positive and exciting step forward and will be of interest to those with existing businesses onshore, as well as those thinking of starting a business, who can now own and operate onshore companies in the UAE with greater autonomy, control and certainty over their business than before.

The changes follow a number of recent business friendly reforms across the UAE which aim to boost its competitive edge, facilitate doing business and make it an even more attractive destination for global investors, entrepreneurs and talent.

Please get in touch if you would like to explore options for your business or discuss the contents of this article further.