Foreign-Owned Businesses in the UAE
The UAE has always been a positive and financially rewarding destination for savvy entrepreneurs to grow their businesses. It features a friendly environment, tons of networking potential, and business-friendly regulations that take much of the stress out of business ownership.
However, one factor standing in the way of many entrepreneurs forming their businesses or making their efforts challenging, at least, is the long-standing requirement that all foreign business owners must secure a local sponsor for their business. This sponsor, a UAE national, is required to own a 51% share in your venture.
But in the last few years, to increase foreign investment, UAE officials enacted legislation aimed at eliminating this requirement in certain jurisdictions. This has enabled entrepreneurs to enjoy 100% foreign ownership and has made finding success in the region much simpler.
And if you’re an investor considering setting up your business in the UAE, you’ll want to keep reading for some incredible insight into how these changes will affect your business prospects.
100% Foreign Ownership
Historically, foreign investors faced several restrictions and required a local sponsor to own a business in the UAE. However, in a groundbreaking move, the UAE has introduced a full foreign ownership policy, signaling a profound shift in its economic landscape.
One of the most significant changes is removing the requirement for a local sponsor in certain cases, particularly for Limited Liability Companies (LLCs). Previously, foreign investors were required to have a local Emirati sponsor who held a significant stake in the company.
This often led to shared decision-making and financial obligations, but now, foreign investors can establish an LLC company in the UAE without needing a local sponsor. This change provides greater control and autonomy to foreign business owners and aims to attract more foreign investments.
The Former 51/49 Ownership Structure
As we’ve mentioned, for many years, the UAE enforced a strict 51/49 ownership structure for foreign nationals setting up businesses within its borders. This regulation required foreign investors to have a local Emirati partner or sponsor holding at least 51% of the company’s shares, with only 49% ownership allowed for the foreign party.
The rationale behind this arrangement was rooted in a desire to foster economic development, stimulate job creation for Emiratis, and facilitate knowledge transfer. However, the global economic landscape evolved, and the UAE recognized the need to adapt to changing market dynamics. As a result, it implemented the full foreign ownership policy, ushering in a new era of opportunity for foreign investors.
Limitations of the Amended Legislation for Businesses
While the UAE has made significant strides in providing opportunities to investors, some commercial enterprises are still subject to several limitations. These include:
Must Be an Offshore or Free Zone Business
While the UAE now permits 100% foreign ownership in specific sectors, it’s important to note that this rule primarily applies to businesses established in free zones or as offshore entities. Free zones are designated areas with special regulations and incentives that encourage foreign investment. Businesses operating in free zones enjoy the benefit of full foreign ownership, tax exemptions, and streamlined business processes. However, outside these designated areas, foreign ownership restrictions may still apply.
Local Service Agent Requirements
Another important limitation is the requirement for a local service agent in certain cases. Even though foreign investors can own 100% of their business, the UAE government mandates that companies engaging in activities outside the designated sectors must appoint a local service agent who is a UAE national or a company wholly owned by UAE nationals. While this agent does not own any equity in the business, they serve as a liaison between the company and government authorities, particularly in licensing and regulatory compliance matters.
How New Changes Are Expected to Impact Business in the UAE
The recent implementation of the full foreign ownership policy in the UAE represents a significant shift in the business landscape, and it’s expected to:
Strengthen the UAE’s Position as a Global Trade Hub
One of the most prominent effects of the full foreign ownership policy is the UAE’s enhanced standing as a global trade hub. With the removal of the 51/49 ownership restrictions in specific sectors, the UAE is now even more attractive to foreign investors and entrepreneurs looking to set up their businesses. This shift not only encourages new investments but also fosters innovation and economic diversification.
Facilitate Economic Recovery
The recent changes are a part of the UAE’s broader strategy to facilitate economic recovery, particularly in the wake of global economic challenges, including the COVID-19 pandemic. The move toward full foreign ownership encourages businesses to invest in the UAE, creating jobs and stimulating economic growth.
Address Future Economic Challenges
Looking ahead, the UAE is preparing to address future economic challenges through these policy changes. By liberalizing ownership rules, the government is laying the groundwork for a more diversified and knowledge-driven economy. This will reduce the country’s reliance on oil revenue, making it more resilient to fluctuations in global oil prices. It is also aimed at nurturing a thriving innovation ecosystem, with foreign investors bringing their expertise and knowledge to the UAE.
Businesses Eligible for 100% Foreign Ownership
Now that we’ve examined some of the biggest impacts of these regulatory changes, let’s look at some of the business types that are eligible for full foreign ownership.
Eligible Businesses in Dubai
Dubai has been at the forefront of economic reforms in the UAE. Many business activities are now eligible for 100% foreign ownership in the UAE Free Zones, including but not limited to:
· Information Technology
· Renewable Energy
Eligible Businesses in Abu Dhabi
The Emirate of Abu Dhabi, the capital of the UAE, has also embraced the full foreign ownership policy, particularly focusing on the diversification of its economy. Some of the business activities eligible for 100% foreign ownership in Abu Dhabi include:
· Renewable Energy
· Space and Satellite Technology
· Information and Communications Technology
· Creative Industries
Eligible Businesses in Sharjah
Sharjah, the third-largest emirate in the UAE, has also embraced the full foreign ownership policy, particularly in its designated free zones. The list of eligible businesses in Sharjah is diverse and includes:
· Information Technology
· Renewable Energy
· Media and Publishing
· Creative Industries
· Research and Development
The UAE Golden Visa
The introduction of the UAE Golden Visa program has added another layer of appeal for foreign entrepreneurs, offering a clear pathway to achieving 100% foreign ownership in the country. This initiative is a game-changer for setting up your businesses in the UAE, allowing them to enjoy:
· 100% Foreign Ownership Rights
· Easy Access to Business Banking and Business Loans
· Low to No Corporate Tax Rates, Capital Gains Tax, or Income Tax
· Easy Visa Sponsorship for Family and Employees
· Free Travel to and from the UAE
Maximize Your Business Prospects with the Power of MSZ Consultancy at Your Side
Whether you’re setting up your business in the UAE, or want to know more about the UAE Golden Visa program, MSZ Consultancy has the expertise to help your business succeed in the UAE market. Our consultants have an inside knowledge of local processes and regulations and the experience needed to make your day-to-day operations run smoothly.
It doesn’t matter whether you’re a single foreign investor hoping to take advantage of foreign ownership in the UAE or part of a larger corporation hoping to open the newest branch; we have the power to make your endeavors reach their highest levels of success.
Call MSZ Consultancy today at +971 52 544 1248 and let our team of business consultant experts help grow your business into what it’s meant to become. Success beckons; are you willing to answer the call?