UAE’s Strategic Move on Foreign Direct Investment

Foreign Direct Investments (FDI), the ideal way of controlling the ownership of a business located in another country, has been one of the excellent practices that have been practiced by the worldwide nations to boost their economy. The United Arab Emirates have initiated a strategic move that would help the business owners to grab complete ownership of the business entities incorporated outside the free zones, tagged as “Onshore.” The call has been initiated to overcome the set restrictions mentioned in the previous UAE Federal Law No. 2 of 2015, which restricts the foreign investor from holding more than 49% of the onshore company shares.

The pandemic situation prevailing today has resulted in multiple obstacles for global business investors across different parts of the globe. To combat the situation, the Emirati Government’s strategic move of allowing complete ownership is an initiative towards a better future.  In case if you are planning to start a business in the UAE, then this is a must-know for you. This treatise highlights the essentials that a business owner should know before proceeding ahead towards company formation in the UAE.

Foreign Direct Investment (FDI) Policy in the UAE

As per the decision made under the Cabinet Resolution No. (16) of 2020, the nation issues a ‘Positive List’ of different business sectors and economic activities where 100% foreign ownership gets applicable. This move was initiated in the year 2018 under the UAE Federal Law No.19 of 2018, and the list was issued by the UAE Ministry of Economy on 5th July 2019. The United Arab Emirates holds the following government bodies as a part of the FDI application process:

  • At the Federal Level
    • The Foreign Direct Investment Committee
    • The Ministry of Economy and the Minister of Economy
    • The Investment Unit, which is to be formed within the Ministry of Economy
  • At the Emirate Level
    • The License Authority is likely to be:      
      • The Dubai Department of Economic Development
      • The Abu Dhabi Department of Economic Development
    • The Competent Authority is likely to be:
      • The Abu Dhabi Investment Office
      • The Dubai Investment Development Agency

 The Cabinet Decision focuses on specifying the scope of the dedicated business sectors, but is not limited to:

  • The permitted legal form(s) of the FDI Investment project
  • The maximum percentage of the foreign ownership that will be permitted (can be 100% or lower)
  • The minimum share capital of the licensed company
  • Conditions relating to the minimum percentage of UAE nationals employed

The United Arab Emirates provides a wide range of business opportunities to the business investors to step ahead and incorporate one. As per the plan incorporated, certain conditions are to met by the selected business sectors, which include the following:

  • Adaptation and usage of new technology
  • Realize a high-added-value
  • Contribute significantly to Research and Development (R&D)
  • Meet the respective UAE licensing requirements set by the authorities

However, with the enforcement of the FDI Law, there are multiple business segments included in the positive and negative list, which are mentioned below.

Business Sectors included in the Positive List

Agricultural Sector Activities

Manufacturing Sector Activities

Service Sector Activities

Seed Cultivation, processing, and propagation

Manufacture of food products (except):

Manufacture of bakery products

Manufacture of dairy products

Manufacture of prepared animal feeds

Accounting, Bookkeeping and Auditing, Tax Consultancy

Growing of leguminous crops

Manufacture of beverages (except):

Distilling, rectifying and blending of:

Spirits

Manufacture of wines

Manufacture of malt liquors

Architectural and Engineering Activities

Growing of vegetables, sugarcane, other non-perennial crops

Manufacture of wearing apparel (except):

Tailoring and sewing of wearing apparel

Military garments manufacturing

Manufacture of leather and related products

Medical and dental practice activities

Flowers and buds cultivation

Manufacture of wood and products of wood and cork, except furniture and manufacture of articles of straw and plaiting materials

Veterinary activities

Fruits and citrus cultivation

Straight of complex fertilizers manufacturing

Computer programming, consultancy, and related activities

Growing of oleaginous fruits, beverage crops

Manufacture of plastics and synthetic

Scientific research and development

Post-harvest crop activities

Manufacture of pesticides and other agrochemical products

Activities of holding companies in intellectual property

Silviculture and other forestry activities

Manufacture of paints, varnishes, and similar coatings, printing ink and mastics

Photography

Support services to forestry

Manufacture of soap and detergents, cleaning and polishing preparations, perfumes and toilet preparations

Specialized design activities

Growing of other non-perennial crops

Glues and prepared adhesives manufacturing

Legal translation service

Growing of pome fruits and stone fruits

Textiles and leather finishing used chemical materials manufacturing

Construction and Building or Demolition Machines and Equipment Renting

Plantation of other tree and bush fruits and nuts

Manufacture of gelatin and its derivatives

Pre-primary and primary, higher and other education

 

Manufacturing of essential oils and natural aromatic products

Sewage

 

Manufacture of pharmaceuticals, medicinal chemical, and botanical products

Waste treatment and disposal

 

Manufacture of other non-metallic mineral products

Pollution treatment and Environment Protection

 

Manufacture of essential metals (except):

Manufacture of basic precious and other non-ferrous

The casting of non-ferrous metals

Hospital activities

 

Manufacture of fabricated metal products, except machinery and equipment except:

Manufacture of weapons and ammunition

Other human health activities

 

Manufacture of computer and electrical equipment

Hotel management

 

The building of commercial vessels

Restaurant management

 

Ships and floating structures sections manufacturing

Sea and coastal freight water transport

 

Construction of floating structure

 

 

The building of pleasure and sporting boats

 

 

Business Sectors included in the Negative List

Petroleum related exploration and production

The investigation, security, military (including manufacturing of military weapons and equipment)

Banking and Finance

Insurance

Pilgrimage and Umrah Services

Certain recruitment activities

Water and electricity provision

Fishing and related services

Post, telecommunication and other audio-visual services

Road and air transport

Printing and publishing

Commercial agency

Medical retail (including private pharmacies)

Blood banks, quarantines, and venom/ poison banks

 

The above list presents the sectors that are included in both the lists and which is essential for a business owner to keep a check on this. Now, let’s move on to the next section, wherein you will get an idea regarding the legal forms approved and the registration process.

