Breaking Down Barriers: Why 100% Foreign Ownership in UAE is a Game Changer
Are you considering expanding your business into the Middle East? Want to leverage the thriving economy and business-friendly atmosphere of the United Arab Emirates (UAE)? Let’s explore the advantages of 100% foreign ownership in the UAE for 2023.
The UAE has recently introduced a new policy that permits 100% foreign ownership of businesses. This means you can fully own and manage your company in the UAE without requiring a local partner or sponsor.
In this article, we’ll delve into this innovative policy, highlight the benefits of complete foreign ownership, and provide a step-by-step guide to setting up your business in the UAE. Get ready to unlock new opportunities and maximize your success in this dynamic market!
100% Foreign Ownership in UAE: Background and What Does It Mean
The UAE has long been a beacon of opportunity for foreign businesses, boasting some of the world’s most successful free zones and establishing itself as a premier business hub in the region. However, foreign investors faced significant hurdles accessing these opportunities due to restrictions on full foreign ownership.
Until 2018, setting up a business in the UAE required at least one local partner or sponsor. This arrangement meant sharing profits with the local partner, preventing foreign investors from retaining 100% of their earnings.
What Was the 51/49 Ownership Structure?
To ensure that local partners had a stake in the company, foreign investors were restricted to owning only 49% of their business. This arrangement granted the local partner 51% ownership and majority control. While this structure benefited certain industries, it was often seen as a barrier for foreign investors seeking complete control over their investments.
However, significant changes came in 2018 when UAE President Sheikh Khalifa bin Zayed Al Nahyan introduced a policy allowing 100% foreign ownership in specific emirates. This new regulation enables foreign investors to fully own and operate their businesses without needing a local partner or sponsor, creating exciting new opportunities for those looking to expand into the UAE.
Limitations of the Amended Legislation for Commercial Companies
While the UAE has significantly opened its doors to foreign investors, there are still some limitations under the new regulations. For example:
Offshore Operations Only: Foreign investors are generally required to establish their businesses in free zones or offshore areas. This restriction means that they cannot operate outside these designated areas, which may limit their market reach and customer base. Competing with mainland businesses can also be challenging.
Free Zones Limitation: Foreign investors can set up businesses in specific “free zones” designated by the UAE government. These zones operate under a different regulatory framework that may be more favorable to foreign investors. However, businesses located in these zones are restricted from selling or offering services directly to local customers.
Requirement for a Local Service Agent: To register and license a business in the UAE, foreign investors must appoint a local service agent. This agent acts as an intermediary between the company and the UAE government, handling administrative tasks such as visa applications and other regulatory matters.
Highlights of the New Policy for Foreign Investors
The UAE government has made significant strides to enhance its investment environment. In December 2020, a Federal Decree-Law was issued to amend the Commercial Companies Law, easing previous local ownership restrictions. This was followed by regulatory updates in June 2021, which allowed for 100% foreign ownership of onshore companies across many business sectors.
Key developments include:
Expanded Foreign Ownership: The new regulations permit full foreign ownership of onshore companies in a wide range of industries, providing greater control and flexibility for investors.
Approved Activities Lists: The Abu Dhabi Department of Economic Development and the Dubai Economic Department have published lists of activities eligible for complete foreign ownership, reshaping the investment landscape in the UAE.
These changes mark a significant shift, creating new opportunities for foreign investors and enhancing the UAE’s appeal as a global business hub.
Strategic Impact: Defining the Eligible Activities
The authorities have also released a list of activities that qualify for 100% foreign ownership, enabling investors to have complete control over their businesses without requiring a local partner or sponsor. However, companies engaged in activities deemed to have a ‘strategic impact’ will still need to adhere to restrictions regarding foreign ownership.
No Requirement for Local Service Agent
Under the new policy, foreign investors no longer need to engage a UAE National Service Agent (NSA) when establishing their business in the UAE. The amendment to the law, effective from 30 March 2021, eliminates this requirement, streamlining the setup process and simplifying management practices for investors.
