The President of the UAE recently issued Decree-Law No. 19 of 2018 on Foreign Direct Investment (the “FDI Law”), which represents the next step towards enabling 100% foreign ownership of UAE companies outside of freezone areas.  This has been widely anticipated since last year’s amendments to the UAE Commercial Companies Law (Federal Law No. 2 of 2015), which paved the way for 100% foreign ownership in specific sectors, and the UAE Cabinet’s approval on 20 May 2018 of a decision to allow 100% foreign ownership of UAE companies.

Although an English translation of the FDI Law is yet to be published, it has been reported that a Foreign Direct Investment Unit will be established by the UAE Ministry of Economy, which will propose foreign direct investment policies to the UAE Cabinet and implement them following their approval. It has been reported that the Unit will also be responsible for creating a database of and registering and licensing foreign direct investment projects in the UAE.

It has been reported that the FDI Law provides for the “equal treatment of licensed foreign investment companies as national companies”. As it currently stands, 100% foreign ownership of UAE companies is only permitted in free zones, which are designated geographic economic zones within the UAE. However, companies established in free zones are not generally permitted to carry on business in the UAE outside of that free zone (i.e. “onshore”).  To carry on business “onshore” in the UAE, a company established under the UAE Commercial Companies Law has to be at least 51% owned by a UAE or GCC national, or a company wholly owned by UAE or GCC nationals. For some foreign investors, particularly those unfamiliar with the region, this inability to have full legal ownership and control has been seen as a barrier to entry or limitation on their business in the UAE.

It is intended that the promulgation of the FDI Law will make the UAE a more attractive destination for direct foreign investment and help diversify the local economy. This may also precipitate a stronger domestic M&A market.

For more information:  ‘A new framework for foreign direct investment in the UAE’ – https://www.cms-lawnow.com/ealerts/2018/11/a-new-framework-for-foreign-direct-investment-in-the-uae

Caryn Penley

Joint Managing Director for Asia and the Middle East at CMS