UAE issues Permitted List with regards to the Foreign Direct Investment Law

Publication July 2019


Introduction

Following our previous update on the issuance of Federal-Decree Law number 19 of 2018 on Foreign Direct Investment (the FDI Law), the UAE Ministry of Economy has, on July 02, 2019, issued the list of activities and industry sectors in which up to 100 percent ownership by foreign investors will be permitted (the Permitted List).

The Permitted List

The Permitted List covers 122 economic activities that are divided among three main sectors, these being, agriculture, services and industry (with a number of activities for each) spread across 13 industry sectors including manufacturing, e-commerce; transport and logistics; storage; information and communications; hospitality; construction; entertainment; educational activities; healthcare and administrative and support services.

This covers a broad range of activities and may open up a wealth of new possibilities for investment across the UAE. However, the Permitted List does not set out the actual permitted ownership percentage for any of the activities set out therein. As such, not all activities within the aforementioned sectors will necessarily be liberalised. It should also be considered that, despite 100% foreign ownership being permitted in theory, this does not mean that a particular Emirate will actually effect such level, or change their current legislation at all.

The Permitted List provides for certain minimum requirements that must be met for purposes of benefiting from the FDI Law including a minimum share capital for certain activities and certain other requirements.

Benefits of Foreign Direct Investment

Pursuant to the FDI Law, key benefits afforded (amongst others) are:

  • Companies licensed as foreign investment companies pursuant to the FDI Law are treated as national companies
  • Foreign investment companies may repatriate profits outside of the UAE
  • Employees of foreign investment companies may repatriate their salaries, compensations and entitlements outside of the UAE
  • Foreign direct investment projects may not be expropriated in whole or part, except for in cases of public interest and in exchange for fair compensation calculated at time of expropriation

Uniformity

Pursuant to the FDI Law, the licensing department(s) and competent authorities are tasked with setting forth the conditions and procedures for establishment and licensing foreign direct investments as well as clarifying the required documents in accordance with the FDI Law, applicable laws in the UAE, and applicable laws in the relevant Emirate.

Local governments across the seven Emirates of the UAE will each be permitted to determine the percentage of permitted ownership in each activity in their Emirate. This suggests that Emirates may apply different limits within the same sector or activity, and that there may not be uniform consistency across Emirates. Such disparity could be a factor in “Emirate-shopping”, or determining where an entity with foreign direct investment should be licensed. If foreign direct investment is a key concern for your business, you may consider whether your goals could be achieved by licensing in another Emirate. This may increase competition across the UAE more broadly, although foreign investors can already maintain up to 100% ownership of businesses licensed in one of the UAE’s many “free zones”.

We understand that the Department of Economic Development in the Emirate of Dubai, as at the date of this alert, has accepted applications made by businesses in accordance with the FDI Law. Such applications are assessed on a case-by-case basis, taking into account a number of factors including the size of the investment in the UAE.

The Negative List

It should be noted that foreign investment in certain sectors or economic activities of the economy will remain partially or entirely restricted to foreign investment (the Negative List). Generally such sectors include, but are not limited to, oil exploration, drilling and production, the defense sector and the manufacturing of arms and equipment, insurance, financial institutions, haj and ummrah, postal services, telecommunications, ground and air transportation and blood and poison centers.

We will issue a further update when local department of economic development policies are announced.


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