February 27, 2021

Volume XI, Number 58

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Time to Rethink Strategy: The New Foreign Investment Rules in the UAE

In a previous client alert (which can be viewed here), we provided a high-level summary of the key changes introduced to the United Arab Emirates (UAE) Commercial Companies Law No. 2 of 2015 pursuant to Federal Decree Law No. 26 of 2020 (the Federal Decree). 

The Federal Decree removed, with some exceptions, the long-standing requirement for UAE companies to have one or more UAE sponsoring shareholders holding at least 51 percent of the issued share capital of a company.

The Federal Decree has also abolished the former requirement for appointing a UAE national service agent. The appointment of a national service agent was a requirement for the registration of a branch or representative office of a foreign company onshore in the UAE. 

The changes related to foreign investment rules under the Federal Decree will come into effect by the end of March 2021. The Cabinet of Ministers is expected to issue a number of resolutions clarifying certain changes under the Federal Decree. We will issue a separate client alert once the Cabinet of Ministers’ resolutions are issued.  

Foreign investors operating in the UAE are encouraged to assess their existing arrangements with their UAE shareholders (for onshore companies) or national service agents (for branches or representative offices). If arrangements with UAE counterparties were put in place to comply with the previous foreign investment rules, and such arrangements are no longer required from a strategic business perspective, then it would be advisable to stress test the enforceability of these arrangements, in order to:

  1. Consider available options to retake control, including the enforceability of any contractual protections and any other securities or guarantees provided by the UAE counterparty; 

  2. Consider the impact of any potential disagreements or disputes on the business operations and licenses; and 

  3. Identify any applicable formalities or timelines that are related to retaking control or initiating termination of existing arrangements and, if applicable, dispute proceedings.

Undertaking this strategy review is essential and should be conducted in consultation with the business’s legal advisors prior to initiating any discussions with the UAE counterparty. This exercise will allow the business to consider, from the outset, any potential issues or risks and mitigate any business disruption or exposure. 

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Copyright 2020 K & L GatesNational Law Review, Volume XI, Number 26
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About this Author

Jonathan Sutcliffe International Arbitration Attorney K&L Gates Dubai
Partner

Jonathan Sutcliffe is a partner in the firm’s Dubai office where he is a member of the international arbitration practice group. Jonathan has significant experience in international arbitration and dispute resolution and has acted for numerous clients on a diverse range of international commercial arbitration, ADR, and litigation matters in the energy, construction, hospitality, real estate, defence, insurance, international joint venture, and film sectors, and on investor-state disputes.

Jonathan also sits regularly as an arbitrator, including under the rules of arbitration of the...

971 4-427-2747
Nazanin Aleyaseen Arbitration Attorney K&L Gates Law Firm
Partner

Nazanin Aleyaseen is a senior member of the International Arbitration team. She regularly advises and represents international and UAE-based companies in DIAC, DIFC-LCIA, ADCACC and ICC administered arbitration proceedings as well as ad hoc proceedings. She has full advocacy rights, and advises and represents clients, in disputes before the Dubai International Financial Centre Courts.

Ms. Aleyaseen is also a partner in the Dubai office’s Labour, Employment and Workplace Safety practice which is recognized and ranked by Chambers Global...

+971.4.427.2707
Special Counsel

Farah Al-Nabulsi is special counsel at the firm’s Dubai office. She is a member of the mergers and acquisitions practice group.

Areas of Focus 

  • Mergers and Acquisitions
971 4-427-2703
Zaid Abu-Shattal Corporate Attorney K&L Gates Law Firm
Associate

Zaid Abu-Shattal is an associate in the firm’s Dubai office. Zaid is a member of the corporate team with a focus on M&A, corporate restructuring and general corporate and commercial advice.

+971.4.427.2791
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