On November 23, 2020, the UAE Commercial Companies Law (the “CCL”) announced its decision to allow 100% ownership for foreign investors in UAE. This new policy marks a significant shift in the UAE’s business landscape and aims to attract foreign investment, enhance economic growth and stimulate innovation.
Read on to find out more about this important update.
Understanding the Law amendments to Foreign Ownership in UAE
The requirement for UAE nationals to hold a minimum of 51% of shares in an onshore company has been removed from Article 10 of the CCL. This change has addressed the concerns of foreign investors, including private equity and venture capital funds, by eliminating foreign ownership restrictions, making investments in onshore companies less complex and costly.
Single-shareholder entities, which previously had to be wholly owned by UAE nationals, are now eligible for 100% foreign ownership in UAE. The Department of Economic Development (DED) in each Emirate has the authority to specific business activities that are open to 100% foreign ownership. Abu Dhabi and Dubai have issued lists of licence activities that cover more than 1,100 and 1,000 commercial and industrial activities, respectively. However, each Emirate’s DED may determine different foreign ownership regimes for companies operating in the same sector.
That said, existing UAE companies are not automatically entitled to transition to 100% foreign ownership, but many of these businesses will consider it. Whether an existing business can transition to 100% foreign ownership depends largely on its relationship with its UAE shareholder and existing written agreements between the parties.
The UAE specifically excludes certain sectors and activities from 100% foreign ownership, such as commercial agencies, “strategic activities” (including military, banking, insurance, reinsurance, and telecommunications), and professional activities like consultancies. UAE Freezone companies’ branches must still appoint a UAE national agent.
Wholly foreign-owned companies’ incorporation will not subject them to higher fees or greater guarantee/share capital requirements than a UAE-owned/part-owned company. The law also gives the relevant DED in each Emirate flexible discretion and can grant exceptions to companies that carry out significant projects, which would support investment and value to the UAE market.
Switching from Freezone to Mainland
Once the 100% ownership for foreign investors in UAE is implemented, it is possible that UAE Freezone companies conducting business in mainland UAE can consider transitioning to a full mainland entity. This option will provide them with greater flexibility in terms of commercial space location and staff visa allocation. Moreover, a mainland entity would enable them to work more closely with UAE companies and the government, as well as achieve a higher ICV score for government tendering processes.
Corporate Governance Requirements
The amendment to the law requires all companies in the UAE, including limited liability companies, to comply with enhanced corporate governance standards to be issued by the government in the future.
The process of convening and holding general meetings has also undergone changes, which include:
- Increasing the notice period for holding a meeting to 21 days;
- Allowing one or more shareholders holding not less than 10% of the share capital to request a general meeting to be called; and
- Allowing for meetings to be held and called using modern means of technology.
Pathway to 100% foreign ownership in UAE – What companies must do.
We advise established companies in the UAE who plan to transition to 100% ownership to review their current local partner arrangements. This will ensure a smooth pathway to 100% ownership if desired. To effect the change, the 51% shareholder will need to attend the notary and execute a Share Transfer Agreement, necessitating commercial discussion and agreement with the local partner or agent.
For companies considering setting up a new LLC or Foreign Branch in the UAE, we recommend reaching out to us for a tailored plan to achieve 100% foreign ownership in UAE.
Conclusion
Nair & Nelliyatt Chartered Accountants can assist companies in setting up a new LLC with foreign ownership in UAE and can help determine the eligibility for 100% ownership for foreign investors in UAE. Additionally, we can also assist and provide advice for existing share transfer and NSA transfer arrangements to enable companies to progress to 100% ownership in a seamless manner.
If you have any questions regarding foreign ownership in UAE or require assistance with these issues or any other related company setup, or company restructuring, please contact us at info@nn-ca.com or give us a call at +97143577678. Our team of experts will help you overcome all challenges and ensure your company has a strong foothold in UAE’s competitive business environment.
