According to experts, the new decree will remarkably boost the UAE’s attractiveness to foreign investors following the changes in the company ownership laws.
Dubai, November 26, 2020
On November 23, 2020, the UAE amended its commercial company ownership laws, annulling the need for an Emirati shareholder for onshore companies and opening up many sectors to foreign investors.
The new law is being widely celebrated in the national & international business communities, investors and entrepreneurs as it majorly reduces overhead costs, facilitates the ease of doing business for foreign investors, and provides flexibility of operations for any business wishing to operate anywhere in the country.
Apart from this key change, there are several other significant changes, all directed towards making the legislative environment more conducive for investment.
Here’s a broad overview of what has changed
- National Ownership
- Local Service Agent
- Changes in Board of Directors
- Foreign Direct Investment Law
- Effective Date
The new law has removed the need for limited liability and joint-stock companies to be owned 51% by a UAE national. Which essentially means, Mainland companies can now be established without a UAE national shareholder. However, the Department of Economic Development (DED) will retain the right to determine the level of UAE national ownership participation in any company. It is probable that DED in each Emirate will institute specific eligibility criteria for every business segment.
As per the amendments, we foresee, that it will no longer be required to appoint a UAE national as the local service agent for branches of foreign companies. Foreign companies can now register branches in the UAE without a local service agent. However, companies in strategically important sectors, including oil and gas exploration, utilities and transport, as well as state-owned entities, are exempt from the changes.
The changes will remove the obligation for the chairman and a majority of the Board of Directors of private and public joint-stock companies to be Emirati. Extending the board membership should in-turn improve corporate governance.
Additionally, the chair or senior executives of a company can now be removed if found guilty of fraud or abuse of authority. Shareholders can now sue a company in civil court over any failure of duty that results in damages. Moreover, electronic voting at annual general meetings is now permitted.
The new rules superseded the Decree-Law No 19 of 2018 on Foreign Direct Investment as the 51% UAE national ownership participation is no longer a requirement under the Companies Law.
Most of the Amendments will be effective from December 1, 2020. The amendments related to foreign ownership, local agent and board of director appointments will come into effect after six months from the date of publishing the modifications in the UAE’s Official Gazette. Companies will have one year to comply with the amendments from the effective date.
“This will undoubtedly strengthen the country’s FDI attractiveness, removing the requirement to have a major UAE shareholder or agent. The UAE will expand its reach of potential investors and increase the depth of investment over time given the greater level of autonomy, reduced costs, and improved ease of doing business. Not only will this drive growth, but it will also foster innovation by increasing the willingness of investors to bring substantive capabilities and knowhow into the region,” said Lorenzo Jooris, CEO, Creative Zone.
The new decree is an additional step in a series of efforts that the UAE is taking to raise the readiness of the national economy and prepare for the future by developing commercial and investment opportunities and increasing the competitiveness of the business environment, in line with the rapid economic changes and developments taking place in the global economy.
Creative Zone is closely monitoring the situation and will provide further updates once the new law is published, thereby providing a more detailed overview of how the decree will be applied in practice.
About Creative Zone
Creative Zone is Dubai’s largest and most trusted business setup advisory firm. Creative Zone’s registration professionals have helped thousands of aspiring entrepreneurs and SMEs grow their businesses in the UAE since its launch by Mahesh Dalamal and Steve Mayne in 2010. The Company was created with a simple yet revolutionary model for the UAE marketplace; to serve as a one-stop-shop, with flexible payment plans, for easy company incorporation. Creative Zone has now evolved to provide added business support services to create an ecosystem that helps entrepreneurs and SMEs to set up, sustain, and grow their businesses and contribute to the UAE’s position as the global location of choice for company setup.