By King & Wood Mallesons
In order to put the European restrictions into perspective, the last section is dedicated to FDI in UAE showing that, despite recent tightening of controls, the European Union still has a relatively open investment environment compared to some other jurisdictions that also benefit from FDI.
Status of foreign direct investment law in UAE
Pursuant to the UAE Commercial Companies Law No.2 of 2015 (as amended) foreign investors seeking to establish a company in the UAE are entitled to hold no more than 49% of the share capital of the UAE company, with the exception of free zones which allow foreign investors to own 100% of the company (provided that the business activities of the free zone company may only be conducted within the perimeter of the free zone).
On 23 September 2018, UAE Law No. 19 of 2018, also known as the Foreign Direct Investment Law (the “FDI Law”), was issued to provide some relaxation on this foreign investor ownership restriction. The FDI Law came into force on 1 October 2018. The FDI Law empowers the UAE Cabinet to allow foreign investors to own up to 100% of the share capital in a UAE onshore (i.e. non-free zone company) in certain sectors.
Negative list under FDI law
Higher levels of foreign ownership are prohibited in sectors included in the “Negative List” in Article 7 of the FDI Law. Such sectors include:
- audio-visual services, postal and telecommunications;
- banking and financing activities, payments and funds management systems;
- blood banks, poison/venom control centres, and quarantines;
- commercial agency services;
- fishing and related services;
- pilgrimage services;
- insurance services;
- investigation, national security, military sectors, and manufacturing of weaponry, explosives, military equipment and associated devices and uniforms;
- labour and servant services, and recruitment of personnel;
- medical retail (including pharmacies);
- petroleum exploration and production;
- printing and publishing services;
- road and air transport services;
- umrah services; and
- water and electricity services.
The UAE Cabinet is empowered to remove or add any sectors from the negative list.
Positive list under FDI
Article 6 of the FDI Law calls upon the UAE Cabinet to constitute a FDI committee (the “FDI Committee”), which is to recommend a “Positive List” to the UAE Cabinet comprising sectors for which higher levels of FDI will be allowed.
The FDI Committee is to consider the following when recommending the Positive List:
- achieving a positive environmental impact;
- achieving the best profit and added value to the UAE economy;
- foreign investor’s level of competency, expertise and international reputation;
- increasing innovation and providing job opportunities and training for UAE Nationals;
- integration with strategic plans of the UAE;
- limiting negative effects on existing UAE companies that conduct a comparable activity;
- optimal use of modern technology; and
- requirement that any such approvals are limited to one or more specific Emirates.
The UAE Cabinet may impose certain requirements before investors are permitted to take advantage of any proposed increase in the levels of foreign ownership (i.e. above the current 49% restriction), including for example:
- Emiratisation requirement (minimum percentage of UAE Nationals required to be employed in the relevant sector/activity);
- form of legal entity that may carry on an activity within the Positive List;
- level of foreign ownership permitted in the relevant sector which could be 100% or any lesser percentage; and
- minimum capital requirement of the foreign investor.
Licence application process
Article 10 of the FDI Law sets out processes for foreign investors to seek to avail of the higher level of foreign ownership in accordance with the Positive List. Following submission by the foreign investor to the competent authority of an application, the competent authority is required to process the request within five business days. Where the application is rejected, the foreign investor may submit an objection which is to be handled in accordance with the dispute resolution mechanism in the FDI Law.
Where an application is approved by the competent authority, the approval is to be recorded in the FDI registry in the relevant Emirate and the department of economic development of such Emirate will issue a license.
Recent FDI law developments in the Emirate of Abu Dhabi
The recently issued Abu Dhabi Law No. 1 of 2019 establishes an Abu Dhabi Investment Office (“ADIO”) and Abu Dhabi Law No.2 of 2019 regulates partnerships between public and private sectors.
The ADIO is charged with developing and implementing a strategy to increase FDI into Abu Dhabi. In conjunction with Abu Dhabi’s Ghadan 21 Programme, ADIO is anticipated to help accelerate economic growth in technology, tourism, advanced manufacturing and public-private-partnerships.
This article is excerpted from “Accessing Europe and the Middle East: Foreign Direct Investment Control Considerations”. For the full publication, please scan QR code to read.