Are you looking to expand your business into the Middle East? Do you want to take advantage of the booming economy and business-friendly environment of the United Arab Emirates (UAE)? What are the benefits of 100% foreign ownership in UAE for 2023?
The UAE has recently announced a new policy allowing for 100% foreign ownership of companies. You can now own and operate your business in the UAE without needing a local partner or sponsor.
In this article, we’ll look at this groundbreaking policy, explore the benefits of 100% foreign ownership, and guide you through setting up your business in the UAE. So, buckle up and prepare to maximise your business success in the UAE!
100% Foreign Ownership in UAE: Background and What Does It Mean
The UAE has long been a place of incredible potential for foreign businesses. It is home to some of the world’s most successful free zones and is known as one of the leading business hubs in the region. However, until recently, foreign investors have had difficulty accessing this potential due to restrictions on full foreign ownership.
Until 2018, foreign investors who wanted to set up a business in the UAE had to have at least one local partner or sponsor. You would split any profits made from the company with the local partner, and, as such, foreign investors could not keep 100% of their earnings.
What Was the 51/49 Ownership Structure?
To ensure that local partners had a stake in the company, foreign investors were limited to owning 49% of their business. This gave the local partner 51% ownership and majority control over the company. While this could benefit some industries, it was often seen as an obstacle for many foreign investors who wanted full autonomy over their investments.
However, things had changed since 2018 when UAE President Sheikh Khalifa bin Zayed Al Nahyan announced his vision for 100% foreign ownership in certain emirates of the UAE. Foreign investors can own and operate companies without a local partner or sponsor! This has opened up new opportunities for foreign investors and businesses looking to expand into the UAE.
Limitations of the Amended Legislation for Commercial Companies
While the UAE has opened its doors to foreign investors, commercial companies still have certain limitations. For example:
- Only offshore operations: All foreign investors must establish their business in a free zone or offshore. Since they are not allowed to operate their businesses outside of the free zones and offshore areas, which could limit their access to certain markets and customers. Also, they will find it challenging to compete against mainland businesses.
- Limited to free zones: The UAE government has designated certain areas within the country as “free zones” where foreign investors can set up their businesses. These free zones are governed by a different regulatory framework and laws, which could be more favourable to foreign investors. While foreign investors could run their businesses from the free zones, they could not sell or offer services to local customers.
- Requirement of a local service agent: A foreign investor must appoint a local service agent for the business to be registered and licensed in the UAE. The role of this service agent is to act as an intermediary between the company and the UAE government. The service agent will also be responsible for applying for visas and dealing with other administrative matters.
Highlights of the New Policy for the Foreign Investors
The UAE government has taken decisive action to open the economy and support foreign investment. In December 2020, a Federal Decree-Law was published that amended the Commercial Companies Law, easing local ownership restrictions. This was followed by an update to regulations in June 2021, allowing for 100% foreign ownership of onshore companies across many business sectors.
The Abu Dhabi Department of Economic Development and Dubai Economic Department has released lists of activities eligible for full foreign ownership – transforming the landscape for investors in the nation.
The significant changes include:
Strategic Impact: Defining the Eligible Activities
The authorities have also published a list of activities eligible for 100% foreign ownership, allowing investors to take full control of their business without needing a local partner or sponsor. Meanwhile, companies carrying out activities with ‘strategic impact’ will still have to comply with restrictions on foreign ownership.
No Requirement for Local Service Agent
With the new policy in place, foreign investors no longer need to enlist the help of a UAE National Service Agent (NSA) when setting up their business in the nation. The amendment to the law, which took effect on 30 March 2021, means companies can now establish themselves without any such requirement. This cuts out an extra step for investors and streamlines management practices.
The Ministry of Economy and the Department of Economic Development (DED) in each Emirate have updated their systems to accommodate the NSA transfer process – ensuring all clients are updated on both MoE and DED records. This is facilitated by a notarized transfer document, making the process as easy and efficient as possible.
Transition for the Freezone Businesses
The UAE government has also opened up a world of possibilities for free zone businesses transitioning to mainland UAE. With this new policy, investors gain greater flexibility regarding commercial space location and staff visa allocation.
Full ownership allows them access to UAE companies and government and increased ICV scores for tendering processes – making it easier than ever for them to succeed in the country. All told, this is an exciting opportunity that promises powerful results for businesses looking to leap into the mainland UAE.
Streamlined Management Practice
The legislative changes also bring about streamlined management practice, with all companies in the UAE now subject to improved corporate governance regulations. This includes:
- Giving shareholders 21 days’ notice for a general meeting
- Ensuring that one or more stakeholders with at least 10% of the share capital can demand a meeting be held
- Allowing virtual meetings and calls, taking advantage of modern technology
The updated regulations are an important step towards enhancing corporate governance standards in the UAE, providing greater transparency and accountability.
Becoming a Joint Stock Company
Another major change to the foreign ownership landscape is the ability for companies to become joint stock firms. Following approval from relevant authorities, they can now raise capital through IPOs by selling up to 70% of their shares – a significant increase on the previous 30% limit.
This opportunity presents an exciting gateway into financial success, providing investors with a far broader range of options when it comes to securing investment and driving profits.
