Foreign ownership changes - UAE Companies Law

The much anticipated amendment to the Commercial Companies Law - UAE Federal Law No. 8 of 1994 as amended (Companies Law) is expected to come into effect shortly.  The changes, if implemented as expected within certain sectors of Dubai’s business and corporate environment, should provide a significant relaxation to the restriction for foreign ownership of corporate entities in mainland Dubai, that is outside of Dubai’s free zones.

Under current legislation in areas outside of Dubai’s free zones, foreign shareholders are restricted from holding more than 49% of the share capital of any UAE company. The expected changes to the Companies Law, anticipated to be promulgated within the next few months, will likely permit companies in certain sectors to be incorporated with only one foreign shareholder, while entities carrying on other commercial activities may be permitted to have a foreign shareholding at a higher threshold to the current limit of 49%.

While it remains uncertain which particular industries and business sectors will specifically benefit from the relaxation of foreign shareholding restrictions, the anticipated changes should further enhance Dubai’s standing as a regional business hub for international investors.   In addition to the recent abolition of a minimum share capital of AED300,000 for limited liability companies the amendments, as expected, should provide further options for foreign investors and international corporations wanting to commence operations in Dubai.  It may also see a significant restructure of certain free zone corporations who may be more inclined to seek an establishment in mainland Dubai, while concurrently continuing their operations from their respective free zone.

The interplay between those corporate vehicles established and operating from the many free zones and those companies incorporated in mainland Dubai, likely to be subject to relaxed foreign ownership restrictions, will be interesting. The competitive and commercial advantages of the free zone structure may soon become less obvious in certain sectors and for specific established businesses.

It is also likely that the alternate option for many international companies, being to establish a free zone company with a branch office or commercial distribution platform located in mainland Dubai, may also be consigned to history.

Further the amendments are anticipated to give rise to a new general code of corporate governance which should, in turn, provide a legislative framework for the adoption of international best practices by UAE based companies.  Such guidelines and laws should significantly assist UAE corporate entities in fulfilling oversight responsibilities for corporate governance practices. 

Lawyers Ben Constance

This article was written for the Australian Business Council Dubai and is reproduced with the kind permission of the editors.