Positive List approved under the Foreign Direct Investment Law
Last year the UAE government announced Decree No. 19 of 2018 Regarding Foreign Direct Investment (“the Decree”) for publication in the Official Gazette. The objective of the Decree was to promote and develop the investment environment and to attract foreign direct investment to the UAE, by allowing foreign shareholders to own up to 100% of companies incorporated onshore (i.e. outside of the free zones) in the UAE.
The UAE Commercial Companies Law (Federal Law No. 2 of 2015), previous to the Decree limited foreign shareholding of onshore entities to just 49%, with mandatory ownership of 51% of the company shares by a UAE National. The Foreign Direct Investment Law was welcomed as a step toward promotion and development of the investment environment in the Emirates, as the element of foreign control had long been an adverse factor in considering whether to incorporate a company onshore in the UAE. The Decree referred to a ‘Negative List’ of sectors and activities that would not be available for foreign investment (full detail available here).
In July 2019, the UAE Ministry of Economy published the corresponding ‘Positive List’ which identifies the 122 economic activities that may be controlled, and up to 100% owned, by foreign investors. The application of the ‘Positive List’, and the varying degrees of foreign ownership permitted per activity and sector identified will be decided at an Emirate level following the publication of the list in the UAE Official Gazette, expected later this month. The government of each Emirate thereafter shall have the discretion to determine the degree to which foreign ownership is allowed across the listed sectors and whether it is complete or partial.
The ‘Positive List’ further specifies those requirements that must be present to avoid the 51% local ownership threshold which includes, in most cases, minimum capital requirements and participation in the Emiratisation Club (“the Club”) at the Ministry of Human Resources and Emiratisation (“MOHRE”). The Club was launched in 2018 to promote the inclusion and employment of UAE nationals in the private sector and intends to promote cultural diversity in the labour market as well as ensure the employ of female UAE citizens. In addition to mandatory Club participation by those entities eligible for up to 100% ownership by foreign investors per the Positive List, the MOHRE has recommended membership for some existing establishments depending upon the size of the entities’ labour force, and industry importance to the UAE economy. Certain benefits and significant work permit cost reductions are awarded to accepted members of the Club.
The MOHRE has stated that Emiratisation is a national priority and therefore the introduction of compulsory Club membership to those entities listed under the Positive List is a definite step toward inclusivity and cultural diversity between UAE nationals and expatriates. The announcement of the anticipated Positive List and its imminent implementation marks significant progress in the promotion of foreign direct investment. With just a year until Expo 2020, it is thought that the ownership amendments, and enhanced direct control by foreign shareholders, of onshore entities will appeal to investors seeking opportunity in the region.
Should you wish to learn more about the Foreign Direct Investment Law and its potential impact on you or your business, please do not hesitate to contact us.
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