New UAE Commercial Companies Law: Which companies can claim 100% foreign ownership?

On 1st June 2021, amendments to Federal Law No. (2) of 2015 on Commercial Companies came into effect to allow 100% foreign ownership in LLC mainland companies in the UAE. Until recently, foreign investors could own a maximum of 49% of shares in such companies leaving 51% shareholding for an UAE national. Or, if speaking of a branch of a foreign company, it was prerequisite to have a local service agent to be named in the license.

The amendments were initially introduced by Federal Law by Decree No. (19) of 2018 on Foreign Direct Investment (FDI). This is in line with the UAE Cabinet initiative to loosen restrictions in certain economic sectors thus making it more attractive for foreign investors to run their business in the UAE mainland market, including global startups, and enhancing the positions of the UAE as a leading Middle East economy.

No requirement for nationality is now in place for establishing a company with the 100% foreign ownership. The Law states that “a foreign investor is considered a natural or corporate person who does not hold the nationality of the State (the UAE) and who invests in the State in accordance with the provisions of this Law by Decree”. Such persons will then be eligible for a renewable three years investor or partner visa.

The aim of these changes is to promote and develop the investment environment and promote attracting foreign direct investment in line with the developmental policies of the UAE. In particular:

• Asserting the position of the State as a major attraction hub for foreign direct investment both regionally and globally.
• Attracting and encouraging foreign direct investment.
• Expanding the production base, diversifying it, and transferring and attracting advanced technology, knowledge and training.
• Increasing the flow of foreign direct investment in the priority sectors to achieve balanced and sustainable development and create job opportunities in various fields.
• Achieving the best return with the available resources and securing high added values for the State’s economy.

The new regulations are to relax restrictions for companies engaged in one of the 122 business activities which are on the Positive list fixed in Cabinet Resolution No. 16 of 2020 on the Determination of the Positive List of Economic Sectors and Activities Eligible for Foreign Direct Investment and Percentage of their Ownership (enclosed at the end of this article). Activities on the Positive list fall under the following sectors:

• agricultural sector;
• manufacturing sector;
• services sector;

and include such activities as administrative and support services, agriculture, art and entertainment, construction, educational activities, healthcare, hospitality and food services, information and communication, manufacturing, professional, scientific and technical activities, renewable energy, space, transport and storage, etc.

In addition to establishing a comprehensive Positive list, the Resolution sets forth the licensing criteria for commercial companies falling under the FDI law, including the amount of minimum share capital for each activity – varies from AED 2 to 100 mln, minimum percentage of Nationals employed by such a company, the use of modern technology, contribution to R&D, bringing high added-value, and some other conditions for specific business activities.

There are certain exemptions to the 100% foreign ownership rule. Companies carrying out activities of a “strategic impact” will continue to be subject to foreign ownership restrictions. The following activities have already been listed in the Federal Law on Foreign Direct Investment and are on the Negative list:

• Exploration and production of petroleum materials.
• Investigations, security, military sectors, manufacturing of arms, explosives and military equipment, devices and clothing.
• Banking and financing activities, payment systems and dealing with cash.
• Insurance services.
• Hajj (pilgrimage) and Umrah services, providing employment and recruitment services for staff and servants.
• Water and electricity services.
• Services related to fisheries.
• Postal services, telecommunications services and audio and video services.
• Land and air transport services.
• Printing and publishing services.
• Commercial agents’ services.
• Medical retail such as private pharmacies.
• Blood banks, venom and quarantine centres.

The Council of Ministers is eligible to add or remove activities from this list.

Also, a resolution is to be issued to specify the procedures for registering and renewing the registration of foreign investment companies in a special register at the Investment Unit called “Register of Foreign Direct Investment”.

The introduction of the law on 100% foreign ownership can affect already existing LLC companies with local shareholding which may desire to reconsider their ownership structure. To do so such companies can sell the shares belonging to an UAE national to a foreign national and thus become a 100% owner of the company. Certain charter documents will need to be amended (Memorandums of Association) accordingly. Companies planning to make respective rearrangements can do so by 2 January 2022.

