The UAE Government has been making some landmark decisions to attract more foreign investments into the country. On September 23, 2018, the Government took another giant step towards relaxing the rules which limited foreign companies to own companies in the United Arab Emirates. The Foreign Direct Investment Law (the FDI Law) (Federal Law No. 19 of 2018) was enacted after much speculation and debate regarding the possible liberalization of the restrictions of foreign ownership in the UAE. Earlier, the maximum limit of the shares that an overseas shareholder could hold in a UAE-onshore company was 49 percent (under the UAE Commercial Companies Law – Federal Law No. 2 of 2015).
The new investment law offers the Cabinet of UAE, a framework, which can permit shareholders from foreign countries to own all 100 percent of shares in companies from specific sectors. Further, the new investment law also establishes two new government bodies – the Foreign Direct Investment Unit (FDI Unit) and the Foreign Direct Investment Committee (FDI Committee) to support foreign direct investment in the UAE. Here are some highlights of the new investment law in UAE:
The Positive List
According to the provisions of Article 6 of the Foreign Direct Investment Law, the Cabinet of UAE can constitute an FDI Committee or a Foreign Direct Investment Committee. This committee will propose a positive list which will be given to the Cabinet.
Further, the list will detail the sectors wherein the Cabinet can permit greater levels of direct investment by foreign citizens or entities. This Committee will consider many aspects including:
- Integrating with the country’s overall strategic plans
- Adding value to UAE’s economy and accomplishing best profits
- Taking care of UAE-Nationals by supporting innovation and offering training and job prospects to them
- Ensuring that the local companies which are involved in similar business activities face a limited negative impact
- Taking into consideration the expertise and reputation of the foreign investor
- Ensuring the optimum utilization of modern technology
- Ensuring that the activities benefit the environment positively
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- Further, the Cabinet might enforce certain conditions before permitting investors to benefit from any increase in foreign ownership levels (that is more than the existing 49 percent). Some examples of such conditions are:
- The Cabinet might offer different levels of permitted foreign ownership in certain sectors – this can be 100 percent or lesser
- The overseas investment entity can be asked to make a minimum investment of capital
- Even for sectors mentioned in the positive list, the Cabinet might specify legal entities which will be permitted to invest
- Limiting the approvals to one or multiple Emirates (clearly specified)
- The Cabinet might specify a minimum % of Emiratis that a specific sector or city might need to employ.
The Negative List
The FDI Committee will also propose a negative list of sectors wherein the Cabinet will not allow any foreign direct investment. According to Article 7 of the Foreign Direct Investment Law, currently, the sectors in this list are:
- Sectors focused on exploring and producing petroleum
- Military sectors, manufacture of arms, military equipment, explosives, and accompanying uniforms and devices, security, and investigation.
- Telecommunication, post, and audio-visual (AV) services
- Activities of banking and finance. Also, payments and fund management systems.
- Transport services – Air and Land
- Insurance sector
- Publishing and printing
- Umrah and Hajj Services
- Commercial agencies
- Servant and labor services along with personnel recruitment
- Private pharmacies
- Water and Electricity services
- Poison control centers
- Blood banks
Further, the Cabinet can modify the list.
What about sectors that do not fall under the positive or negative lists?
If a foreign company desires to carry on an overseas direct investment project which does not feature in either the positive or the negative list, then it can apply for permission to have more than 49 percent ownership in the sector. There is a separate process under the FDI Law for such cases.
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The Application Process for License
To increase the level of overseas ownership in a business which falls under the list of positive sectors, the investor needs to follow the guidelines specified in Article 10 of the Foreign Direct Investment Law. Once the investor applies, relevant government authority checks if the application fulfills the specified conditions. If it does, then the request is processed within 5 business days of receiving. In case of a rejection, the FDI Law provides a process to raise an objection and resolve disputes.
On being approved, the authorities record the application in the foreign direct investment registry and the Emirate’s economic department issues a license. The regulation and procedures for the registration and renewal of the license of an overseas investment company will be issued soon.
Foreign Direct Investment Unit
Apart from the Foreign Direct Investment Committee, the Ministry of Economy will also establish a new FDI Unit or a Foreign Direct Investment Unit. The roles and responsibilities of the Foreign Direct Investment Unit are specified in the Foreign Direct Investment Law. The Unit will recommend policies for FDI in the country, establish a detailed database for all FDI projects, evaluate and monitor all foreign direct investments in the country.
Several economic experts believe that by introducing the FDI Law, UAE might attract increased foreign investment. This is in sync with the UAE Government’s constant efforts to enhance foreign direct investments in the country and create a more diversified economy. Unlike the negative list, currently, the Foreign Direct Investment Law does not provide the list of positive sectors. According to the Economy Minister, we can expect the same to be published during the first quarter of 2019.