27th April 2020
The long-awaited 100% foreign ownership of companies is now allowed in the UAE as per Cabinet Resolution No. 16 of 2020 on Determining The Positive List.
Background to permitting 100% foreign ownership of companies in the UAE.
As per the Commercial Companies Law, Law No. 2 of 2015, foreign shareholders were limited to owning a maximum 49% in a Limited Liability Company (LLC) on the UAE's mainland, requiring an Emirati individual or 100% Emirati-owned company to hold the balance 51% share as a local sponsor.
When the Foreign Direct Investment Law, Decree Law No. 19 of 2018 was issued and published in Q4 2018 it intended to relax the tight restrictions on foreign ownership and allow up to 100% ownership of mainland UAE companies in certain sectors. At that time, the list of activities which would be opened to allow 100% foreign ownership was called The Positive List. (A separate Negative List, in contrary, is a list of activities which will not be opened to foreign ownership.)
New 100% FDI companies being set up in line with the FDI Law and this latest Resolution will take the form of either a Limited Liability Company (LLC) or a private joint stock company.
Is it mandatory for 100% foreign owned companies to employ Emirati Nationals?
The number of Emirati nationals or minimum percentage of national employees in a 100% FDI company will be as per the regulations of the Ministry of Human Resources & Emiratisation (MOHRE).
What are the exemptions from the Commercial Companies Law No. 2 of 2015?
100% FDI companies are exempt from the following provisions of the Commercial Companies Law:
Article 71- Definition of the Company
1- A Limited Liability Company is a company where the number of partners is at least two (2) but shall not exceed fifty (50). A partner shall be liable only to the extent of its share in the capital.
2- A single natural or corporate person may incorporate and hold a Limited Liability Company. The holder of the capital of the company shall not be liable for the obligations of the company other than to the extent of the capital as set out in its Memorandum of Association. The provisions of the Limited Liability Company contained in this Law shall apply to such person to the extent not in conflict with the nature of the company.
Article 151- Nationality of the Members of the Board
The Chairman and the majority of the members of the Board shall be UAE nationals. If the percentage of the UAE members falls below the applicable percentage under this Article, such deficiency shall be completed within no later than three months, failing which the Decisions of the Board of Directors shall be void upon the expiry of such period.
Article 209- Disposal of the Shares
The method and conditions of disposal of shares shall be determined in accordance with the provisions of this Law, the Regulations and Decisions issued by the Authority and the Articles of Association of the company, provided that the disposal of the shares shall not lead to the decrease of the share of the UAE nationals in the capital of the company below the applicable limit according to this Law.
What are the requirements for 100% FDI companies in the UAE
The following link is to a table which outlines the 122 activities which are now open to 100% foreign ownership; the minimum capital requirements and further conditions and requirements. Download the Postive List table regulations & requirements from Gateway's FREE Resources.
What do we still need to understand about the 100% FDI companies regulations?
We have raised some of our initial questions with the Department of Economic Development in Abu Dhabi (DED) but have been informed that as the Resolution is so new it is not yet implemented and fully explained.
With regards how the FDI conditions are set and measured we were told that a full study on the new company's project will need to be submitted for review/approval.
It is still not clear what the implications will be for failing to meet any of the FDI conditions, such as not contributing sufficiently to R&D.
The DED did confirm that the share capital requirements will need to be paid up and deposited into a UAE bank.
For the more 'professional' activities, such as legal, tax, engineeing etc. where the FDI conditions state 'subject to applicable legislation' we were informed that this will be dependent upon the activity and the approvals will be required from bodies related to the specific activity.
Where the FDI conditions state certain activities will be open to 100% foreign ownership where the foreign person or company is 'known to excel in this field' we were informed that the criteria is not yet known.
It is also still not clear who will have the responsibility for the company in the Immigration (GDRFA) and Labour (MOHRE), whether an Emirati will still be required in the form of a service agent, or whether the foreign individual/company will have this responsibility.
Its great news that we are another step closer to 100% foreign ownership of companies on the UAE's mainland, but there are still a number of questions and details which need to be clearly outlined. For most of the 122 activities, as the minimum capital requirement is so large, it will be the larger foreign companies which will be able to take advantage of the 100% foreign ownership. However, it is yet to be seen whether they will be happy to tie up millions of Dirhams in a local UAE bank or prefer to continue to engage with a local sponsor thus freeing up such sums for operational capital and cash flow. For the 'professional' activities it will be interesting to see what the minimum capital requirements will be - I suspect these will be lower, but will they be set on a case-by-case basis or will an amount be fixed per activity. So, as you can see, still a lot of questions here.
How Gateway Group can help with your organisations' company formation in the UAE.
Gateway Group is the authority on company formation in Abu Dhabi and Dubai. We make sure that we are the right company formation provider for your organisation. If we feel that our services will not be right for you, we'll let you know - we don't work with everyone! We believe that establishing a company in a foreign country is one of the most important decisions that your organisation will make and we want to be sure that when we say our services will meet you requirements, we mean it! We want to get to know as much about your organisation and its plans for doing business in the UAE as possible so that we can determine the best company set up for your business. We begin with a discovery questionnaire and consultation meeting so that we can get to know you and you can get to know us - setting up a company is a bit like a marriage, its essential to do the courting in advance to be sure that you are compatible. To get started with your company formation in the UAE click here.
Call Gateway Group: 600 567562
Written by Jenny Hunt, Founding Partner & CEO
Gateway Group of Companies, Abu Dhabi & Dubai UAE
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