Innovations in Foreign Direct Investments in UAE

published on 27 January 2021 | reading time approx. 3 minutes

Following the announcements by the UAE government on amendments to the Federal Law No. 2 of 2018 (FDI Law) on Commercial Companies, the Cabinet Decision No. 16 of 2020 issued significant innovations concerning foreign direct investment in UAE.

This brings at least some sort of clarity related to the previously in some parts confusing legal situation. The resolution mainly deals with the "positive list", which lists economic sectors in which companies may be fully 100% owned by foreign investors.

Also further information especially about the licensing procedures are known in the meanwhile.

Positive list and licensing procedure

The Positive List, that shows all economic sectors in which a local shareholder is no longer required to establish a company, is divided in three special parts of economic sectors.

Summarized there are 122 economic activities, in detail, 19 out of the agricultural sector, 52 out of the industrial sector and 51 out of the service sector.

Even in case of operating only in one part of the areas listed on the positive list, the respective companies have to fulfil further additional requirements.

Depending on the economic sector the requirements include for example different minimum capital in the relevant sector but also the use of the latest technologies or contributing to research and development.

As a legal form the foreign investors can select between the Limited Liability Company (LLC) or the Joint Stock Company (JSC). So a single shareholder is sufficient to establish such a company. An already existing company can also change its legal form into one of the suggested company type in order to be able to operate as an FDI company in the UAE without a local partner.

After submitting all documents for licensing and meeting the prerequisite requirements, the competent authority issues its approval of the license application within a maximum period of five working days.

The steps for licensing a foreign direct investment project are as follows:

Select business activity and the legal form of the company
Fix the registered nominal capital that shall not be less than the minimum required by the positive list
Submit a foreign direct investment license application after obtaining the initial approval
Reserve the „trade“ name
Get approvals of the concerned authorities related to the FDI company activity
Present proof of submission for joining tawteen partners club
Obtain approval and receive FDI License after paying the fees
Opening a bank account on behalf of the company and depositing at least 20 % of the resquested capital
Registration of the license with the ministry of economy (MOE)

Licensing procedure for activities outside the positive list

Furthermore foreign investors can also apply a FDI licence for operating in one of the sectors, which is neither listed on the negative list nor on the positive list. In contrast to activities on the positive list, the competent authority of foreign investments has the right to reject the application of establishing a company without a majority shareholding by a UAE national or to submit the request to the FDI committee. In that case the committee forwards the request including its recommendation to the cabinet, which finally decides on the request.

Benefits of an FDI company without a local shareholder

An FDI company without a local partner, so wholly owned by a foreign investor, is treated in the same way as a local company, so there won´t be disadvantages. Especially the FDI-company may transfer all its returns out of the FDI Project outside UAE. The companies are also permitted to proceed with all economic activities for example to transfer the FDI Company to a new investor.

The Cabinet Decision No. 16 and its amendments clarifies – more or less – the requirements and possibilities of companies operating in sectors of the positive list. Because of those the foreign companies get greater flexibility in its corporate structure, which will further increase the attractiveness for foreign direct investments, especially during the current uncertain situation resulting from the corona pandemic.

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