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The UAE Foreign Direct Investment Law

A landmark law that will allow foreign investors to own 100 percent of companies in the United Arab Emirates, limited to specific industries, will be fully implemented by the end of 2018. The UAE Cabinet decision approved on May 20th, 2018 is the latest in a string of the legislative developments aimed at stimulating economic growth in the UAE following the introduction of the Companies Law, Bankruptcy Law and the VAT Law. The law No.19 of 2018, issued by His Highness the President of the UAE on September 23rd, known as the Foreign Direct Investment Law (the “FDI Law”) will relax the restrictions on foreign ownership in the UAE. It is believed that the law, which has been recently gazetted, will have a positive economic impact however, this remains to be seen.

Under the law, a ‘Foreign Direct Investment Unit’ is to be established and overseen by the Ministry of Economy. The unit will be responsible for proposing FDI policies, as well as facilitating the registration and licensing of FDI projects. The unit will be entrusted with creating an attractive environment to entice foreign investors and compiling a list of economic activities (yet to be published) that may be carried out by a company entirely owned by foreign investors. The unit is also charged with establishing a comprehensive database for UAE investments, including data on existing FDI projects, as well as periodically reviewing and updating this information.

The implementation of this law is expected to boost private and foreign direct investment particularly in non-oil sectors throughout the UAE. This will have a domino effect – increasing employment opportunities which will in turn positively impact on the real estate sector and so on. It is hoped that the increase in FDI will increase GDP by 3%, helping the UAE to recover from the fall in private consumption prompted by the introduction of VAT earlier this year. The majority of investment, with an increase of 15% – 20% anticipated within the first year, is expected to come from Europe and Asia as the UAE attempts to rival other global investment hubs.

Eliminating the requirement for a UAE majority shareholder allows the business to retain greater control of their intellectual property, as it stands, once the UAE shareholder holds the majority stake, they automatically own part of the company’s IP. The idea of handing over half of a business to someone who is essentially a stranger has, in the past, deterred businesses from setting up in the UAE mainland. The elimination of the UAE majority shareholder also means, less red tape. Therefore, the process of setting up a business in the UAE should become simplified and allow businesses to begin operating in a shorter time frame.

The new law indicates a shift from UAE legislative frameworks favoring local investors over foreign in a bid to combat a slowing economy. The law does not explicitly state which sectors will benefit from the relaxation of the majority shareholder requirement, it is expected that the factors taken into consideration will center around the business’ ability to create employment opportunities, support technological advances and have the strategic means to boost the economy. Relaxing the restriction on foreign ownership in designated sectors only ensures that the interests of UAE investors will not be disregarded. At present, only companies located in UAE free zones are permitted to have 100% foreign ownership, the new FDI law will completely transform how businesses in mainland UAE operate as a result we are expecting to see a significant increase in FDI and the economy in general.

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