In order to promote foreign direct investment in selected sectors and thus the establishment of (onshore) businesses operating in these sectors in UAE-mainland, the statutory obligation, according to which a majority of the shares in a company must be held by UAE citizens, was relaxed in 2018 (Federal Law No. 19 of 2018 Concerning Foreign Direct Investment – “FDI Law”).

The relaxation applies to companies that are eligible under FDI Law to engage in economic activities through which foreign capital is directly invested in the UAE. To date, key issues have not yet been determined, such as the types of companies in question and their minimum capital, the limit on foreign participation (100% or, as generally expected, a lower threshold) and the details of the general condition, that UAE nationals have to be employed. It is also unclear whether already existing onshore companies can apply for a license under the FDI Law or whether a new company has to be established. Many of these issues are expected to be resolved at the end of this month when the UAE Cabinet decision of July 2019 is published.

 

It is already clear for which sectors the easing will not apply. For the strategically important sectors mentioned in the “negative list” of the FDI Law, the obligatory majority participation of a UAE citizen remains upheld:

  • exploration and production of crude oil/natural gas,
  • fisheries and related services,
  • investigations, security, military sectors and manufacture of weapons, explosives, military equipment   and related equipment and uniforms,
  • postal, telecommunications and audiovisual services,
  • banking and financing activities, payment systems,
  • land and air transport services,
  • insurance services,
  • publishing and printing services,
  • Hajj and Umrah services,
  • agents,
  • human resources and recruiting,
  • medical retailers (e.g. privately owned pharmacies),
  • electricity and water supply,
  • toxins, blood banks and quarantines.

On the other side, the Federal Cabinet issued a “positive list” regarding the sectors and businesses in which a foreign majority participation will likely be permitted. Publication of the full list, including the relevant threshold, is expected by the end of this month. So far, it is known that a total of 122 business activities from 13 economic sectors are listed on the positive list, such as in particular:

  • renewable energy,
  • space,
  • e-commerce,
  • agriculture,
  • manufacturing and production,
  • transport and storage,
  • hospitality and gastronomy,
  • information and communication,
  • construction,
  • hotel industry,
  • art and entertainment,
  • food industry,
  • retail,
  • education,
  • hospital industry and
  • engineering.

We assume that both the positive and negative lists are reviewed and amended on a regular basis.

As additional prerequisites for the admissibility of the foreign majority participation, investors will have to raise substantial share capital and employ Emirati citizens on a binding basis. The DFI Law thus primarily aims at personnel- and capital-intensive large corporations and (initially) not at small and medium-sized enterprises.

As one of the material issues, the maximum threshold for the participation of foreign investors is still not determined as it can be ultimately defined by the governments and authorities of the individual emirates. As of today, there is no generally binding regulation on the foreign maximum participation thresholds for the individual economic sectors.

We will inform you promptly about further significant developments. In the meantime, please feel free to contact us at any time if you have any questions on this subject.