The United Arab Emirates is known around the world for its business-friendly environment. Over the years, the country has put new rules and regulations into place to attract foreign investors, and it has paid off big time!
Switzerland, the United Kingdom, India, the United States of America, France, Austria, Japan, Saudi Arabia, Kuwait, and The Netherlands are among the main investors in the UAE. So, as you can see, the business-friendly government has really helped bring in entrepreneurs from around the world.
Although there are already so many advantages in place for foreign entrepreneurs, the UAE continues to make changes and improvements in hopes of bringing in even more business. The most recent change has been in the works for a while. The long-awaited change is an update on foreign direct ownership and investment in the country.
Are you considering company formation in UAE? Keep reading to see what this new rule means for you.
What is the Foreign Direct Investment Law?
If you’ve been looking into the business setup in Dubai, then you’ve probably heard of the law that requires foreign investors to have a local partner that would hold 51% of the company’s shares. But there’s some good news! Under the changes in the Foreign Direct Investment Law (FDI), there are now some business activities that will allow foreign investors to own up to 100% of the business. Originally, these businesses could only own 49% of the shares in the company.
Officials are hoping this law will attract even more foreign investment and help expand and diversify the production base.
Who Does This Law Impact?
Keep in mind, this rule doesn’t involve every foreign investor. There are still some businesses that aren’t allowed full ownership. This new law only applies to foreign nationals with certain businesses setup in the UAE mainland. These changes do not apply to Emirati investors or to projects in the financial or non-financial free zones.
Any entrepreneur who has a business that falls under this new law will have several requirements they will have to meet:
- They have to meet the required share capital
- The business will have to use modern technology
- The business must provide added value to the UAE economy
- The entrepreneur must make contributions to research and development
- The foreign-owned business must meet UAE licensing requirements
Departments Overseeing Foreign Direct Investment Law
In order to make sure that things run smoothly, requirements are met, and rules aren’t broken, two departments have been formed – Foreign Direct Investment Unit and Foreign Direct Investment Committee.
The Foreign Direct Investment Unit will keep up with all the information in a database and propose policies.
The Foreign Direct Investment Committee will be in charge of keeping up with a list of activities that are allowed to take part in the FDI.
The Positive List
You’re probably wondering what companies actually fall under this rule, right? While there are some business activities that are on the list now, this can change down the road. The Foreign Direct Investment Committee can decide to make changes based on the recommendations from local and federal authorities.
Currently, there are 122 economic activities that are allowed to operate with 100% foreign ownership. These business activities that are allowed are on what’s called the Positive List.
Out of these sectors that heavily rely on foreign investment, there are three sectors that made the Positive List:
The Negative List
Now that you’ve seen the Positive List, let’s take a look at the business activities that don’t qualify for FDI. Just like the Positive List, the UAE government can make changes to this list at any time.
The Negative List includes:
- Oil exploration and production
- Investigation, security, and military sectors
- Banking and financing activities
- Insurance Services
- Pilgrimage and Umrah services
- Certain recruitment activities
- Water and electricity provision
- Fishing and related services
- Post, telecommunication, and other audio-visual services
- Road and air transport
- Printing and publishing services
- Commercial agencies
- Medical retail business, such as pharmacies
- Blood banks, quarantines, control centers
The UAE doesn’t have any formal rules as to why these sectors are off-limits to foreign investment, however, most of these industries can contain sensitive information and are off-limits to foreign investors due to national security.
Legal Forms That Are Allowed for FDI
If you decide to take part in the Foreign Direct Investment, then there are two different types of legal forms that are allowed:
- Limited liability company
- Private joint-stock company
Both of these legal forms include a single owner company.
Steps for Licensing an FDI Project
- Select a business activity in the Positive List
- Select a legal form for your company
- Limited Liability Company (LLC)
- Private Joint Stock Company
- Pay the required FDI capital
- After you get initial approval, then submit a foreign direct investment license application
- Reserve the trade name
- Get the required approvals
- Pay the required fees after approval
- Receive your FDI License and register it with the Ministry of Economy
Benefits of FDI License
There are several reasons this new law is great for both entrepreneurs and the economy. Some of these advantages include:
- Enhances and diversifies local production
- Helps attract businesses in technologies
- Encourages investors in advanced industries
- Increases exports of goods and services
Entrepreneurs who take advantage of this new law will also have the benefits that come from the support of newly created committees in locations that already have a thriving economy.
Abu Dhabi, Dubai, and Sharjah are the most popular locations for business setup in the UAE. These areas have come up with a way to support FDI. Here’s how:
Abu Dhabi has a government hub called Abu Dhabi Investment Office (ADIO) that oversees foreign directed investment. The ADIO offers several investment programs. There are several series in the works that are aimed at helping provide growth opportunities to startups.
Dubai FDI was started to support foreign companies who invest in the city. Companies can get business advice and guidance from the agency. There have already been several webinars hosted by the agency to help potential investors explore different opportunities in the popular business sectors in Dubai.
Investors also get support and guidance in Sharjah. The Sharjah Investment and Development Authority created the Sharjah FDI Office to help investors understand the process. The office, also known as Invest in Sharjah, offers services and real-time analysis of local markets to help entrepreneurs make the right business decisions.
Let MSZ Consultancy Help Form Your Company in the UAE
Are you ready to make your business dream a reality? Let us help you setup your company in the UAE. We are experts at the business setup in all seven Emirates. We know what it takes to successfully get your business up and running. Don’t wait! Contact us today at +971 52 544 1248 for a FREE consultation.