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The business repercussions of the UAE 100% foreign ownership law starting June 1, 2021

The law allowing 100% foreign ownership of companies was announced last year and is one of several steps aimed at attracting investment and foreigners into the UAE

The 100% ownership law will have a significant impact in the medium to long term for demand for office space The market will also witness increased corporate re-organization activity All companies in the UAE (including LLCs) will be subject to corporate governance standards to be issued later

Foreigners opening a company in the UAE will no longer need an Emirati shareholder or agent under changes to UAE company law that will go into effect on June 1, according to state news agency WAM, Reuters reports.

The amendments to the Companies Law abolish the requirement for a UAE national to own 51% of the shares in a commercial company, and disregards the need for a foreign company that operates through a branch office to have a UAE national agent.

“The amended Commercial Companies Law aims at boosting the country’s competitive edge and is a part of UAE government efforts to facilitate doing business,” Minister of Economy Abdulla bin Touq Al-Marri was quoted as saying.

The law allowing 100% foreign ownership of companies was announced last year and is one of several steps aimed at attracting investment and foreigners into the UAE.

Read: UAE’s 100% foreign ownership: Impact on business and free zones

Read: Draft Qatari law gives overseas investors 100% ownership of listed companies, to attract billions

Law’s potential repercussions

Faisal Durrani, head of Middle East Research at Knight Frank, commented: “Confirmation of the 100% company foreign ownership law that comes into effect on June 1 will undoubtedly have a significant impact in the medium to long term for demand for office space in key markets such as Dubai and Abu Dhabi that are still experiencing quieter conditions in the aftermath of the global pandemic.”

The market will also witness increased corporate re-organization activity, where 49% of shareholders in limited liabilities companies (LLCs) seek to buy out 51% of shareholders, and along with this, an increase in shareholder disputes as ownership structures come into the spotlight.

Companies incorporated in free zones may look to migrate their operations onshore.

M&A activity may increase as UAE targets could be regarded by some foreign investors as more attractive or viable acquisition targets.

James Elliot-Square, Business Development Manager at PRO Partner Group said the detailed law included details of the changes that will affect LLCs which include:

1- All companies in the UAE (including LLCs) will be subject to corporate governance standards to be issued by the government at a future date

2- Changes to the process of convening and holding general meetings and include:

a. An increase in the notice period to 21 days for holding a meeting;

b. One or more shareholders holding not less than 10% of the share capital may request a general meeting to be called;

c. Allowing for meetings to be held and called using modern means to technology.

Another change that business owners need to be aware of is the ‘positive list of economic activities,’ which are eligible for 100% ownership. 

As reported by Gulf News, Saraa Gheewala, Head of Operations at Virtuzone spoke about how the list of economic activities focused on industrial and manufacturing sectors, with a specific requirement for the paid-up share capital to be within a certain bracket.

“The positive list of economic sectors and activities eligible for the 100% ownership is specific. This resolution pertains to 122 business activities out of over 3,000 activities available with Dubai Economy and these activities carry specific paid-up share capital requirements, ranging from AED7.5 million to AED100 mn ($2 mn- $27.25 mn),” Gheewala said.

“The majority of the listed activities are food and agriculture as well as infrastructure and healthcare sectors with few activities in the hospitality management and consultancy realm,” she added.