The Ministry of Economy and the Department of Economic Development (DED) in each Emirate have updated their systems to facilitate the transfer of NSA responsibilities. This ensures that all records with both the Ministry and the DED are kept up-to-date. The process is now supported by a notarized transfer document, making the transition as smooth and efficient as possible.
Transition for the Freezone Businesses
The UAE government has also expanded opportunities for businesses transitioning from free zones to mainland UAE. Under the new policy, investors benefit from increased flexibility in choosing commercial space locations and allocating staff visas.
Full foreign ownership now provides access to UAE companies and government contracts, as well as improved ICV (In-Country Value) scores for tendering processes. This enhanced flexibility and access significantly boost the potential for success in the UAE market. Overall, this presents a compelling opportunity for businesses aiming to establish a strong presence in mainland UAE.
Streamlined Management Practice
The recent legislative changes have also led to streamlined management practices, with all UAE companies now adhering to enhanced corporate governance regulations. These improvements include:
- 21-Day Notice for General Meetings: Shareholders must receive a 21-day notice prior to a general meeting.
- Meeting Requests by Stakeholders: Stakeholders holding at least 10% of the share capital are empowered to request a meeting.
- Virtual Meetings and Calls: The regulations now permit virtual meetings and calls, leveraging modern technology for greater convenience.
These updates represent a significant advancement in corporate governance standards in the UAE, promoting increased transparency and accountability across businesses.
Becoming a Joint Stock Company
Another significant shift in the foreign ownership landscape is the new ability for companies to operate as joint stock firms. With approval from relevant authorities, companies can now raise capital through Initial Public Offerings (IPOs) by selling up to 70% of their shares, a notable increase from the previous 30% limit.
This development opens up exciting new avenues for financial success, offering investors a wider array of options for securing investment and enhancing profitability.
Exceptions to the List of Eligible Activities
The new 100% foreign ownership policy is broadly applicable to most businesses in the UAE, though there are some exceptions. Notably, this policy does not extend to commercial agencies, ‘strategic activities’ such as banking and telecommunications, and certain types of professional consultancies. Additionally, branches of free zone companies are still required to have a UAE national agent.
The new legislation also empowers the UAE Cabinet to establish a committee comprising representatives from relevant departments. This committee will assess and recommend activities of strategic importance and outline the licensing requirements for companies operating in these sectors. Following these recommendations, the Cabinet will publish a list of strategic activities along with the corresponding licensing procedures.
Reasons Behind the Full Foreign Ownership Policy
The UAE government introduced the 100% foreign ownership policy to attract increased foreign investment. As a major business hub in the Middle East, the UAE aims to leverage this new policy to draw even more entrepreneurs and investors, further enhancing its status as a premier business destination.
Strengthening UAE’s Strategic Position as a Business Hub
The government seeks to foster an inviting environment for businesses of all sizes, from startups to established multinationals. By eliminating barriers such as the need for local partners, the UAE aims to enhance its already compelling appeal—particularly due to its strategic location bridging Europe, Africa, and Asia.
Facilitating Economic Recovery
This initiative is part of a broader effort to cultivate a favorable legislative environment designed to attract more foreign investment, enhance the ease of doing business, and position the country for robust post-Covid recovery.
Addressing Upcoming Economic Challenges
The government anticipates that this move will future-proof the economy against global market disruptions and better address the evolving needs of its business community. Ultimately, it represents a strategic step towards maintaining the UAE’s appeal as a prime destination for foreign entities seeking to establish and expand their presence in the international marketplace.
Eligible Businesses for 100% Foreign Ownership
The UAE government has been empowered to make decisions regarding the role of local ownership in various companies. For certain activities, foreign investors will still be required to have a stake in the company’s capital.
