A new framework for foreign direct investment in the UAE

Middle East

We recently reported that the long awaited UAE Foreign Direct Investment Law (Law No. 19 of 2018 on Foreign Direct Investment (the “FDI Law”)) had been issued. In this update we provide an overview of the main provisions of the FDI Law and what the new law may mean for both existing foreign investors in the United Arab Emirates (“UAE”) and those looking to invest in the UAE.


The purpose of the FDI Law is to grow and diversify the UAE economy by attracting foreign direct investment in key sectors of the economy. Prior to the FDI Law coming into effect, 100% foreign ownership of companies in the UAE was only permitted in designated economic free zone areas and foreign equity ownership of companies operating “onshore” in the UAE (i.e. outside those free zone areas) was limited to a maximum of 49% of the share capital of a company under the UAE Commercial Companies Law (Federal Law No. 2 of 2015 (the “CCL”)). Amendments to the CCL in 2017 gave the UAE Cabinet the discretion to allow a higher percentage of foreign share ownership in specific sectors and the FDI Law now sets out the legal framework within which increased foreign ownership may be permitted.

This framework includes: (i) a “negative list” of activities and sectors which fall outside the scope of the FDI Law and will, therefore, remain subject to existing regulation, including those restrictions contained in the CCL; and (ii) a “positive list” of activities and sectors, which will be capable of up to 100% foreign ownership.  The framework also includes the establishment of two new governmental bodies to deal with the administration, monitoring and implementation of the FDI Law, these are the Foreign Direct Investment Unit (“FDI Unit”) and the Foreign Direct Investment Committee (“FDI Committee”).

Negative list

The sectors currently on the “negative list” and excluded from the FDI Law are:

  • Exploration and production of petroleum products;

  • Investigations, security, military sectors and manufacturing of weapons, explosives, military hardware, equipment and clothing;

  • Banking and financing activities and payment and cash handling systems;

  • Insurance services;

  • Hajj and Umrah services (pilgrimage) and labour supply and recruitment services;

  • Water and electricity services;

  • Services related to fisheries;

  • Postal, communication and audio-visual services;

  • Land and air transport services;

  • Printing and publishing services;

  • Commercial agents services;

  • Retail medicine such as private pharmacies; and

  • Poison centres, blood banks and quarantines.

Carrying out activities in these sectors will continue to require a majority local UAE national shareholder or, in some cases (e.g. commercial agents services and labour supply) 100% local ownership as per existing legislation. However, under the FDI Law, the UAE Cabinet has authority to amend the “negative list” by adding or removing sectors and so future decisions in this regard should be carefully monitored.

Positive list

The “positive list” of sectors and activities available for up to 100% foreign share ownership is yet to be issued by the Cabinet. It has been reported that the “positive list” will be published in the first quarter of 2019 based on comments recently made by the UAE Minister of Economy.  This list will be based on the proposal of the Minister of Economy and the FDI Committee. In issuing the “positive list”, the UAE Cabinet may decree certain specifications in respect of each sector or activity included on the list, including:

  • the maximum percentage of foreign ownership permitted for the specified activities to be carried out under the project (the “FDI Project”) (which may be 100% or less);

  • the legal form to be used by the foreign investor to carry on the relevant activity in the UAE (i.e. which of the types of company available under the CCL must be used) (the “FDI Company”);

  • the minimum share capital required for the FDI Company;

  • the minimum number or percentage of UAE national(s) required to be employed by the FDI Company; and

  • the benefits to be granted to the FDI Project.

The Cabinet decision in respect of sectors and activities to be included on the “positive list” may also specify which Emirate within the UAE the FDI Projects may be allowed. 

Even where a relevant sector or activity is not specifically included in the “positive list”, under the FDI Law the Cabinet has the discretion to approve a specific FDI Project at the request of local government and based on the recommendation of the FDI Committee and the proposal of the Minister of Economy. The Cabinet can also exempt FDI Companies from certain provisions of the CCL or other UAE Federal laws as appropriate for the nature of the FDI Project.

