In early 2021, the UAE introduced significant changes to the foreign ownership restrictions (or Foreign Investment Restrictions). The general long-standing requirement for 51% of the shares in a mainland or onshore company to be held by UAE national(s) (natural or legal persons) was removed.

Consequently, Federal Decree-Law No. 32/2021 on Commercial Companies was issued on September 20, 2021 (which came into effect on January 2, 2022) ("Commercial Companies Law"). The Commercial Companies Law permits investors to own up to 100% of shares in UAE companies eliminating any requirement for a local shareholder and also establishes a branch office of a foreign company without the need to appoint a local service agent.

However, certain sectors such as oil and gas, utilities and companies carrying on activities with a “strategic impact” (discussed in Sections 4 and 5 below) continue to be subject to restrictions on foreign ownership. Foreign investors may now own and control “onshore” companies (i.e., companies outside of the UAE’s free zones (including the financial free zones)) without the need to employ nominees or similar structures. Furthermore, entities with a single shareholder, which previously had to be wholly owned by UAE nationals, are now eligible to be 100% owned by foreign investors on the assumption that they are licensed for an FDI Activity. In addition, the UAE has more than 40 free zones in which 100% foreign ownership is permitted. The entities established in a free zone can undertake their licensed activity within the geographical limits of the free zone.

Historically, the Foreign Investment Restrictions were a result of economic protectionism in favor of UAE nationals and wholly owned UAE entities. Additionally, the various economic departments of each emirate have fairly broad discretion to accept or reject acquisitions of entities licensed by these departments. Though national interest is not specified, a transaction may be rejected on this basis. However, there are no regulatory rules or guidelines in this regard.

Foreign investors are, subject to our comments below, investors from all countries outside the UAE.

A ‘Foreign Investor’ is defined in the Cabinet Decision No. 55 of 2021 On the Determination of the List of Strategic Impact Activities ("Cabinet Decision No. 55") as a ‘Physical or moral person not holding the State’s nationality and who invests in the State.’

The UAE extends national treatment to Gulf Cooperation Council ("GCC") nationals from other GCC countries (the GCC comprises of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE).

The legal and administrative sanctions imposed by the UAE in June 2017 on Qatar with a political and economic boycott have now been lifted. Additionally, the Arab League Boycott of Israel which was made law in the UAE pursuant to Federal Law No. 15 of 1972 was repealed in its entirety by Federal Decree-Law No. 4 of 2020.

As indicated above, certain sectors such as oil and gas, transport and utilities and companies carrying on activities with a “strategic impact” will continue to be subject to restrictions on foreign ownership. Cabinet Decision No. 55 of 2021 lists the following as ‘Strategic Impact Activities’:

• Security and defense activities and activities of a military nature
• Banks, money changers, finance companies, and insurance activities
• Printing currencies
• Telecommunications
• Hajj and Umrah services
• Quran Memorisation Centres

The aforementioned Strategic Impact Activities are subject to the approval and requirements of the relevant regulatory authority in terms of:

1. Determining the percentage of the UAE nationals’ contribution and/or the percentage of the Foreign Investor’s contribution to the capital.
2. Determining the percentage of the UAE nationals’ contribution and/or the percentage of the Foreign Investor’s contribution to the membership of Boards of Directors (if any).
3. Any other conditions or rules deemed proper by the relevant authority. Cabinet Decision No. 55 of 2021 also provides that in relation to fisheries-related services, the contribution percentage of UAE nationals for this activity will be 100%.

Subject to any mandates of the UAE Cabinet in relation to “strategic impact” activities (like the ones mentioned in Cabinet Decision No. 55 of 2021), the power to issue decisions on the contribution of UAE nationals to the capital in companies has been devolved to the governments of individual Emirates.

The Abu Dhabi Department of Economic Development has adopted a negative list approach such that it permits foreign investment up to 100% in all commercial and industrial activities except for the strategic impact activities. These strategic impact activities (a total of 85) are identified in Abu Dhabi Administrative Decision No. 320 of 2021 and include commercial agencies as well as activities relating to security and defense, banking activities, telecommunication, etc. The Emirates of Dubai, Sharjah and Ajman have issued a list of activities (totalling more than 1,000) where foreign investment up to 100% is permitted.

