This article was written by Daniel Xu、Adijatu Kamara
In the last decade, UAE has taken decisive strides towards positioning itself as the region's financial hub and in line with this aim it has now enacted a foreign direct investment law (Federal Decree-Law No. 19 of 2018, "FDI Law") which came into force on 30 October 2018, the day it was gazetted. The FDI Law introduces the possibility of up to 100% foreign ownership of a business entity on-shore UAE.
Notably, the UAE has been setting the backdrop to this recent development over the last 14 years with the establishment of Dubai International Financial Centre in 2004 and a number of other economic free zones in various emirates wherein 100% foreign ownership of a business entity is permitted, including most recently, Abu Dhabi Global Market. The new law does not apply to free economic zones. Key legislation regulating foreign investments into the UAE prior the FDI Law are namely (i) UAE Companies law; and (ii) UAE PPP Procedure Manual (Cabinet Resolution No.1 of 2017).
Pursuant to the new law, the Ministry of Economy will head an FDI Committee established by the government, and form a designated Unit to support the inflow of FDI in UAE. The unit is responsible for managing a centralised database which will have records of both existing and potential FDIs into UAE. Similar to Saudi Arabia's FDI Law, there are foreign ownership restrictions in certain sectors. UAE will operate a positive list with further guidance from the government on its content i.e. sectors that will benefit from it. However, there is a negative list ringfencing the following:
- Oil exploration and production
- Investigation, security, military (including manufacturing of military weapons, explosives, uniforms, and equipment)
- Banking and financing activities
- Insurance services
- Pilgrimage and umrah services
- Certain recruitment activities
- Water and electricity services
- Fisheries and related services
- Postal, communications and other audio-visual services
- Land and air transportation
- Printing and publishing
- Commercial agency
- Medical retail trade such as private pharmacies, and
- Poison centres, blood banks and quarantine.
Potential FDI projects not included in the positive list may be rolled out if the government approves following support from either local government, the FDI Committee, and the Ministry of Economy. The negative list may be revised by the government with new sectors being added or removed.
Law No 19 has ushered in a wave of possibilities including 100% foreign ownership of a company on mainland UAE upon UAE government approval, a move away from the 51%-49% local-foreign ownership rule in the Companies Law. It is worth mentioning that the Companies Law was amended in 2017, permitting 100% foreign ownership in certain sectors. The new FDI Law confers the same proposition but goes a step further to set out the framework within which increased foreign ownership can be approved. The exceptions to foreign ownership in the Companies law regarding joint liability companies and limited partnerships are still in force.
Foreign investors' wanting to increase their shareholding in a project may apply for approval on the same as they are no longer required to have local partners in certain sectors.
UAE's foreign investment regulatory framework is evolving to foster a more conducive atmosphere which attracts foreign investors and the new FDI Law further consolidates the government's effort in the last decade. FDI into the UAE has increased steadily on a year-on-year basis since 2012 and an 8% upwards trajectory was recorded between 2016 and 2017 (US$ 11 billion in 2017). Law No. 19 of 2018 will boost investor confidence and in turn attract FDI growth in certain sectors specifically targeted.
