The creation of a strong legal framework for commercial companies will positively impact the growth of FDI in the UAE
Dubai is in the final countdown for the preparation of the long-awaited Expo 2020, which is set to open a year from now, in October. This is a key event set to take place in Dubai and will be a major focal point of the agenda of most corporations doing business in the emirate or looking to do business in it.
The emirate remains a main attraction for foreign investments especially the ones looking to benefit from its location, business, and legal environment and world-class infrastructure, to access the region. This was further validated by the UAE’s ranking in the ease of doing business, where it was positioned 11th, according to the World Bank annual ratings in 2019. This accomplishment is a reflection of the government’s ongoing work to promote a business environment that is diverse and sustainable.
A number of efforts have been made to diversify away from dependence on oil, creating a very strong services sector – one that fosters a competitive business environment. A major aspect of such an environment is a supportive and effective legal framework for businesses, on par with international standards, hence the recent changes and additions in UAE’s regulatory and corporate sector.
Among major changes that are expected to push the growth and progress of the local economy in Dubai are the implementation of UAE Federal Law No 19 of 2018 on foreign direct investment (the “FDI Law”) and the subsequent positive list of activities issued by the UAE Cabinet.
The FDI Law now allows up to 100% foreign ownership in more than 122 economic activities across 13 sectors including, transport and storage, agriculture, space, manufacturing industry, renewable energy, hospitality and food services, among others. These sectors will offer new economic opportunities for international investors to explore in the UAE, particularly for projects involving e-commerce logistics, research laboratories, advancement in biotechnology, logistics and supply chain, production of solar panels, hybrid powerplants and green technology.
The refreshed list of privileges for companies established under the new FDI Law are extensive and includes treatment as local companies, as well as the removal of restrictions on repatriation of profits and any proceeds from liquidation or sale of a business. Employees of FDI companies can now transfer their salaries, indemnities and entitlements outside the UAE. In addition, FDI companies are guaranteed the confidentiality of technical, economic, financial information, including investment initiatives. There are now no restrictions on the sale of a business, admission of new shareholders or change of legal form and structure.
In addition to the FDI Law, the UAE published two major laws in 2016 that will have a direct impact on the creation of a comprehensive legal and regulatory regime for the operations of corporations. These include the UAE Federal Law No. 9 of 2016 on bankruptcy (the “Bankruptcy Law”) and UAE Federal Law No. 20 of 2016 on the pledge of movable assets as a guarantee for debts (the “Law on Pledge of Movable Assets”).
The Bankruptcy Law deals mainly with the various structures for bankruptcy and liquidation of assets for distressed corporations, including restructuring and composition procedures. Meanwhile, the Law on Pledge of Movable Assets allows the pledge of certain movable assets (such as bank accounts, stocks, trade documents, equipment etc…) by corporations and the establishment of a special register to handle the registration of such pledges in favor of third parties. This law, in particular, is of extreme importance as it gives a lot of flexibility to corporations and allows them to secure proper funds while guaranteeing the financing parties’ rights.
Further and in November 2019, the UAE Cabinet passed a new Federal law No 19 of 2019 on Insolvency of Natural Persons that applies to debtors that are not subject to the Bankruptcy Law. This new law applies to individuals who are in default of payment or facing difficulties in meeting their financial obligations. it is expected that the Insolvency Law will increase transparency in the dealings between financial institutions and individuals and address situations of defaults in a way that will enable all parties to safeguard their rights.
All of the above laws combined have created an overall framework to regulate the environment under which companies in the UAE are operating and have considerably elevated the maturity and complexity of commercial transactions, as well as prospects of new and innovative investments. This will also complement the efforts that are being pursued on other fronts, such as the development of world-class regulations for the protection of intellectual property rights, fighting cybercrime, promoting fintech initiatives and reinforcing the partnership between free zones and local authorities.
There is no doubt that the creation of such a strong legal framework for commercial companies will positively impact the growth of foreign investments in Dubai, helping create an optimal environment that enables the growth of the local economy and supports the diversification of its main contributing sectors.
Authored by Partner Rima Mrad
Published on Gulf Business