Exceptions to the List of Eligible Activities
The new 100% foreign ownership policy applies to most businesses in the UAE, with a few exceptions. These include commercial agencies, ‘strategic activities’ like banking and telecommunications, and certain types of professional consultancies. Plus, branches of free zone companies must still have a UAE national agent on board.
The new legislation also grants the UAE Cabinet permission to form a committee of representatives from relevant departments to recommend activities of strategic importance and outline the licensing requirements for companies in these areas. On receiving said recommendations, the Cabinet will issue a list of activities deemed of strategic importance, along with the associated licensing procedures.
Reasons Behind the Full Foreign Ownership Policy
The 100% foreign ownership policy was implemented by the UAE government to attract more foreign investment. The UAE is already a major business hub in the Middle East. Still, it hopes this new policy will encourage even more entrepreneurs and investors to establish a business here.
Strengthening UAE’s Strategic Position as a Business Hub
The government aims to create an attractive and welcoming environment for businesses of all sizes, from startups to established multinationals. By removing barriers such as local partner requirements, the UAE can become even more attractive than it already is – especially given its strategic location between Europe, Africa, and Asia.
Facilitating Economic Recovery
This move is part of an effort to create a fertile legislative environment that will attract more foreign investment, boost the ease of doing business, and prepare the country for post-Covid recovery.
Addressing Upcoming Economic Challenges
The government hopes that this move will lead to future-proofing the economy against various disruptions in the global market and better addressing the ever-changing needs of its business community. Ultimately, it is a step towards ensuring the country remains an attractive destination for foreign entities who want to establish their presence and grow their ventures in an international marketplace.
Eligible Businesses for 100% Foreign Ownership
The UAE government has granted the power to issue decisions on the contribution of local ownership to a range of companies, with specific activities requiring foreign investors to have a stake in the capital.
Eligible Businesses in Dubai
In the UAE’s bustling business hub, Dubai, around half of all economic activities are now eligible for full foreign ownership. That’s right – 1,061 out of 2,300 total activities on the DED list can now be owned and operated without a local partner or sponsor.
Whether you’re exploring business ideas in Dubai or looking to set up a trading or manufacturing venture in Dubai, this groundbreaking policy could be just what you need to make your entrepreneurial dreams come true!
Professional services activities also benefit from the new laws, allowing entrepreneurs to set up their businesses with 100% foreign ownership. However, they must still enlist a local service agent and fully adhere to the sole establishment legal form rather than an LLC.
Major sectors eligible for 100% foreign ownership in Dubai include:
- Consultancy & Professional Services
- IT and Telecommunications
Eligible Businesses in Abu Dhabi
With 1,105 registered commercial and industrial activities eligible for full foreign ownership, Abu Dhabi sends a clear message to investors: “Welcome to our business-friendly environment.”
This policy confirms the government’s commitment to boosting Foreign Direct Investment (FDI) and creating an open, flexible economy. It’s set to propel Abu Dhabi onto the global investment map.
Eligible Businesses in Sharjah
Sharjah also announced introducing a full foreign ownership policy in June 2021. This policy has no capital requirements or additional fees for foreign investors. It also enables branches of foreign companies to operate without needing an agent.
Benefits of Full Foreign Ownership
The UAE’s new 100% foreign ownership policy has opened the country to a whole new range of investors, entrepreneurs, and business owners. Here are some of the benefits you’ll enjoy:
- Greatly reduced paperwork and bureaucratic hassle
- No need for a local sponsor/local partner
- Full control over business operations and profits
- Can be eligible to apply for UAE residency permits
- Tax benefits
UAE Golden Visa: A Pathway to 100% Foreign Ownership Business in the UAE
One of the many benefits of the UAE is that it offers foreign investors several ways to invest in and conduct business there. These include free zones, limited liability companies (LLCs) and golden visas.
The golden visa, also known as the ‘UAE Residence by Investment Program’, allows foreign investors to obtain residency in the UAE through investment or ownership of a business. This provides them with all the benefits associated with living and working in the UAE – including access to 100% foreign ownership opportunities for their businesses.
The benefits of applying for and having a Golden visa include:
- 100% foreign ownership rights in the UAE.
- Ability to open a business bank account and access business loans.
- Access to low corporate tax rates, no income taxes and no personal or capital gains taxes.
- Opportunities for visa sponsorship of family members and staff.
- Travelling freely to and from the UAE.
Wrap-Up: Maximise Your Business Success in the UAE with 100% Foreign Ownership
Establishing a 100% foreign ownership business in the UAE can be a great opportunity for entrepreneurs and business owners, but it can also be challenging. Some of the challenges include navigating the legal and regulatory landscape, understanding business practices, and dealing with language and cultural barriers.
However, the benefits can outweigh these challenges, such as the ability to have complete control over your business, increased access to the UAE market, and potential tax savings. That’s why it’s important to work with a trusted and experienced service provider like Virtuzone, who can guide you through the process, provide logistic support and help ensure your business is set up for success in the UAE.
With one-stop services and a knowledgeable team, Virtuzone can make establishing a 100% foreign ownership business in the UAE smoother and more efficient. So why wait? Contact us today, and let’s get started on your business journey in the UAE!