The New 2018 UAE Investment Law

The United Arab Emirates has made an important leap by issuing Federal Law No. 19 of 2018 on Foreign Direct Investment (FDI) to promote and develop the investment environment and enhance attracting foreign direct investment through advantages and guarantees. This law is considered as a start towards the globalization of mainland economy, which is compatible with the changes and developments in the world, especially foreign ownership in investment projects, as well as a necessary incentive to expand the production base and diversify it, attract advanced technology and provide job opportunities and training for national human resources.

The Law is perfectly in line with the UAE national visions and plans, which aim at further fostering the country's attractiveness for foreign investments and strengthening the national business climate.

Federal Law No. 19 of 2018 on Foreign Direct Investment

Article 10 of the UAE Commercial Companies Law sets out the foreign ownership restriction which requires, in UAE mainland (ouside of special economic free zones) that 51% or more of the shares in a company must be owned by a UAE national shareholder. In September 2017, the UAE government amended the UAE Commercial Companies Law to allow the UAE Cabinet the flexibility to permit increased levels of foreign ownership in specific companies and sectors of UAE economy.

The new FDI Law introduces the framework under which the UAE Cabinet will exercise its powers in respect of permitting increased levels of foreign ownership, and sets out details of the process which foreign investors will be required to follow in order to apply to own more than 49% of the shares in the capital of companies operating in certain sectors of the economy.

Foreign Direct Investment Projects

The 2018 FDI Law refers to projects in sectors of the economy that are not restricted in the 'negative list'. Where a foreign investor wishes to own more than 49% of the shares in a Foreign Direct Investment Project, it may apply for permission to establish a Foreign Direct Investment Company.

The FDI law also sets out, at a high level, the procedure which foreign investors will need to follow in order to apply for permission to invest in a Foreign Direct Investment Project.

Negative list

Under the 2018 FDI Law, foreign investment may be permitted in sectors of the economy if those sectors do not appear in a "negative list". The UAE Cabinet may add sectors to, or remove sectors from, the "negative list". The sectors of the economy that are listed in the "negative list" in the FDI Law are:

• Oil exploration and production

• Investigation, security, military (including manufacturing of military weapons and equipment)

• Banking and financing activities

• 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 pharmacies)

• Blood banks, quarantines and venom/poison banks

Positive list

The 2018 FDI Law establishes a "positive list" of sectors in which greater levels of foreign investment will be permitted (more than 49%). The 2018 FDI Law does not contain any details as to which sectors of the economy will appear in the "positive list" and grants the UAE Cabinet the authority to issue decisions which add sectors of the economy to the "positive list".

When a sector of the economy is added to the "positive list", the UAE Cabinet may mandate that certain requirements are satisfied by a company or its shareholders before greater levels of foreign investment will be permitted than is currently the case. By way of example, the UAE Cabinet may:

• mandate the level of foreign ownership permitted in the relevant sector (which could be 100%, but could also be less than 100%)

• place restrictions or requirements in respect of the type of legal entity which may carry on business in the relevant sector

• apply minimum capital requirements

• impose Emiratisation requirements

• allow greater levels of foreign ownership than is currently the case in specific Emirates (not across the UAE).

The FDI law sets out, at a high level, the procedure which foreign investors will need to follow in order to apply for permission to take advantage of the increased levels of foreign investment that may be permitted in the sectors of the economy that are listed in the 'positive list'. An application which is rejected may be appealed under a procedure set out in the FDI Law.

Government bodies

The 2018 FDI Law establishes two government bodies: a Foreign Direct Investment Unit and a Foreign Direct Investment Committee. The FDI Law sets out the role of each of these bodies in administering the foreign direct investment landscape in the UAE.

Other provisions

The 2018 FDI Law contains a range of other provisions addressing what constitutes capital invested in the UAE, dispute resolution and penalties. Over the coming months, JIACC will publish further updates on the changing foreign direct investment landscape in the UAE.