Legal update: UAE Cabinet Resolution
An end to 51% local ownership?

What you need to know about the cabinet resolution that will relax onshore foreign ownership restrictions.

May 2018

 

As you may have read, the UAE Cabinet has approved a resolution that will permit 100% foreign ownership onshore in the UAE.

No further details have been provided and the UAE Government has indicated that it plans to issue a report in Q3 2018 as part of its implementation plans.

It is not clear when implementation will actually occur.

Below is a summary of the key points to understand:

  1. It is not clear if 100% foreign ownership will be permitted across all sectors or limited to certain sectors.
  2. It is not clear if 100% foreign ownership will require additional criteria to be met e.g. higher capitalization requirements or other conditions.
  3. As it stands, the law would still require a LLC to have 2 foreign partners – it is not clear if this will be relaxed in light of the new resolution.
  4. It is not clear if the resolution will extend to permitting branches of foreign companies to operate without a local Emirati service agent.

Things to think about

Existing LLCs

  1. Existing LLCs should have protective arrangements that include a mechanism whereby the foreign partner can take advantage of any law change permitting 100% ownership (or ownership above the currently permitted 49%).
  2. Regardless of the contractual arrangements in place, the Emirati partner will be required to attend the notary to sign the applicable documents to facilitate a transfer of shares.

    Whether this be to the existing foreign partner or a new foreign partner, the Emirati partner will need to be appropriately engaged in anticipation of a foreign partner wishing to take advantage of the new resolution, particularly given they will be losing the economic benefit of holding sponsorship appointments. This should be managed carefully to avoid complication.
  3. In case it remains necessary to have a minimum of 2 partners, it may still be appropriate to have a corporate nominee in any event (albeit this vehicle need not be Emirati owned).

    Whilst we would expect the majority of foreign investors to be interested in taking advantage of 100% foreign ownership, there may well be instances where foreign partners are content with their existing arrangements (and the costs of restructure could ultimately be more than existing nominee costs).

Existing branches of foreign companies

Whilst it remains to be seen whether the requirement to have an Emirati service agent will be relaxed or removed, branches of foreign companies may be able to ‘convert’ their operations to a wholly foreign owned LLC structure.

This may deliver significant benefits in terms of ring fencing liability at a UAE level and may have tax structuring benefits.

New businesses

Those who are looking to establish business operations in the UAE, or expand existing operations, will naturally be interested in taking advantage of 100% foreign ownership.

As implementation may not occur for some time, and may not ultimately be available to all businesses, a decision will need to be made:

  • To delay plans until the scope of the resolution becomes clearer, or
  • To proceed under the current regime for onshore business establishments under a structure that makes it as easy as possible to transition to 100% foreign ownership as and when that business might qualify.

 


 

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nathan@bankslegal.com
+971 50 189 3276

Andrew Morris
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+971 50 653 8148

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