Among other notable changes are:

• introduction of mandatory corporate governance rules for all companies in the UAE (expected in the near future);
• general shareholders meetings can now be held with the use of modern technology and be presided by foreign nationals as well as Emirati;
• a general meeting can be called upon the request of one or more shareholders holding a minimum of 10% of the share capital;
• the notice period for holding a general meeting has been increased to 21 days;
• the amount of shares allowed to be sold via IPO has been increased to 70% (as opposed to 30%);
• the shareholders have been given the right to sue a company in civil court in the event of any failure of duty by its directors that resulted in loss of money or damage;
• expatriates can now be on the board of directors of joint stock companies;
• and the authority to recognize required capitalization, shareholding percentages, approve the establishment of an onshore company is now with the local government institutions.

All the novelties introduced both by Foreign Direct Investment Law and the Cabinet Resolution introducing the Positive list are likely to even further open both the UAE mainland market and stock market to foreign investors and international companies, at the same time making UAE business more transparent and attractive for listing by means of introducing proper unified corporate governance standards.

You can view or download the Foreign Ownership Activities (FOA) PDF List by clicking this link: Foreign Ownership Activities (FOA)

 

Planning To Start A Company In Dubai?  How Dubai Business Lawyers Can Help

Dubai, being once known as a desert city and now a city of endless possibilities, is undeniably, extravagant and promising.  Its emergence as a commercial hub over the last 15 years has been way too rapid that it is now among the easiest and fastest to set up a business globally.

Launching a business in the region, whether branching off an existing company as part of a geographic expansion strategy or starting out a completely new different enterprise can be as fast as a flash.

In a week or so, you will be able to get your business ready with just a few ‘must-do’ and ‘must-considered’ steps.

First, you must identify the correct type of your venture. This will determine the category of your business license, which will be reflected in the trading name.

Second, the activity your business covers also defines your business structure and type of license.

Third, most of the Expats who are having a 100% ownership of the company, establish their business in a Free zone Authority where minimum official procedure and duration is needed; hence the process is comparatively straightforward.

Setting up a business in Mainland Dubai, on the other hand, requires a trade license from the Dubai Economic Department. This license requires you to have a partnership with a UAE national, who has to compulsory hold at least 51% of the total equity of the company.

Lastly, you must consult with a legal counsel in Dubai UAE to have all your legal documents (Memorandum of Association) assessed. When organizing a business, nothing is as vital as priming your paperwork as this will determine whether your company will operate in terms of profit or loss.

From business opportunities to enterprises in all sizes clearly manifest the rise of Dubai, from a desert city to a city of endless possibilities.

 

There are four basic procedures which must be followed for a person to start a law firm in Dubai,

a- Local Lawyer
To start operating in Dubai the very first thing anyone would need is to collaborate with a local lawyer having a law license which has to be valid in first instance court at least.

b- Acquire License
The person needs to acquire an establishment license from the Ministry of Justice to open a law firm from where he will get papers and card

c- License Submission
Documents which you receive from the Ministry of Justice as part of the license which later you will have to submit to the economics department.

d- Location
The ideal location would not be in JAFZA or Freezone because it is cheap and the area must be at least 40ft for the law firm to begin its operations

Things you need to know:

e- Professional Ethics
Lawyers must refrain from committing any criminal or deviant acts. There is a set of principles which have to be adhered to.

f- Charge Reasonable Amount
Whatever the case is and no matter how big the law firm is, the chargeable price for a disputed case should always be reasonable.

g- Dual Courts System
There are federal and local courts which are the dual courts in Dubai with Supreme Court based in Abu Dhabi covering different parts of the law. There are three stages to the Dubai court system, court of first instance, court of appeal and court of cassation.

h- UAE Laws Source
UAE law is mainly based on Sharia and International law. It is a civil law jurisdiction with reliance on French, Roman and Egyptian laws.

i- Rules of Law
As per rules & regulations the lawyers and advocates have to register with Ministry of Justice to practice in federal courts or other emirati courts.

j- Compliance to License & Regulations
For Legal Consultants in Dubai to provide legal services outside the court, lawyers & law firms need to get licensed with registration documents from Department of Legal Affairs.

The law firm based in DIFC has to obtain a commercial license from the authority and register itself with Dubai Financial Services Authority. Department of Economic Development has also major role to play as the formalities are to be fulfilled by the law firm.

Only local lawyers can attend court whereas foreign lawyers can practice law. For litigation and federal supreme courts only registered lawyers can attend and appear.

