100% Foreign Ownership in Dubai, UAE for LLC Companies – A Comprehensive Guide

With effect from June 1, the UAE will allow 100% foreign ownership in Dubai Mainland on LLC companies. How did this come about? In November 2020, a Presidential Decree was issued announcing major changes to the foreign ownership rule in the UAE's Commercial Companies Law 2015. Much to the joy of entrepreneurs the world over, the United Arab Emirates did away with the need of an Emirati shareholder or agent for UAE companies. Until then, companies in the UAE needed a certain amount of shareholding by Emirati nationals or an Emirati agent, depending on the type of company it was. What is 100% foreign ownership in Dubai and what does it mean for your business? 

The amendment has far-reaching consequences for entrepreneurs with existing businesses in the UAE as well as those who want to register a company in Dubai or the UAE. The key change that the amendment will usher in is that the law now allows natural and legal persons, regardless of nationality, to establish and own a 100% ownership in UAE of their companies. 

However, everything is not as black and white as it seems. Therefore, it's only natural for you to have several questions and concerns about the new amendment. We'll address all of these in this guide on 100% foreign ownership in Dubai for LLC companies. Read on to learn more about this amendment and how it may affect your business plans in the UAE. 

UAE's Foreign Direct Disinvestment Law

Until recently, the general rule was that all UAE mainland (i.e., those outside of freezones) mandatorily required 51% shareholding by UAE nationals when foreign nationals wanted to have a business setup in Dubai or UAE (or entities wholly owned by UAE nationals). This requirement was a part of the UAE Companies Law. Even though the general perception has always been that it's quite possible to alter the economic interests of the foreign shareholder and the local shareholder to a certain extent (some foreign investors have frequently entered into so-called 'arrangements on the side' with the local shareholder) when it comes to economic ownership and decision making for the business, uncertainty has always remained regarding the effectiveness of such arrangements. 

The Foreign Direct Investment Law (FDI Law) passed in 2018 (and supplemented by Cabinet Resolution No. 16 of 2020) relaxed foreign ownership restrictions in specific business sectors (known as the Positive List), allowing as much as 100% foreign ownership in UAE for businesses on the Positive List. To qualify for the foreign ownership exemption, however, the applicant had to meet many relatively onerous requirements, including significant share capital contributions, the use of technology, and the employment of UAE nationals. Furthermore, final approval rested with the relevant licensing authority.

What the Amendment Changed? 

According to our understanding, the new law will amend the Companies Law to remove the general requirement for 51 % shareholding by UAE nationals, allowing for 100 % foreign ownership in UAE limited liability companies established on the mainland, as well as the requirement that a branch of a foreign company engage a UAE national to act as their agent. In short, irrespective of nationality, any person can now gain full ownership of their company even on the UAE mainland. 

These changes characterize a significant departure from the FDI Law's controlled sectoral approach, which we understand will be revoked once the new law takes effect.

Local licensing authorities in each Emirate will retain the discretion to impose an element of UAE national ownership, and we understand that certain strategically important sectors, such as oil and gas, telecommunications, and utilities, will continue to be subject to foreign ownership restrictions.

According to reports, the majority of the new law's changes will go into effect on June 1, 2021. Companies will be given a one-year grace period to comply with any changes mandated by the new law.

Key points in the new amendment

These key changes in shareholding patterns as per the new amendment are:

• Eliminates the requirement for UAE companies to have a majority of Emirati shareholders and Local agents during  company registration in Dubai.
• Allows 100% foreign ownership for investors in UAE on companies located on the UAE's Mainland, i.e., onshore companies, subject to the policies outlined by the UAE cabinet in the form of a cabinet resolution.
• A joint stock company is now allowed to sell 70% of its shares through an IPO. Previously, this percentage was as low as 30%.
• If the company, through its directors and general managers, engages in an activity that causes the company to lose money, the shareholders have the right to sue the company in court.
• Gives local governments authority over the recognition of required capitalization, shareholding percentages, and approval for onshore company establishments that are subject to cabinet resolution policies. Previously, these powers were restricted to the Ministry of Economy or the Economic Departments of each Emirate.
• Meetings of companies are no longer required to be presided over by an Emirati; they are now open to Expatriates as well.
• Similarly, the prohibition on Expatriates serving on the company's board of directors has been lifted.
• Because of the global pandemic, annual general meetings can now hold electronic voting as well.
• There is a provision for removing executive officers or company chairs if they abuse their power.

Why the Law of 100% Foreign Ownership in UAE Was Implemented? 

