Attitude toward Foreign Direct Investment
The UAE generally is open to FDI, citing it as a key part of its long term economic plans. The UAE Vision 2021 strategic plan aims to achieve FDI flows to the UAE of five percent of Gross National Product (GNP), a number one rank for the UAE in the global index for ease of doing business, and a place among the top 10 countries worldwide in the Global Competitiveness Index. UAE investment laws and regulations are evolving in support of these goals. However, current frameworks still favor local over foreign investors. While recently updated UAE laws validate the practice of foreign owned free zone companies operating “onshore” in some instances, and permit majority-Gulf Cooperation Council (GCC) ownership of public joint stock companies, there remains no national treatment for investors in the UAE and foreign ownership of land and stocks is restricted. Non-tariff barriers to investment persist in the form of restrictive agency, sponsorship, and distributorship requirements.
Other Investment Policy Reviews
The UAE government (UAEG) hosted the IMF for an Article IV Consultation in 2015, but has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD), the WTO, or the United Nations Conference on Trade and Development (UNCTAD).
Laws/Regulations on Foreign Direct Investment
There are four major federal laws affecting foreign investment in the UAE: the Companies Law, the Commercial Agencies Law, the Industry Law, and the Government Tenders Law. In 2011, the Ministry of Economy announced that 19 federal laws were in draft status to address a number of concerns historically discouraging foreign investment in the UAE. Today, the laws include an updated commercial agencies law, an insolvency law, an arbitration law, and a draft foreign investment law under review.
The Federal Commercial Companies Law (Law No. 02, 2015) was issued in April 2015 and applies to commercial companies operating in the UAE. The new law, with which all companies must come into compliance by July 1, 2016, provides a stronger, more up to date basis for corporate regulation. Companies established in the UAE are currently required to have a minimum of 51 percent UAE national ownership. Profits and management control may be apportioned differently and often are negotiated at fixed amounts. Branch offices of foreign companies are required to have a national agent with 100 percent UAE national ownership, unless the foreign company has established its office pursuant to an agreement with the federal or an emirate-level government. The new commercial law allows companies to offer between 30 and 70 percent of shares upon undertaking an initial public offering (IPO) and eliminates the requirement to issue new shares at the time of IPO. The law also eases the process for forming a limited liability company by requiring between 1 to 75 shareholders (the prior requirement was between 2 to 50 shareholders). Under the new law, when a public joint stock company lists, there is a 51 percent GCC ownership requirement. UAE nationals must chair and be the majority of board members of any public joint stock company.
Provisions in the commercial law that would have relaxed the foreign ownership limit were rejected by the UAE Federal National Council (FNC), but might be addressed in a separate investment law that is currently still in draft form, according to a statement made in 2015 by the FNC spokesperson. A provision to allow 100 percent foreign ownership outside of free zones would reportedly be restricted to certain sectors, such as high technology projects, and would require Cabinet approval on a case-by-case basis. For example, in 2015, a prominent American technology company secured permission to open stores outside free zones without any local partners, having secured permission to do so on an exceptional basis via a decree from the Dubai Ruler.
The Commercial Agencies Law’s provisions are collectively set out in Federal Law No. 18 of 1981 on the Organization of Commercial Agencies as amended by Federal Law No. 14 of 1988 (the Agency Law), and apply to all registered commercial agents. Federal Law No. 18 of 1993 (Commercial) and Federal Law No. 5 of 1985 (Civil Code) govern unregistered commercial agencies. The Commercial Agencies Law requires that foreign principals distribute their products in the UAE only through exclusive commercial agents who are either UAE nationals or companies wholly owned by UAE nationals. The foreign principal can appoint one agent for the entire UAE or for a particular emirate or group of emirates. The Ministry of Economy handles registration of commercial agents. It remains difficult, if not impossible, to sell in UAE markets without a local agent. Only UAE nationals or companies wholly owned by UAE nationals can register with the Ministry of Economy as local agents.
The Federal Industry Law stipulates that industrial projects must have 51 percent UAE national ownership. The law also requires that projects either be managed by a UAE national or have a board of directors with a majority of UAE nationals. Exemptions from the law are provided for projects related to extraction and refining of oil, natural gas, and other raw materials. Additionally, projects with a small capital investment or projects governed by special laws or agreements are exempt from the industry law.
To obtain an investor number from the Abu Dhabi Securities Exchange, go to: http://www.adx.ae/FormsAndApplications/InvestorNumberApplication.pdf
To obtain an investor number for trading on the Dubai Exchanges, go to: http://www.nasdaqdubai.com/assets/docs/NIN-Form.pdf
The UAE’s business registration process varies based on the emirate. The business registration process is not available online. Generally registration happens through the particular emirate’s Department of Economic Development. At a minimum, a company must generally register with the Department of Economic Development, the Ministry of Labor, and the General Authority for Pension and Social Security with a required notary in the process. The time it takes to start a business was eight days in 2015, according to the World Bank.
Investment promotion agencies exist based on the emirate. For example, the Sharjah Investment and Development Authority, or Shurooq, is an independent government agency that assists investors in finding partnerships in the emirate.
The definitions of micro, small and medium-sized enterprises (MSMEs) vary by emirate. In Dubai, for example, MSMEs are defined as companies with fewer than 75 employees and less than AED 250 million (USD 68 million) in annual turnover in the trade sector; fewer than 250 employees and less than AED 250 million (USD 68 million) in annual turnover in the manufacturing sector; and fewer than 250 employees and less than AED 150 million (USD 41 million) in annual turnover in the service sector. The government of Dubai provides business support and information to MSMEs fully owned and managed by UAE nationals.
The Abu Dhabi Government in early 2015 formed the Abu Dhabi Investment Attraction Committee to achieve sustainable economic development and develop an attractive investment environment. The committee started the process of forming a foreign investment attraction strategy in March 2015, focusing on the sectors that Abu Dhabi’s strategic plan—Abu Dhabi Economic Vision 2030—targeted as engines for non-oil sector growth. These sectors include industry, tourism, transport and logistics, financial services, insurance, media, energy, construction, real estate, telecommunications, information technology, health and education.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign companies or individuals are limited to 49 percent ownership/control in any part of the UAE not in a free trade zone, pursuant to law. There have been waivers of the application of this law granted on a case-by-case basis. The 2015 Commercial Companies Law allows for full ownership by GCC nationals.
Except as detailed elsewhere in this report, there are no restrictions on the right of private entities to establish and own business enterprises and engage in all forms of remunerative activity.
There has been no privatization program in the UAE. There have been several listings of portions of state owned enterprises (SOEs), which are referred to locally as government related entities (GREs), on local UAE stock exchanges, as well as some “greenfield” IPOs that are focused on priority government projects.
Screening of FDI
The UAE does not have a formal FDI review process; however, as noted elsewhere in this report, there is no national treatment for investors in the UAE and restrictions on foreign ownership of land and stocks are common. Non-tariff barriers to investment persist in the form of restrictive agency, sponsorship, and distributorship requirements.
The Ministry of Economy reviews transactions for competition-related concerns.