Earlier this year, in May 2018, his Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Dubai ruler, announced the introduction of a new law that will allow foreign investors to get up to 100% ownership of the mainland companies without the obligation to have a local sponsor that will own not less than 51% of the company shares.
This law, the Foreign Direct Investment Law, has been recently published in the UAE Official Gazette and it is aiming to boost the attractiveness of the country for foreign investors.
Not all the businesses, however, will be allowed to benefit from it. A “Negative List” has been, indeed, outlined to indicate which industries will not be eligible to apply for an ownership higher than 49% of the shares.
The negative list includes the following activities:
- Oil exploration and production
- Investigation, security, military (including manufacturing of military weapons, explosives, dress, and equipment)
- Banking and financing activities
- Pilgrimage and umrah services
- Certain recruitment activities
- Water and electricity provision
- Fishing and related services
- Post, telecommunication and other audio visual services
- Road and air transport
- Printing and publishing
- Commercial agency
- Medical retail (including pharmacies)
- Blood donation services and similar
A counter “Positive List” has not been published yet, but it is safe to assume that the industries that do not figure in the negative list can benefit from the law. It is up to the UAE Cabinet to decide, case by case, whether companies are allowed or not, as well as eventually removing industries from the negative list after some time.
The eligible companies will be subject to some conditions concerning different levels of foreign ownership, the permitted corporate forms, the minimum capital requirements and Emiratization policies.
It has not been defined yet if and how the existing mainland companies can switch their status in case they will meet the requested criteria. Further information will be soon revealed by the UAE Cabinet at this scope.
Will the FDI Law negatively affect UAE locals as sponsors?
UAE nationals will not be hurt by the new law, because it will not target all the mainland businesses and they will still play a key role as strategic partners, thanks to their knowledge of the local market and connections.
How the FDI Law will impact the UAE free zones?
The free zones of the UAE have always permitted the 100% foreign ownership of the companies and this was one of the most important aspects that made them unique and advantageous, as many investors generally prefer to keep the full ownership of their own company instead of sharing it with a sponsor, even if he is “silent” and the sponsorship is essentially formal.
With the new law the free zones will lose the exclusivity of such a benefit, but they are still convenient because:
- The full foreign ownership set by the new law is not for every business
- The businesses that meet the criteria of the new law do not entitle the foreign investor to get the full ownership of the company, as it is up to the UAE Cabinet to decide how much will be exactly his quantity of shares
- The free zones do not require Emiratization
- The free zones offer a unique business model and lots of them are specialized in specific sectors (trade, finance, media, manufacture, etc.), which makes them more attractive in terms of structures and network opportunities
- The free zones offer flexible choices for investors who do not want necessarily to rent an office for their activities
- Some free zones are exempted from the VAT (check-out which ones)
- The free zones are exempted from import and export taxes
- Some free zones do not have any minimal capital requirement
- The free zones offer one-stop shop services for company setup and visa
For more information about the free zones, consult our list of UAE free zones.
So, which one is the best?
The answer is: it depends. It depends on the type of business you intend to carry out, as well on the conditions, requirements and costs.
The UAE offer many solutions for all your business needs.
If you are interested in setting up a company in the UAE, write at email@example.com or fill up the form below.