28 Nov 2017

Will there be changes to the UAE’s foreign ownership rules in 2018?

Authored by: Patrick Tweedale

Following the recent announcement by the UAE’s federal Ministry of Economy (“MOE”) regarding a possible new Investment Law in early 2018 (for which, see details here), steps are already being taken to ensure consistency with the UAE’s existing laws, applicable to ‘onshore’ UAE companies. 

It is well known that non-UAE nationals are currently subject to a maximum 49% ownership of shares in any non-free zone based UAE companies. But the MOE’s announcement that the new Investment Law may change this principle in respect of a number of business sectors has now, in turn, led to the promulgation of Federal Decree Law No. 18 of 2017 (which came into effect at the end of October). This new Law serves to amend Article 10 of the Commercial Companies Law (Federal Law No. 2 of 2015) (the “CCL”).

The principle, set out in Article 10 of the CCL, which states the circumstances in which 51% of a company’s shares must be held by UAE nationals remains. However, Article 10 previously went on to say (as an exception to the 51/49 rule) that the Cabinet is empowered to issue a decision prescribing activities which are to be exclusively exercised by UAE nationals. This language has now been expanded to state that the Cabinet may, in addition to prescribing activities which are to be exclusively carried out by UAE nationals, also now prescribe activities in which a non-UAE national may own all or a majority of the share capital.

The new language also goes on to acknowledge other Articles of the CCL where inconsistencies might have been created by this change, and states that any Cabinet decisions issued in furtherance of this new language should address and explain the effect of any such inconsistencies. A breach of, or a failure to comply with the amended Article 10, shall be subject to the penalties which are already prescribed in Article 353 of the CCL.

This relatively small amendment to the CCL may, at present, have little practical consequence on UAE companies. It does, however, empower the Cabinet now to institute a mechanism by which any new Investment Law can serve as a specific exception to provisions of the CCL that might otherwise have caused a legislative contradiction.

Such a move therefore seems to reinforce the MOE’s earlier announcement regarding the possibility that changes to the UAE’s foreign ownership rules may be coming in early 2018.


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