Everything you need to know about the UAE's 100% foreign ownership law

Everything you need to know about the UAE's 100% foreign ownership law 

By: Contributor
Thought Leadership

The updated law brings a new era to the UAE. How can business owners benefit from it?

With the UAE Ministry of Economy announcing that the amended Commercial Companies Law will come into effect on June 1st, 2021, allowing foreign investors and entrepreneurs to establish and fully own onshore companies, what exactly should foreign investors and business owners know about this progressive new law?

Naz Musa, CEO - Dubai of Pro Partner Group, a company that assists business owners in setting up in the UAE, shares the details. 

Which companies and activities could be owned 100%?

Companies carrying on activities with a “strategic impact” will continue to be subject to foreign ownership restrictions. We expect the issuance of a list of restricted activities that will still require local ownership, and a list of activities that will allow 100% ownership. 

The power to issue decisions on the contribution of UAE nationals to the capital of companies has been assigned to the governments of individual Emirates, therefore we expect to see differing guidelines for Dubai, Abu Dhabi, and the wider UAE for example. 

The Abu Dhabi Department of Economic Development (ADDED), on the 22nd May 2021 issued a list of 1029 activities that would be eligible for 100% foreign ownership. See the full list here

There are currently no further details on the additional requirements to obtain 100% ownership, such as higher-paid down share capital requirements for example.  We await further information on this.

How can companies move forward for 100% ownership?

We recommend that companies who are already established in the UAE and are considering aiming to transition to 100% ownership to review their current local partner arrangements to ensure that they have a smooth pathway to 100% ownership if they want it.

The 100% ownership will require the 51% shareholder to attend the notary and execute a Share Transfer Agreement in order to affect the change, so the LLC will have to enter into a commercial discussion with their local partner or local agent on this and agree the transfer among the shareholders.

Companies that are considering setting up a new LLC or a new Foreign Branch in the UAE but may be tempted to wait until there is more clarity on the situation are urged not to wait, as it may be some time until the practical process for 100% ownership is fully in place and propagated across all the relevant government departments in UAE.  Instead, companies can continue to set up with a local partner but ensure that the legal documentation provides a mechanism for the company to buy back 51% of the shares and progress to 100% if it wishes to.

PRO Partner Group has developed a clear Nominee Partnership Platform to provide a specific pathway to 100% ownership for foreign companies and investors.

What requirements are needed to change the company into 100% owned by foreigners?

The company will need to undertake a share transfer.  In the case of transforming a 51:49 split LLC into 100% foreign owned, this will involve the drafting of a Shareholder Resolution (SR), Share Transfer Agreement (STA) and Amendment to the Memorandum of Association (AMOA).  This will require 100% of the shareholders to agree to transfer 51% of the shares to the 49% to create a 100% owned LLC.  The SR, STA and AMOA will have to be signed in front of a UAE Notary Public, in English and Arabic.  The notarisation can be undertaken remotely over Webex and can also be executed using a Power of Attorney (POA) issued by one or more of the shareholders to act on their behalf.

Once the legal documents have been notarised then the company can apply to the Department of Economic Development (DED) to have the licence updated.  

The company will also need to update all other licences associated, for example Immigration, Ministry of Labour, Ministry of Economy and update their other counterparties such as their bank, telecoms and other UAE service providers.

The company will need to check if there are any additional requirements for 100% ownership for this particular activity and they may need to meet these additional thresholds (e.g. additional Share Capital Requirements).

What is the impact on the UAE market?

We expect this to have a hugely positive impact on the UAE market, with more companies being encouraged to invest in the UAE and companies in the various Freezones moving to a mainland corporate structure now that 100% ownership is a viable option.

What are the steps to be taken?

Foreign Branches – removal of the NSA

The amendment to the law specifically stated the removal of the requirement for a foreign branch office to appoint a UAE National Service Agent (NSA) with effect from 30 March 2021.  As yet there is no practical way to do this yet, and a Foreign Branch currently still needs an NSA in place for example to set up the licence and the renew the licence with Department of Economic Development (DED) and Ministry of Economy (MoE).  We expect this to be updated in due course and the Ministry of Economy and the DED in each Emirate will update their systems to allow the adjustment in NSA.  The NSA transfer process will still require a Notarised transfer document and for the client to be update in both MoE and DED.

From Freezone to Mainland

Once the 100% allowance is fully clear in mainland UAE it may be that UAE Freezone companies that have operated in the freezone whilst doing business in mainland UAE may wish to move to a full mainland entity, once full ownership is allowed and practical.  A mainland set up provides much more flexibility on commercial space location and staff visa allocation, allows the company to fully work in the UAE and with UAE companies and government, as well as allowing a higher ICV score for government tendering processes.

Additional Corporate Governance Requirements 

With this amendment to the law all companies in the UAE (including limited liability companies) will be subject to enhanced corporate governance standards to be issued by the government at a future date

Changes to the process of convening and holding general meetings including:

  • Increase in the notice period to 21 days for holding a meeting;

  • One or more shareholders holding not less than 10% of the share capital may request a general meeting to be called; and

  • Allowing for meetings to be held and called using modern means to technology.

 About the author

naz musa

Born in Sudan and brought up in the UK, Naz's experience spans the globe.  

He is currently the CEO of PRO Partner Group's Dubai Office. PRO Partner Group is a Company Setup, Local Partnership and PRO Service provider in Abu Dhabi, Dubai, the wider UAE and Oman. The company provides a dedicated corporate local partnership platform for companies, ensuring the foreign party has full security and control of the local business.

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