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UAE Federal Law on Foreign Direct Investment

As the Covid-19 pandemic continues to rip nations, governments are forced to impose strict public health measures, such as social distancing, to physically disrupt the conta- gion

UAE’s Response

UAE has always been the most favoured investment destination in the Middle East and the credit goes to the timely decisions taken by the visionary leaders. We have seen a flurry of investor friendly measures in the past which has helped UAE retain its global reputation intact.

It is heartening to see the numerous initiatives taken by the UAE Government to support the business community at this challenging time. In the past few weeks, we have seen a spell of encouraging announcements aimed to provide relief to various sectors of the economy.

Background of the new FDI Law Update

Positive List Resolution

On 23 September 2018, Federal Decree-Law No.19 of 2018 on Foreign Direct Investment (FDI Law) was issued allowing increased levels of foreign ownership by foreign investors in certain companies and sectors of the economy. Later in 2019, the UAE government approved the ‘Positive List’, outlining the details of relevant activities and sectors wherein foreign investors can invest up to 100% in mainland companies in UAE. The primary objective of the FDI Law is to attract large scale investment by foreign investors by providing exceptions to the provisions of the Federal Law No. 2 of 2015 on Commercial Companies which mandates that foreign shareholders can only hold up to a maximum of 49% of a mainland company’s shares.

On 17 March 2020, the UAE Cabinet issued a Cabinet Resolution setting out the ‘Positive List of Economic Sectors and Activities in which Foreign Direct Investment is Permitted’ termed as the ‘Positive List Resolution’. The Positive List Resolution is now in effect as it was published in the Official Gazette dated 31 March 2020.

The positive list available to the foreign investor at 100% ownership

Negative List

The FDI Law, has published a ‘Negative List’ for sectors where foreign investment above 49% will not be permitted. The Law states that the UAE Cabinet has discretion to amend the “Negative List” by adding or removing sectors. 13 sectors are currently specified in the ‘Negative List‘, including oil exploration, the defense sector insurance, financial institutions, telecommunications as well as

ground and air transportation.

Sectors and General Conditions

The activities on the FDI’s Positive List span across three sectors:

19 activities in Agricultural Sector

51 activities in Manufacturing Sector

52 activities in Services Sector

The Foreign Investors have to meet the general conditions which are applicable for all the three sectors:

Use of advanced technology;

Adding value to the UAE economy;

Contributing to Research and Development; and

eeting the requirements of the licensed activities.

Capital Requirements

The FDI Law requires a minimum capital investment between AED 7.5-10 Million for the Agricultural and between AED 2-100 Million for the Manufacturing Sectors, while the capital requirement for the Services Sector will be in accordance with the legislation in force. It should be noted, however, that the Resolution relies on the general minimal capital requirements for some commercial activities.

Benefits for Foreign Investors

Opportunity for existing companies

The new FDI Law is not only applicable to new companies, but also provides the opportunity to existing companies to change into a FDI Company. I believe that this will be something that many of our esteemed clients would like to explore.

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