The latest Federal Law No. 19 of 2018 on Foreign Direct Investment (FDI Law) represents the next step towards enabling 100% foreign ownership of UAE companies outside of Free Zone areas. Medical tourism sector investment may face restrictions, however.
The long-awaited law is designed to make the country more attractive for investors while limiting the impact on local businesses.
The FDI Law refers to a ‘positive’ list of sectors of the economy in which higher levels of foreign ownership will be permitted. This list has yet to be published. Sectors restricted from 100% foreign ownership appear on a ‘negative’ list, which currently includes:
- Commercial agency
- Medical retail (including private pharmacies)
- Medical retail (including private pharmacies)
- Blood banks, quarantines and venom/poison banks
The new law allows the UAE Cabinet to add to or remove sectors from the negative list.
100% foreign ownership of UAE companies was originally only permitted in Free Zones, which are designated geographic economic zones within the UAE. Companies established in Free Zones are not generally permitted to carry on business in the UAE outside of that Free Zone (onshore). To carry on business onshore in the UAE, a company established under the UAE Commercial Companies Law had to be at least 51% owned by a UAE or GCC national, or a company wholly owned by UAE or GCC nationals.
The UAE Cabinet can now exercise its powers to permit increased levels of foreign ownership. The law details the steps required of companies to apply to own more than 49% of shares in selected sectors of the economy.
Those sectors not named in either the positive or negative list will remain at the discretion of the UAE government.
The new law allows the UAE Cabinet to add or remove sectors. When a sector is added to the list, the cabinet can mandate that a company or its shareholders meet certain requirements before greater foreign investment is allowed. These can:
- Mandate the level of foreign ownership permitted in the relevant sector (which could be 100% or less)
- Place restrictions or requirements in respect of the type of legal entity which may carry on business
- 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)
Foreign investors that apply for permission to increase their foreign ownership percentage can be rejected but may appeal the decision.
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