Legal Business Forms Approved Under the FDI Project

As per the legal rules, the following business entities have been approved under the FDI project:

  • Limited Liability Company, including one-person (single owner) companies
  • Private Joint Stock Company, including one-person (single owner) companies

How to Obtain an FDI License for a Business Mentioned in the Positive List?

The steps for licensing FDI Project specified under the positive list are mentioned below:

  1. Select the relevant business activity mentioned in the Positive List and the legal business structure. The UAE provides flexibility to the business investors to choose one from the different business structures available in the UAE.
  2. The next step is to register the FDI Capital, and it should not be less than the stated amount fixed by the government.
  3. The foreign direct investment application needs to be submitted after obtaining the initial approval.
  4. The business trade name needs to be fixed, and it should include the expression “Foreign Direct Investment (FDI)”.
  5. The required set of approvals needs to be obtained from the respective government authorities concerned with the FDI Company Activity.
  6. Required set of documents needs to be presented as a Proof of Submission with the required set of fees
  7. Once the approval is confirmed, and the payment is completed, the FDI License needs to be obtained
  8. The next move is to open a corporate bank account in the UAE to carry out business transactions. Here’s a guide on how to open a bank account in the UAE, which will help you to understand the process in-depth.
  9. The last step is to register the obtained license with the Ministry of Economy (MOE), UAE.

How to Obtain an FDI License for a Business Mentioned in the Negative List?

The steps for licensing FDI Project specified under the negative list are mentioned below:

  1. The business investor needs to proceed ahead by applying for approval of the project license to the Competent Authority of FDI. An alternative is to submit the request to the FDI Committee for consideration and coordination with the licensing authority.
  2. In case it is submitted to the FDI Committee, the recommendation will be submitted to the UAE Cabinet.
  3. With the involvement of the Council of Ministers, the authority will notify the applicant regarding the data and information that needs to be submitted to obtain the approval of the license.
  4. After complete scrutiny, the license will be issued by the Competent Authority. In case if the application is rejected, the decision stands as final and can’t be appealed further.

You can see that different ways need to be followed according to the business owners to register their business entities when it comes to obtaining the FDI License. However, what if you already hold a company and you need to register it? Confused? Well, the solution is below.

How to Change an Existing Company into an FDI Company?

An existing company may change into an FDI company by following the below steps:

  1. Obtain the required approvals from the governed authorities
  2. Bring evidence of the application to join the Emiratization Partner’s Club
  3. Obtain approvals by paying the relevant fee
  4. Deposit at least 20% of the capital
  5. Register the obtained license with the Ministry of Economy

Now, since it is clear with the FDI company registration process in the UAE, it turns out to be important for the business investors to understand the benefits that the business entities can avail by proceeding towards it.

Benefits and Guarantees of the FDI Policy for Business Entities

With the recent move initiated by the government, the business industries will be in a position to grab the below perquisites:

  • Ensure that the property is not expropriated except for the public benefit
  • Not to seize or confiscate project funds unless declared by the court
  • The licensed FDI companies will be given the status of national companies
  • Flexibility to hold complete ownership of the business entity
  • Proceed with financial transfers for project returns dealing outside the country
  • Include a business partner at any point of the business cycle
  • The business owners can be transferred to a new investor at ease
  • Higher opportunities for mergers, acquisition or company liquidation

In short, you can see that the business owners and investors have got a broader platform to implement their business ideas in the ground of Dubai. The Emirati government has taken multiple strategies to grab a higher FDI value and create a suitable and sustainable business environment. Are you wondering how? Well, have a look at the next section.

Benefits of Starting a Business in the UAE

The Emirates is one of the prospering grounds when it comes to the business establishment. Starting from attracting business tycoons and experienced professionals, the region is a suitable platform for the newbies in the market. The benefits that can be availed by the professionals include the following:

1.A Growing Business-Platform

The UAE has been one of the first choices among business investors when it comes to the business establishment. It is home to millions of expats over 200 nations and has scored the 16th Doing Business Rank for the year 2019-2020, focusing on ease of doing business.

2.Wide Range of Business Opportunities

The area is an open ground for different business sectors and both experienced and newbies in the market. Ranging from a retail store to an MNC, UAE provides the correct platform for each one of them.

3.Flexibility to Choose Strategic Location

The business owners can choose the specific business location among the Mainland, Free Zones, and Offshore zones in the UAE. The decision should be finalized based on the available number of shareholders and the availability of the capital.

4.Upcoming Expo 2021

The upcoming Expo 2021, which is expected to be held in Oct 2021, would fetch-in multiple business establishments and collaboration options, which will be an excellent ground for the business investors/ owners to give international wings to their business.

5.Tax Exemption

Tax is one of the major concerns for any business investor. As the article highlights, the strategic move initiated by the Government of the UAE will turn out to be favorable for the investors.

There are multiple positive aspects which you can take as advantages by starting a business in the UAE. In the initial phase, it is recommended to proceed ahead with business experts who can guide you effectively and handle the legal processes.

We at Business Setup Worldwide are here to support the business minds in transforming their ideas into reality. Since inception, our team has been helping multiple business investors to incorporate their businesses across the globe. Our business advisors are proficient with the business incorporation process in the UAE and can guide you by providing tailored solutions. In case you hold any queries, feel free to have a word with our experts. To know more, contact us today-we’d be glad to assist.

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