The enactment of this law continues the UAE’s strides to remain a hub for foreign investment in the region and to further stimulate investment in key sectors. Technology, healthcare, retail, industrial and hospitality all appear sectors that will shortly open up to greater investment opportunities for the international market.
The old legislation of the Emirates broadly maintained a legislative restriction that foreign investors own no more than 49 per cent. of any corporate entity carrying on commercial activities outside of the free zones. That is, companies undertaking activities outside of the international free trade zones were prevented from owning more than 49 per cent. of the share capital of any company, with such rates higher in particular sectors.
The new FDI Law further develops on the changing of legislation in 2017 where the UAE Cabinet was mandated to develop regulations around increased foreign ownership. Certain commercial activities will still require a 51 per cent. (some higher) local national content requirement in terms of company ownership, but it is noteworthy that the UAE Cabinet now retains discretion to grant exemptions on a case-by-case basis.
The FDI Law provides for two lists. One list that identifies which sectors will change in terms of allowances for foreign investment (“Positive List”) and a list that will not (“Negative List”).
Those sectors currently on the Negative List, which is subject to change at the discretion of the UAE Cabinet, include:
- Exploring, prospecting and producing oil;
- Investigation, security and military sectors and the manufacturing of weapons;
- Banking and funding activities such as payment systems and cash dealings;
- Labour services such as recruitment of personnel;
- Water and electricity services;
- Post, telecommunications and audio-visual services;
- Air and land transport services;
- Printing and publishing;
- Commercial agency;
- Fisheries; and
- Medical retail trade including private pharmacies.
Positive List and Foreign Ownership Control
Recent media releases suggest that the Positive List is still under review, but will be released in Q1 this year. In line with the Government’s “UAE Vision 2021”, it appears technology and innovation will be at the forefront of the Positive List once published, as the UAE continues to develop as the regional hub for foreign market input in the sector.
Significantly, the FDI Law grants the UAE Cabinet the authority to add sectors on to the Positive List and to control and vary the levels of foreign participation in certain sectors. The Cabinet can also place minimum share capital requirements in certain industries. It appears the FDI Law will provide some fluidity in terms of investment control.
The FDI Law also provides for an application process to allow foreign investors to request increased foreign ownership in a sector on the Positive List. A number of Government bodies have also been established to administer and implement the new laws. The Foreign Direct Investment Committee, for example, has been established and is mandated with submitting recommendations to the UAE Cabinet on the compilation of the Positive and Negative Lists.
As the Lists develop, it will be interesting for those already undertaking business in the UAE to consider implications around foreign ownership and participation.
The DWF corporate team in Dubai has years of experience advising on UAE corporations legislation and transactions throughout the Gulf. Led by Kayaan Unwalla and Ben Constance, the team routinely assists private equity, venture capital and corporate clients on mergers and acquisitions, divestments, joint ventures and strategic commercial contracts across a broad range of sectors.