Foreign Direct Investment Law, UAE

Foreign Direct Investment Law, UAE

Increased foreign ownership of companies in the UAE is now possible thanks to  a new Foreign Direct Investment Law (Federal Law No.19 of 2018), which has now come into effect after being published in the UAE’s Official Gazette. 

Aiming to promote and develop the country’s investment environment, senior officials have reported that this will boost FDI by up to 20 per cent across the next two years.

The UAE offers lucrative opportunities for foreign investment and the strengths of the UAE include its easy access to oil resources, low energy costs, a willingness to diversify the economy and a high purchasing power.

Foreign companies seeking to establish an entity onshore in the UAE would previously be required to partner with an UAE national shareholder, who would own 51 per cent or more of the shares in the company.

The new legislation provides the framework for the UAE Cabinet to permit foreign shareholders to own increased levels of foreign ownership (more than 49% of shares) in companies operating in certain sectors.

As per the law, a ‘Foreign Direct Investment Unit’ is to be established in the Ministry of Economy. The FDI unit will be responsible for proposing FDI policies, establishing a comprehensive database of foreign direct investment projects as well as licensing foreign direct investment projects and evaluating their performance.

In a report from Clyde & Co, it was noted that under the FDI law, foreign investment may be permitted in sectors of the economy that do not appear in a ‘negative list’ as follows.

  • Petroleum exploration and production
  • Fishing and related services 
  • Investigation, security, military sectors, and manufacturing of weaponry, explosives, military equipment and associated devices and uniforms
  • Postal, telecommunications and audio-visual services
  • Banking and financing activities
  • Land and air transport services
  • Insurance services
  • Publishing and printing services
  • Pilgrimage and Umrah services
  • Commercial agencies services
  • Labour and servant services, and recruitment of personnel
  • Medical retail businesses (e.g. privately-owned pharmacies)
  • Electricity and water services
  • Poison control centres, blood banks and quarantines

The UAE Cabinet has the right to add or remove any sectors from this negative list.

The FDI Law establishes a ’positive list’ of sectors of the economy in which greater levels of foreign investment will be permitted. There is currently not one set list of sectors and it is expected that more detail will be released in the coming weeks. Clyde & Co have reported that the UAE cabinet may:

  • Dictate the level of foreign ownership permitted, this could be 100 percent but could be less
  • Place restrictions or requirements on the type of legal entity which may conduct business in the relevant sector
  • Apply minimum capital requirements
  • Enforce Emiratisation requirements
  • Allow greater levels of foreign ownership than is currently the case in specific Emirates

It is reported that if an application for an increased level of foreign ownership in a sector on the positive list is successful, then  a license will be issued by the Economic Department. In due course, further regulations will be issued, setting out the detailed procedures to be followed for registering and renewing the licence of a foreign investment company.

As a new legislation, the FDI Law is open to interpretation and it is not yet certain how FDI law will be implemented nor what degree of foreign ownership will be permitted in each sector.  

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