Complex Made Simple

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

In January 2021, the foreign ownership decree repealed the 2018 FDI Law. In April, amendments were introduced to allow 10 new sectors to have 100% foreign ownership. How will this impact business and free zones?

100% foreign ownership could stipulate having a certain high level of paid-up share capital The UAE aims to double the size of its economy over the coming decade The UAE has close to 50 free zones and many cater to specialized business sectors

On its entry into force on January, 2nd 2021, the foreign ownership decree repealed the FDI Law, which only came into force in 2018. The FDI Law relaxed foreign ownership restrictions across 122 economic sectors and activities by introducing a “Positive List” and imposed limitations on foreign ownership across 13 economic sectors by introducing a “Negative List.” 

The decree abolishes the longstanding requirement for a local company to be owned 51% by UAE nationals unless the company’s commercial activities are considered to have a “strategic impact”.

A recent announcement by the UAE plans to add 10 new sectors to the UAE Commercial Companies Law, allowing 100% foreign ownership, and will certainly remove barriers to entry outside of free zones and attract foreign direct investment.  

But 100% foreign ownership could stipulate having a certain high level of paid-up share capital, unlike free zones which are minimal in that regard.   

The 50 plus free zones that already permit 100% ownership will remain a good choice for certain sectors and new market entrants but could lead to competitive pricing between the 7 emirates and the free zones themselves, to attract investors, create jobs, increase spending, boost sectors and strengthen the economy, a report by Arabian business said.

Abdulla Al Saleh, Undersecretary of the UAE’s Ministry of Economy for Foreign Trade and Industry recently said that this landmark legislation in the Commercial Companies Law is in its final stages of formation which will enable investors and business in 10 new sectors of strategic importance to come under the purview of the law.

Undersecretary of the Ministry of Industry and Advanced Technology Omar Ahmed Suwaina Al Suwaidi also said a new industrial law will soon come into force and will be instrumental to promoting a conducive environment for industry in the UAE.

UAE’s economic aspirations

The UAE aims to double the size of its economy over the coming decade, economy minister Abdulla Bin Touq said recently, “aiming to reach AED3 trillion ($818 million) by 2031.”

The UAE’s economy is set to grow by 2.5% this year (3.5% in 2022), and its non-oil economy by 3.6% (3.9% in 2022), according to estimates from the Central Bank of the UAE. 

In 2020, the UAE’s GDP stood at almost Dh1.42 trillion ($387 billion). 

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Operation 300bn, backed by the Emirates Development Bank, is a plan to increase the industry’s contribution to GDP to AED300 bn ($81 bn) by 2031 from AED133 bn ($36 bn) currently. This involves the creation of about 13,500 new companies in the sector and an increase in industrial R&D spending to 2% of GDP by 2031, from 1.3% currently.

Recent regulatory changes, such as amendments to the commercial companies’ law and the offer of citizenship to talented residents, will support the country’s plan to boost output.

Business-friendly free zones

The UAE has a long history of establishing free zones to attract foreign investment and local business. In 1985, Jebel Ali Free Zone Authority (JAFZA) opened as the first free zone in the country and became a blueprint for the launch of several free zones across the country. 

Today, the UAE has close to 50 free zones and many cater to specialized business sectors. The newest UAE free zones are Sharjah Media City (SHAMS) and IFZA Dubai.

Company registration in Dubai or anywhere in the UAE is easier, simpler, and faster at a free zone. These designated economic zones already enable 100% foreign ownership of companies, making them the go-to licensing option for global investors. Business owners can also enjoy 100% repatriation of revenues and profits, and 100% transfer of funds. 

JAFZAMore importantly, there is a time-bound waiver of all corporate taxes as well as import and export taxes, and an exemption from all personal taxes.  

A singularly unique offering is the easy access to more than 2 billion consumers in multiple markets located within a 4-hour flight.

SHAMS addresses a solution to bureaucratic procedures which was daunting to potential investors, and now new entrants and startups can set up a business in the UAE within 1-2 days. 

SHAMS Free Zone also offers a business hub for media and creative people for as little as AED 5,750 ($1,566).

IFZA, strategically located in the main city of Dubai, provides competitive business set-up packages starting from AED12,500 ($3,375) to local and international companies.

Most free zone authorities also extend support for ancillary services such as legal, medical, labor, and immigration processes.

Options in space, style, tenure, and budget are as well almost unlimited, from individual freelance permits to international branch office licenses, and from shared desk space on a 1-year contract to industrial warehouse leasing for up to 25 years.