UAE Allows 100% Foreign Ownership of Mainland Companies

Written by Bee Bee Zainab

Final Year student, Symbiosis Law School, Pune


Source: The National

Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.


Introduction


The United Arab Emirates (UAE) recently amended its Commercial Companies Law which brought in great appreciation by the foreign nationals who wished to invest in UAE. Previously, in order to carry out a business operation in mainland UAE, it was required for an Emirati sponsor to own 51% of the shares[1]. Now, foreign nationals can have up to 100% ownership[2] outside of UAE free zones which has created a huge opportunity and unlocked enormous possibilities. Thus, this article imparts how foreign nationals, both residents and non-residents of UAE alike, will benefit from the latest amendment.


Amendment of Foreign Ownership under Commercial Company Law (CCL)


On 30th September 2020, the UAE government issued Federal Decree Law 26/2020 containing significant legislative developments which gave rise to action points for foreign investors in and outside UAE. 51 articles of Commercial Company Law[3] were amended out of which Article 10 which declared a requirement of minimum 51% shares of a mainland company be compulsorily allocated to the UAE nationals has been removed. New amendment to the UAE Federal Law No.2 of 2015 on Commercial Companies states that businesses can now have 100% ownership by all foreign nationals[4]. The government’s decision to bring in this amendment is a welcome step to make the country more expat-friendly and improve the country’s ease of doing out business as well as reduce the costs to open up a business.


This has turned out to be a very unexpected amendment as now foreign nationals, for the first time, can completely own a company in the UAE. Though not every business may have the privilege to be owned fully by foreign nationals, there may be some restrictions decided by the UAE cabinet which are yet to be laid down.


Thus, with this move of the government, the country can expect a plethora of foreign direct investments in the emirates of Dubai and Abu Dhabi, resulting in extraordinary growth for the region.

These amendments regarding foreign ownership shall come into force in March, 2021 , six months’ time from the date of publication in the Gazette.[5]‌


Mainland Company Formation during 2020


Everyone has different preferences when it comes to setting up a business in UAE and there has always been a battle between choosing to set up a business in the mainland or in a free zone. A mainland company is an onshore company licensed by the Department of Economic Development (DED) which allows foreign nationals to carry out their businesses in the local market as well as outside UAE without any limitation. Whereas, free zone companies are companies established in designated areas of the UAE, having their own rules and regulations and not being allowed to enter the local market.


The sole reason many foreign nationals took a backseat in starting a business in the mainland was because of the distribution of shares with a local sponsor. Though local sponsors holding majority shares have been sleeping partners, but they could fire their foreign partners and also meddle in day-to-day business exercising their rights when need be. Since the amendments, many investors have been interested in opening their companies in the mainland area due to its innumerable benefits.


1. The process for setting up a company in the UAE is extremely easy and simple, along with minimum trading rules and regulations by the government.


2. Registering as a mainland company gives freedom to trade wherever and with whoever across UAE. Not only this, it also gives an advantage to trade internationally, which is something that is crucial to project the brand outside the country for more flow of businesses.


3. Opting for emirates like Abu Dhabi and Dubai to set up a mainland company can provide significantly more scope for businesses to evolve as these emirates are giving businesses a new direction because of the expansion in smart city infrastructure.


4. There also arise great opportunities in regards to tendering bids for government contracts and working closely with the UAE government which helps strengthen business portfolios.[6]


5. Though free zones have an advantage in terms of low duty rates and tax but mainland companies offer other incentives, such as for instance the erasure of the minimum capital requirement for establishing a business[7] or the requirement of yearly audits.


6. Lastly, mainland licenses give a real scope for businesses to grow and succeed. It gives companies the freedom to scale their enterprises to other parts of Dubai and across UAE. It is also very affordable and there are no currency constraints for mainland business in Dubai.


Foreign Ownership of Companies in India


Attracting foreign investment into India has always been a top priority for the present government under Prime Minister Narendra Modi as well as previous governments, which indicates how open India is to international investments. The Ministry of Commerce & Industry has already allowed 100% foreign ownership in civil aviation and in some defense, industries mentioned in the FDI circular, 2016[8]. Apart from this, foreign companies have been allowed to own up to 100% in the area of pharmaceuticals in greenfield through automatic route which means that the foreign investors do not require any prior approval from the government[9]. Other sectors such as print media (foreign newspapers), food products retail trading, mining, satellite (establishment and operation) and many more also come under 100% category of foreign direct investment[10].


This step taken by the ministry was primarily aimed at increasing capital flows and to attract initial public offerings (IPO) from foreign capital markets. It was also done for the development of human capital resources and for transfer of knowledge where numerous countries bring in new technologies and skills.


