More than 100 commercial activities across a range of sectors will be eligible for up to 100% foreign ownership, according to a new resolution issued by the Cabinet of the United Arab Emirates in July 2019. The market has been anticipating the resolution since the new foreign investment regime was introduced in the UAE in November 2018. United Arab Emirates permits greater foreign investment across new sectors The foreign investment regime Federal Law No.19 of 2018 regarding foreign direct investment (FDI Law) established a new framework for foreign ownership in November 2018 (read more). The new regime represents a significant milestone for the UAE in its steps to create and maintain a sustainable and diversified economy, in line with the country’s Vision 2021 goals. The resolution has not yet been officially published, but the UAE Government has released a summary of the relevant affected sectors. The framework allows greater investment by foreigners in local companies incorporated “onshore” in the UAE (ie outside the free zones) in certain sectors operating in certain sectors on the “Positive List”, subject to licensing requirements. Until now, the UAE Government had not yet specified the relevant sectors on the Positive List and so the law has not been fully operational. The FDI Law also specifies certain sectors and activities which will remain restricted from foreign investment. This is known as the “Negative List”. Existing foreign ownership restrictions, including the general rule which requires a UAE company to have not less than 51%. of its share capital owned by UAE nationals, will continue to apply generally for sectors not covered by the new regime, but the UAE Cabinet of Ministers retains the ability to grant specific exemptions in relation to such sectors on a case-by-case basis. July 2019 Abu Dhabi | Amsterdam | Antwerp | Bangkok | Beijing | Berlin | Brisbane* | Brussels | Cape Town*** | Dubai | Düsseldorf Frankfurt | Hamburg | Hanoi* | Ho Chi Minh City* | Hong Kong | Jakarta** | Jeddah∆ | Johannesburg*** | Lisbon | London Luxembourg | Madrid | Melbourne* | Milan | Moscow | Munich | New York | Paris | Perth* | Port Moresby* | Riyadh∆ | Rome São Paulo | Seoul | Shanghai∆∆ | Singapore | Stockholm | Sydney* | Tokyo | Warsaw | Washington, D.C. * Office of integrated alliance partner Allens ** Office of formally associated firm Widyawan & Partners *** Office of collaborative alliance partner Webber Wentzel ∆ Office of Zamakhchary & Co. Linklaters in agreement with Zamakhchary & Co. ∆∆ Linklaters Shanghai and Linklaters Zhao Sheng (joint operations office with Zhao Sheng Law Firm) Conditions to investment Capital investment There are required minimum capital levels for UAE companies engaged in activities on the Positive List. > For the agricultural sector, AED 7.5m for all activities. > For the manufacturing sector, the minimum capital varies depending on the activity. Typically, this is AED 15m for most activities, but it can range from AED 2m up to a maximum of AED 100m. > For the services sector, the minimum capital varies depending on the activity. In most cases the required minimum capital will be set out in separate legislation applicable to the relevant activity. Emiratisation The UAE companies receiving foreign investment must apply to register with The Ministry of Human Resources and Emiratisation’s Tatween Partners Club. This applies to all activities in all sectors. The initiative encourages greater participation of Emirati nationals in the private sector. Different grades of membership are awarded depending on the ratio of Emirati nationals in a company’s workforce. The UAE Government offers a range of enhanced administrative and procedural benefits to companies which are members of the Tatween Partners Club, such as fast track Government services. Other conditions For the agriculture and manufacturing sectors only, the activities must use modern technology, contribute to research and development in that area and provide enhanced value. It is not clear what are the precise parameters of these requirements. Many of these activities are subject to separate sector-based licensing requirements. Sectors and activities Greater foreign investment will be allowed in the share capital of UAE companies which are engaged in any of the 122 economic activities on the Positive List. The activities are grouped into three broad sectors. Not all activities in these sectors are open to greater foreign investment. Potential investors will need to carefully review the activities and it will be advisable to engage early with regulators in the UAE to navigate the new regime. Agricultural (19 activities Service sector (52 activities) Manufacturing sector (51 activities) Many of the UAE’s most important and successful service industries are on the Positive List, including professional services in the fields of law, accounting management consultancy and architecture. Activities in construction and engineering, education, hospitality and recreational activities, hospitals, medical