In the previous two articles, my colleagues elaborated on the recent FDI Law update allowing 100% foreign ownership in mainland companies. We are overwhelmed by the great response and we are excited that it has led to meaningful deliberations on how our clients can benefit from the new change in the Law.
The UAE has strategized to raise the industrial sector’s contribution to GDP and boost economic growth by building a diversified and sustainable economy. The country has set its goals to equip the economy for the Fourth Industrial Revolution post oil era through the UAE Vision of 2021 and UAE Centennial 2071 – the Five-Decade Government Plan. The reformed FDI regulations and the associated cabinet resolutions shall act as precursor to the sector.
Despite recent fluctuations in oil prices and the global slowdown caused by the Covid-19 pandemic, UAE’s economy is moving towards greater diversification and a future-based on leadership in non-oil sectors.
UAE understands that the advanced technology outputs are radically transforming the business models and investment climate across the globe even as companies struggle to address supply chain and additional manufacturing location issues. Strategically located, UAE ranks high in all the five key dimensions of manufacturing environment namely policies and regulations; energy and transportation; workforce quality; infrastructure and innovation; and unrestricted adaption to automation and AI facilitates. Increased productivity that results from such economic environment helps develop transformative technologies which are envisaged in the UAE national strategies created to guide development during the next phase in the fields of Advanced Innovation, Artificial Intelligence (AI), Fourth Industrial Revolution and so on.
While there are uncertainties on the prospects of growth in the near future, UAE is now focusing on completing the strategic and infrastructure projects which were on hold due to various reasons making UAE the preferred destination for new investment. Enough weightage is given to the manufacturing segments which complement these projects in all economic sectors such as renewable and nuclear energy, aluminium, military, food, engineering, plastics, medicine, aviation, space, robotics, artificial intelligence, self-propelled vehicles, biotechnology etc.
Current Contribution of Various Sectors to the GDP of UAE
Sectors and General Conditions
The positive list available to the foreign investor at 100% ownership
The Foreign Investors have to meet the general conditions which are applicable for all the three sectors:
- Use of advanced technology;
- Adding value to the UAE economy;
- Contributing to Research and Development; and
- Meeting the requirements of the licensed activities.
Status of National Industrial License
It is worth to be noted that “the Article (8) of the FDI Law clearly states Foreign Investment Companies licensed pursuant to the provisions of this Law shall be treated as national companies to the extent permitted by legislation in force in the State and international agreements to which the State is a party”. ccordingly, the Foreign Investment Companies are also eligible to be treated as an industrial unit having National Industrial License and thus benefitted with:
- Duty exemption to import raw materials and machines
- Privilege to use “Made in UAE” mark on final product
- Duty exemption to export products to GCC countries
- Duty exemption to export products to member countries of Great Arab Free Trade Agreement
Current Contribution of Various Sectors to the GDP of UAE
The investors will still need clarity on certain requirements specified in the Law, such as:
- How do you demonstrate high added value?
- How will the contribution to research and development be measured?
- What is the magnitude of Emiratization requirements?
- What are the criteria to assess if the technology can be considered “modern”?
It is noteworthy that the Cabinet Resolution clearly mentions the mode of exit of UAE national partner enabling the foreign investor to acquire the entire shares and thus transforming the entity as a FDI Company. My advice to the existing manufacturing entities in UAE would be to explore this opportunity to strengthen and protect their investment.
Kreston Menon Corporate Services team will be happy to address your queries regarding the new FDI Law.