UAE Foreign Direct Investment Law – Government, Public Sector



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Historical Background

In 2017, the UAE Cabinet issued Federal Decree Law No 18 of 2017
(“Decree“) and amended the UAE
Commercial Companies Law No 2 of 2015 to provide the government an
opportunity to increase levels of foreign investment in certain
activities and sectors of economy. The Decree amended particularly
Article 10 of the UAE Commercial Companies Law which sets out the
foreign ownership restriction and requires that 51% or more of the
shares in a company established in the UAE must be owned by a UAE
national shareholder.

In September 2018, the Federal Decree Law No 19 of 2018
regarding foreign direct investment (“FDI
Law
“) was issued. The FDI Law provided a Negative
List for sectors in which an application for foreign direct
investment (“FDI“) may not be made. It
also authorized the government to separately issue a positive list
of sectors in which an FDI application would be welcomed. In March
2020, the UAE Cabinet issued a the “Positive List of Economic
Sectors and Activities in which Foreign Direct Investment is
Permitted” (the “Positive
List”
).

The Positive List provided for the much-awaited list of business
activities that allow 100% foreign ownership in companies by
foreign investors (subject to the satisfaction of certain
criteria).

There are accordingly 3 types of business activities in the UAE
now: business activities in the Positive List, where 100% foreign
direct ownership is allowed, business activities in the Negative
List, where no foreign direct ownership is allowed, and the rest of
business activities where 49% of foreign direct ownership is
allowed.

Negative List

As per Article 7.2 of the FDI Law, foreign investment may be
permitted in sectors of the economy if those sectors do not appear
in the Negative List. The UAE government may add and remove sectors
and activities in the Negative List. The sectors and activities
that are listed in the Negative List are as follows:

  • Oil Production and Exploration;

  • Investigations, Security, Military, Manufacturing of Military
    Weapons, Explosives, Uniforms and Equipment;

  • Banking and Financing Activities, Payment Systems and Dealing
    with Cash;

  • Insurance Services;

  • Hajj and Umrah Services;

  • Manpower Recruitment Activities;

  • Water and Electricity Services;

  • Fisheries Services;

  • Postal, Telecommunication and other Audio Visual Services;

  • Land and Air Transport;

  • Printing and Publishing Services;

  • Commercial Agency;

  • Medical Retail (including pharmacies); and

  • Blood Banks, Poison Centers and Quarantine Services.

Positive List

The Positive List sets out over 1,000 economic activities which
fall within 3 main categories, namely:

  • Agricultural Sector;

  • Manufacturing Sector; and

  • Services Sector.

The Agricultural Sector list includes such activities as the
growing and cultivation of various crops, forestry, and support
activities in this sector. The Manufacturing Sector list includes
amongst others the manufacture of certain food products, clothing,
electronic items, transportation. The special requirement in such
entities that are involved in agricultural, or manufacturing is
that the company must use modern technology and contribute in
research and development.

The Services Sector list contains activities which include legal
and accounting services, healthcare, science, education,
entertainment, hospitality, communications, and construction.
Again, there are certain requirements in the Services Sector
depending on the relevant activity.

A full list of activities in the Positive List in Dubai can be
accessed from this link (in English and Arabic). A similar list for
activities in Abu Dhabi is available here.

There are no additional fees, guarantees, or share capital
requirements. All companies must meet the licensing requirements of
the licensing authorities. There are however no additional fees,
guarantees, or share capital requirements for companies owned by
foreign investors.

The Positive List allows for foreign investors to establish
companies outside of the free zones, either in the form of a
limited liability company (including single owner companies) or as
private joint stock company, whereby the foreign investors would
own 100% of the company subject to compliance with certain criteria
and conditions as required by the licensing authorities (such as
the Department of Economic Development in each Emirate).

Additionally the Positive List allows the Ministry of Human
Resources and Emiratization to specify a minimum percentage of
Emirati nationals to be employed by the foreign investment
companies. It is however yet to be seen what the Emirati quota is
to be. It however has already been confirmed that branches of
foreign companies (except those that are based in one of the free
trade zones) no longer require an Emirati agent, irrespective of
the share of the foreign ownership.

To conclude, the Positive List is a welcomed development as it
allows foreign investors to fully own and control companies
involved in the activities listed in the Positive List. It sets out
what those activities are and the requirements that needs to be
satisfied. The right to full foreign ownership is undoubtedly
changing the foreign investment landscape of the UAE as the
region’s appeal for foreign investors is increasing and thus
boosting business in the sectors within the Positive List.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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