As part of Abu Dhabi’s commitment to stimulate the local economy, attract Foreign Direct Investment and increase the ease of doing business in the Emirate, foreign companies will soon to be able to own their businesses in Abu Dhabi 100%, negating the current requirement for a local sponsor.
Currently, foreign companies esblishing a commercial presence in Abu Dhabi in the form of a Limited Liability Company (LLC), can only hold a maximum of 49% of the shares. A local sponsor is required to hold the remaining 51%. The local sponsor can either be an Emirati individual or a company wholly-owned by Emirati nationals. This has long been considered a barrier for entry for companies wanting to do business in Abu Dhabi, particularly companies which don’t have trusted business connections in the UAE already.
In 2015, when the long-awaited updates were made to the UAE’s Commercial Companies Law, which all mainland companies operating in the UAE must abide by, it was anticipated that the restrictions on foreign ownership would be relaxed. However, the updated law did not address relaxing the foreign ownership limits. Instead, a new Foreign Direct Investment Law was announced, which later came into force at the end of 2018 (Foreign Direct Investment Law, Decree Law No. 19 of 2018).
What is the Foreign Direct Investment Law?
Under the Foreign Direct Investment Law, Decree Law No. 19 of 2018, foreign companies will be able to own up 100% of the shares in mainland LLCs and Private Joint Stock Companies (PJSCs) in the UAE.
122 business activities have been identified to be opened up for increased levels of foreign ownership. These are referred to as the Positive List. Each Emirate is responsible for determining their own levels of foreign ownership for each of the 122 activities and their respective requirements and obligations.
Furthermore, a number of business activities have been announced which will not be opened up for increased levels of foreign ownership.
What You Need To Know About The Positive List
The Positive List was determined as per Cabinet Resolution No. 16 of 2020. The Positive List comprises 122 business activities, including agriculture, manufacturing, construction and engineering, education and healthcare.
The minimum capital requirements have been confirmed for some of the activities and these range from AED2million – AED100million meaning the Foreign Direct Investment law is aiming to bring in large investors, which will be disappointing for smaller SMEs and startups which can’t afford to deposit the share capital requirements in a UAE bank. However, there are still a number of professional activities where the capital requirements are yet to be announced which could have lower capital requirements set.
Further conditions and requirements will be applicable to each activity – some of which have been announced, whilst others currently only state ‘subject to applicable legislations’. Of the conditions and requirements which have been announced, these include things such as: using modern technology; achieving a high added-value; contributing to research & development; employing a minimum number of staff; engaging in specific levels of contracts; and, fulfilling the requirements of the relevant licensing authorities in the UAE.
Which activities will NOT be opened up to 100% Foreign Direct Investment?
The following list of activities currently makes up the Negative List. These activities are subject to change and can be changed by either adding more activities or removing any of them.
- Oil exploration & production
- Investigation, security, military, manufacturing of weapons & military equipment
- Hajj & Umrah services
- Utilities (water & electricity)
- Post, telecommunication & audio-visual services
- Road & air transport
- Printing & publishing
- Commercial agency
- Medical retail (pharmacies)
- Blood banks & quarantines
When will foreign companies be able to own Abu Dhabi companies 100%?
We have been regularly following up with Abu Dhabi’s Department Of Economic Development (ADDED), the licensing issuing authority for mainland companies in Abu Dhabi, since the announcement of the law. The implementation of the law involves various government departments dicussing and agreeing the specific requirements for each of the activities which will be opened up to 100% foreign direct investment.
According to our latest investigations with ADDED, the requirements under the Foreign Direct Investment Law are not yet active in their system. This means that foreign companies wanting to establish new companies and own them 100% in Abu Dhabi can’t do so just yet.
This is a huge task for the Abu Dhabi government. For each activity, it will need to be decided which government departments need to be involved with the approvals proceedure. Then, each of those government departments will need to agree the requirements and obligations for each activity and how they will be approved and enforced, as well as what the implications/penalties might be for not meeting any of the ongoing requirements, such as sufficiently contributing to R&D. Once in agreed form, this information will need to be added into the government’s online system for establishing a company, with direct links to the various government departments before the initial applications can start to be processed.
When we have previously inquired with ADDED about how the conditions will be set and measured for various activities we were informed that applicants will need to submit a full study on their project for review and approval. Approval will be on a case-by-case basis. This has not been formally announced.
According to our latest investigations with ADDED, 80% of the application stages are now complete and they are currently working on the approvals and implementation.
Does This Mean An Emirati Local Sponsor Is No Longer Required?
Whilst foreign companies will be able to own their new Abu Dhabi businesses up to 100% under the UAE’s New Foreign Direct Investment Law, it is understood that they will be required to engage a Service Agent (an Emirati individual or a company owned wholly by Emiratis, similar to a local sponsor, but they do not hold any shares in the new FDI company) to take on the company’s responsibility in the Immigration (General Directorate for Residency and Foreign Affairs – GDRFA) and Labour (Ministry of Human Resources and Emiratisation – MOHRE). The foreign owner will need to sign a Service Agent Agreement with their selected service agent in front of the Abu Dhabi Notary Public and pay an annual fee to the service agent. This has not been formally announced.
Why have a 100%-owned mainland company in Abu Dhabi over a 100%-owned free zone company?
There are a number of reasons why some companies will opt for having a new 100% FDI mainland company in Abu Dhabi rather than having a fully-owned free zone company. The main reasons include:
- Engage on government contracts
- Supply goods and services to government departments
- Larger geographical opportunity to do business, throughout the whole of Abu Dhabi
- Ability register with and apply for CICPA passes for work on critical national infastructure
- Ability to register with the Supreme Petroleum Council to work directly with ADNOC (whilst this can also be done as a Masdar free zone company, there are additional requirements and limitations of being in the free zone)
Written by Jenny Hunt, Founding Partner & CEO of Gateway Group Of Companies.