What are Foreign Ownership Laws in the UAE?

The UAE has joined the ranks of the best countries for foreign investors since it has a promising, rapidly developing environment. One important element of the country's investment activity is its FDI legislation, which has evolved largely since the 2020 changes. These changes were directed towards streamlining foreign investments to promote a more business-like environment. This blog will focus on the most significant changes in the UAE's new policies regarding foreign ownership laws, mainly in Dubai and Abu Dhabi, and their implications for investors in 2024.

UAE Foreign Ownership Laws: An Evolution

Federal Decree—Law No. 26 of 2020 of the United Arab Emirates was enacted to amend Federal Law No.2 of 2015 on Commercial Companies. This law marked a significant step, permitting 100% of FDI in onshore companies in different businesses and sectors. Earlier, such opportunities were limited to foreigners with only a minority interest in onshore businesses. Therefore, it was mandatory to float half of the share capital in favour of a local Emirati.

This change forms part of the UAE’s move to diversify its economy and, hence, reduce its dependence on oil by encouraging FDI. This has made the country more attractive to international businesses, investors, and entrepreneurs by allowing full foreign ownership.

Key Features of Foreign Ownership Laws in 2024

Full Foreign Ownership: Foreign nationals can now establish companies with 100% ownership in commercial and industrial activities across the UAE. More than 1,000 activities are open for full foreign ownership. However, some sectors, such as oil, defence, and telecommunications, remain off-limits due to their strategic importance.

Exclusions for Strategic Sectors: The law provides some exceptions for businesses operating in strategic sectors. These include industries such as national security, banking, telecommunications, and oil. The UAE Cabinet has authorised a committee to determine what qualifies as a strategic impact sector. This is reviewed periodically to align with the country’s evolving economic strategy.

Public Offerings Flexibility: The decree law also allows companies intending to go public to float up to 70% of their shares through IPOs, an improvement from the prior limit of 30%. This change is expected to increase the number of companies that float shares in the UAE stock market for foreign and domestic investors.

Foreign ownership laws in Dubai and Abu Dhabi

These laws are operational in the UAE but are not applied similarly by each emirate. Although Dubai is very liberal on the issue of foreign ownership, Abu Dhabi has been relatively conservative up to this date. However, like Dubai, it has liberalised courtesy of its search for foreign investors in strategic sectors.

Dubai

Dubai is one of the most promising destinations for investing in foreign countries. Out of the theoretically allowed sectors, the Dubai Department of Economic Development (DED) has approved more than 1,000 categories of commercial and industrial activities for 100% FDI. This includes the trading sector, real estate, and tourism. Several investment sectors in Dubai, including Downtown Dubai, Dubai Marina, and Jumeirah Lake Towers (JLT), involve international investors seeking investment opportunities in property and business.

Businesses established in free zones, including Jebel Ali Free Zone and Dubai International Financial Centre, are still eligible for 100% foreign ownership without requiring a local sponsor.

Abu Dhabi

While initially even more cautious, Abu Dhabi has also liberalised large segments of its economy for foreign investors. The Department of Economic Development—Abu Dhabi has assessed 1,105 types of commercial and industrial activities permissible to 100% foreign ownership. Regarding the real estate market, locations like Al Reem Island and Saadiyat Island are among the most important prime markets, with lots of foreign investment. However, some industries are restricted to complete and unconditional access to foreign investors.

Implications of Economic Development on Future Growth

Changes in foreign ownership laws in the UAE have made its economy significantly more attractive for business, forcing an increase in foreign direct investment. Foreign investors prefer 100% ownership, as they manage their firms fully and take advantage of all the tax-free areas of the UAE.

However, the UAE government has been adjusting the effect of these regulations to its Vision 2030 strategic plan, which emphasises sustainable development and market diversification. The direction the liberalisation process will take in the future is still being determined. However, full foreign ownership in other activities is currently limited, and proposals for adding more activities to the full foreign ownership list are being considered, particularly in technology and sustainable energy. Global investors should prepare to invest in the UAE because the future seems bright. 

Practical Tips for Foreign Investors:

• Do some legal groundwork by determining the specific regulations governing the level of foreign ownership in the emirate and the sector you fancy.
• Consult your legal advisors to understand what other laws have changed and whether your business complies with local laws.
• The various laws and regulations that we have, with as few speeding laws as we have, can be outgrown, and new ones can be created. It’s important to watch what is happening to make the right choice.
• Different emirates have different legislation, so choosing the one most suitable for your business is advisable.

Conclusion

The UAE remains destined for foreign investment, making it the best place for foreign investors to undertake their businesses. Given the recent changes in foreign ownership policies, investors have never had better chances to own and manage enterprises in various industries. Thus, the investors who will read this article and follow the tips mentioned above will be able to get the most out of the UAE business environment in 2024 with the help of professional focus. 

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