What is an FDI?
Foreign direct investments, or FDIs, are business investments made by a company or individual located in one country for business interests in another. This often occurs when a business entity acquires assets originally belonging to a foreign company. However, FDIs are not considered the same as traditional investments where an investor merely buys equity in a foreign business.
Foreign direct investments can be made in several ways, including opening a subsidiary company in a foreign nation to acquire a controlling interest in a business in that country. These investments can be made to bolster a company or with the intent to establish controlling ownership of a company.
An Overview of Foreign Direct Investments
FDIs are a fantastic way for investors to reach across national boundaries and invest in companies on foreign soil. The UAE has adopted policies to foster a favorable environment for investors, including highly flexible regulations around foreign entities’ acquisition of real estate. It has become such a popular business avenue that foreign direct investments have grown 147% from 2019 to 2020. Types of FDIs include:
• Horizontal Investments
Horizontal investments occur when an investor invests in a foreign company that conducts the same business activity as the investing company. An example of this is when an American smartphone corporation establishes a store in China.
• Vertical Investments
Vertical investments occur when a business invests in a foreign company that conducts different but similar business activities than theirs. A great example of this is when a manufacturing company acquires an interest in a foreign business that sources the raw materials that the original company uses in production.
• Conglomerate Investments
A conglomerate direct investment covers investments between companies that operate in unrelated fields. With this investment type, involved businesses tend to enter into industries with no prior experience. To remedy this, they will often form a joint venture with an established company in the country.
Laws Regarding Foreign Investments in the UAE
In 2021, the United Emirates updated its laws surrounding foreign ownership in the UAE. These new business laws remove mandates that require onshore companies to have at least one major UAE shareholder. Additionally, the UAE abolished a provision requiring Emirates-based companies to have a board whose majority includes UAE nationals. This is a broad new step for the mainland, where previously only free zones offered complete foreign ownership.
These changes have been introduced to further develop the UAE as a business and investment-friendly destination. Furthermore, they have updated the UAE’s immigration policies to offer 10-year visas for all investors and those with notable contributions or talents.
These law changes have generated an incredible amount of interest from various multi-national investors seeking to establish themselves in the Emirates. And it’s only expected to grow in the coming years!
Permitted and Restricted FDI Activities
Along with new regulations surrounding foreign investments, it also dictates which sectors can have 100% foreign ownership. This recent resolution names 122 business activities that are allowed to take part. These permitted business sectors will fall under one of three categories:
- Agricultural Sector
- Manufacturing Sector
- Services Sector
This same provision also clarifies which business enterprises are not permitted to have full foreign ownership.
- Exploration for and the production of petroleum materials
- The manufacturing of arms, explosives, and military equipment
- Banking and financing activities, payment systems, and cash deals
- Insurance services
- Religious pilgrimages and services
FDI Licensing Process in the UAE
For investors hoping to secure an FDI license, they are required to submit an application through the Department of Economic Development. This process can differ depending on whether you seek an existing license or want to license a new FDI project.
• Requirements for an existing license:
- An FDI application form
- A copy of your current business license
- Financial statements, audited, for the prior year
- Growth plans for the next three years
- Some investors may be required to submit a cover letter to highlight the company’s current standing in the Emirates
• The Process for a New FDI license
Securing a new license is a straightforward process, but it’s not without its pitfalls. Taking the time to properly research and gather the required documents will help ensure the application process runs smoothly. You’ll need to:
- Select your business activity
- Gather the required documents, including your Memorandum of Association.
- Submit your Application
- Acquire the required capital
- Reserve your trade name
- Obtain your initial approval
- Select your business location
- Obtain approval from the relevant governing authority
- Proceed with opening bank accounts for your company
- Proof of capital payment
- Registration with both the Ministry of Economy and the Chamber of Commerce
After completing your registration and securing all your approvals, you’ll want to notify the licensing board that you’ll be commencing business within five business days.
The Benefits of FDIs in the UAE
There are a great number of benefits to growing the field of foreign investors in the region. Aside from the Emirates stable business climate, other incentives include:
- No direct taxation outside of oil, banking, and insurance sectors
- No control of foreign exchange or constraints surrounding the repatriation of funds
- Long-term political stability
- Dynamic economy
- Concrete banking sector with funds and regulations that benefit foreign investors
- Skilled labor force
- The geographic location of the nation makes it a prime point in Africa, Asia, Europe, and the Middle East.
- A well-developed infrastructure
- Substantial Government support
- Low-cost energy solutions
MSZ Consultancy Can Help!
For foreign investors, there has never been a better time to get in the game. With incredible business incentives and 100% foreign ownership now possible throughout the Emirates, more and more investors are moving to the area to develop their businesses.
But understanding all the details of business customs in the Emirates can be tricky for foreign investors unfamiliar with the territory. And that’s where we come in!
MSZ Consultancy has over twelve years of experience serving businesses in the United Arab Emirates and has proudly served thousands of customers along the way. If you’re hoping to start a business in Dubai or anywhere throughout the UAE, let us help! Our business experts have a distinct working knowledge of local business laws and can provide you with guidance to help you navigate the business world!
Whether you’re hoping to invest as a foreign owner, or you’re starting a new business in one of Dubai’s many free zones, we have the expertise to help you excel! Securing residential visas? We can help! Applying for a business license in the mainland? We handle that, too! Whatever your need, MSZ Consultancy has the tools to get your business up and running! Call us today at +971 52 544 1248.