Yesterday, His Highness Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, announced a healthy budget boost of 50 billion AED (approx. 13.6B USD) over the next 3 years. The monetary stimulation is also coupled with a material change to be introduced in the licensing landscape on the mainland as well as in relation to the possibilities of doing business with government entities in Abu Dhabi. The Crown Prince has tasked the Abu Dhabi Executive Council to develop an expenditure action plan within the next 90 days. The budget boost and announced regulatory changes, combined with the earlier announcement of changes in the Commercial Companies Law in relation to foreign ownership restrictions on mainland companies will have an immense impact on the business climate in Abu Dhabi and the UAE. It will also affect how foreign companies legally structure their operations in the UAE.
The key points of the reform are:
- A relaxation of the requirement to lease an office or work space for a period of two years, with the possibility of using a home address for this period.
- Instant licensing for most commercial license types and all government services.
- An implementation of a system to ensure timely payments by the public sector to private sector contractors, including a review of fines incurred as a result of construction delays caused by slow or non-payment.
- A cost-cutting review of building regulations for infrastructure, residential properties and the commercial and industrial sectors.
- The establishment of Abu Dhabi Accelerators and Advanced Industries Council, called Ghadan (the Arabic word for tomorrow), to identify new technologies and investments that will boost the future economy.
- Developing eco-tourism, creating camping villages and areas for recreational sports areas.
- Promoting partnerships between the public and private sectors and accelerating projects between both sectors by the end of 2018.
- Creating at least 10,000 jobs for Emiratis in the private and public sectors over the next five years.
- Encouraging local industrial production and supporting SMEs in order to boost their competitiveness locally and regionally.
- Dual licenses are to be introduced for companies operating in Abu Dhabi free zones. This will allow them work outside the free zones and bid for government tenders.
Details, exceptions and exclusions have not yet been disclosed. However, these are our main takeaways so far:
- The role of local Emirati sponsors, equity partners, agents or distributors will most likely decrease.
- One of the main prequalification conditions in relation to government and public procurement in Abu Dhabi seems to have disappeared (to have a main land presence).
- Abu Dhabi free zones, such as common law based Abu Dhabi Global Market (ADGM), will no doubt get a boost in operations, outside the more narrow scope of financial services companies. It will be interesting to see if such free zones will expand their list of permitted activities.
- The removal of the requirement to rent office space will be particularly beneficial for start-ups as they will be able to conduct business from their homes.
- Will the Oil & Gas sector be kept outside the scope of the proposed changes? A qualified guess is that it will, given that one of the main drivers for change is to reduce the reliance on hydrocarbons in the economy.
- The push towards PPP financing of projects will most certainly benefit the construction, infrastructure, healthcare, transport sectors (and others) in the Emirate and present good opportunities for foreign companies.
- Will free zone companies be permitted to open up offices on the mainland? If they are, this would presumably change the real estate market considerably and also lower the costs for operations in Abu Dhabi and the UAE more generally.
- As licensing regulations are predominantly dealt with within each Emirate, what will the response be from Dubai and the other Emirates (noting that Dubai DED has already opened up dual licensing in certain free zones)?
- The crystal-ball question: In case of the introduction of a corporate tax – how will this affect free zones?
Given that this was just announced a few hours ago (evening of Tuesday 5th June), it is difficult to draw full conclusions at this stage. However, it is clear that the changes in the law and in particular as they relate to licensing requirements, will have a disruptive effect in relation to legacy corporate structures already used in Abu Dhabi and the UAE. Any foreign entity already operating in Abu Dhabi, or has plans to, must carefully consider the current and planned legal structures. So far, things are pointing towards a simpler and more up-to-date system, with the potential of significant benefits to businesses if taken advantage of properly.