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  • Nathan Hunt

Thoughts on Decree Law No. 26 2020 and how it affects FDI in the UAE

12th January 2021

The UAE President, His Highness Sheikh Khalifa bin Zayed Al Nahyan, recently issued a new Federal Decree Law No. 26 2020 which introduces changes to the Commercial Companies Law (Federal Law No.2 of 2015) which in turn regulates mainland companies in the UAE.


Federal Decree Law No. 26 2020 has cancelled and supersedes the Foreign Direct Investment Law (Decree Law No 19 of 2018, FDI Law) allowing for 100% foreign ownership in mainland LLC’s and removes the need for Foreign Branches to appoint a Service Agent.



How does Federal Decree Law No. 26 2020 effect my LLC in the UAE?

The Federal Decree Law No. 26 2020 allows for 100% foreign ownership within certain sectors. Each Emirate's Department of Economic Development (DED) has been tasked with identifying activities with strategic impact for the UAE. They will then decide on the licensing requirements and will announce their findings in due course.


This feels rather similar to the recent implementation process of the FDI Law. At this stage we need to await further clarifications. It remains to be seen:


  1. whether the activities identified as those with strategic impact will match those 122 activities previously identified for the FDI Law.

  2. whether the licensing requirements will match those previously identified for the FDI Law.

  3. whether there will be government costs associated with changing the Memorandum of Association (MOA) and registrations in Immigration (Establishment Card) and Ministry of Human Resources & Emiratisation (MOHRE).

  4. whether there will be Emiratisation requirements (employing minimum numbers of Emirati nationals).

  5. whether there will be knowledge transfer and research and development requirements and how such requirements will be evaluated and what non-compliance penalties could be.

The FDI Law was really focused on attracting big name multinationals into the Emirates due to the high in-country capital requirements ranging between AED2million and AED100million. One of the key questions will be whether the new Decree Law No. 26 2020 will be making 100% foreign ownership in LLCs (Limited Liability Companies) more accessible for smaller organisations.


How does Federal Decree Law No. 26 2020 effect my foreign branch in the UAE?

Effective 31st March 2021, a Service Agent will no longer be required to register a branch of a foreign company within the UAE. However at this stage it remains unclear as to:


  1. where the responsibilities for labour and immigration will rest and their implications.

  2. whether there will be government costs associated with changing the service agent agreement and registrations in Immigration (Establishment Card) and Ministry of Human Resources & Emiratisation (MOHRE).

  3. whether licensing and reporting requirements might change.

  4. whether the transition will simply be a termination of the service agent agreement.

  5. whether oil and gas companies will be able to register with ADNOC and CICPA without a service agent.


When will Federal Decree Law No. 26 2020 take effect?

The Federal Decree Law No. 26 2020 has been published in the Federal Gazette and is in effect from 2nd January 2021. There are still many regulations to be discussed, agreed and clarified and we will have a clearer picture once these are published by the Executive Council in the coming weeks/months.



Can I still open 100% foreign owned company in the UAE under the FDI Law?

As per Gateway's discussions with our connections in the Abu Dhabi Department of Economic Development (ADDED), the FDI law has been abolished so such applications can not be made at present.



Conclusion

The UAE is continuing to make regulatory changes to create an inviting and fair environment for FDI. As per my comments and questions outlined in the article above, the conditions of the Federal Decree Law No. 26 2020 remain to be clarified. However, it would appear the changes will be bold and in line with the country's long term economic plans to diversify away from it's reliance on hydrocarbons and create a sustainable economy.


These changes are likely as a result of Covid, since which, increasing focus has been placed on areas such as food security and self-sustainability. The UAE is positioning itself to come out of the pandemic stronger and faster than any other country. This is indeed reinforced with the news that Dubai's non-oil, private sector economy has returned to growth in December 2020 with the PMI Index (Purchasing Manager's Index) hitting the 51 mark.


Gateway Group will continue to follow up with our connections for updates and insights.

 

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Written by Nathan Hunt, Senior Managing Partner

Gateway Group Abu Dhabi & Dubai, United Arab Emirates



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