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The New UAE Foreign Direct Investment Law

The new Foreign Direct Investment Law was approved and the respective Decree Law No. 19 of 2018 was issued. The new law for Foreign Direct Investment (hereinafter also referred to as “FDI”) allows 100 percent foreign ownership by global investors in the UAE. The issued new FDI law is expected to change the United Arab Emirates business setup scene by attracting FDI growth.

The Decree starts by recognising the positive influence that FDI can have on the economic growth of the UAE and states that it aims to:

  1. Assert the position of the UAE as a major attraction hub for foreign direct investment both regionally and globally;
  2. Attract and encourage foreign direct investment;
  3. Expand the production base, diversify it, transfer and attract advanced technology, knowledge and training;
  4. Increase the flow of foreign direct investment in the priority sectors to achieve balanced and sustainable development and create job opportunities; and
  5. Achieve the best return with the available resources and secure high added value for the UAE’s economy.

In achieving the above mentioned aims, the Decree has substantially deviated from the general rule under the UAE Commercial Companies Law no. 2 of 2015, according to which, most foreign investors wanting to do business in the mainland UAE must have a UAE partner holding at least 51 percent of the shares. The Decree provides an exemption to this general rule allowing certain investors up to 100 percent foreign ownership in a range of sectors. Nevertheless, the company may be subject to some Emiratization requirement like to employ a certain percentage of local UAE staff.

One of the main points of debate regarding the new Decree is the capital that the foreign investor will have to bring to the UAE in order to be entitled to the exemption under the Law. The Decree does not refer a specific value of capital, but rather evidence of the foreign investors’ financial capabilities in its country of origin and globally. As such, investors may be asked to submit financial statements and auditors reports for itself and its group of companies, as part of the application process.

Concerning the Decree’s target, it is clear that it aims to target large companies which are able to positively influence the UAE’s economy, since factors as the projected number of staff that the company will have once incorporated in the UAE as well as the number of subsidiaries that the applicant has worldwide may be taken into account by the Committee in reviewing applications for an Exemption under the Decree.

Regarding the sectors in which an application can be made, the Decree provides a negative list for sectors in which an application cannot be made. Although the negative list may be amended and replaced, currently it includes: banking activities, financing, payment systems and dealing in cash, insurance services, land and air transport services, commercial agent services and medical retail services such as private pharmacies, among others.

While on the one hand, there is no doubt that the approval of the new Foreign Direct Investment Law is an important step for the United Arab Emirates and is extremely attractive for the foreign investor, on the other hand, we should wait a few months more to analyze the impact of the law's applicability on the UAE business for the foreign investor.