Monthly Insight: Removing Foreign Ownership Restrictions on UAE companies – Noise or a Game Changer?
by Loggerhead Partners
2020 has been the year of wait and see for many of us. But not for the UAE!
And for those who are keeping an eye on the country and making investments there, 2020 was the year of introduction of great initiatives, the signing of peace agreements, preparing for a mission to Mars and a progressive improvement of the image the UAE projects to the outside world.
A transformative decision that was announced at the end of November 2020 but has received little attention so far, is to permit 100% foreign ownership of UAE ‘onshore’ LLC companies and no longer require a local service agent for branches of foreign companies. As soon as the changes come into force, possibly by the end of March 2021, most UAE mainland companies will no longer need to be 51% owned by UAE nationals.
Although this rule excludes certain industries of ‘strategic impact’, such as oil and gas exploration, utilities and transport, the reforms are a welcome development that bring the UAE companies a step closer to unlimited foreign ownership. A definite step towards the right direction as, the requirement to relinquish 51% of their shares and give up ‘control’ has been a longstanding headache for businesses wishing to trade into the UAE local market and often acted as an impediment to doing any business in the country. On top of this, the need for a local service agent meant additional registration and administration costs.
It is because of the above that we consider the reforms to be a game changer.
Not only do they remove considerable barriers to doing business in the UAE but they also signify a mega shift in the country’s image considering that the ownership restriction has been applicable since the UAE was founded. These changes, along with other liberalizing legal and corporate initiatives that were introduced in 2020, are giant leaps in the nation’s agenda of becoming one of the most progressive and pro-business countries not only in the Middle East, but globally. The latest developments will further spur foreign direct investment in the country and drive an increase in trade and employment which will eventually have a wide positive impact on the local economy.
Despite all the attention that the UAE onshore business has and will attract in the future, free zones will still remain in our opinion the top choice for investors for all the additional benefits they offer; a favorable financial regulatory system and tax regime, a common English law framework, independent court systems and an unparalleled ease of doing business.
Reach out to us for further discussions on how to best incorporate a UAE company into your international structure. At Loggerhead Partners, we will advise you on and execute the solution that suits you best.