Is 100 percent ownership right for you?

On 1 June 2021 the amended Commercial Companies Law came into effect, allowing foreign investors and entrepreneurs to establish and fully own onshore companies in some categories. There have been clarifications on these categories that differ in each Emirate. So far, we have seen announcements from the economic departments of Abu Dhabi, Dubai, Sharjah and Ajman though for some of them the lists of exempted categories are still not final.

We chatted to Musab Iftikhar, Associate at BSA Ahmad Bin Hezeem & Associates, to understand the nuances of the new laws and what this means for businesses.

Can you give us a bit of clarity around the announcements of the new 100 percent foreign ownership and are they applicable across the UAE or are they different for each Emirate?

Article 10(3)(a) of the amended Commercial Companies Law authorizes the corporate law authority of each Emirate to have the authority to determine shareholding percentages for UAE nationals in the capitals of the companies established within such authority’s jurisdiction. Thus, the Department of Economic Development (being corporate law authority) of each Emirate will announce their own positive lists where 100% foreign ownership is announced. The Abu Dhabi Department of Economic Development (“ADDED”) and Department of Economic Development, Dubai (“DED”) have already issued this positive list of business activities where 100 percent foreign ownership is allowed with effect from 1 June 2021.

I know that there have been some details that are different between Abu Dhabi and Dubai but I understand that Sharjah and Ajman have also announced categories - what are the differences?

Following announcements by ADDED and DED, the Sharjah Department of Economic Development and Department (“SDEDD”) of Department Economic Development in Ajman (“Ajman DED”) also announced opening 100 percent foreign ownership of certain business activities in Sharjah and Ajman respectively. We cannot comment on any differences between Sharjah / Ajman and Abu Dhabi / Dubai as the positive lists are yet to be published by SDEDD and Ajman DED.

Should businesses convert to 100 percent ownership and if so, why and what are the next steps for some of the businesses in these Emirates if they want to convert to 100 percent ownership?

As of 3 June 2021, a total of 59 investors had taken steps to take 100 percent ownership, according to Dubai Media Office. As per the local press reports, two major Indian jewellery groups with significant presence in the UAE and wider GCC region have already successfully secured 100 percent foreign ownership. We expect this number to increase in coming months.

The decision to secure full ownership rests with the foreign shareholders of onshore companies. The foreign shareholders will have to take into consideration their existing relationship with their UAE national shareholders, minimum capital requirements, business objectives of a company, and the fact whether the activities conducted by their company falls under positive list. We also understand that there will be minimum share capital conditions attached to 100 percent foreign ownership. We expect further guidance on these conditions from ADDED, DED and other Department of Economic Developments of each Emirate.

What about those in the Free zones - is there still an advantage for being in the Free Zones?

With these recent changes in foreign investment regime in the UAE, one may argue that the selling point of free zones may diminish as the 100 percent foreign ownership option allowed to free zone companies is now also available to onshore companies in mainland UAE. However, we do not necessarily agree with such argument mainly because of the following reasons:

(a) Ease of doing business: A free zone company remains an easy to set up legal entity. The setting up costs in certain free zones are less than setting up an onshore legal entity in mainland UAE. Legal entities incorporated in mainland UAE are required to lease a proper physical space for most of the business activities. Certain free zones allow a flexi-office (or co-working space) arrangements where annual rents are less compared to leasing a proper office in mainland UAE; and

(b) Friendly eco-system for start-ups: Some free zones retain a significant advantage of having established a friendly eco-system for early stage start-ups. These eco-systems include innovation and technology hubs, co-working space arrangements, periodic networking events, and other wellness activities allowing such start-ups to grow their businesses. Some examples are FinTech Hive in Dubai International Financial Centre (DIFC) for fintech start-ups, Dubai Commercity by Dubai Airport Free zone Authority for e-commerce companies, etc. The ease of doing business in such free zones is far closer to global financial and technology centres than in mainland UAE.

Watch the full interview on video.