Attracting investment into the UAE
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Rita Jansen
Ince, Dubai
In an effort to foster foreign investment within the United Arab Emirates (UAE), increase job opportunities and enhance economic diversification, the UAE enacted Federal Decree Law no 19 of 2018, also known as the Foreign Direct Investment Law (‘FDI Law’).
The FDI Law now permits up to 100 per cent foreign investment in the realm of 122 activities across 13 different sectors, ranging from education to space. The FDI Law not only catalyses foreign investment in the UAE, by virtue of permitting up to 100 per cent foreign ownership of companies which perform activities listed in what the FDI Law identified as the ‘positive list’, but also subjects licensed foreign investment companies to the same limitations the national companies are subject to by virtue of the UAE rules and legislation.
Previously, foreign direct investment was subject to the mandatory legal requirement which dictated the appointment of a majority UAE national or company shareholder.
In the event of the lack of a UAE majority shareholder for the purposes of materialising foreign investment in mainland UAE, the foreign investor was left with the option of incorporating a free zone company whereby 100 per cent foreign ownership of the company was permissible.
Although a number of foreign investors choose to appoint the majority UAE shareholders as trustees, some were hesitant as this would lead to a breach of the UAE Anti-Fronting Law, in addition to a breach of the foreign investor’s compliance obligations under their own policies and the domestic laws. Accordingly, the foreign investors were left with a free zone option. However, this was subject to an alienating condition where trading with any onshore entity was prohibited. The mandatory requirement of the appointment of an agent or distributer, in addition to the trading limitations placed on free zone companies with mainland companies, may have stagnated foreign investment in the UAE. The FDI Law relieved foreign investors from such restrictions whereby they are now permitted to invest 100 per cent of foreign equity in companies established in mainland UAE, provided that the minimum share capital requirement is met. Depending on the sector in which the company is functioning, the minimum capital requirement may amount up to AED 200m.
The sectors and activities in which a 100 per cent foreign investment are prohibited are those included in the ‘negative list’, namely Hajj and Umrah services and the exploration, prospecting and production of petroleum, amongst other activities such as printing, insurance, water and electricity, the latter of which fall under the exclusive control of the Dubai Electricity and Water Authority.
The ‘positive list’ which stipulates the sectors in which up to 100 per cent foreign investment is permitted includes the following:
1. administrative and support services;
2. agriculture;
3. art and entertainment;
4. construction;
5. educational activities;
6. healthcare;
7. hospitality and food services;
8. information and communication;
9. manufacturing;
10. professional, scientific and technical activities;
11. renewable energy;
12. space; and
13. transport and storage.
Moreover, Article 4 of the FDI Law stipulates the foreign capital components which include funds transferred to the UAE through UAE-licensed banks and financial companies, profits of the foreign direct investment in the UAE, and financial and commercial securities, whether local or foreign.
As with all types of companies incorporated within the UAE, including those incorporated by virtue of the FDI Law, companies may also transfer their earnings outside the UAE, enabling a flexible and appealing approach to the foreign investors.
Pursuant to the above, companies previously incorporated in mainland UAE can be converted into 100 per cent foreign-owned incorporations, subject to the satisfaction of the FDI Law requirements.
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