04 Nov 2018

The Long-Awaited Foreign Direct Investment Law – Main Considerations

Authored by: Ahmad Sergieh and Bilal Snaineh

It is generally well known, locally and internationally, that foreign investors wishing to establish a company in the UAE can only hold up to a maximum of forty nine per cent (49%) of the share capital, under the UAE Commercial Companies Law No. 2 of 2015 (as amended) (with free zones being the exceptions). However, a new law was issued by His Highness the President of the UAE on 23 September 2018 under No. 19 of 2018 called the Foreign Direct Investment Law (the “FDI Law”) paving the way to relax this foreign ownership restriction. This foreign ownership restriction creates certain potential risks for foreign investors who wish to retain full ownership and control of a company and business they may wish to establish. We understand that the FDI Law has recently been published in the Federal Gazette which means it has now become official law.

The FDI Law has long been anticipated by the business community in the UAE following the UAE Cabinet’s approval on 20 May 2018 of a decision announcing the relaxation of the foreign ownership restrictions applicable to UAE companies in certain business sectors carrying out activities in the UAE.

Main Aspects of the FDI Law

Under the FDI Law, a committee called the Foreign Direct Investment Committee (“Committee”) to be presided over by the Minister of Economy (“Minister”) will be formed by a Cabinet resolution and will be tasked with developing economic policies for the implementation of the FDI Law including the following:

  1. setting out a list of economic activities that may be carried out by a company wholly owned by foreign investors (“Approved Activities List”);
  1. approving foreign investment projects to conduct activities that are not set out in the Approved Activities List following recommendations made by the relevant licensing governmental departments; and
  1. deciding on the benefits granted to specific foreign investment projects.

The FDI Law provides that the Cabinet will issue its decision on the Approved Activities List based on recommendations made by the Minister and the Committee. The Cabinet must take into account the following main considerations when deciding on implementing the FDI Law:

  1. integration with strategic plans of the UAE;
  1. achieving good returns and added value to the national economy;
  1. increasing the level of innovation in the national economy;
  1. providing job opportunities for UAE nationals;
  1. impact on national companies engaged in similar activity;
  1. competence, experience and international reputation of a foreign investor;
  1. utilization of modern technology; and
  1. whether the activity achieves a positive impact on the environment.

After the Cabinet has approved the final Approved Activities List including the applicable fees, the relevant licensing governmental departments must then set out the procedure required to be followed in connection with the establishment of a company with such activity in the UAE.

Although the FDI Law does not immediately identify which sectors will benefit from the relaxation of the current foreign ownership restriction, it is a welcome piece of legislation that should substantially contribute in increasing the attraction of the UAE as a business hub for foreign investors.

The next stage we await is the Cabinet resolution confirming the Approved Activities List which we will communicate to you as soon as it is relevant.

 
 

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.