Policy Analysis and Practical Guide for All Foreign Ownership of Local Companies in the UAE

In the UAE's business landscape, local companies have always been the core choice for investors to deepen their local market due to their full operating authority and government project participation qualifications. The question of "whether 100 per cent of the shares can be held by foreign investors" is directly related to investment control and income distribution, and has become the focus of global investors. With the 2020 amendments to the Business Companies Act and subsequent policy iterations, the foreign shareholding rules for local companies in the UAE have shifted from "general restrictions" to "classified liberalization", creating a clear policy framework.

1. Policy background and legal framework

amendments to the Business Companies Act 2020

the UAE signed the revised Commercial Companies Act on November 23, 2020, which will remove restrictions on foreign investors' shareholding in local companies (non-free zones) from December 1, 2020. This reform allows foreign investors to set up companies throughout the UAE without the need for a local guarantor (Sponsor) and without restrictions on their shareholding.

The Transitional Role of the Foreign Direct Investment Act of 2018

previously, the Foreign Direct Investment Law promulgated in 2018 has adopted the "positive list" and "negative list" models, authorizing the cabinet to approve wholly-owned foreign holdings in specific industries. For example, 122 economic activities such as agriculture, manufacturing, and transportation are included in the positive list, allowing 100 per cent foreign ownership.

The Commercial Companies Act comes into force in 2021.

The Business Companies Act, as amended in 2021, will fully abolish the foreign ownership restrictions (except for "strategic impact activities") and remove the requirement that a majority of board members and chairman be of UAE nationality, further simplifying the foreign investment access process.

2. Industry constraints: strategic impact activities

despite the full openness of the policy, the UAE retains control over key industries through the list of "strategic impact activities. According to the list issued by the Cabinet of Ministers in 2021, the following sectors may be defined as strategic industries, subject to special approval for foreign ownership:

resource-based areas: oil and gas exploration and development, fisheries, hydropower services;

sensitive areas: military defense, air transport, postal communications;

financial areas: banking, insurance, currency exchange;

local characteristics: pilgrimage services, commercial intermediary services.

3. Registration Process and Compliance Requirements

company Type Selection

limited liability company (LLC): suitable for small and medium-sized enterprises, the liability of shareholders is limited to the amount of capital contribution, and at least one shareholder is required (all foreign capital is allowed);

joint Stock Company (JSC): Suitable for large enterprises or enterprises planning to go public, with at least 2 shareholders, and no more than 70% of the shares can be sold through IPO.

Document preparation and notarization

articles of Association (MOA): clarify the share capital structure, shareholders' rights and the powers of the board of directors;

shareholder/director identification: copy of passport, proof of residence address and proof of no criminal record (notarized certification is required);

registered address certificate: provide the UAE local office address lease contract;

business Plan: A detailed description of the scope of business, market analysis and financial forecasts.

Submission for Approval and License Acquisition

approval body: Submission of documents to the UAE Ministry of Economic Development (DED) or the economic departments of the Emirates;

approval cycle: usually 2-3 weeks, some industries require additional industry licenses (e. g. medical, education);

license type: commercial license (trade), industrial license (manufacturing), professional license (service).

Bank Account Opening and Tax Registration

bank account opening: choose a local bank in the UAE or an international bank, and provide a company registration certificate, articles of association and business contract;

tax Registration: Enterprises with an annual turnover of more than 375000 dirhams are required to register for value-added tax (VAT) at a tax rate of 5%.

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