Eligible Businesses in Dubai
In Dubai, a major business hub in the UAE, approximately half of all economic activities are now eligible for full foreign ownership. Specifically, 1,061 out of 2,300 activities listed by the Department of Economic Development (DED) can be owned and operated without the need for a local partner or sponsor.
Whether you’re considering business ideas in Dubai or planning to establish a trading or manufacturing venture, this groundbreaking policy could be the key to realizing your entrepreneurial goals.
The new regulations also extend to professional services, allowing entrepreneurs to fully own their businesses. However, these businesses must still appoint a local service agent and comply with the sole establishment legal form instead of forming an LLC.
Key sectors eligible for 100% foreign ownership in Dubai include:
- Manufacturing
- Trading
- Consultancy & Professional Services
- IT and Telecommunications
This policy represents a significant opportunity for entrepreneurs and investors seeking to thrive in Dubai’s dynamic market.
Eligible Businesses in Abu Dhabi
With 1,105 registered commercial and industrial activities now eligible for full foreign ownership, Abu Dhabi is sending a clear message to investors: “Welcome to our business-friendly environment.”
This policy underscores the government’s dedication to enhancing Foreign Direct Investment (FDI) and fostering an open, flexible economy. It positions Abu Dhabi as a prominent player on the global investment map.
Eligible Businesses in Sharjah
Sharjah introduced its full foreign ownership policy in June 2021. This policy comes with no capital requirements or additional fees for foreign investors. It also allows branches of foreign companies to operate without the need for a local agent.
Benefits of Full Foreign Ownership
The UAE’s new 100% foreign ownership policy has opened the doors to a diverse array of investors, entrepreneurs, and business owners. Here are some of the benefits you can enjoy:
- Greatly Reduced Paperwork and Bureaucratic Hassle: Streamlined processes make it easier to start and manage your business.
- No Need for a Local Sponsor or Partner: Full ownership without the requirement of a local partner.
- Complete Control Over Business Operations and Profits: Manage and benefit from your business entirely on your own terms.
- Eligibility for UAE Residency Permits: Potential to apply for residency permits, enhancing your stay in the UAE.
- Tax Benefits: Access to favorable tax conditions and incentives.
UAE Golden Visa: A Pathway to 100% Foreign
Ownership Business in the UAE
One of the many advantages of the UAE is the variety of ways foreign investors can invest and conduct business. These options include free zones, limited liability companies (LLCs), and the Golden Visa.
The Golden Visa, also known as the ‘UAE Residence by Investment Program,’ allows foreign investors to obtain residency through investment or business ownership. This visa grants access to numerous benefits associated with living and working in the UAE, including opportunities for 100% foreign ownership of businesses.
The benefits of obtaining a Golden Visa include:
- 100% Foreign Ownership Rights: Full control and ownership of your business in the UAE.
- Business Banking and Loans: Ability to open a business bank account and secure business loans.
- Favorable Tax Conditions: Enjoy low corporate tax rates, no income tax, and no personal or capital gains taxes.
- Visa Sponsorship Opportunities: Ability to sponsor family members and staff for UAE residency.
- Free Travel: Ease of travel to and from the UAE.
Wrap-Up: Maximise Your Business Success in the UAE with 100% Foreign Ownership
Establishing a 100% foreign ownership business in the UAE presents a valuable opportunity for entrepreneurs and business owners, but it can also come with challenges. Navigating the legal and regulatory landscape, understanding local business practices, and overcoming language and cultural barriers can be daunting.
Nevertheless, the benefits often outweigh these challenges, offering complete control over your business, enhanced access to the UAE market, and potential tax savings. To ensure a smooth and successful setup, it’s crucial to work with a trusted and experienced service provider like Virtuzone.
Virtuzone offers comprehensive, one-stop services with a knowledgeable team to guide you through the process, provide logistical support, and help set your business up for success in the UAE. Don’t hesitate—contact us today to begin your business journey in the UAE!