With effect from June 1, the UAE will allow 100% foreign ownership on commercial LLC companies of mainland companies. How did this come about? In November 2020, a Presidential Decree was issued announcing major changes to the foreign ownership rule in the UAE's Commercial Companies Law 2015. Much to the joy of entrepreneurs the world over, the United Arab Emirates did away with the need of an Emirati shareholder or agent for UAE companies. Until then, companies in the UAE needed a certain amount of shareholding by Emirati nationals or by an Emirati agent, depending on the type of company it was. What is 100% foreign ownership in UAE and what does it mean for your business?
The amendment has far-reaching consequences for entrepreneurs with existing businesses in the UAE as well as those who want to register a company or set up a company in Dubai or the UAE. The key change that the amendment will usher in is that the law now allows natural and legal persons, regardless of nationality, to establish and own 100% of their companies in the UAE.
However, everything is not as black and white as it seems. Therefore, it's only natural for you to have several questions and concerns about the new amendment. We'll address all of these in this guide on 100% foreign ownership for LLC companies in the UAE. Read on to learn more about this amendment and how it may affect your business plans in the UAE.
UAE's Foreign Direct Disinvestment Law
Until recently, the general rule was that all UAE mainland (i.e., those outside of free zones) mandatorily required 51% shareholding by UAE nationals when foreign nationals wanted to have a business setup in Dubai or UAE (or entities wholly owned by UAE nationals). This requirement was a part of the UAE Companies Law. Even though the general perception has always been that it's quite possible to alter the economic interests of the foreign shareholder and the local shareholder to a certain extent (some foreign investors have frequently entered into so-called 'arrangements on the side' with the local shareholder) when it comes to economic ownership and decision making for the business, uncertainty has always remained regarding the effectiveness of such arrangements.
The Foreign Direct Investment Law (FDI Law) passed in 2018 (and supplemented by Cabinet Resolution No. 16 of 2020) relaxed foreign ownership restrictions in specific business sectors (known as the Positive List), allowing as much as 100% foreign ownership of businesses on the Positive List. To qualify for the foreign ownership exemption, however, the applicant had to meet many relatively onerous requirements, including significant share capital contributions, the use of technology, and the employment of UAE nationals. Furthermore, final approval rested with the relevant licensing authority.
What the amendment changed?
According to our understanding, the new law will amend the Companies Law to remove the general requirement for 51 % shareholding by UAE nationals, allowing for 100 % foreign ownership of UAE limited liability companies established on the mainland, as well as the requirement that a branch of a foreign company engage a UAE national to act as their agent. In short, irrespective of nationality, any person can now gain full ownership of their company even on the UAE mainland.
These changes characterize a significant departure from the FDI Law's controlled sectoral approach, which we understand will be revoked once the new law takes effect.
Local licensing authorities in each Emirate will retain the discretion to impose an element of UAE national ownership, and we understand that certain strategically important sectors, such as oil and gas, telecommunications, and utilities, will continue to be subject to foreign ownership restrictions.
According to reports, the majority of the new law's changes will go into effect on June 1, 2021. Companies will be given a one-year grace period to comply with any changes mandated by the new law.
Key points in the new amendment
These key changes in shareholding patterns as per the new amendment are:
- Eliminates the requirement for UAE companies to have a majority of Emirati shareholders and Local agents during company registration in Dubai.
- Allows 100% foreign ownership of companies located on the UAE's Mainland, i.e., onshore companies, subject to the policies outlined by the UAE cabinet in the form of a cabinet resolution.
- A joint stock company is now allowed to sell 70% of its shares through an IPO. Previously, this percentage was as low as 30%.
- If the company, through its directors and general managers, engages in an activity that causes the company to lose money, the shareholders have the right to sue the company in court.
- Gives local governments authority over the recognition of required capitalization, shareholding percentages, and approval for onshore company establishments that are subject to cabinet resolution policies. Previously, these powers were restricted to the Ministry of Economy or the Economic Departments of each Emirate.
- Meetings of companies are no longer required to be presided over by an Emirati; they are now open to Expatriates as well.
- Similarly, the prohibition on Expatriates serving on the company's board of directors has been lifted.
- Because of the global pandemic, annual general meetings can now hold electronic voting as well.
- There is a provision for removing executive officers or company chairs if they abuse their power.
Why the UAE implemented the full ownership law?
By removing existing roadblocks and opening up the economy, the UAE hopes to capitalize on its already present appeal as a market for foreign investors, businesses, startups, and top talent from around the world, while also putting the country in a better position as it prepares for post-Covid recovery and redesigns its vision for the next 50 years. Some of the rewards the government hopes to reap are
- Creation of a fertile legislative environment for the business set up in the UAE
- Improvement of the ease of doing business
- Across the board improvement of the country's economy
- Preparation for the future by boosting investment and commercial opportunities
- Future-proofing the economy against the various disruptions taking place in the global economy
- Addressing the evolving needs of the UAE business community
- Boost the country's attractiveness to expat investors, businesses/conglomerates/startups, etc.
What entrepreneurs in the UAE can expect from the amendment?
The jury is still out on the exact impact of the 100% foreign ownership law in the UAE. While we await the full effect of the new law, the move to allow 100 % foreign ownership of UAE businesses should significantly increase the UAE's attractiveness to overseas investors, particularly those who may have been hesitant to enter the UAE market due to ownership restrictions.
Foreign companies that have already established businesses in the UAE with mandatory local shareholding may want to reconsider those arrangements in light of these developments if full legal ownership is desired.
These developments may also spark an interesting debate about the long-term benefits of free zones. Although free zones generally allow 100 % foreign ownership and often provide a more familiar legal regime for foreign investors, they typically do not permit entities established within their region to trade on the UAE mainland.
