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UAE Foreign Direct Investment Law

His Highness, The President of the UAE recently issued Federal Decree-Law No. 19 of 2018 on Foreign Direct Investment (“FDI Law”), giving life to one of the most anticipated legal developments in the UAE and putting in place the next step towards enabling 100% foreign ownership of UAE companies outside of various designated freezones that exist throughout the UAE, relaxing the current restrictions on foreign ownership for onshore limited liability companies that requires that 51% or more of the shares in a limited liability company established in the UAE onshore must be owned by a UAE national shareholder, whether as an individual or a company wholly owned by UAE nationals.

FDI Unit

Pursuant to the FDI Law, the Foreign Direct Investment Unit (“FDI Unit”) will be established by the UAE Ministry of Economy.  The FDI Unit, under the guidance of the UAE Cabinet, will be responsible for proposing Foreign Direct Investment (“FDI”) policies in the UAE.  In particular, the FDI Unit will oversee the creation of an attractive environment for FDI, facilitating procedures for registering and licensing FDI activities, as well as monitoring and evaluating their performance in the UAE.

In addition, the FDI Unit will be responsible for establishing a comprehensive database of approved FDI activities which will be reviewed and updated on a periodic basis.  When determining whether certain activities should be approved, the FDI Law provides that the FDI Unit must take into account the following criteria in respect of the proposed activity:

  • integration with the strategic plans of the UAE;

  • any added value to the UAE economy (e.g. achieving economic returns, innovation and technological enhancement and job opportunities for UAE nationals);

  • competence, experience and reputation of the relevant foreign investor;

  • impact on other national companies engaged in similar activity; and

  • whether the activity achieves a positive impact on the environment in the UAE.

FDI Database and Restricted Activities

Under the FDI Law, FDI activities may be permitted in certain industry sectors provided the same do not appear on the “Restricted List”, i.e. areas of economic activity that will not permit foreign ownership in whole or part- which simply reflects existing arrangements.  At today’s date the following activities have been classified as restricted economic activities:

  • Oil exploration and production;

  • Investigation, security, military (including manufacturing of military weapons, explosives, dress, and equipment);

  • Banking and financing activities;

  • Insurance;

  • Pilgrimage and umrah services;

  • Certain recruitment activities;

  • Water and electricity provision;

  • Fishing and related services;

  • Post, telecommunication and other audio visual services;

  • Road and air transport;

  • Printing and publishing;

  • Commercial agency;

  • Medical retail (including pharmacies); and

  • Blood banks, quarantines and venom/poison banks.

Impact and Next Steps

The FDI Law aims to increase the flow of FDI into the UAE in priority industry sectors to achieve balanced and sustainable development, job opportunities (particularly amongst UAE nationals) and the best returns.  

Notwithstanding the Restricted List, it is notable that the FDI Law does not identify which industry sectors will automatically benefit from the relaxation of the current UAE foreign ownership restriction.  Consequently, we await the UAE Cabinet and the FDI Unit to provide further guidance on which industry sectors will be on the FDI Law’s “Approved List”.  Connected to this, we also await information of how applications for an Approved List business might be made, what fees and timelines will be applicable and whether there might be (for example) any special share capital obligations or Emiratisation quotas for those businesses that successfully establish under the Approved List.  Furthermore, could companies that currently exist under the 51%/49% shareholder seek to reorganise under the Approved List or will the FDI Law simply be forward looking. 

This is a significant and welcome development in encouraging further FDI into the UAE.  That said, the “proof is in the pudding” and in particular knowing what (if any) restrictions might be placed on a 100% limited liability company that may not exist under the current construct.

© 2020 Bracewell LLP


About this Author

Chris Williams, corporate attorney, Middle East, Bracewell law firm
Managing Partner, Dubai

Chris Williams is a member of the firm’s Business and Regulatory Group. His practice focuses on corporate mergers and acquisitions private equity, and company and commercial work.

Mr. Williams’ clients are drawn from a variety of sectors including manufacturing, retail, consumer goods, the defense sector, oilfield services, media, publishing, hospitality and recruitment. He also counsels private individuals and not-for-profit organizations. 

Chris has experience advising clients on a wide range of Middle East and...

David Pang Corporate Lawyer Bracewell Law Firm
Senior Counsel

David Pang focuses his practice on corporate transactions and commercial matters at the Dubai office of Bracewell LLP. He advises on cross-border M&A, private equity and venture capital investments, share and/or asset acquisitions/disposals, joint ventures, legal due diligence, commercial contracts, corporate restructuring and corporate governance throughout MENA, U.S., Europe and Asia.

He has represented a range of clients, including private and listed companies, high net worth individuals and family groups, sovereign wealth funds, private equity funds, banking and financial institution involving transactions across all industry sectors. 

In addition, David has developed a specific interest in the energy sector.  In the oil and gas space, David advises clients on oil and gas transactions across the upstream, midstream and downstream value chain and the related legal documentation including PSAs, JOAs, JV/shareholders agreements, and oil and gas sales and transportation agreements.  In the renewables space, David’s power project experience includes advising on EPC and O&M contracts, PPAs, and various project and financing documentation for solar PV and wind farm projects.

David also brings a clear understanding of the commercial approach and practical needs of in-house legal teams having spent 8 months on secondment with a national oil company and 3 months on secondment with a renewable energy PE fund.