Changes to the UAE Foreign Ownership Laws
Changes to the UAE Foreign Ownership Laws
The UAE Cabinet of Ministers passed Law No. 26 of 2020 (the Amendment) in September 2020, amending some articles of the UAE Companies Law No. 2 of 2015. (the Companies Law).
The changes to the UAE foreign ownership laws include changing the long-held restrictions on foreign ownership, which prevent foreign nationals, or companies, from owning more than 49% of an onshore business operating in the UAE (the Ownership Restriction).
The Amendment proposed that, with the exception of a negative list of activities determined by the relevant UAE authority, all business activities in the UAE be open to 100 % foreign ownership. However, based on recent actions by the UAE’s relevant authorities and our discussions with the relevant authorities, it appears that the UAE has taken a slightly different approach for the time being.
The new approach following the new UAE foreign ownership laws is to permit each Emirate in the UAE to determine the business activities that it would allow for 100% foreign ownership within its territory (the Permitted Activities).
The Emirates of Dubai and Abu Dhabi have published their respective Permitted Activities as of 1 June 2021. Each list contains over 1000 activities with no restrictions on ownership.
For those business activities where the Ownership Restriction may continue to apply (for example, certain banking and financial services activities), we anticipate that investors will continue to closely monitor future changes to the Permitted Activities and will be advised to review their current, or expected, shareholder arrangements to ensure they remain compliant with the Companions.
How the changes to the UAE foreign ownership laws affect permitted activities
The Permitted Activities cover the majority of industrial and trading business sectors, including hospitality and food and beverage. Certain critical business sectors, however, have been excluded from the Permitted Activities. Education, defence, publishing, and telecommunications, for example, are not open to foreign ownership in Dubai or Abu Dhabi.
It should also be noted that activities classified as professional services still necessitate the use of a UAE national agent. As a result, if you are considering establishing a company to provide professional services, you will still need to make arrangements.
According to the relevant authorities, each Emirate has the authority to revise and update its list of Permitted Activities at any time. As a result, the current list of Permitted Activities is subject to change. As a result, an activity that is currently restricted by the Ownership Restriction could be moved to the Permitted List and vice versa. As a result, we will keep an eye on developments.
How the changes to the UAE foreign ownership laws affect highly regulated activities
According to the relevant authorities, highly regulated activities (such as those regulated by the Central Bank or the Securities and Commodities Authority), such as insurance, banks, financial services, and brokerage, which typically have a more stringent Ownership Restriction1, will be excluded from the list of Permitted Activities.
We understand that, in the absence of specific instructions from the relevant federal regulator, these activities will continue to be subject to the current foreign ownership limits. However, close supervision is still required.
Effect on side agreements due to the changes to the UAE foreign ownership laws
If you have a business activity in the UAE and have made any side arrangements to mitigate the effects of the Ownership Restriction, we recommend that you carefully examine those side arrangements and weigh the benefits of terminating them within sectors that are now on the list of Permitted Activities.
Given the substantial changes to the Ownership Restriction due to the new UAE foreign ownership laws, we expect more emphasis and policing of the UAE Anti-Concealment Law No. 17 of 2004 (the Anti-Concealment Law), particularly for the highly regulated sectors (such as banking and financial services).
The Anti-Concealment Law prohibits foreign investors from engaging in business activities that are not permitted in the UAE. A violation of the Anti-Concealment Law may result in a penalty of up to AED 100,000 being imposed on the individuals involved, as well as the foreign investor being deported from the UAE. If a violation is committed again, the penalty may include up to two years in prison.
Relevance of free zones following the changes to the UAE foreign ownership laws
Free zones will remain relevant in the UAE for a variety of reasons, including (a) business activities that are not Permitted Activities; and (b) the fact that certain free zone laws remain beneficial for financing and security purposes (i.e., the Dubai International Financial Centres and the Abu Dhabi Global Market, both of which have laws and registration systems that support the granting and enforcement of financial certificates).
How Valsen Can Help
The experienced staff of Valsen Fiduciaries Group, our global network allow us to provide high-quality services in several jurisdictions. We are at your disposal to help you take full advantage of the new UAE foreign ownership laws by investing smartly in businesses in the UAE. Please contact us through [email protected] or +248 2 525 217.