New law allowing full foreign ownership of onshore companies takes effect on June 1

The UAE government confirmed that new rules allowing full foreign ownership of onshore companies will come into force from June 1.

The changes to the commercial company ownership laws, which were first announced in November last year, remove the requirement for onshore companies to have a major UAE shareholder.

They also abolished a provision mandating that a UAE national or UAE-owned company was required as an agent and that a company's board needed to be made up of a majority of UAE nationals and chaired by an Emirati.

"The amended Commercial Companies Law aims at boosting the country’s competitive edge and is a part of UAE government efforts to facilitate doing business," Abdulla bin Touq Al Marri, Minister of Economy, said.

Mr Bin Touq said the law changes will bolster the UAE’s appeal as a destination for both foreign investors and entrepreneurs. It will also encourage the flow of investment to some vital economic sectors, he added.

The changes are part of a series of measures introduced to make the UAE a more investment-friendly destination, which have also included the offer of 10-year visas for investors and citizenship for talented individuals.

On Saturday, UAE Vice President and Ruler of Dubai, Sheikh Mohammed Bin Rashid highlighted how foreign direct investment into the country grew 44 per cent last year to Dh73 billion ($20bn) despite FDI globally decreasing 42 per cent, as Covid-19 restrictions limited travel.

"Good crisis management is a guaranteed investment," Sheikh Mohammed said on Twitter.

"Undeniably, this is a landmark reform that will boost the country’s economy and strengthen its competitive edge," Lorenzo Jooris , chief executive of company formation agency Creative Zone, said.

"Sharing a large percentage of proprietorship with a local partner always had entrepreneurs in a fix, and now [with] that being gone, we can expect a surge of foreign direct investment into the country," he added.

The change "makes operating onshore a lot simpler and a lot less costly", Taimur Khan, head of research at property consultancy CBRE, said.

"Over the last couple of years you've seen a lot of fees and a lot of redtape being removed. For a global corporate who previously would not have been comfortable [operating onshore as a minority partner], this makes a huge difference. Given that the region is becoming a lot more competitive, it will ensure the UAE remains competitive."

After the forthcoming law changes were announced last November, "we saw an immediate increase in the number of investors and potential investors seeking to establish wholly owned start-ups in the UAE", Campbell Steedman, managing partner at law firm Squire Patton Boggs said.

As such, he does not expect a further rush now that the implementation date is set, "but we do expect to see a continuation of existing levels of interest".

Mr Steedman also expects it to spark more company merger activity.

"The clarity over the ability to own 100 per cent of the capital of an onshore entity may stimulate greater interest from foreign investors seeking to acquire UAE businesses in a manner which has not previously been possible,” he said.

The change is not likely to be a substantial threat to the UAE's free zones, Mr Khan said, as 100 per cent foreign ownership was only one of a number of benefits they offer.

Exemptions from customs duties and other taxes are also significant advantages, particularly as dual licensing arrangements mean companies can effectively operate onshore from their offshore base.

"For a global corporate, that makes quite a significant difference," he said.

There are still some sectors to which the new rules do no apply, such as defence and oil and gas, Haytham Alieh, a partner specialising in dispute resolution at law firm BSA Ahmad Bin Hezeem & Associates, said.

Some companies, such as Apple and Microsoft, had secured exceptions by pledging a miniumum level of investment but the change will open the door to other big companies who might have been concerned about going into business with a local partner they weren't familiar with.

"That might [have been] a step to be taken backwards by those companies, saying 'I don't want to invest because I know no-one'. Now, they don't have a reason to say no. Everything is now open for them."