Following a series of recent government announcements and much speculation in the market, a new Foreign Direct Investment Law (FDI Law) has been published in the UAE Official Gazette and is now in force. As with most, if not all, new legislation, the FDI Law is open to interpretation and we expect further clarity in the coming weeks and months. This article highlights some of the principal take-away points from the new FDI Law and the impact that it will have on the investor community.
Article 10 of the UAE Commercial Companies Law1 sets out the foreign ownership restriction which requires that 51% or more of the shares in a company established in the UAE must be owned by a UAE national shareholder. In September 2017, the UAE government amended the UAE Commercial Companies Law2 to allow the UAE Cabinet the flexibility to permit increased levels of foreign ownership in certain companies and sectors of the economy.
The new FDI Law3 introduces the framework under which the UAE Cabinet will exercise its powers in respect of permitting increased levels of foreign ownership, and sets out details of the process which foreign investors will be required to follow in order to apply to own more than 49% of the shares in the capital of companies operating in certain sectors of the economy.
Under the FDI Law, foreign investment may be permitted in sectors of the economy if those sectors do not appear in a 'negative list'. The UAE Cabinet may add sectors to, or remove sectors from, the 'negative list'. The sectors of the economy that are listed in the 'negative list' in the FDI Law are:
- Oil exploration and production
- Investigation, security, military (including manufacturing of military weapons, explosives, dress, and equipment)
- Banking and financing activities
- Pilgrimage and umrah services
- Certain recruitment activities
- Water and electricity provision
- Fishing and related services
- Post, telecommunication and other audio visual services
- Road and air transport
- Printing and publishing
- Commercial agency
- Medical retail (including pharmacies)
- Blood banks, quarantines and venom/poison banks
The FDI Law establishes a 'positive list' of sectors of the economy in which greater levels of foreign investment will be permitted than is currently the case. The FDI Law does not contain any details as to which sectors of the economy will appear in the 'positive list' and grants the UAE Cabinet the authority to issue decisions which add sectors of the economy to the 'positive list'.
When a sector of the economy is added to the 'positive list', the UAE Cabinet may mandate that certain requirements are satisfied by a company or its shareholders before greater levels of foreign investment will be permitted than is currently the case. By way of example, the UAE Cabinet may:
- mandate the level of foreign ownership permitted in the relevant sector (which could be 100%, but could also be less than 100%);
- place restrictions or requirements in respect of the type of legal entity which may carry on business in the relevant sector;
- apply minimum capital requirements;
- impose Emiratisation requirements; and
- allow greater levels of foreign ownership than is currently the case in specific Emirates (not across the UAE).
The FDI law sets out, at a high level, the procedure which foreign investors will need to follow in order to apply for permission to take advantage of the increased levels of foreign investment that may be permitted in the sectors of the economy that are listed in the 'positive list'. An application which is rejected may be appealed under a procedure set out in the FDI Law.
Foreign Direct Investment Projects
The FDI Law refers to projects in sectors of the economy that are not restricted in the 'negative list'. Where a foreign investor wishes to own more than 49% of the shares in a Foreign Direct Investment Project, it may apply for permission to establish a Foreign Direct Investment Company.
The FDI law also sets out, at a high level, the procedure which foreign investors will need to follow in order to apply for permission to invest in a Foreign Direct Investment Project.
The FDI Law establishes two government bodies: a Foreign Direct Investment Unit and a Foreign Direct Investment Committee. The FDI Law sets out the role of each of these bodies in administering the foreign direct investment landscape in the UAE.
The FDI Law contains a range of other provisions addressing what constitutes capital invested in the UAE, dispute resolution and penalties.