and dental practices are also open to greater foreign investment. The UAE Government is looking to stimulate foreign investment in a range of mainstream manufacturing and agricultural activities, such as food cultivation and plastics manufacturing, and in newer and greener industries. Some of the activities on the Positive List illustrate the UAE Government’s environmental focus and should support its “Green Economy for Sustainable Development” programme. These include forestation initiatives, parks and nature reserve activities, pollution treatment and environmental protection and a range of agricultural cultivation initiatives to support biodiversity. More innovative activities also feature on the Positive List, such as computer programming and holding company activities in intellectual property. Developing a “competitive knowledge economy” is one of the pillars of UAE’s National Agenda in line with Vision 2021 and enhanced investment in UAE companies active in these areas should support the country’s growing technology and Fintech sectors. Holding company activities in intellectual property are identified by the Ministry of Economy as a “new” area of activity. The 122 activities on the Positive List are set out in the appendix to this note. Levels of permitted foreign investment Permitted thresholds for investment in the share capital of UAE companies engaged in activities on the Positive List could range from 50% up to 100%. This will allow foreign investors to achieve majority control over the UAE companies in which they invest, for the first time. We understand that the Cabinet resolution does not set out what percentage of a UAE company’s share capital may be held by foreigners, for each sector and activity. Further Emirate-level regulations will be needed to determine the ownership percentage of foreign investors in these sectors. It is not clear how soon this is expected or whether the approach across the Emirates will be consistent. It is possible that there may be different levels of foreign investment for the same activity in different Emirates. Clearly, the extent to which the FDI Law will increase foreign investment will depend on the levels of share capital which can be held by foreigners. The resolution is an important piece of the jigsaw of the new foreign investment regime, but it does not provide the complete picture. July 2019 Appendix: Activities on the Positive List Agricultural sector 1. Cultivation of seeds (wheat, corn, barley etc). 2. Cultivation of leguminous crops. 3. Cultivation of vegetables and melons, roots and tubers. 4. Cultivation of sugar cane. 5. Cultivation of fibre crops. 6. Cultivation of flowers and buds. 7. Cultivation of grapes. 8. Cultivation of fruits and citrus. 9. Cultivation of pome fruits and stone fruits. 10. Cultivation of other tree and bush fruits and nuts. 11. Cultivation of oleaginous fruits. 12. Cultivation of beverage crops. 13. Cultivation of aromatic, drug and pharmaceutical crops. 14. Support activities for crop production. 15. Support activities for animal production. 16. Post-harvest crop activities. 17. Seed processing for propagation. 18. Forestation and other forestation activities. 19. Support services for forestation. Manufacturing sector 20. Manufacture of food products (excluding the manufacture of bakery and dairy products and prepared animal feed). 21. Manufacture of beverages (excluding distilling, rectifying and blending of spirit, the manufacture of wines and malt liquors). 22. Manufacture of clothes (excluding tailoring and sewing of clothes and the manufacture of military garments. 23. Leather clothes and accessories manufacturing. 24. Manufacture of wood and of products of wood and cork (except furniture) manufacture of articles of straw and plaiting materials. 25. Straight or complex fertilisers manufacturing. 26. Manufacture of plastics and synthetic rubber in primary forms. 27. Manufacture of pesticides and other agrochemical products. 28. Manufacture of paints, varnishes and similar coatings, printing ink and mastics. 29. Manufacture of soap and detergents, cleaning and polishing preparations, perfumes and toilet preparations. 30. Manufacture of glues and prepared adhesives. 31. Manufacture of dyestuffs and pigments. 32. Manufacture of textiles and leather finishing used chemical materials. 33. Manufacture of photographic plates, films. 34. Manufacture of gelatin and its derivatives. 35. Manufacture of essential oils. 36. Manufacture of extracted natural aromatic products. 37. Manufacture of aromatic distilled waters. 38. Manufacture of matches. 39. Manufacture of welding powders and pastes. 40. Manufacture of man-made fibres. 41. Manufacture of pharmaceuticals, medicinal chemical and botanical products. 42. Manufacture of rubber and plastics products. 43. Manufacture of other non-metallic mineral products. 44. Manufacture of basic metals (excluding the manufacture of basic precious and other non-ferrous metals and the casting of non-ferrous metals). 