On 30 October 2018, the UAE government issued UAE Federal Law No. 19 of 2018 on Foreign Direct Investment (FDI Law). The FDI Law provides a regulatory framework which would allow foreign shareholders to own up to 100% of UAE companies incorporated outside of the designated free zones (known as "Onshore"). The aim of the FDI Law was to position the UAE as an attractive destination for foreign direct investment, and provides exceptions to the UAE's foreign ownership restrictions under the UAE Commercial Companies Law (Federal Law No. 2 of 2015), which limit a foreign shareholder to holding a maximum of 49% of the shares in a company incorporated Onshore.

The FDI Law tasked the foreign direct investment committee (Committee) with recommending to the UAE Council of Ministers a "positive" list, i.e. a list setting out the economic sectors in which more than 49% of foreign ownership will be permitted (the Positive List). The "negative" list, on the other hand, was set out in the FDI Law, and restricted the Committee from including them in the Positive List, and therefore, the sectors set out in the negative list were not eligible for greater levels of foreign ownership (read more about the "negative" list).

Earlier this year, the Committee issued its proposed Positive List to the UAE Council of Ministers. The UAE Council of Ministers met on 2 July 2019 and, based on the recommendation of the Committee, issued a resolution approving the Positive List, although delegated the precise application of the Positive List up to local governments (being the individual governments in each Emirate of the UAE). The resolution will be officially published in the UAE Official Gazette, which generally takes approximately two weeks from the date of endorsement by the President of the UAE. Following endorsement, each of the governments in the seven Emirates of the UAE will need to determine the percentage of foreign ownership allowed for the activities on the Positive List. In the absence of a requirement to harmonize foreign ownership levels across the Emirates, different Emirates may theoretically implement different foreign ownership thresholds for the same sectors.

The Positive List was issued by the UAE Ministry of Economy on 5 July 2019 in Arabic only and comprises 122 economic activities across 13 sectors. The list consists of 19 activities from the agricultural sector, 51 activities from the industrial sector and 52 activities from the services sector.

The Positive List sets out further requirements for foreign investors to be entitled to greater shareholding in UAE companies. For the agricultural and the industrial sectors, (i) there is a minimum capital requirement of AED7.5 million for the vast majority of the agriculture related activities and between AED2 million to AED100 million for the industrial related activities; (ii) all foreign investors are required to participate in the Emiratisation Club at the Ministry of Human Resources and Emiratisation; and (iii) foreign investors must use modern technology in the production process, demonstrate high added value, contribute to research and development (research and design) and fulfill the requirements of the licensing authorities in the UAE. It is not yet clear what the requirements under (iii) are as no guidance has been issued as to how a foreign investor would be able to demonstrate high added value, how contribution to research and design will be measured, what the Emiratisation requirements will be and to what extent would technology be considered "modern".

The activities on the Positive List relating to the services sector have similar requirements. Most of the minimum capital requirements have not changed, while for retail trading in unspecialized stores, hospital activities and other activities in the field of human health those are AED100 million, AED100 million and AED70 million, respectively. Specific requirements apply to certain service sector based activities. For example, computer programming and consulting related activities require the foreign investor to demonstrate it has at least five computer programming specialists in the UAE by the anniversary of the company's incorporation. Lastly, foreign investors would be required to participate in the Emiratisation Club at the Ministry of Human Resources and Emiratisation but would not need to demonstrate high added value or contribute to research and design.

The publication of the Positive List is expected to change the foreign investment landscape in the UAE, particularly to those wishing to invest a controlling majority in UAE Onshore companies, or to foreign investors looking to restructure their existing shareholding arrangements in the UAE to own a controlling majority, if not all the shares, in UAE Onshore companies. The expectation is that foreign investors will find the UAE a more appealing investment hub, particularly as we approach Expo 2020 Dubai.