Foreign Direct Investment Law Set to Strengthen UAE as the Prime Business Hub

This article was updated on July 5th, 2023

This article has been researched and written by Dastan Nurmanbetov and the team at Creation Business Consultants and has not used AI in generating this article.

The most common question we have been asked recently is: “Do I still need a local sponsor and can my company be 100% owned?”

The United Arab Emirates (UAE) government is constantly working towards improving the competitiveness of the UAE on the global business stage. Enforced local ownership had been a barrier to entry for many international companies, which had resulted in many of them delaying or cancelling regional expansion plans.

The Federal Law No. 19 of 2018 Foreign Direct Investment (the FDI Law) was announced by his Highness Sheikh Khalifa Bin Zayed Al Nahyan in September 2018. The aim of the FDI Law was to open the UAE mainland market to foreign investors and strengthen its place as the leading foreign investment hub for doing business in the region by providing 100% foreign ownership to investors and business owners.

THINGS TO KNOW ABOUT THE UAE’S 100% COMPANY OWNERSHIP RULE

The regulation supports the growth of the commercial areas in Dubai. With the help of foreign investment and talent, eco-friendly activities including hybrid power plants, solar panels, and other green technology will continue expanding their businesses in the UAE.

The UAE’s economy is now benefiting from 100% foreign ownership and attracting more foreign investment. This move by the UAE government has strengthened the country’s position in the global investment landscape, where it is allowed for foreigners who are not citizens to operate factories under their full control. Acquiring 100% foreign ownership in the UAE is quite significant.

LOCAL SERVICE AGENT IS NO MORE REQUIRED

With the regulation in effect since March 30, 2021, foreign investors are no longer required to work through a UAE National Service Agent (NSA) to establish a company in the UAE. As a result of the law’s modification, businesses can be established without having to meet these criteria.

To facilitate the NSA transfer process, the Department of Economy & Tourism (DET) and the Ministry of Economy (MoE) in each Emirate had modified the system, ensuring that all clients are updated on both MoE and DET records.

WHICH AUTHORITIES WILL CARRY OUT THE IMPLEMENTATION OF THE FDI LAW?

The FDI Law established a Foreign Direct Investment committee, directed by the Minister of Economy, and a Foreign Direct Investment unit. The aims and objectives of the FDI Unit is to set strategies and policies related to FDI into the UAE. The FDI Committee will be tasked with presenting recommendations to the Cabinet on issues associated with the law’s implementation.

WHO CAN BENEFIT FROM THE FDI LAW?

In March 2020, the UAE Cabinet published a Positive List (PL) of economic sectors and activities that allow foreign direct investment.

The PL contains over a thousand economic activities that fall into three broad categories:

• Agricultural sector (consisting of agriculture, forestry, and related activities).
• Industrial sector, which produces foods, apparel, electronics, vehicles, etc.
• Services sector (offers support in the domains of law and accountancy, healthcare, science, education, and entertainment).

The PL allows foreign investors to form Limited Liability Companies (LLC) (including sole proprietorships) or Private Joint Stock Companies (PJSC) as businesses outside of free zones. Therefore, given specific requirements and constraints established by licensing authorities (such the Department of Economic Development in each Emirate), foreign investors may acquire 100% ownership of businesses.

Due to the region’s increased appeal to foreign investors and increased commercial activity, the UAE’s investment climate has evolved since full foreign ownership rights were granted.

In addition, the FDI Law will issue a Negative List (NL) of certain activities that will not be permitted under the Foreign Direct Investment regime. The UAE Cabinet may add additional sectors to, or at any time remove certain sectors from, the NL. The sectors of the economy that are listed in the Negative List are:

• Oil exploration and production.
• Investigation, security, military services.
• Financing and banking activities.
• Insurance activities.
• Recruitment activities.
• Water and electricity provision.
• Fishing related services.
• Post, telecommunication, and other audio-visual services.
• Road and air transport.
• Medical retail and pharmacies.

TAKE AWAY

The FDI Law contains a range of other provisions addressing what constitutes capital invested in the UAE, dispute resolution and penalties. Creation aims to provide the latest updates on laws and regulations in the UAE.

Creation Business Consultants has a dedicated Corporates Structuring team with extensive experience of advising foreign investors on corporate structuring and related issues in the UAE. If you have any questions, please contact the experts at Creation Business Consultants via email at [email protected] or call UAE at +971 4 878 6240.