23rd May 2018
100% foreign ownership of companies and 10 year visas are to be introduced in the UAE. Limited details have been announced in the local media.
Changes to UAE business ownership and residency announced so far:
- Visas with a validity of up to 10 years will be available for specialists in medicine, science, research and technical fields, such as doctors and engineers. Visas with the same longevity will be available to their families.
- Investors setting up a business will have access to visas with a validity of up to 10 years.
- 100% foreign equity ownership of UAE companies in some sectors.
- Students will have access to five year visas.
Gateway's CEO, Jenny Hunt, comments on the announcements and shares her views:
Q: Were the announcements about the changes of foreign ownership levels and 10 year visas a surprise?
"Since the Commercial Companies Law was updated in 2015, it was announced there would be future changes to foreign ownership levels of UAE businesses. Over the last few months, there have been an increasing number of hints that the changes were imminent. At the moment, we can only guess what those changes might be. As for the 10 year visas, I wasn't expecting this."
Q: How does the 100% foreign ownership of UAE companies change from the current regulations?
"Currently it is possible to own a company 100% in the UAE. 100% foreign ownership is allowed in the free zones. 100% foreign ownership is also possible onshore for Foreign Branch structures. (Read our article about Foreign Branch setups).
"As a company formation specialist in Abu Dhabi, I liaise with companies interested to setup businesses in Abu Dhabi. Currently, to establish a Limited Liability Company (LLC) in Abu Dhabi, 51% of the business must be owned by a local partner. The local partner can be either an Emirati individual or 100% Emirati-owned business. This concept is often alien to foreign companies. It is considered a massive risk to the operation, management and profit of the business. There are of course ways these risks can be mitigated. (Read our article about How to choose a local partner.) However, for particularly risk averse companies, the LLC is just not an option."
Q: What will 100% foreign ownership actually mean for the UAE?
"Allowing 100% foreign ownership in UAE companies will be more attractive and less risky. Updating the business ownership regulations to be more attractive to foreign companies will generate a lot of interest. Companies which have been too cautious to setup a business in the UAE to date will hopefully re-evaluate the opportunities. I'm sure that allowing 100% foreign ownership in certain sectors will help to develop the economy. It will also position the country as more open to doing business."
Q: Which sectors will be opened up to 100% foreign ownership?
"The million dollar question! At the moment we can only anticipate which sectors the new regulations will apply to. I think they will be areas where the UAE wants to develop the economy, away from oil, and has a skills shortage. Perhaps they will match the disciplines which have been outlined for the 10 year visas. I wonder if there will also be a requirement for some kind of knowledge transfer?"
Q: Will entrepreneurs benefit from the new regulations?
"If there are special regulations for entrepreneurs and start ups that will be great too. Apparently, investors in UAE businesses will be able to apply for the new 10 years visas, which is really positive. This will provide more stability. It will also reduce the hassle factor of regularly renewing the visa. New, innovative businesses fuel the economy. Currently, for an entrepreneur to setup a business in Abu Dhabi, the requirements are exactly the same as for multi-national conglomerates. The fees are the same too. Being able to own their new business 100% will be very attractive. I wonder whether there will also be changes to the current requirements for commercial premises with each Trade License too? Many startups don't need an office. In today's technology age, we all work on the go. Sitting in an office from 9am-5pm is rather old fashioned. This would make business setup and licensing more affordable for an entrepreneur in Abu Dhabi."
Q: What will the changes mean for existing companies in the 51%/49% LLC structure? Will they be able to take advantage of the new regulations?
"Providing the existing company meets the requirements of the new regulations, they will be able to amend their shareholdings. Changing the ownership of an LLC can be done relatively easily through local advertising and updating the company's Memorandum of Association (MOA).
"On the flip side, how will the changes affect Emirati local sponsors? It may be the 100% foreign ownership structure requires a local Service Agent, similar to a Foreign Branch. The Service Agent would assist the foreign company but not hold any shares in the Abu Dhabi company. However, to really drive Foreign Direct Investment (FDI) into the UAE, I don't see this happening. It appears to me that the plans are to really open up the market to attract FDI. As such, existing Emirati local partners will need to adapt to help foreign companies with their market entry, introductions and navigating the regulations and processes to survive. That said, the new regulations won't affect all sectors, so there will still be local sponsorship opportunities for Emiratis.
Q: Will the new regulations be applicable UAE-wide?
"This is an interesting question. Media reports recently suggested the foreign ownership changes would be in Abu Dhabi. However, it was His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, who announced the changes. This suggests the changes will be federal. If so, I wonder if the systems and processes for each of the Emirates will be joined up? Currently, the requirements and processes for setting up a business vary from Emirate to Emirate.
Q: How do you see the changes affecting free zone companies?
"I think the changes to foreign ownership regulations will help companies to make the right decisions in terms of the structure and locations of their business in the UAE. Too many companies have setup incorrectly in free zones which should be set up onshore. If the risk is removed, then its more attractive for them to be legal and compliant, which has to be a good thing."
Q: To conclude, what is your overall view of the announcements?
"I think the changes all sound very interesting. I'm looking forward to learning more about the specific details, particularly which activities will be affected and the regulatory requirements. In the interim, it leaves us in a state of flux, especially talking to potential investors, because I think companies will delay their market entry decision until they know more. However, in the longer term, I expect that more and more sectors will be opened up on a gradual basis."
The new regulations are due to be in place by the end of 2018.
Written by Jenny Hunt, Founding Partner & CEO, Gateway Group of Companies
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