The UAE has recently made reforms to foreign ownership and investment law under Decree Law No. 26 of 2020. This makes significant changes to Federal Law No. 2 of 2015 dealing with Commercial Companies. The UAE is on the path to becoming the most attractive global investment hotspot. The reforms will open the country to direct investors; this will bring and retain professionals and talents and boost investors’ confidence about the long-term benefits, sustainability, and security of their businesses.
In recent years, the United Arab Emirates has strived to ease the burden on foreign ownership laws on onshore companies as it seeks to motivate foreign investors. The Federal Decree Law has introduced amendments that are in line with the country’s intention to attract more foreign investors. These changes will bring positive outcomes to the economy.
The Decree reduces the restrictions on multinational companies and individuals seeking to invest in the country. Before this decree, onshore companies would follow strict foreign ownership laws. Foreign investors owned a maximum of 49% shares, while local shareholders owned a minimum of 51%.
Foreign Investment and UAE Nationality Requirements
Foreign investors and UAE nationalities are required to follow these new laws.
Foreign Ownership Restrictions
According to the new declaration foreign investors can now own 100% of an onshore company as long as the company does not conduct any activities with a strategic effect on the list to be reviewed by the UAE Cabinet with time. Existing foreign companies that seek to establish through the foreign ownership restrictions may consider un-doing these structures. It is essential to consult an expert from a law firm in Dubai when dealing with crucial legal matters.
The decree cancels the requirements for a representative office/branch of a foreign company to have a UAE agent. This role has been reduced to administrative functions like assisting with visa requirements and licensing.
The decree also eliminates the need for the chairman and most of the board of PJSCs to be nationals. This way PJSCs seeking to make an initial public offering can choose various candidates to run their board affairs as they prepare for IPO. The decree also supersedes and repeals the FDI Law which was finalized after the issuance of the ‘Positive List’ that includes the top 100 activities allowed in the country.
Capital Market Investments
The amendment allows any PJSC that makes an IPO on a UAE stock market to trade existing shares of up to 70% of the share capital unlike in the past where you could only sell 30%. You can sell a higher percentage with the Securities and Commodities Authority’s approval. Hiring legal consultants in Dubai can help you where you do not understand.
The decree introduces changes to the prospectus liability regime; this puts the UAE in line with the global market practice and removing a significant barrier to increasing the participation of more global banks in the country’s capital market transactions. Auditors, underwriters, and legal counsels are no longer jointly responsible for the accuracy of details of the prospectus.
Guarantees, indemnities, and other compensations given to underwriters for the subscription of shares or public offering in a PJSC no longer have to seek financial assistance. The SCA will establish new rules to manage underwriting activities in the country.
Corporate Governance Matters
Unlike in the past where the Companies Law only included rules associated with PJSCs with more than 75 shareholders; the reforms expand the corporate governance laws established by the Ministry of Economy to include all PJSCs and LLCs. The amendments also provide a closer association between LLCs and JSCs.
Share Capital and Pre-Emption Rights
The Companies Law no longer requires an authorized share capital of a PJSC; this allowed the board to increase a PJSC’s share capital up to the authorized capital limit without needing additional approval from the shareholders.
An increase in a PJSC’s share capital requires approval by the shareholders at a General Assembly Meeting. LLCs can now request the courts to approve an increase in their share capital. The substantial conditions and rules applying to the JSCs share capital reduction are no longer a part of the Companies Law. JSCs will comply with rules issued by the SCA. The strategic investor regime has been simplified by removing the need for a strategic investor.
The entitlement of an individual who has shares in a JSC after the conversion of Sukuk or bonds to dividends distributed in the same financial year as the conversion is subject to the terms and prospectus of such Sukuk and bonds. Unlike before, the decrees now establish that pre-emption rights do not apply to any shares given in conversion of Sukuk or bonds.
The decree has transformed the foreign direct investment regime and other on-going legislative reforms. These changes will attract more investors in the UAE; foreign entrepreneurs can now own 100% of their companies. The amendments are some of the plans undertaken by the government to develop the economy.