Out-Law News 1 min. read

Delayed decision on UAE foreign business ownership "short-term disappointment" says expert


Lawmakers in the United Arab Emirates (UAE) should consider the benefits of allowing foreign entities to own the majority stake in a business, an expert has said. A debate on potential reforms has been delayed until later this year.

Alan Wood of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Federal National Council (FNC) decided that foreign ownership rules should be considered as part of the UAE's Investors Law, which is not due to be discussed until after the FNC's summer break. The government advisory body voted to reject the draft Companies Law in its current form last week, according to reports in the national press.

Wood, a corporate law expert based in Pinsent Masons' Dubai office, said that the FNC's decision to move the issue of foreign ownership into the Investors Law was "disappointing in the short term".

"The hope has to remain that when the FNC does have the opportunity to debate the issue it will be persuaded as to the benefit to the UAE economy, and its status as the regional commercial hub, of implementing a more wide-sweeping relaxation of the foreign ownership rules," he said.

"Recognising the benefits of the existing regime to Emiratis, a compromise might involve preserving the involvement of an Emirati national by requiring wholly foreign-owned companies to appoint an Emirati in a non-equity participation role akin to the national service agent role applicable to branches or foreign companies," he said.

Current rules limit foreign ownership of businesses located outside the various economic 'free zones' to 49%. Companies located in a free zone can be 100% foreign owned, although businesses established in a free zone are generally prohibited from carrying out activities in mainland UAE.

According to local news website The National, FNC members decided that the Companies Law should focus on legal requirements for Emirati businesses. The current law was established in 1984 and the new draft dates from 2006. The new Investors Law, which will be debated later this year, focuses on foreign investment and will deal with terms and conditions of ownership.

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