Another Game Changer for Foreign Investment in the UAE

The UAE President His Highness Sheikh Khalifa bin Zayed Al Nahyan has issued a new decree (“Decree”) amending the Federal Law No 2 of 2015 on Commercial Companies (“Companies Law”).

The Decree introduces substantial amendments to the Companies Law which generally regulates legal entities established “onshore” in the United Arab Emirates – i.e. outside the free zone areas (“Amendments”).

UAE National Ownership

The Amendments to the Companies Law have removed the requirement for a limited liability or joint stock company to be owned 51% by UAE national(s). This ownership restriction has been applicable almost since the UAE was founded. With these changes, companies can be established onshore without a UAE national shareholder. However, local licensing authorities, which is the Department of Economic Development (“DED”) in most of the Emirates, shall retain the right to determine the level of UAE national ownership participation in a business or company with certain activities. It is expected that the DED in each Emirate will set out certain eligibility criteria for each business sector.

Local Agent

Under the Amendments, we understand it will no longer be a requirement to appoint a UAE national as the local service agent for branches of foreign companies. Foreign companies can now register branches in the UAE without a local service agent.

Categories of Business Activities

Based on the Amendments, it will be permissible to establish companies without any UAE national ownership participation in the majority of business activities however in keeping with other regional states that already allow some unrestricted foreign ownership, we expect there to be commercial activities where the government may still require a prescribed level of Emirati ownership and control. This will almost certainly apply to companies in strategically important sectors such as oil and gas exploration, utilities and transport, as well as state-owned entities which we would expect to be exempt from the announced changes.

Nationality of Directors

The Amendments will also remove the requirement for the chairman and a majority of the Board of Directors of private and public joint stock companies to be Emirati which opens up board membership and should improve corporate governance.

Foreign Direct Investment Law

The Decree has cancelled and superseded the Decree Law No 19 of 2018 on Foreign Direct Investment as the 51% UAE national ownership participation is no longer a requirement under the Companies Law.

Effective Date

Most of the Amendments will be effective from 1 December 2020. However, amendments related to foreign ownership, local agent and board of director appointments will come into effect after six months from the date of publishing the Amendments in the UAE’s Official Gazette. Companies will have one year to comply with the Amendments from the effective date.

New and existing companies and branches may benefit from the Amendments.

We believe that the Amendments re-inforce the UAE’s prominence in the global market and solidify the position of the UAE as a major global hub for foreign direct investment.

We are closely monitoring the position and will provide further updates once the new law is published and we have a more detailed understanding of how the Decree will be applied in practice.

Abdullah Mutawi, Partner and Head of Corporate Commercial, spoke to the Business Breakfast on Dubai Eye 103.8 about the Amendments. To listen to the Podcast click here.