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UAE foreign direct investment changes 'will increase diversification' of economy

ANALYSIS: The UAE's much-anticipated Foreign Direct Investment Law ('FDI Law') has recently come into force, laying the framework for up to 100% direct foreign investment in the UAE.08 Nov 2018

Under the previous regime, foreign ownership of UAE on-shore companies was limited to 49%.

The FDI law is a positive step towards increasing the diversification of economic sectors in the UAE, and establishing the UAE's position as a regional and global leader in promoting and attracting foreign investment.

The FDI Law classifies business activity into three different categories:

  • activities falling on the Negative List, which will continue to be subject to their own laws and regulations and which will fall outside of the foreign direct investment regime;
  • activities falling on the Positive List, in which up to 100% foreign direct investment will be permitted;
  • activities not falling on either list, which are not expressly permitted or restricted and on which the authorities will have the discretion to determine whether up to 100% foreign direct investment will be allowed on a case by case basis.

The 'negative list' includes industries such as oil and gas exploration and production; banking; insurance; military and defence; water and electricity; broadcasting and publishing; telecommunications; commercial agencies; and freight services.

The 'positive list' will be issued following consultation with the government's new Foreign Direct Investment Committee. There is no date set for publication of the positive list.

Notably, the FDI Law will allow each of the seven emirates to permit up to 100% foreign investment in different activities, subject to the federal authority's approval.

Foreign investment companies (FICs) will be registered in a special FIC register held with the Ministry of Economy, and will be treated in the same way as UAE companies. The process for registering an FIC will be largely similar to that for registering a mainland company; with the application first being submitted to the local licensing authority, then to the relevant authority in the emirate for approval. The FDI Law also allows the foreign investor to appeal in the event that an application is rejected.

It is currently unclear whether existing UAE on-shore companies can be converted to FICs. In any event, we expect to see an increase in M&A and corporate restructuring activity in the UAE as a result of the FDI Law.

In practice, applications to set up FICs will only be accepted once the relevant committees, units and authorities are established and the positive list drawn up.

Osama Hassan and Mohammad Tbaishat are corporate law experts at Pinsent Masons, the law firm behind Out-Law.com.