UAE Foreign Ownership Rules: Towards More Openness?
In November 2020, President Sheikh Khalifa announced a significant modification to the 2015 commercial companies’ law, amending 51 articles and introducing three new ones. This move is expected to bring significant changes in how businesses will be conducted in the United Arab Emirates moving forward and attract more foreign investors.
- Major Amendments:
One of the critical decisions of this new law is allowing foreign nationals to set up, own, and run a UAE mainland company without the need of an Emirati shareholder to hold the majority of the company’s shareholding structure, usually 51%. By eliminating the need for Emirati shareholders, the process of setting up an onshore company in the UAE will be more flexible with less overhead costs.
That alone is a significant boost to the country’s economy. Moving forward, UAE will be attracting more foreign capital to its market. UAE market is considered the second-largest market in the Arab world. It will likely become the first with the new legislation.
Add to that, an onshore company can now be established without appointing a local UAE agent. Not to mention the abolishment of the provisions that require an onshore company’s chair manager and the majority of its board of directors to be UAE nationals. That being said, companies can now fully operate by non-Emiratis shareholders and directors of all nationalities.
- Activities Falling Under this Amendment:
However, local authorities will still require a level of participation by Emiratis in any companies operating under important sectors, including oil and gas exploration, utilities and transport, and state-owned entities. These will still have to be 51% owned by a UAE national.
- Additional Amendments:
Other significant amendments to the law are the ability to remove the chair or senior executives of a company if found guilty of fraud or abuse of authority. Shareholders are capable to directly sue a company in civil court over any failure of duty that results in damages and authorize electronics votes at annual general meetings.
To boost liquidity in local capital markets, companies wishing to go public can now sell up to 70% of their shares in an Initial Public Offering, instead of the currently applicable limit of 30%. It’s important to mention that the Dubai Financial Market’s market capitalization and the Abu Dhabi Securities Exchange were more than $240 billion at the end of 2019.
- When will it become effective?
Although most of the changes are effective as of December 1st, 2020, the ones related to foreign ownership exemption, agency, and boards of directors will be in effect six months after the publication of the new legislation in the Official Gazette, the legal newspaper of the country. Remember, companies will have one year to comply with the amended law from the time articles become effective.
Sheikh Mohammed bin Rashid, Prime Minister and Ruler of Dubai, Sheikh Mohammed Bin Rashid stated that the country provides “a conducive legislative environment” for investments.
This will open the door to set up more companies by investors of all nationalities, hence attract foreign capital. Starting a business in the UAE has never been as convenient as now!