UAE confirms business activities which may be 100% foreign owned

The Foreign Direct Investment Law (Federal Decree Law No.19 of 2018) provided a framework for opening up markets to foreign investment. However, the market has been eagerly awaiting the areas of business activity in which up to 100% foreign ownership may be permitted, otherwise known as the 'positive list'.  

The aim of the Foreign Direct Investment Law is to encourage more foreign investment into the country and improve economic growth. 

The Foreign Direct Investment Law classifies business activities into three categories:

• activities in the negative list which will fall outside of the foreign direct investment regime, including petroleum exploration and production; banking and financing activities; insurance and telecommunications;
• activities on the positive list, in where up to 100% foreign direct investment is allowed, and
• activities not on either list, where authorities have discretion to allow up to 100% foreign ownership.

Until now the positive list had not been approved, so it was unclear whether applications for business activities in the positive list would have been approved for 100% ownership. The positive list includes:

• construction;
• healthcare;
• transport and storage;
• hospitality and food services;
• certain types of retail;
• information and communications;
• science and technology;
• education;
• agriculture;
• 51 activities in the manufacturing sector, and
• 19 activities in the agricultural sector.

However, there are various conditions:

• companies may be required to employ UAE citizens, a process known as Emiratisation. This requirement may be imposed by the UAE Ministry of Human Resources and Emiratisation;
• the relevant licensing authority in each Emirate and industry-specific regulators may impose additional requirements;
• all entities will subject to minimum capital requirements – these currently range from AED2 million ($540,000) to AED100m ($27m);
• construction and civil engineering projects will only be granted up to 100% foreign ownership if they relate to a large infrastructure project or to sports facilities or projects exceeding AED450m AED ($123m) in value, although there appears to be an exception for 'other specialised construction activities', and
• some activities are subject to further conditions. For example agricultural activities must use modern technologies.

The guidance issued by the Foreign Trade Sector, Investment Department also provides a mechanism for converting existing limited liability and private joint stock companies into foreign direct investment companies (FDI Companies). This will be welcomed by the thousands of foreign investors who have already have businesses in the UAE.

The guidance confirms that shares in FDI Companies can be transferred to new investors and the merger or acquisition of FDI Companies is also permitted.

The licensing authorities in Dubai have started to accept applications. It is expected that the licensing authorities in the other Emirates will follow suit soon. Licensing authorities will have responsibility for approving the applications and determining the percentages of foreign investment permitted in each case.  

This is positive news for foreign investors but as implementation will be up to the licensing authorities in each individual Emirate it is important for foreign investors to obtain representation from local lawyers.

Additional reporting by Nathalia Elhage.