It is very positive to hear yesterday's announcement from the UAE Minister of Economy, His Excellency Abdulla Al Marri, that the amendments to the Companies Law in respect of foreign ownership will be implemented from 1 June.
The amendments to the Companies Law which were issued last year and abolish the requirement for a UAE national to own 51% of the shares in a commercial company, and for a foreign company which operates through a branch office to have a UAE national agent, are significant from a corporate structuring perspective.
The amendments to the law allow foreign, non-UAE national, investors to wholly own companies ‘onshore’ in the UAE, unless a restriction exists and the company carries on what is called a ‘strategic impact’ activity. The amendments contemplate that a Cabinet Decision will be issued outlining the scope of these ‘strategic impact’ activities: we have not yet seen that Cabinet Decision, and look forward to it being issued.
An important ‘next step’ for many companies is to understand what activities will be considered to have a ‘strategic impact’ and may therefore be outside the scope of these developments. It will also be interesting to see from a practical perspective how these developments are implemented at an individual Emirate level across the UAE.
Some thoughts on what we can expect to see:
- There has been a lot of discussion in the media about how these developments will drive foreign direct investment, and no doubt they will. For some, they will help remove what has been regarded as a barrier and obstacle to investment.
- Positive investor sentiment, as foreign investors feel more confident about existing and future investments in the UAE; this sentiment is enhanced by other recent developments, such as 10 year visas.
- Increased prominence of the UAE as a location for start-up enterprises by foreign entrepreneurs.
- We envisage increased corporate reorganisation activity, where 49% shareholders in LLCs seek to ‘buy out’ 51% shareholders.
- We may see companies incorporated in free zones look to migrate operations ‘onshore’.
- We may see an increase in ‘onshore’ companies being used as acquisition vehicles in corporate transactions.
- M&A activity may increase as certain UAE targets could be regarded by some foreign investors as more attractive or viable acquisition targets than has been the case in the past.
- It is possible that there may be an increase in shareholder disputes as ownership structures and shareholder arrangements come under the spotlight.
- The removal of the requirement for foreign companies which operate in the UAE through branch offices to have an agent is also a positive development for foreign companies.
The amended Commercial Companies Law aims at boosting the country’s competitive edge and is a part of UAE government efforts to facilitate doing business - HE Abdulla bin Touq Al Marri, UAE Minister of Economy