Major reform in the UAE foreign ownership Laws

The UAE President, Sheikh Khalifa bin Zayed Al Nahyan, issued a decree on Monday 23rd November that has announced significant changes to the Federal Law No.2 of 2015 on the Commercial Companies Law. It is also expected that the Federal Law by Decree No. 19 of 2018 regarding Foreign Direct Investment (the FDI Law) is to be superseded by these changes and therefore the FDI Law is to be repealed.

Fifty one articles of the Commercial Companies Law are to be amended to facilitate the changes and new articles will be added. Most of the changes are expected to relate to LLC’s and joint stock companies and companies have a maximum of one year to comply with the amended law from the time its articles become effective.

The most significant change is around foreign ownership in that international companies/investors can apply for 100% shareholding in a UAE onshore company. It also seems that the previous requirement to appoint a local national service agent has also been removed.

The changes applicable to foreign ownership and investment will begin to take effect six months from the date they are published in the UAE's Official Gazette.

The decree authorizes the cabinet to set up a committee that includes representatives of the relevant authorities with a view to proposing activities of "strategic impact" and the measures required to licence companies that operate in such areas. Upon the recommendation of the committee, the Cabinet will stipulate what activities shall be considered of strategic impact and the required measures for licensing such companies.

This is a fundamental change on how business can be conducted in the UAE and it will be interesting to note all of the requirements once the changes have been published. The decree grants relevant local authorities within each Emirate - such as the Department of Economic Development- the power to review and set the specific percentage of Emirati ownership along with capital allocation and number of board members in each entity. Furthermore, as per Law 19 of 2018 there are a number of business activities which allow 100% foreign ownership in return for a number of key requirements such as a significant share capital and compliance with the Emiratisation regulation, it is yet to be released whether the same or similar requirements will be put in place under the new law.

A significant change that could lead to greater liquidity of the local capital market, is that companies wanting to go public can now sell up to 70% of their shares in an Initial Public Offering (IPO), instead of the previously limit of 30%.

This recent announcement follows that of a series of changes to the UAE’s laws earlier this month relating to individuals residing in the UAE and as a result these changes to the Commercial Companies Law further enhance the attractiveness for foreign direct investment and business growth in the UAE and cement itself as a business hub throughout the Middle East region.

It will be interesting to see the further details about the changes when released in the coming days and to see whether this allows foreign ownership across a significant number of business activities throughout all of the Emirates.

Such an announcement demonstrates the value of international investors who have engaged a professional sponsor (also referred to as ‘corporate nominee’), such as CBD Corporate Services, to fulfil the local participation requirements.   By doing so, not only do foreign investors securely maintain 100% management and operational control of their business and the right to retain all its profits but it also offers invaluable protection to foreign shareholders by providing a clear contractual exit strategy, which in this case allows the foreign company to wholly own the UAE entity, subject to meeting the requirements as setout by the local authorities.

As this is an unprecedented but welcome announcement from the UAE government with wide baring positive effects for existing and new foreign investors.  We will be staying close to the subject and share new information with our clients and partners as it is released.

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