The long awaited Federal Decree No. (19) of 2018 on Foreign Direct Investment (the “FDI Law”) is now in force. The aim of the FDI Law is to create a balanced and sustainable environment to increase the flow of direct foreign investment to the UAE by allowing up to 100% foreign ownership over companies operating in certain sectors. This article highlights the key principles of the FDI Law and discusses the implications and impact that the FDI Law will have on foreign investors in the UAE.
Prior to the enactment of the FDI Law, foreign ownership of UAE companies was restricted to 49% by Article 10 of Federal Law No. 2 of 2015 on Commercial Companies. However, the enactment of Federal Decree Law No. 18 of 2017 relaxed this restriction by granting the UAE Cabinet the discretion to increase foreign ownership in various economic sectors and for companies engaged in certain activities. The FDI Law now introduces the framework under which the UAE Cabinet will exercise the powers granted to it under to Federal Decree Law No. 18 of 2017.
The FDI Law establishes two lists: (i) a negative list which sets out certain sectors which are "unavailable" for foreign investment; and (ii) a positive list stipulating the economic sectors and activities available for foreign investors.
The sectors of the UAE economy that are currently on the negative list include:
The UAE Cabinet does, however, have discretion to add or remove sectors on the negative list.
Unlike the negative list, the FDI Law does not currently list or provide details on any specific sectors of the UAE economy on the positive list, although the economy minister has stated that the UAE government aims to publish such a list during the first quarter of 2019. The FDI Law grants the UAE Cabinet the authority to add sectors on the positive list and to:
The FDI Law sets out the application procedure which foreign investors will need to follow to request increased foreign ownership in a sector on the positive list. The FDI Law also sets out appeal procedure in respect of a rejected application.
A foreign investor may also apply for permission to own more than 49% of the shares in a Foreign Direct Investment Project provided that the project’s economic sector is not on the negative list. If permission is granted, a foreign investor will be allowed to establish a Foreign Investment Company (as defined in the FDI Law) to hold its interest in the project.
Two government bodies have been established under the FDI Law to ensure the proper administration and implementation of the FDI Law: the Foreign Direct Investment Unit (the "Investment Unit") and Foreign Direct Investment Committee (the "Committee").
The role of the Investment Unit will primarily be to suggest and implement (after receiving approval from the UAE Cabinet) foreign direct investment policies in the UAE and to monitor and evaluate the performance of such permitted foreign direct investment.
The Committee shall be primarily responsible for studying and submitting recommendations to the UAE Cabinet on the composition of the positive and negative lists. The Committee will also be responsible for providing recommendations to the UAE Cabinet on the approval of license applications of Foreign Direct Investment Projects not yet on the positive list.
The FDI contains provisions on settling disputes, administrative sanctions, penalties, fees (which are to be set out by the UAE Cabinet) and rejecting or limiting the ownership percentages of a foreign shareholder.
Although the FDI Law has been successfully implemented, it remains subject to interpretation and over the coming weeks and months further clarifications are to be expected including in relation to sectors on the positive list.
Taylor Wessing has a dedicated team of inward bound investment specialists with extensive experience of advising foreign investors on corporate structuring and related issues in the UAE. We are currently advising some of our multi-national clients on establishing business pursuant to the FDI Law. If you have any questions, please contact Adnan Chida and/or Ronnie Rifai.