Some businesses that have established themselves in free zones may now find it more appealing to establish themselves onshore as a result of these changes.
As per previous announcements, all current and previously licensed businesses in the UAE can amend their statuses in accordance with the new commercial companies law.
How this affects new businesses in the UAE?
If you're an entrepreneur who was reluctant to start a company in Dubai or UAE, because of ownership restrictions, you don't need to worry about that anymore. New investors in the UAE market have a competitive advantage in terms of ease of business establishment. Under the new law non-Emiratis of all nationalities can fully own their business as long as it comes in the list of sectors allowed.
How this affects existing business in UAE mainland?
If you already own a business in the UAE with previously mandated local shareholding, you may want to review those arrangements based on these new developments if you want 100% legal ownership of your business.
The existing LLC company owner can amed their license by selling the shares of UAE national to foreign nationals and become 100% owner of the company.
Existing companies must 'adjust their positions' by January 2, 2022, according to the Amendment. This may necessitate amending LLCs' Memorandums of Association to align quorum, notice, and meeting requirements with the Amendment.
How this affects existing business in UAE free zones?
UAE free zones already allow 100% foreign ownership, but in general do not allow entities established within free zones to trade on the UAE mainland. Even so, many investors prefer to set up their UAE business in free zones thanks to the several incentives offered, among which favourable regulatory and tax regimes play an important part. Once the new foreign ownership changes go into effect, though, many free zones are likely to see decreased demand and new challenges in attracting business. Despite this, the financial free zones such Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) will remain popular, particularly in the financial services industry, as investors and financial institutions will continue to be drawn to the common law legal frameworks, independent court systems, and well-developed financial regulatory regimes of the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).
Are you ready to take advantage of the 100% ownership for foreign investors in UAE?
If you are, we can help! Whether you want to set up a business in dubai or already own a UAE mainland or free zone business, you can be assured that Avyanco will continue to assist you with company formation in Dubai with 100% foreign ownership in Dubai mainland or assist with changing UAE national ownership by amending the license.
Here are some of the most frequently asked questions about full foreign ownership in the UAE answers that can help guide you on your way to successfully owning your own business in the UAE.
1. How can a foreign national get 100% ownership in an existing LLC company in the UAE?
A foreign national who is the existing owner of the LLC company can hire the business setup consultant who can help to remove the UAE national from the LLC company in UAE. The below steps can be taken:
- Prepare the Application of amendment of license.
- Prepare the amendment of MOA
- Take the pre approval from Department of Economic development
- Submit the application to DED
- Pay the fees.
2. Can a foreigner register a company in Dubai?
Yes, foreigners can and often do start businesses in Dubai. The local population is made up of more than 80% expatriates, with many of them running their own businesses. Once the new 100% foreign ownership law is in place, they will have complete control over their business.
3. What businesses are included in 100% ownership in the UAE?
Businesses that are with commercial activity and industrial activity included in the commercial companies are for 100% ownership in the UAE.
4. Do I really need a sponsor to start a business in the UAE?
No, you do not really need a sponsor to open a company in Dubai Mainland as per the new Law. However, if a foreign national wants to provide services or consultancy then a local UAE national will be the agent of the company not the 51% shareholder of the company.
5. How can I start a company in the UAE?
You can start a company in the UAE by following 6 simple steps
- Select your business activity
- Pick your company name
- Complete all your incorporation paperwork
- Receive your license notification
- Open a corporate bank account
- Get your visa processed if you're a foreign national
6. How much will it cost to register a company in Dubai?
The cost for business setup in Dubai depends on the business activity, business location and requirements of the visa. The minimum cost for mainland company registration is around AED 8000/- for the Service/Professional license and AED 14,000/- for the Commercial license. Other than this there will be UAE local sponsorship fees for a professional license, professional service fees for business setup consultancy firms, office rent and the visa cost as and when required. If an investor wants to amend the license and remove their local partner as per the new commercial companies law then it will cost around AED 5,000/- plus professional service fees.
7. What are the benefits of 100% ownership?
Before in commercial companies and industrial companies, there was a requirement of appointing UAE national minimum of 51% shares owner for LLC companies in UAE which has been changed recently and the UAE government allows 100% foreign ownership to foreign nationals in commercial companies in UAE. This is a huge benefit for foreign nationals as well as the UAE government to bring more investment to the UAE. By having 100% ownership, foreign national does not have to depend on local UAE national for any signature or representation of the company in any government department, not required any documents of UAE national in bank KYC, no sharing of any capital or profits of the company to UAE national, same time once it’s a mainland company foreign national can take government and semi government projects, can do the business in the local market freely.
8. I am not a resident, can I have 100% ownership in Dubai?
Yes, any foreign national can open their business in Dubai with 100% foreign ownership.
9. Will I be provided a visa even if I don't live in the UAE?
Yes, once the company is formed under the foreign national, the UAE government will issue a partner/investor visa to the foreign national which is valid for three years but it is not mandatory to stay in UAE all the time.
10. Are there any limitations for a foreign investor?
Not really but some terms and conditions will apply depending on business activity.
11. Can I get permanent residency in Dubai?
UAE has a concept of issuing residency visas that are valid for 3 years and after then it can be renewed for the same period if the company is active. If the net worth of a foreign national is more than AED 10 million then that foreign national will get the visa for 10 years which can be renewed for another 10 years at the time of expiry.
12. Will I be taxed on my income will I own my business and live in my home country?
In the UAE, there is no tax on income or profits and one can get in touch with their tax advisor in their home country. The UAE government also issues tax residency certificates to avoid double taxation for foreign nationals so people can get benefits on that.
13. Do I need to visit UAE every 6 months to retain my visa?
No, once the visa is issued for the owner, a person can come once a year to keep the residency visa active.