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The UAE reforms foreign ownership regime

  • UAE

    29-11-2020

    The United Arab Emirates has recently issued new legislation under Decree Law no. 26 of 2020 (the ‘New Law’) which introduces substantial changes to Federal Law no. 2 of 2015 Concerning Commercial Companies (“CCL”). Key amendments include the abolishment of foreign ownership restrictions (which currently require UAE onshore companies to be at least 51% owned by local shareholders) and the cancellation of the requirement for branches of foreign companies to appoint a UAE national agent.

    Repeal of foreign direct investment law

    In parallel, the UAE Foreign Direct Investment Law (under which certain business sectors are currently open for 100% foreign ownership subject to a licensing regime) has been repealed by the New Law. It is important to note that whilst foreign ownership restrictions have been lifted, pursuant to the New Law the UAE Cabinet is required to form a committee which will determine certain “activities of strategic importance” and set out processes and requirements for the licensing of these activities. According to reports from the local press in the UAE, these activities may include oil and gas exploration, utilities and transportation. In addition, the relevant local UAE licensing authorities within each Emirate will have the right to determine minimum participation levels of local partners in UAE onshore entities incorporated within each particular Emirate.

    Other amendments

    The New Law also includes changes to free float requirements for UAE public joint stock companies permitting an issuer wishing to go public to sell up to 70% of its share capital, as opposed to the current free float range which is set between 30% and 70%. This will potentially boost initial public offerings in the country. Further changes relating to joint stock companies include the removal of requirement for the chairman and majority of board members to be UAE nationals and permitting electronic voting at annual general meetings.

    Effective date

    The New Law has been published in the UAE Federal Gazette and will take effect from 2 January 2021, with the exception of the changes relating to foreign ownership restrictions and certain other provisions which shall be effective 6 months after the New Law has been issued in the UAE Federal Gazette. Onshore companies will then have 1 year to comply with the new amendments. We will provide a further and more detailed update once additional information is available.

    Moving forward

    Undoubtedly, this is a very positive and welcome move and will have been well received by foreign investors in the UAE and those who are looking to invest in the UAE. It is anticipated that these changes will contribute to the ease of doing business, help attract further foreign investment into the UAE and further enhance the country’s standing as a leading international business hub.

    However, as noted above, it is not currently clear how the New Law will be applied in practice and what specific requirements will apply in respect of foreign ownership in UAE onshore companies once the New Law comes into effect. As there are certain business activities that may fall outside the purview of the new amendments and local authorities (within each Emirate) retain the discretion to prescribe minimum participation levels for UAE nationals, it remains to be seen how this will apply in practice and what businesses can fully benefit from the New Law.

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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