United Arab Emirates: New Foreign Direct Investment Law For The UAE

The UAE has taken another important step towards the relaxation of the rules restricting foreign ownership of UAE companies, with the recent introduction of the Foreign Direct Investment Law (Federal Law No.19 of 2018) (the FDI Law).

The FDI Law came into force on 23 September 2018 and follows much discussion and speculation in the market about the potential liberalisation of the UAE's foreign ownership restrictions under the UAE Commercial Companies Law (Federal Law No. 2 of 2015), which limit a foreign shareholder to holding a maximum of 49 per cent of the shares in an onshore UAE company.

The new FDI Law provides a framework for the UAE Cabinet to permit foreign shareholders to own up to 100 per cent of companies in certain designated sectors.  This article briefly explores some of the key provisions of the FDI Law.

The positive list

Article 6 of the FDI Law provides for the UAE Cabinet to form a foreign direct investment committee (the FDI Committee). The FDI Committee will be tasked with proposing a "positive list" to the UAE Cabinet which will set out the economic sectors in which greater levels of foreign direct investment will be permitted.  When determining the positive list, the FDI Committee must take the following into account:

  • integration with strategic plans of the UAE;
  • achieving the best profit and added value to the UAE economy;
  • raising innovation and providing job opportunities and training for UAE nationals;
  • limiting negative effects on incumbent UAE companies that conduct a similar activity;
  • the foreign investor's level of competency, expertise and international renown;
  • the best use of modern technology; and
  • achieving a positive impact on the environment.

The UAE Cabinet may impose certain requirements before investors are permitted to take advantage of any proposed increase in the levels of foreign ownership (i.e. above the current 49 per cent limit), including for example:

  • the level of foreign ownership permitted in the relevant sector which could be 100 per cent or any lesser percentage;
  • a minimum capital requirement of the foreign investment company;
  • the form of legal entity that may carry on an activity in the positive list;
  • a requirement that any such approvals are limited to one or more specific Emirates; and
  • an Emiratisation requirement (whereby a minimum percentage of UAE nationals may be required to be employed in the relevant sector/activity).

The negative list

Higher levels of foreign investment will not be permitted in any sector which appears in the "negative list" set out in the FDI Law.  The sectors that are currently listed in the negative list pursuant to Article 7 of the FDI Law are as follows:

  • Petroleum exploration and production
  • Fisheries
  • Investigation, security, military sectors, and manufacturing of weaponry, explosives, military equipment and associated devices and uniforms
  • Postal, telecommunications and audio-visual services
  • Banking and financing activities, payments and funds management systems
  • Land and air transport services
  • Insurance services
  • Publishing and printing services
  • Hajj and Umrah services
  • Commercial agencies services
  • Labour and servant services, and recruitment of personnel
  • Medical retail businesses (e.g. privately owned pharmacies)
  • Electricity and water services
  • Poison control centres, blood banks and quarantines

The UAE Cabinet has the right to add or remove any sectors from this negative list from time to time.

Licence application process

Article 10 of the FDI Law summarises the conditions and procedures to be followed in order to apply for an increased level of foreign ownership in a sector on the positive list. An application that fulfils the required conditions should be processed by the competent authority within five working days of submission.  If an application is rejected, then an objection and subsequent dispute resolution process is provided for in the FDI Law.

An approved application is recorded in the foreign direct investment registry and a licence will be issued by the economic department of the appropriate Emirate.  Further regulations will be issued setting out the detailed procedures to be followed for registering and renewing the licence of a foreign investment company.

Sectors not appearing on the positive or negative lists

If a foreign company wishes to carry on a foreign direct investment project which does not appear in either the positive or negative list, it may apply for permission to have a higher level of foreign ownership than 49 per cent in that sector.  The FDI Law sets out the process to be followed in the event of such application.

Foreign Direct Investment Unit

In addition to the creation of the FDI Committee, a new Foreign Direct Investment Unit (FDI Unit) will be established in the Ministry of Economy.  The FDI Law sets out the role and responsibilities of the FDI Unit which include recommending foreign direct investment policies in the UAE, establishing a comprehensive database of foreign direct investment projects and monitoring and evaluating foreign direct investment in the UAE.

Conclusion

The introduction of the FDI Law is a significant development which is likely to lead to increased levels of foreign investment in the UAE in line with the government's continued efforts to attract more foreign investment and diversify the UAE economy.  It is not yet clear when the Cabinet will issue resolutions to further clarify the FDI Law (including the publication of the "positive list") but we will be monitoring this closely and will issue further alerts as and when there are any material developments.

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