45. Manufacture of fabricated metal products, except machinery and equipment (excluding the manufacture of weapons and ammunition). 46. Manufacture of computer, electronic and optical products. 47. Manufacture of electrical equipment. 48. Manufacture of machinery and equipment n.e.c. (excluding tobacco processing machinery manufacturing). 49. Manufacture of motor vehicles, trailers and semi-trailers. 50. Building of commercial vessels. 51. Ships and floating structures sections manufacturing. 52. Construction of drilling platforms, floating or submersible. 53. Construction of floating structures. 54. Building of hovercraft. 55. Building of pleasure and sporting boats. 56. Manufacture of railway locomotives and rolling stock. 57. Manufacture of air and spacecraft and related machinery (excluding military ballistic and guided missiles manufacturing). 58. Manufacture of other transport equipment. 59. Manufacture of furniture. 60. Manufacture of musical instruments. 61. Manufacture of sports goods. 62. Manufacture of games and toys. 63. Manufacture of medical and dental instruments and supplies. 64. Manufacture of other products. 65. Repair and maintenance of train engines. 66. Repair and maintenance of ship engines. 67. Repair and maintenance of ships. 68. Repair and maintenance of trains and railway equipment. 69. Repair and maintenance of aircraft engines. 70. Repair and maintenance of aircraft. July 2019 linklaters.com GC16848A_F/07.19 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC326345. It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of the LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP and of the non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ, England or on www.linklaters.com and such persons are either solicitors, registered foreign lawyers or European lawyers. Please refer to www.linklaters.com/regulation for important information on our regulatory position. Scott Campbell Middle East Managing Partner Dubai Tel: +971 4 369 5811 firstname.lastname@example.org Nick Edwards Partner Abu Dhabi Tel: +971 2 659 2124 email@example.com Waleed Rasromani Managing Associate Dubai Tel: +971 4 369 5817 firstname.lastname@example.org Rose Lee Managing Associate Abu Dhabi Tel: +971 2 659 2114 email@example.com Caroline Cheney Senior PSL London Tel: +44 207 456 4400 firstname.lastname@example.org Abeer Jarrar Managing Associate Dubai Tel: +971 4 369 5834 email@example.com Key contacts Please contact us if you would like to discuss any of the issues raised in this alert. Services sector 71. Legal consultancy offices. 72. Accounting, bookkeeping and auditing activities; tax consultancy. 73. Architectural and engineering activities and related technical consultancy. 74. Medical and dental practice activities. 75. Veterinary activities. 76. Computer programming, consultancy and related activities. 77. Scientific research and development. 78. Renting and leasing of other machinery, equipment and tangible goods (excluding car-related renting and leasing services). 79. Retail/sale in non-specialised stores (excluding cooperative societies). 80. Advertising. 81. Market research and public opinion polling. 82. Management consultancy activities. 83. Technical testing and analysis. 84. Repair of fabricated metal products, machinery and equipment (except for marine ships or aircrafts and other means of transport). 85. Buildings cleaning services. 86. Photographic activities. 87. Packaging activities. 88. Organisation of conventions and trade shows. 89. Specialised design activities. 90. Legal translation services. 91. Translation services for movies and television programs. 92. Publications translation services. 93. Simultaneous interpretation services. 94. Construction of buildings. 95. Civil engineering. 96. Electrical, plumbing and other construction installation activities. 97. Building completion and finishing. 98. Demolition and site preparation. 99. Other specialized construction activities. 100. Construction and building or demolition machines and equipment renting. 101. Pre-primary and primary education. 102. Secondary education. 103. Higher education. 104. Other types education. 105. Sewage. 106. Waste treatment and disposal. 107. Pollution consequences treatment and environment protection. 108. Hospital activities. 109. Other human health activities. 110. Hotel management. 111. Restaurants management. 112. Creative activities and presentation of arts drama (theatre). 113. Music band. 114. Circus. 115. Internal and external squares landscaping contracting. 116. Botanical and zoological gardens and nature reserves activities. 117. Sea and coastal freight water transport. 118. Internal water transportation of goods. 119. Commercial ships rental. 120. Ship piloting and towing. 121. Marine towing of boats and jet skis. 122. Holding company activities in intellectual property. July 2019
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United Arab Emirates permits greater foreign investment across new sectors
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