22 June 2021
Earlier this year, the UAE Commercial Companies Law (CCL) was amended to allow foreign investors to own up to 100% of their mainland (ie outside a free zone area) company. The rules were also changed to remove the requirement for a foreign company to appoint a UAE national as a service agent when establishing an onshore branch office in any Emirate of the UAE. Now, a list of companies that can benefit from the 100% foreign ownership option has been released, which we unpack below.
The Emirates of Abu Dhabi and Dubai have recently released their lists of over 1,000 activities each across a wide variety of sectors that are open to 100% ownership by foreign investors. As a foreign investor who owns or wants to incorporate a company that engage in these activities, you will no longer need an Emirati partner to hold 51% of the shares in your company.
Business activity categories vary across both Emirates, but those featured in the lists include:
Although multiple sectors are covered by the company registration authorities’ lists, certain industries (including finance, banking, insurance) will continue to be subject to at least some portion of mandatory shareholding by Emirati partners in the two largest emirates.
Some existing companies have already begun the process of restructuring their businesses in-line with the CCL amendment. The cancellation of the national service agent requirement for onshore branch offices of foreign companies came into force on 1 April 2021, and some foreign companies have taken steps to give notice and remove their national service agent.
As a foreign owner of an LLC in the mainland of the UAE, partners can transfer the shares of the Emirati partner via a notarised instrument to the foreign partner(s). For this to be possible, your LLC needs to be licensed for activities that are on the list released by the relevant company registration authority and you must agree with all existing partners that the foreign partner(s) going forward will be the only partner(s).
If this transfer would result in only one partner remaining, then you also need to apply for a conversion of your LLC into an LLC owned by a single owner (along with the pre-approval for the transfer of shares) at the company registration authority.
The new legislation expands the UAE’s investment ecosystem, increasing foreign investment potential for a range of sectors, from investment, tech and finance to more traditional industries such as construction and manufacturing. Fewer restrictions, greater ownership opportunities, and a more a streamlined incorporation process will inevitably encourage both global corporations and entrepreneurs to invest in the UAE.
This is supported by the UAE rising four places in an index measuring the confidence of foreign investors, one of only five countries globally to have achieved a higher ranking in 2021. The new CCL amendments – along with new compliance regulations like ultimate beneficial owner and economic substance regulations legislation – continue to contribute to a greater level of investor confidence in the UAE market. This opens business opportunities for both foreign investors and Emirati businesses.
The changes to the Federal CCL and the lists issued by the company registration authorities in Dubai and Abu Dhabi are only pieces in a complex puzzle of legislation relevant to company formation and business structuring in the UAE. When you consider a restructuring of your UAE business(es) based on the recent changes, we strongly recommend that you confirm the details of required approvals, third party license and registrations required before rushing into action.
Each emirate now has potentially different rules, but you may want to conduct business in more than one emirate – so it's important that you look at the bigger picture. What's more, for some LLCs, the UAE partner may have contributed more than the silent shareholder position, which is another issue that's easily missed.
If you're thinking of restructuring your company to benefit from the changes to the CCL or you have questions about the new legislation and its implementation, please reach out to a member of our Corporate/M&A and Capital Markets team.