For practicing law in the country lawyers need an individual office in each emirate of UAE whereas main Dubai has freedom of the Rulers court.

k- Arab Gulf Cooperation Council
As a member lawyer of Arab Gulf Cooperation Council countries, you may obtain license to practice in Dubai & UAE courts. Expat Arab lawyers could practice in federal courts before but it is restricted to only Emirati nationals only.

l- License
There was a law passed in 2011, making compulsory for lawyers to get a license (requires a law degree) to offer their services legally adhering to the strict standards set by the government.

 

 

Corporate Lawyers In Dubai – Assistance In Setting Up A Business In Dubai

There are six legal procedures which have to be fulfilled for every individual who seek to start a business in Dubai which lasts up to eight days. Below are some required components:

1- Name of Company: Your trade name being an important component must clearly indicate the company’s nature of business unless a branch of company.

2- Type of Business: The type of your business will determine the kind of license you require may it be professional, industrial or commercial. Furthermore you need to get higher authority approvals for legal consultancy and more

3- Local Partner: It is required to have a local partner for DED license which is a good support for expats however it is not mandatory.

4- Owning the Company: As an expat, to get 100% ownership of your company, you will have to choose one of the free zones in UAE. Each free zone is unique catering to specific kind of activities.
For local ownership you need to get a license from Department of Economic Development (DED), however there are certain restrictions on share of ownership.

5- Legal Formation: There are some rules on forming a company that is based on the type of business and location. Furthermore there are restrictions for companies relating to company structure in each free zone.
For example to open a law firm in UAE, it has to be a branch of a company or a stand-alone company and not a sole proprietor.

6- Minimum Share Capital: The memorandum of association has to mention minimum share capital for the upcoming company, while setting up a company you don’t need to pay in most cases.

7- Office Premises: It would be best now to shortlist few offices on the basis of rent, area and location. You may select a free zone as well to get assistance on selection of a suitable place.

8- Hiring Employees: While setting up a business you may need to hire a manager to get your registration approved and in most cases like Intelaq license holders, they cannot hire staff but are able to hire contractors.

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Trademark Registration in the UAE | Legal Information about Trademarks in Dubai UAE

Trademark can be described in the form of drawings, signs, shapes or words notwithstanding voices which are used primarily by companies and businessmen for the protection of its products and services.

Each company has a specific designed trademark. Possessing a trademark is highly beneficial to businessmen and companies as it convinces a consumer to make a purchase which in return increases demand for a product or service. A trademark additionally helps customers to have an overview of the products of established companies.

How Can Lawyers Help?

For trademark registration in UAE, an application has to be duly made to the UAE Ministry of Economy by a local or foreign individual or entity. However in the event the trademark is already in existence and identical to other trademarks, the application shall be rejected. The only exception is if the trademark was removed from records then the other party may request for its use after three years of deletion.

After approval from the Ministry of Economy, the trademark has to be advertised within two newspapers before registration. Individuals have 30 days from the first date of approval being published, to contest. However, the trademark applicant may also challenge any objection raised within the 30 days.

The submitted request if rejected can be challenged within 30 days and if not accepted again, thereafter the trademark applicant can submit an application to the court to object any rejection within 60 days.

Establishing a Company in Dubai | Setting up a company in Dubai UAE

The growth of Dubai over the last 15 years as an economic hub has been prolific.  Whether wishing to establish a branch of an existing business to utilize the strategic geographical location or looking to start a new venture in the region, setting up a company here in the UAE can take as little as one working week with assistance from our corporate lawyers in Dubai.

To simplify the process, there are a number of steps to be considered and prepared for to make it as smooth as possible.

• The business type and activity will determine which category of business license will be required and should be reflected in the trading name selected.
• The structure and type of license may also be determined by the business activity your business will cover. Some businesses, Law for example cannot be licensed as a sole proprietor.
• As an expat, if you wish to have 100% ownership of the company, it will need to be formed in one of the Free-zone authorities which will in turn have restrictions on where and who you can conduct business with.
• To establish a license and carry out business in mainland Dubai, you will need to apply for a trade license from the Dubai Economic Department. This license will require you to have a local partner or sponsor who, by law, must hold a minimum of 51% ownership of the company.
• The particulars of how the company will operate in terms of profit and loss will be determined in the legal documentation (Memorandum of Association). Speak to your legal advisor to ensure your documentation adequately protects your interest in the business.

For Free Legal Consultation, Call Us Today!