Recently the UAE has announced substantial modifications to the Commercial Companies Law, taking another step toward improving its commercial infrastructure. Foreign investors and entrepreneurs can enjoy 100% ownership of their business in the UAE, according to the new regulation, in effect from June 1, 2021.
After Saudi Arabia, the UAE has the second-largest economy in the Arab world. It is the most diversified. Thanks in part to Dubai, which generates 95 per cent of its revenue from sources other than oil. The majority of the UAE’s massive oil reserves are located in Abu Dhabi, the capital. Dubai has been ranked 16th in the World Bank’s ease of doing business ranking.
According to the Minister of Economy Abdulla bin Touq Al Marri:
“The amended Commercial Companies Law aims at boosting the country’s competitive edge and is a part of UAE government efforts to facilitate doing business.”
Last year, President His Highness Sheikh Khalifa bin Zayed Al Nahyan approved the long-awaited and much-publicized change. It has brought game-changing ramifications for the nation’s investment landscape. The UAE announced in November 2020 that the groundbreaking legislation allows foreign investors to acquire 100% of a company. It would take effect on December 1, 2020. However, after expanding the list of sectors eligible for full foreign ownership, the bill took effect on June 1, 2021.
Now that we know about the change in law, let’s have a look at the changes and amendments that are made.
The New Ownership Laws
As per the new laws, non-Emirati persons of all nationalities will be able to fully incorporate onshore firms in the UAE from June 1, 2021, allowing for 100 per cent foreign ownership of such businesses in the UAE. Commercial firms in the UAE no longer need to have an Emirati shareholder or agent. The already existing companies can also change their status and act on the latest modifications.
What has changed in the laws?
Previously, all onshore corporations needed to have a UAE National or Emirati-owned company as a partner or sponsor under the UAE commercial companies’ law, Law No.2 of 2015. A limited liability corporation (LLC) can have up to 49 per cent, foreign shareholders. Whereas, the local sponsor has a 51 per cent majority.
According to the Emirates News Agency (WAM), the new UAE company laws have eliminated the requirement for a local sponsor for enterprises doing business in the UAE. The Foreign Direct Investment Law (FDI Law) of 2018 is likewise repealed due to these modifications. The FDI Law has enabled 100 % foreign ownership of certain types of firms and businesses.
What are the other amendments?
The President of the UAE issued a new decree that altered 51 articles of the Commercial Companies Law of 2015. Three entirely new provisions were added to modify. Moreover, the local authorities grant the power to set the ratio of Emiratis on company boards of directors and capital distribution.
For joint-stock firms and limited liability, various provisions for businesses are announced as part of the new decree. Firms that gain authorization from the competent authorities to become joint-stock corporations can sell up to 70% of the company through initial public offerings (IPOs) under the new legislation (initial public offering), an increase from the present limit of 30 per cent for joint-stock businesses.
Some of the other amendments are:
- A company’s chairman or board members, if found guilty of fraud or abuse of authority, can get fired.
- The ability to use electronic voting in general assembly meetings, as well as the appointment of non-stakeholder board members.
- Stakeholders can now sue a firm for damages if it fails to fulfil its obligations.
Moreover, the UAE Cabinet have the authority to establish a new committee to identify operations with strategic significance and to describe the steps and procedures required to license such firms.
What’s the Catch in this change of Law?
After the crisis COVID-19 brought to the whole world, these new UAE commercial company laws 2020 which involve foreign investors having 100% ownership in UAE will aid in improving the legal climate in the country. Also, it will encourage greater international investments.
It comes after a spate of other significant modifications to existing rules in recent years. Including the introduction of long-term visas in the UAE and the opening of the Abu Dhabi freehold market. As more people choose to make the UAE their permanent home, opening up the economy to more investors and entrepreneurs. An enhancement in the interest in the property market is anticipated due to 100% foreign ownership in the UAE, The emirate’s strategic position, world-class lifestyle, and favourable business climate will also make it a popular tourist destination.
What does the UAE’s 100% foreign ownership law imply for the startup ecosystem?
The implications of these changes in Commercial Companies Law can be far-reaching in terms of enhancing the UAE’s appeal to foreign direct investment, but let’s have a look at how important it might be for entrepreneurs hoping to set up shop in the UAE or investors wishing to invest with 100% ownership in UAE businesses.
Here is our take on it:
1. Ease of doing Business
The change in laws can result in onshore startups’ current local ownership arrangements, which can be set in place to comply with previous foreign ownership limitations, being terminated. Also, these arrangements can be costly. It can make it more difficult to complete transactions when nominees require to attend notarial appointments or sign investment documents. As a result, a reduction in the cost of doing business and an improvement in the ease of transacting is likely to benefit the onshore venture ecosystem significantly.
2. Venture FDI
Moving to 100 % foreign ownership will certainly make external funding easier for firms that are already operating onshore. At the moment, convincing investors in more mature venture ecosystems that they will need to split ownership of their investment target with a UAE national corporation or individual who will have no role in the business’s operations can be a challenging cognitive jump.
3. Applicability
Not all enterprises will be eligible for 100% foreign ownership, and each Emirate will set its own rules. At this time, 100% of foreign-owned companies can be subject to a minimum share of capital requirements.
In a recently published guideline, minimum share capital requirements as high as $4 million have been observed in Abu Dhabi. According to the same guidelines, certain organizations must hire at least 5 sector specialists; technology enterprises, particularly, must meet this criterion, which includes software design and computer systems.
Can foreign investors purchase real estate in Dubai?
Now you must be wondering if foreign investors can purchase real estate in Dubai or not. The answer to this is ‘Yes. Non-residents and permanent ex-pats both can purchase property in Dubai.
Specified zones, like Dubai free zone known as freehold areas where foreign nationals can invest at 100% free zone. Additionally, there are various advantages for foreigners purchasing property in Dubai, such as competitive rates, good rental returns, and so on.
There are many opportunities to acquire commercial property in Dubai if you are a business owner looking to take advantage of the new 100% ownership on the Dubai mainland.
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