On 2 July 2019 the United Arab Emirates (UAE) Cabinet announced the relaxation of foreign ownership restrictions for 122 business activities specifically in the manufacturing, agricultural and services categories. This follows the issuance of the new Foreign Direct Investment (FDI) Law in September 2018 to open up the UAE mainland market to foreign investors.

A comprehensive list of the business activities that are subject to the relaxation of foreign ownership restrictions (referred to as the Positive List) is set out in the Annex hereto.

What does this mean for your business?

Revised percentage of foreign ownership permitted to be determined

Whilst the UAE Cabinet allows up to 100% foreign ownership for each of the listed business activities, the Department of Economic Development (DED) of each of the respective Emirates has the discretion to determine the extent to which a foreign investor can have a different proportion of ownership of the local business – it is not necessarily a given that a business would automatically qualify for full 100% foreign ownership.

At the moment, the Dubai DED is considering applications on a case-by-case basis from companies with activities included in the Positive List. However, the Dubai DED has indicated that, to the extent that any company is permitted to have 100% foreign ownership, the company would need to appoint a UAE national (or a company wholly owned by a UAE national) to act as the local service agent of the company.

It is not yet clear what approach will be taken by the other respective Emirates.

Conditions imposed

As indicated in the Positive List, there are certain conditions imposed on a number of the business activities in order to take advantage of the relaxation of the foreign ownership restrictions. These include:

  • Companies that are licensed to conduct certain of the business activities are required to maintain a minimum share capital;
  • Companies that hold a license to conduct some of the business activities are required to join the Tawteen Partners Club, which requires companies to commit to certain Emiratisation targets set by the UAE Ministry of Human Resources and Emiratisation (MOHRE); and
  • There are other conditions specific to certain business activities as detailed in the positive list, such as:
    • The application of the rule to certain construction-related activities being restricted to companies that develop large-scale infrastructure (e.g. airports and highways); and
    • The imposition of requirements regarding the use of modern production technologies and contribution to industry related research and development for certain agricultural activities.

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To speak to us in relation to any foreign investment issues in the UAE, please feel free to contact one of the lawyers below, or your usual Baker McKenzie contact.

Author

Omar Momany is a partner in Baker McKenzie's Dubai office and Head of the UAE Corporate & Commercial practice. Omar focuses on public and private mergers and acquisitions, corporate restructurings, corporate governance, joint ventures, commercial matters and corporate/shareholders' disputes in the UAE and throughout the region. Omar has over 17 years' experience in the Middle East and has acted for local and regional corporates and financial institutions, governments and regulatory bodies, multinationals, family businesses and royal houses.

Author

Pietro de Libero is a partner in the Corporate/M&A practice of Baker McKenzie Habib Al Mulla, based in Dubai, and leads the UAE competition law practice. For the past 17 years he has been advising on cross-border and domestic private M&A transactions, including acquisitions, disposals, joint ventures, reorganizations, and private equity investments and disinvestments. Pietro is also seasoned in exercising corporate rights, resolving shareholder conflicts, and drafting and negotiating commercial agreements.

Author

Hani Naja is a partner in the Corporate & Commercial practice of Baker McKenzie in the UAE. Hani has been practicing since 2007 with a focus on M&A, reorganizations and post-acquisition integration as well as corporate structuring in the Middle East with a particular focus on the UAE and Qatar. His experience also covers general commercial contracts and advice on corporate governance and compliance. Hani focuses on the technology and the retail sectors but has aso gained substantive experience advising both companies and government agencies in the defense sector.

Author

Melissa Forbes-Miranda is a counsel in Baker McKenzie's UAE Corporate practice. Based in Dubai since 2008, Melissa has significant experience in advising on a broad range of cross-border and domestic corporate transactions including mergers and acquisitions, joint ventures, corporate reorganisations and shareholder disputes. Melissa also regularly advises clients on various other types of corporate and commercial issues.

Author

Rony Eid is a counsel in Habib Al Mulla & Partners, a member firm of Baker & McKenzie International, based in Dubai. Rony has over 19 years' experience in the Middle East, including 10 years in the UAE. He is experienced in corporate and commercial transactions, foreign direct investment, mergers and acquisitions, corporate reorganizations, regulatory matters, local laws and litigation. Rony also advises on the incorporation and structuring of companies in the UAE including within the free zones.

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