Conclusion


Thus, setting up a business may become quite a difficult task for foreign investors but the UAE welcomes and makes it easy for them to start their businesses through the new amendment.

Since the amendment, it seems better to have a mainland license rather than setting up a business in a free zone as there is complete hold of ownership and business operations.

There is not much importance given to free zones as businesses are not allowed to trade directly with the local market of UAE which makes it highly restrictive if the companies intend to enter domestic markets.


In view of this new amendment in the Commercial Company Law of UAE, it becomes imperative for Entrepreneurs to utilize this opportunity in a country which is regarded as a safe haven for business and living by all standards. Finally, it is important to note that Dubai is playing host to the upcoming world Expo 2020 giving the investors an opportunity for rapid growth and development of their businesses.


[1] UAE. Ministry of Economy. (2015). Foreign Direct Investment (FDI) in the UAE. Available at https://u.ae/en/information-and-services/finance-and-investment/foreign-direct-investment (Accessed: 25 December 2020)

[2] Ibid.

[3] JD Supra. (n.d). UAE Federal Companies Law amended to allow 100% foreign ownership. Available at https://www.jdsupra.com/legalnews/uae-federal-companies-law-amended-to-45312/ (Accessed: 25 December 2020)

[4] Ibid.

[5] Clyde, Hilton, C.L.-R., O’Riordian, P., Reeves, J. and Smith, B. (n.d). UAE Companies Law amended: legislation now issued / Lexology. [online] Available at: https://www.lexology.com/library/detail.aspx?g=4b169433-4a98-4308-87a9-e9712a60804c (Accessed: 25 December 2020)

[6] Maven Business Consultancy Blog. (2019). Benefits of mainland company formation in UAE. [online] Available at: https://mavenconsults.com/blog/set-up-business-in-uae-mainland/ (Accessed: 26 December 2020)

[7] Flyingcolor. (2018). Advantages of Dubai Mainland License. [online] Available at: https://www.flyingcolour.net/blog/advantages-of-dubai-mainland-license/#:~:text=Market%20Presence%3A (Accessed: 26 December 2020)

[8] The Guardian. 2016. India to Allow 100% Foreign Ownership in Defense and Civil Aviation Sectors. [online] Available at: https://www.theguardian.com/business/2016/jun/20/india-to-allow-100-foreign-ownership-in-defence-and-civil-aviation-sectors (Accessed: 7 January 2021)

[9] Department of industrial policy and promotion, Government of India, Review of Foreign Direct Investment (FDI) Policy on Various Sectors. Available at: https://dipp.gov.in/sites/default/files/pn5_2016.pdf

[10] Ibid.


BIBLIOGRAPHY

  1. UAE. Ministry of Economy.(2015). Foreign Direct Investment (FDI) in the UAE. Available at https://u.ae/en/information-and-services/finance-and-investment/foreign-direct-investment (Accessed: 25 December 2020)

  2. JD Supra. (n.d). UAE Federal Companies Law amended to allow 100% foreign ownership. Available at https://www.jdsupra.com/legalnews/uae-federal-companies-law-amended-to-45312/ (Accessed: 25 December 2020)

  3. Clyde, Hilton, C.L.-R., O’Riordian, P., Reeves, J. and Smith, B. (n.d). UAE Companies Law amended: legislation now issued / Lexology. [online] Available at: https://www.lexology.com/library/detail.aspx?g=4b169433-4a98-4308-87a9-e9712a60804c (Accessed: 25 December 2020)

  4. Maven Business Consultancy Blog. (2019). Benefits of mainland company formation in UAE. [online] Available at: https://mavenconsults.com/blog/set-up-business-in-uae-mainland/ (Accessed: 26 December 2020)

  5. Flyingcolor. (2018). Advantages of Dubai Mainland License. [online] Available at: https://www.flyingcolour.net/blog/advantages-of-dubai-mainland-license/#:~:text=Market%20Presence%3A (Accessed: 26 December 2020)

  6. The Guardian. 2016. India to Allow 100% Foreign Ownership in Defense and Civil Aviation Sectors. [online] Available at: https://www.theguardian.com/business/2016/jun/20/india-to-allow-100-foreign-ownership-in-defence-and-civil-aviation-sectors (Accessed: 7 January 2021)

  7. Department of industrial policy and promotion, Government of India, Review of Foreign Direct Investment (FDI) Policy on Various Sectors. Available at: https://dipp.gov.in/sites/default/files/pn5_2016.pdf

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