As the UAE’s economy is booming in all respects, the country is trying to adapt to the best economic policies that will help support the growth and development of the UAE as a platform for budding investors and entrepreneurs. It is part of this explicit growth that the country has now introduced the policy of bringing in 100% ownership for all foreign investors, which avoids the need for any local partner or sponsor.
Here in this blog, we are trying to explore more about the policy of 100% ownership and to guide you in setting up a business in the UAE.
As said earlier, the UAE has been in a constant state of working to make it one of the indispensable business hubs in the world, but foreign investments and investors starting their businesses in the UAE have been quite difficult because of the impending restrictions.
The major reason was the need to team up with a local resident or sponsor, and there was a dedicated ratio with which they had to share their profits with that of the resident or residents of the UAE.
The scenario was the same up until 2018, and it slowly changed in the coming years.
The profit sharing was in defined percentages, where the local residents or sponsors got the dominant majority of 51% and the foreign investors only 49% of the profits. This restricted the foreign entrepreneurs' ability to have complete control and autonomy over their business activities. It was in 2018 that the UAE government decided to scrape off these 51% and 49% profit-sharing ratios and make 100% full foreign ownership.
Benefits of the new 100% foreign ownership policy
Initiation of the change of law was brought in the year 2018, which was gradually eased out completely in the year 2021 and has been changing its course to be more adaptable on the run. Here are some of the significant features of the new business policy.
- Defining eligible activities
The UAE government and the concerned authorities have listed out the eligible activities that are eligible to line up with the prospects of the new policy of 100% foreign ownership. But the companies that have a strategic impact still have to comply with the foreign ownership restrictions as suggested by the UAE government and relevant authorities.
- No need for local sponsors
The best outcome of the adoption of 100% foreign ownership is that foreign investors and entrepreneurs no longer need to look into roping in local sponsors or national service agents in order to set up a business in the UAE. The rule came into complete effect on March 30, 2021. Existing businesses can also avail themselves of the service through the structured and streamlined process that the Ministry of Economic Affairs and the Department of Economic Development have created, which is called the NSA transfer process. The document of transfer is notarized to ensure the efficiency of the transfer.
- Transition for freezone businesses
100% foreign ownership was formerly possible only in the freezone locations, and this was one of the major reasons why businesses were more interested in starting businesses in the freezone of the UAE. Now, with the recent amendment to the rule, freezone businesses in the UAE can transition themselves to mainland businesses. The businesses are also benefiting from the advantage of getting better commercial space locations and staff visa allocations.
- Better management practices
The rule and regulation changes have also aligned with the upcoming streamlined registrations, which are effectively implemented on the:
- The shareholders are given an upfront notice of 21 days.
- A shareholder who is in possession of more than 10% of the share capital can hold a meeting in demand.
- Virtual meetings and calls are allowed.
- Exceptions to the list of eligible activities
Even if the foreign ownership policy is set and put into action, there are still restrictions on the number of industries that can actually benefit from it. The exceptions are coming for businesses engaged in strategic activities like banking and telecommunications. Also, some professional consultancies and branches of freezones need to have UAE national agents.
Why was the law amended?
The main agenda, as discussed earlier, is to encourage entrepreneurs far and wide to start and set up businesses in the UAE and make the UAE a well-connected business hub in the global economy.
- Strengthening the strategic position of the country in the global business sector.
A country’s development and growth will certainly revolve around the power and strength of its industries and the kinds of businesses setup in the country. By removing the strict condition of having a local sponsor, more companies will come into the country and initiate setting up businesses, as they now have much better control over their own businesses and their profits. The strategic location between Europe, Africa, and Asia is another reason why the removal of stringent policies will attract investors all over the globe.
- Facilitating recovery
The UAE economy was severely affected, like all other nations around the world, because of the pandemic. To regain the stability of the economy and make the nation more self-sufficient, the only way is to encourage businesses to set up shops in the UAE. Ease of doing business is the first step to promoting business setups in the UAE.
- Better enforcement against economic challenges
When a nation is severely dependent on a specific industry, a single wrong turn can let the entire economy crash with fewer chances of revival. All the Middle Eastern countries have derived their profits from the oil and petroleum industries. Therefore, to promote sustainable growth in the economy, it is necessary to invest and welcome diverse industries to come and set up their businesses in the UAE. Only when the entrepreneurs are assured of complete ownership of their businesses are they willing to start businesses in the UAE, hence the necessity for changing the rule?
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Eligible businesses under the new foreign ownership rule
Around half of the economic activities allowed in the country fall under the eligibility criteria of the new foreign ownership rule. This means that around 1,031 business activities are eligible for 100% foreign ownership.
The major sectors include:
- Consulting and Professional Services
- IT and Telecommunications
The resolution by the UAE to authorize complete foreign ownership of businesses is a momentous stride towards constructing a more hospitable atmosphere for investors in the nation. This action is projected to entice a greater amount of overseas investment, galvanize economic advancement, and generate job prospects for both domestic and expatriate individuals. However, it is imperative for foreign investors to meticulously scrutinize and adhere to the legal and regulatory prerequisites prior to establishing their businesses in the UAE. With the appropriate strategizing and implementation, the policy of 100% foreign ownership constitutes a propitious opportunity for entrepreneurs who aspire to invest in the thriving economy of the country.