Covid-19 impacting world economies
UAE’s Response
UAE has always been the most favoured investment destination in the Middle East and the credit goes to the timely decisions taken by the visionary leaders. We have seen a flurry of investor friendly measures in the past which has helped UAE retain its global reputation intact.
It is heartening to see the numerous initiatives taken by the UAE Government to support the business community at this challenging time. In the past few weeks, we have seen a spell of encouraging announcements aimed to provide relief to various sectors of the economy.
Few days back, the Ministry of Economy announced a new list of service fees, reflecting a reduction across 94 of its offered services, particularly provided by the Ministry to the public covering individuals, companies and the business sector.
The Federal Government as well as all the Emirates have introduced many relief measures and the governmental agencies and free zones have followed suit with deferment of rentals and license renewal fees. A number of regulatory reliefs announced by the Central Bank of UAE is aimed to soften the impact of the pandemic.
In this series of communiqué, we will be talking about the new update on the UAE Federal Law on Foreign Direct Investment grant- ing foreign investors an ownership up to 100% and related incentives. The positive list provided for in the UAE FDI Law has now come into effect and will prove to be a significant stimulus for foreign investors who are interested in investing in or have already invested in the UAE.
Positive List Resolution
On 23 September 2018, Federal Decree-Law No.19 of 2018 on Foreign Direct Investment (FDI Law) was issued allowing increased levels of foreign ownership by foreign investors in certain companies and sectors of the economy. Later in 2019, the UAE government approved the ‘Positive List’, outlining the details of relevant activities and sectors wherein foreign investors can invest up to 100% in mainland companies in UAE. The primary objective of the FDI Law is to attract large scale investment by foreign investors by providing exceptions to the provisions of the Federal Law No. 2 of 2015 on Commercial Companies which mandates that foreign shareholders can only hold up to a maximum of 49% of a mainland company’s shares.
On 17 March 2020, the UAE Cabinet issued a Cabinet Resolution setting out the ‘Positive List of Economic Sectors and Activities in which Foreign Direct Investment is Permitted’ termed as the ‘Positive List Resolution’. The Positive List Resolution is now in effect as it was published in the Official Gazette dated 31 March 2020.
The positive list available to the foreign investor at 100% ownership
Negative List
The FDI Law, has published a ‘Negative List’ for sectors where foreign investment above 49% will not be permitted. The Law states that the UAE Cabinet has discretion to amend the “Negative List” by adding or removing sectors. 13 sectors are currently specified in the ‘Negative List‘, including oil exploration, the defense sector insurance, financial institutions, telecommunications as well as
ground and air transportation.
Sectors and General Conditions
The activities on the FDI’s Positive List span across three sectors:
- 19 activities in Agricultural Sector
- 51 activities in Manufacturing Sector
- 52 activities in Services Sector
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
- eeting the requirements of the licensed activities.
Capital Requirements
The FDI Law requires a minimum capital investment between AED 7.5-10 Million for the Agricultural and between AED 2-100 Million for the Manufacturing Sectors, while the capital requirement for the Services Sector will be in accordance with the legislation in force. It should be noted, however, that the Resolution relies on the general minimal capital requirements for some commercial activities.
Benefits for Foreign Investors
Opportunity for existing companies
The new FDI Law is not only applicable to new companies, but also provides the opportunity to existing companies to change into a FDI Company. I believe that this will be something that many of our esteemed clients would like to explore.
