100% Foreign Investment now implemented in the UAE Commercial Companies Law

The change of the commercial companies law in the UAE, to allow 100% foreign ownership has been circling for some time in the region. The federal decree Law 26 of 2020 amendments passed on June 1st 2021. Previous to the law change, onshore companies in the UAE were legally required to have a 51% local partner shareholder, making the local partner the majority shareholder. Foreign investors would then only be permitted a maximum ownership of 49% of the local incorporated onshore company.

Some investors and entrepreneurs have previously hesitated from incorporating and investing in onshore company in the UAE due to the strict ownership regulations. The new law allows 100% foreign ownership of onshore companies for commercial activities which include general trade of jewelry, gold, pearls, luxury watched, foods, cars, trucks and more. Full foreign ownership is available for more than 1000 commercial and industrial activities including economic activities with strategic impact. The discretion of each Emirate’s Department of Economic Development (DED) in determining which activities may be conducted by a foreign owned-Onshore 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.

The movement comes as part of the UAE’s strategy to improve and grow foreign investment opportunity. The strategy also aims to boost the UAE’s appeal to entrepreneurs, investors and talent to enhance its standing as an international business hub. The new law will also offer some flexibility to foreign business owners wishing to operate outside the UAE free zones.

What is the future of the UAE Free Zones?

UAE free zones have historically attracted many investors and entrepreneurs due to the ease of doing business and 100% foreign ownership offering. Although there is likely to be less demand for free zone company incorporation, certain free zones which specialize in approved activities, which are outside the onshore parameters, are likely to see no change. Free Zones such as Dubai International Financial Center (DIFC) is one of these and will continue being a popular free zone for companies within the financial services industry which are attracted to the common law legal frameworks, independent court systems and well-developed financial regulatory regimes. While the amendments in the law are transformative, there are still restrictions on certain activities so it is important to consult an expert in UAE onshore company formation so they can advise on which license is right for you and your business activity.
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