The discretion of each Emirate’s Department of Economic Development in determining which activities may be conducted by a foreign owned-company may result in different foreign ownership regimes applying to companies operating in the same sector, depending on which one of the Emirates an entity is incorporated in. We have not yet seen any policy differences between Emirates as to percentages of permitted ownership.

Notification is mandatory in the sense that approvals for obtaining a license wholly owned by a foreign investor are required and are subject to the discretion of the local licensing authorities (i.e., the relevant economic departments) of each Emirate.

The approval of the local licensing authorities (i.e., the relevant economic departments) of each Emirate is required in order for the foreign investor to hold shares in the relevant companies. Additionally, approval of any local or federal regulatory authority may also be required depending on the type of activity, for example, certain health-related activities may require approval of the relevant health authority.

As with most jurisdictions in the region, the UAE faced some pandemic-related economic challenges, with the aviation and tourism sectors feeling the brunt of the impact. However, various business relief packages were put in place for the benefit of UAE businesses. There were no specific measures targeted at foreign investment in the UAE. Due to the substantial number of economic support packages and initiatives provided by the federal and local governments since the beginning of the pandemic, the UAE has emerged relatively unscathed during this period.

According to the World Investment Report 2023 issued by the United Nations Conference on Trade and Development ("UNCTAD"), the value of foreign direct investment ("FDI") inflows to the UAE in 2022 increased by 10 percent (USD 2.07 Billion) amounting to USD 22.737 billion (AED 83.5 billion), to rank 16th globally in FDI inflows in 2022.¹

The UAE is reported to be ranked first in the West Asia region since it received 47.1 percent of the total FDI inflows to the region, amounting to USD 48.3 billion. The UAE also was ranked 1st in the MENA region as it accounted for 32.4 percent of the total FDI inflows to the region, amounting to USD 70.2 billion.

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1 https://economictimes.indiatimes.com/news/international/uae/as-the-uaes-foreign-investment-soars-dubai-reigns-as-indias-prime-destination-for-fdi/articleshow/104465263.cms 
2 https://u.ae/en/information-and-services/finance-and-investment/foreign-direct-investment. 

As long as foreign investment is permitted in law, there are generally no delays in the review and approval of foreign investment into companies in the UAE.

Please refer to our response to "How active has your agency been in reviewing, delaying, modifying or blocking foreign investments?" above.

Whilst not specific to foreign investment alone, it should be noted that Federal Law No. 4/2012 on the regulation of competition ("Competition Law") was introduced into the United Arab Emirates as a means to regulate anti-competitive practices. Amongst other things, the Competition Law includes a requirement that acquisitions over a threshold combined market share obtain merger clearance from the UAE Ministry of Economy (the Ministry).
As a result of the Competition Law, merger clearance will be required in advance of any proposed merger, acquisition or other consolidation of two or more entities that would result in a market share of 40% or more.

The Competition Law does not apply to certain small and medium establishments. The definition of a ‘small and medium establishment’ varies according to whether the relevant entity operates in the trade, industry or services sector. Small and medium establishments are also identified by turnover and number of employees.

Finally, it should be noted that the Ministry also has the power to investigate a potential violation of the Competition Law of its own initiative or otherwise following a complaint brought before it. Failure to notify a reportable economic concentration may result in a fine between 2% and 5% of turnover generated by the relevant undertaking in the UAE in the last financial year or if data is not available, a fine of between AED 50,000 and AED 5,000,000.

Given the recent overhaul, the regulatory developments with respect to foreign direct investment should be minimal over the next 6 months. Instead, we will wait to see how the changes will be implemented in practice.

On a more general note, following the implementation of VAT and excise tax and the introduction of the Economic Substance Regulations, the UAE government has introduced corporate tax with the issuance of Federal Decree-Law No 47/2022 on the taxation of corporations and businesses ("Corporate Tax Law"). The Corporate Tax Law took effect on 1 June 2023 and imposes a corporate tax rate of nine percent for taxable income in excess of AED 375,000 with a higher rate being applicable for large multinationals. The UAE Federal Tax Authority continues to release and publish additional guidance and direction detailing the interpretation of the Corporate Tax Law and its implementation. Further guidance is expected to continue as the UAE Corporate Tax regime is presently in its infancy.