Out-Law Guide 4 min. read

Foreign direct investment in the UAE

In September 2020, the United Arab Emirates (UAE) implemented a legislative change to the Commercial Companies Law (CCL) permitting 100% foreign ownership of certain onshore companies.

Historically, UAE law provided that foreign investors could only own up to 49% in a UAE mainland company, subject to limited exceptions. At least 51% of the shares in a UAE mainland company had to be owned by one or more UAE nationals, or a company which was itself wholly owned by one or more UAE nationals. In addition, the conduct of certain commercial activities (such as real estate services, commercial agencies, car rental, agriculture services, fishing, Hajj & Umra services and labour supply) had been reserved exclusively for UAE nationals and, accordingly, foreign investors had historically been restricted from investing in companies that carry out such activities. This regime was partially relaxed by the introduction of the Foreign Direct Investment Law (the FDI Law). The FDI Law was subsequently repealed pursuant to the amendments to the CCL.

Read more from our 2023 foreign direct investment report

100% foreign ownership of UAE companies

The amendments to the CCL now permit 100% foreign ownership of certain onshore companies.

The change follows the publication of amendments to the CCL on 30 September 2020 and the subsequent issuance of a new CCL in September 2021, which generally removed the requirement for a UAE national to own at least 51% of the shares in the capital of a UAE company. The amendments also removed the requirement for branches of foreign companies in the UAE to appoint a UAE national agent.

The UAE government is taking foreign investment seriously and encouraging diversification in the economy

The Departments of Economic Development (DED) in the different emirates have issued lists of approved activities and requirements for foreign shareholders. The Abu Dhabi DED has issued a list of more than 1,100 activities, and the Dubai DED has listed more than 1,000 activities. Both lists are heavily focused on commercial and industrial activities.

Wholly foreign-owned companies will not be subject to higher fees or have greater guarantee or share capital requirements than would be the case for a UAE-owned or part-owned company. Subject to certain other approvals, the CCL also grants discretion to the relevant DED in each emirate to permit 100% foreign ownership in other types of activities. Applications of this nature will be considered on a case-by-case basis.

These changes to foreign ownership rules are applicable equally to both new and existing companies, as long as they are carrying out activities which fall under the ‘positive lists’ that are issued by the relevant DED in each emirate.

Strategic impact activities 

As mentioned above, the CCL now allows 100% ownership of onshore companies by foreign investors, unless a restriction applies. Those restrictions apply by way of either a Cabinet resolution restricting foreign ownership in companies carrying on activities with a ‘strategic impact’; or regulation at an emirate level by the DED.

The UAE Cabinet has issued Resolution No. 55 of 2021 in relation to strategic impact activities (the Strategic Impact Resolution). The Strategic Impact Resolution contains information relating to foreign ownership in companies which carry out activities with a 'strategic impact'. Those activities are:

  • security, defence and military activities;
  • banks, exchange houses, finance companies and insurance;
  • currency printing;
  • communications;
  • Hajj and Umra services;
  • Quran centres; and
  • services related to fish traps.

The Strategic Impact Resolution sets out the process for foreign investors who wish to carry out one of the above ‘strategic impact’ activities apart from services in relation to fish traps, which is still subject to 100% national ownership. In general, the process is as follows: 

  • submitting a ‘licensing application’ to the DED in the relevant emirate that includes the percentage which the foreign investor wishes to own;
  • the relevant DED passes on the application to the relevant regulatory authority (e.g. the Central Bank) within five working days from the date of receiving the application provided that all the requirements are fulfilled; and
  • the relevant regulatory authority is required to issue its decision within 14 working days from the date of the request. The relevant regulatory authority may grant an unconditional approval, grant a conditional approval, request additional documents/information or reject the application entirely.

Legal consequences

The UAE government is taking foreign investment seriously and encouraging diversification in the economy. The amendments to the CCL is evidence of this and is a positive step towards increasing diversification across various sectors and promoting the UAE's ambition to become a global leader in attracting foreign investment.

In light of the amendments to the CCL, companies are advised to take future-proofing actions in anticipation of the changes ahead. For example, companies should consider:

  • where obtaining 100% foreign ownership is permitted by law and of strategic importance, exploring their options for terminating existing side agreements and requesting the transfer of shares from UAE national shareholders to the foreign investor;
  • where obtaining 100% foreign ownership is preferable, undertaking contract audits to consider the impact on key trading relationships and any change of control provisions that may be triggered in key business contracts as a result of any conversion; and
  • whether the utilisation of corporate service providers is necessary for new investments in the UAE and, if so, considering including future-proofed provisions in shareholder agreements.

Co-written by Alexandra Aikman of Pinsent Masons.

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