05 Nov 2017

Restrictions on foreign ownership of UAE companies set to be partially lifted in Q1 of 2018

Authored by: Tim Watkins

Restrictions on foreign ownership of UAE companies set to be partially lifted in Q1 of 2018

The UAE Ministry of Economy has announced that the restriction which has, for many years, precluded foreign investors from owning more than 49% shareholdings in UAE companies, is set to be partially lifted in early 2018.

It is already permissible for foreign (i.e. non-UAE) shareholders to own up to 100% of companies which are established in the various ‘free zones’ of the UAE, but this has always been subject to certain trading restrictions which limit access to the non-free zone areas of the UAE (often referred to as ‘onshore’ UAE).

With the announcement that a new Investment Law is set to be passed in the first quarter of 2018 however, HE Sultan bin Saeed Al Mansouri, UAE Minister of Economy made clear that the UAE will allow up to 100% foreign ownership of onshore UAE companies, in certain business sectors (which have yet to be specified).

The possibility of an Investment Law being passed to address this longstanding principle of UAE law was previously raised when the current Commercial Companies Law was announced (and subsequently promulgated as Law No. 2 of 2015). Before that, the then current Commercial Companies Law (which derived from 1984) had made it a key feature of UAE companies that foreign investment be limited to 49%. Although the 2015 Commercial Companies Law did not implement any changes to this principle, it was mentioned that a future Investment Law was under consideration. The 49% cap on foreign ownership (with the corresponding 51% majority protection for UAE national shareholders that this created) has long been identified as an area worthy of renewed consideration.

The combination of the new Investment Law, the 2015 Commercial Companies Law and the 2016 Bankruptcy Law (Law No. 9 of 2016) are substantial legislative steps that have been taken towards acknowledging, supporting and enhancing the continued growth of the UAE as an global investment hub worthy of international investment. The relaxing of the foreign investment restrictions under this new Investment Law (which is currently awaiting approval by the UAE Federal National Council) has been specifically identified as a means of attracting significant growth opportunities to the UAE, particularly in non-oil sectors, and in the run-up to Dubai World Expo 2020, and as part of the broader UAE Vision 2021.

It could also change significantly a number of business practices that have become commonplace in the UAE. One consequence could be an end to some of the practices whereby UAE national shareholders enter into commercially negotiated schemes of arrangement, to act as nominee holders of shares on a beneficial basis and to the order of a minority foreign shareholder. Such arrangements, though historically subject to certain legal uncertainties as regards enforceability, have formed the basis for many joint venture partnerships for many years.

Much may turn on the range and breadth of industry sectors to which the Investment Law will apply in this regard, which will become apparent in due course.

 
 

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.