United Arab Emirates: Foreign Investors' New Era In Dubai

Executive Summary

This is how we can describe the implementation of amendments made recently to the Commercial Companies Law. It is no secret to anyone that Dubai generously offers a remarkable mix of the cosmopolitan city life and the beautiful tradition of the orient, which makes the city as one of the most favored destinations for investors from all over the globe. with the new law amendments coming in force, permitting the foreigners to own 100% of the share capital of an onshore or mainland company (as opposite to offshore companies), Dubai shall expect more foreign investors on its shores.

Who is eligible for 100% ownership?

Historically, UAE has always required a majority Emirati ownership of onshore companies. Foreigner's ownership was capped at only 49% while the remaining 51% would mandatorily belong to a UAE national according to Federal Law no. 2/2015 and the previous companies' law, which regulated commercial companies.

The UAE President, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, issued on September 27th, 2020 Federal Decree Law no. 26/2020 amending 51 articles of Federal Law no. 2/2015 and introducing for the first time, the concept of foreigners owning 100% of the share capital of an onshore company in UAE within certain conditions and criteria.

Recently, on September 20th, 2021 another Federal Law regarding commercial companies' regulations was issued by His Highness Sheikh Khalifa Bin Zayed Al Nahyan bearing number 32/2021 coming into force as of January 2nd, 2022. This new Law will replace the previous legislations in their entirety.

In Dubai, and according to the revised Laws, many of the business activities including, trading, manufacturing and other commercial activities are on the Department of Economic Development's (DED) list (list is hereto attached), which make those businesses qualified to a 100% foreign ownership or what is more commonly called the principle of the relaxation of foreign ownership restrictions.

These new laws imposed the formation of a committee in charge of (i) determining activities considered to have a strategic effect and (ii) assessing legal entities qualified to 100% foreign ownership.

Therefore, foreign investors to be able to own 100% of the legal interest of an onshore company, need (i) a decision of the Cabinet which is taken after the committee's recommendation and (ii) that activities of such company figure on the list of "permitted activities".

We also note that Economic Department in Dubai, published already the list of permitted activities, but the Cabinet didn't yet issue any resolution regarding the activities that would be considered Activities of strategic effect, as per article 10 of Federal Decree Law no. 26/2020 which remained unmodified by Federal Law number 32/2021.

For the foreign investors, owning 100% of the legal interest of a mainland company (subject to the above and with respect to the relevant activities figuring on the list of "permitted activities") has many advantages, including (1) fewer restrictions on how business activities can be carried out, (2) the company can legally trade freely within the UAE, (3) no restrictions for business premises location, provided it is located onshore in the emirate from which the license is issued, (4) absence of interference from the non-active sponsor in the business, (5) absence of dividend distribution or profits for the non-active sponsor, or (6) easing the exit of the foreign investors from such companies in the future in case they resolve so.

The 100% ownership of the share capital of a mainland company by a foreign person in Dubai was not the only amendment made by Federal Decree Law no. 26/2020 and Federal Law number 32/2021.

In order to appeal the maximum number of foreign investors, hence to make Dubai an attractive hub for businesses, other reforms were introduced as well, rendering the management of companies easier, more flexible, malleable and catered to anyone requests.

Among those new reforms, the bylaws of a limited liability company can now include a shorter period for the notice to convene a general assembly and less shareholding percentage to convene it as well Bylaws may also include diverse dispute resolution mechanisms, bylaws may also state other regulations in respect of increase of capital for the prevention of the bankruptcy of the company or dilution of the stake of the shareholder who fails to pay his part of the capital increase requirements.

In addition to all the above, bylaws can include more flexible limitations in regard of the convocation and needed quorum for the second meeting of the general assembly, in case the quorum was not met in the first meeting and many other interesting amendments that any foreign persons would like to have in an overseas environment.

With these legal reforms the Government is making, (and will definitely succeed) an engagement and a duty towards foreign business leaders and investors that they are welcome to make out of UAE the domicile of their businesses, by giving them the opportunities to set up, operate, manage, grow and succeed in a suitable, secured and tax efficient milieu, without the fear of any legal restrictions or judiciary inconvenience which render those reforms the beautiful light of the new dawn in UAE's economics' vision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.