On 20 May 2018 the UAE Cabinet approved a decision to allow 100% foreign ownership of UAE companies. This decision has been eagerly anticipated since last year’s amendments to the UAE Commercial Companies Law (Federal Law No. 2 of 2015), which opened the door to 100% foreign ownership in specific sectors as determined by Ministerial Decision, and with ongoing rumours of a new Foreign Investment Law being drafted.
Currently 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 must be at least 51% owned by a UAE national company or individual. For some foreign investors, particularly those unfamiliar with the region, this inability to have full legal ownership and control can be seen as a barrier to entry or limitation on their business in the UAE.
To counter this a common practice has developed in the UAE whereby various contractual arrangements are put in place between the foreign investor and the majority UAE national shareholder to give full economic, management and operational control to the foreign investor. However, while generally considered to be enforceable if correctly set up, these arrangements are not completely without risk.
Permitting 100% foreign ownership of companies will remove such risks and make the UAE a much more attractive prospect for investors looking to acquire local companies or set up operations in the UAE. Foreign investors already established in the UAE are also likely to look to restructure their current arrangements. Those operating with “silent” UAE national partners are likely to move to full legal ownership while those working with true joint venture partners may wish to restructure the shareholdings to reflect the true contribution of each party to the joint venture, whether equal or otherwise.
The UAE Cabinet has instructed the Ministry of Economy to implement the decision by the end of this year and we will keep you up to date with developments as more information comes available. Please get in touch with us if you would like to discuss what this decision may mean for your business and prospects in the UAE.
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