By removing existing roadblocks and opening up the economy, the 100% foreign ownership in UAE hopes to capitalize on its already present appeal as a market for foreign investors, businesses, startups, and top talent from around the world, while also putting the country in a better position as it prepares for post-Covid recovery and redesigns its vision for the next 50 years. Some of the rewards the government hopes to reap are:

• Creation of a fertile legislative environment for the business setup in UAE
• Improvement of the ease of doing business

• Across the board improvement of the country's economy
• Preparation for the future by boosting investment and commercial opportunities
• Future-proofing the economy against the various disruptions taking place in the global economy
• Addressing the evolving needs of the UAE business community
• Boost the country's attractiveness to expat investors, businesses/conglomerates/startups, etc.

What Entrepreneurs in the UAE Can Expect From the Amendment? 

The jury is still out on the exact impact of the law of 100% foreign ownership in UAE Mainland. While we await the full effect of the new law, the move to allow 100 % foreign ownership in Dubai Mainland businesses as well should significantly increase the UAE's attractiveness to overseas investors, particularly those who may have been hesitant to enter the UAE market due to ownership restrictions.

Foreign companies that have already established businesses in UAE with mandatory local shareholding may want to reconsider those arrangements in light of these developments if full legal ownership is desired. 

These developments may also spark an interesting debate about the long-term benefits of freezones. Although UAE freezones generally allow 100 % foreign ownership and often provide a more familiar legal regime for foreign investors, they typically do not permit entities established within their region to trade on the UAE mainland.

Some businesses that have established themselves in freezones may now find it more appealing to establish themselves onshore as a result of these changes. 

As per previous announcements, all current and previously licensed businesses in UAE can amend their statuses in accordance with the new commercial companies law.

How 100% Ownership in UAE Affected New Businesses?

If you're an entrepreneur who was reluctant to start a company in Dubai or UAE, because of ownership restrictions, you don't need to worry about that anymore. New investors in the UAE market have a competitive advantage in terms of ease of business establishment. Under the new law non-Emiratis of all nationalities can fully own their business as long as it comes in the list of sectors allowed.

How 100% Foreign Ownership in UAE Affected Existing Mainland Businesses?

If you already own a business in UAE with previously mandated local shareholding, you may want to review those arrangements based on these new developments if you want 100% legal ownership of your business.

The existing LLC company owner can amend their license by selling the shares of UAE national to foreign nationals  and become 100% owner of the company. 

Existing companies must adjust their positions by January 2, 2022, according to the Amendment. This may necessitate amending LLCs' Memorandums of Association to align quorum, notice, and meeting requirements with the Amendment.

How 100% Ownership in UAE Mainland Affected Existing Business in UAE Freezones?

UAE Freezones already allow 100% foreign ownership, but in general do not allow entities established within Freezones to trade on the UAE mainland. Even so, many investors prefer to setup a business in UAE Free Zone thanks to the several incentives offered, among which favourable regulatory and tax regimes play an important part. Once the new foreign ownership changes go into effect, though, many freezones are likely to see decreased demand and new challenges in attracting business.

Despite this, the financial freezones such as Dubai International Financial Centre (DIFC Free Zone) and the Abu Dhabi Global Market (ADGM) will remain popular, particularly in the financial services industry, as investors and financial institutions will continue to be drawn to the common law legal frameworks, independent court systems, and well-developed financial regulatory regimes of the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).

Are You Ready to Take Advantage of the 100% Ownership for Foreign Investors in UAE?

If you are, we can help! Whether you want to open a business in Dubai or already own a UAE mainland or freezone business, you can be assured that Avyanco will continue to assist you on company formation in Dubai with 100% foreign ownership in Dubai mainland or assist with changing UAE national ownership by amending the license.

How Avyanco Can Help You Setup a Business in Dubai with 100% Foreign Ownership?

Avyanco is a team of business setup professionals, that specializes in providing company formation services for potential investors. We provide full-fledged business setup services including accounting, bookkeeping, and auditing as well as company creation, registration, and licensing. Team Avyanco is at your doorstep to help you with the company formation in Dubai.

Final Thoughts

The 100% ownership of onshore companies for foreigners is going to be a game-changer for UAE and Dubai business growth especially for the investors who wanted to invest in UAE Mainland but were restricted by the previous law that was allowing the local nationals 51% of share capital. In the previous law, a local sponsor had the majority of share in your business even if he was not much involved in your company’s activities which were the reason why some foreigners were preferring to setup their business in Dubai Freezone where they will have the full ownership instead of Mainland where they will stay with only 49% of the business.