The UAE Cabinet passed Cabinet Resolution No. 16 of 2020 on 17 March 2020, concerning determination of the ‘Positive List’ of economic sectors and activities eligible for foreign direct investment (‘FDI’).
Previously, foreign investors could hold up to 49% of a mainland UAE company. Federal Decree-Law No.19 of 2018 on Foreign Direct Investment (FDI Law) was published in September 2018. This provided a mechanism under which foreign shareholders could own up to 100% shares of a UAE mainland company. It also stipulated the “negative” list of sectors, wherein full foreign ownership would not be permitted.
In July 2019, based on recommendations made by the FDI Committee, the UAE Council of Ministers had approved a ‘Positive List’ of activities under which up to 100% foreign ownership was permitted in mainland UAE entities.
However, this remained subject to certain criteria being satisfied. Please refer to our earlier tax alert issued on this development.
With Cabinet Resolution No. 16 of 2020 being issued recently, it has been clarified that companies falling under the remit of all economic sectors listed in the ‘Positive List’ across three broader sectors: Agriculture (19 activities), Manufacturing (51 activities), and Services (52 activities), are eligible for full 100% foreign ownership in mainland UAE. Further, the Resolution sets out the requirements and conditions that companies would be required to meet (apart from minimum capital requirements). These include conditions pertaining to investment in modern technologies, contribution to research and development, and employee headcount, as well as the need to obtain specific approvals and fulfill requirements for certain licensed activities.
Cabinet Resolution No. 16 of 2020 will undoubtedly transform the foreign ownership landscape in the UAE. The legislation tends to provide foreign investors with much greater flexibility and more options to deal with the shareholding composition and ownership texture. Concurrently, it introduces enablers such as the option of possibly amend the company’s governing documents (such as articles of association) in order to change ownership structure.
The FDI law requires each emirate to specify their licensing procedure separately. each emirate is likely to streamline its implementation procedures and enhance their systems and processes for FDI license applications.
Given the current economic effects of the Covid-19 crisis, the passing of Cabinet Resolution No. 16 of 2020 comes as a welcome move for new and existing investors, and reinforces UAE’s appeal as a regional investment hub.