This creates a flexible framework in which the Cabinet and the Committee can work to push forward the UAE’s vision with regard to economic development, growth, Emiratisation and developing the national skill base and encouraging innovation and technological advances in a targeted manner.  It also keeps the door open to foreign investors who may have something special to offer the UAE even where their activity or sector is not specifically listed in the “positive list” and enables incentives and protections to be put in place to encourage and attract such investment.

Administrative and oversight authorities

The FDI Unit to be established under the FDI Law will primarily be responsible for proposing FDI policies to the FDI Committee and the UAE Cabinet, creating and maintaining a database of FDI Projects in the UAE and monitoring and assessing their performance, facilitating registration and licensing procedures, maintaining a register of FDI companies and generally promoting investment in the UAE.

An FDI Committee, which will be chaired by the Minister of Economy, will be established under a separate Cabinet decision. It will provide recommendations to the UAE Cabinet on the activities to be included on the “positive list” and amendments to the “negative list”, as well as presenting recommendations from the relevant authorities of each Emirate responsible for FDI affairs on granting licences to FDI Projects which are not on the “positive list”. In carrying out its functions, the FDI Committee will be taking into account the UAE’s strategic agenda, looking to increase innovation and optimal use of technology, trying to create job and training opportunities for UAE nationals and looking to create a positive impact on the environment.


The exact procedures and requirements for registration and licensing of an FDI Company are yet to be determined by the licensing authorities in each Emirate but will include a two stage approval process of obtaining preliminary approval before submitting an application for approval for licensing of the FDI Project. Applications for FDI Projects not included on the “positive list” are also to be made to the relevant competent authority at the Emirate level and, if deemed appropriate, will then be submitted to the FDI Committee for consideration. Once an FDI Company is approved and licensed, the FDI Unit will register it in the register of foreign investment companies. It is not currently known whether this register will be publically available, although we note that the FDI Law guarantees FDI Companies confidentiality of technical, economic and financial information and investment initiatives submitted to the licensing authorities as part of the establishment and on-going monitoring processes. The FDI Law does require FDI Companies to include the expression “Foreign Direct Investment” after the company name so this would be one way of recognising FDI Companies and FDI Projects.

Other provisions

Other items covered in the FDI Law include provisions in respect of appeals against licensing decisions or penalties under the FDI Law, disputes involving FDI Companies and the penalties on FDI Companies who do not comply with their obligations under the FDI Law (which obligations include compliance with environmental and health and safety laws, Emiratisation requirements, accounts and audit requirements and providing statistical information, data and documents requested by the relevant authorities in relation to the FDI Project as well as an update on scheduled work commencement and production dates for the FDI Project). Penalties for non-compliance by FDI Companies include warnings, administrative fines up to AED1 million, project suspension and even licence revocation in the event of un-remedied or repeated violations. However, it should be noted that an appeal is not possible against decisions of the relevant licencing authorities rejecting an application for an FDI Project on the grounds of national safety or security or its potential effects to a strategic sector, defence sector, foreign policy, public health, social values or morals of the UAE.

What does the FDI Law mean for you?

There are still many aspects in relation to the implementation of the FDI Law to be finalised, the most important of which is the sectors and activities that will be included on the “positive list” and thereby permitted increased foreign ownership. 

Once the positive list is issued, hopefully in the first part of next year, we would expect existing foreign investors with business in those sectors included on the “positive list” to start looking at effecting corporate restructures to take a greater percentage of legal ownership and control where permitted. This may involve foreign shareholders buying out their local UAE partners or adjusting or terminating existing side agreements / joint venture agreements in relation to shareholding in local companies. The possibility of 100%, or at least majority, ownership of companies in the UAE should also attract and incentivise foreign investors that may previously have been more wary of entering the UAE market. In addition, there may be an uptake in M&A activity as investor confidence grows and UAE targets in the relevant sectors become more attractive to foreign investors.  Foreign operators with unique propositions and international expertise and reputations can also look to explore investment opportunities within the UAE even where their activity is not on the “positive list” where the project proposal aligns with the UAE’s strategic objectives and development goals and can get the support of the relevant authorities.

We will continue to monitor the implementation of the FDI Law and issue further Law Now updates as more information comes available and further Cabinet decisions are issued.

Please get in touch with us if you would like to discuss what the FDI Law may mean for your business and prospects in the UAE.