UAE – The new FDI Law: openings and opportunities for foreign investors

On 23rd September 2019, the UAE Federal Decree-Law No. 19 of 2018 (the “new FDI Law”) has come into force, laying down a new promising framework for foreign investments in the UAE.

The previous legislation provided that foreign investors could only own up to 49% in a UAE mainland company, subject to very limited exceptions. Moreover, certain sectors (inter alia: oil & gas exploration and production, banking, insurance and defence) were reserved exclusively to UAE nationals or companies exclusively owned by UAE nationals. 

The widespread use of “side agreements” engaging UAE nationals as nominee shareholders has never been tested before the national jurisdiction, especially in light of the 2004 Anti-Fronting Law, imposing sanctions in the order of USD 27.000.

The new FDI Law now lays down a framework allowing foreign investors to directly own up to 100% of the investment, introducing three categories of activities:

• “red-light” activities, namely the previously restricted sectors, will continue to be subject to specific laws and regulations, but will be open to a maximum of 49% of foreign ownership;

• “green-light” activities, which include construction & engineering, manufacturing and healthcare, will allow up to 100% direct foreign ownership, at the discretion of the local government of each of the seven Emirates while implementing the new FDI Law; and

• “yellow-light” activities, in which the margin of foreign ownership is subject to a discretionary judgment of the authorities, on a case-by-case basis, but may still reach 100%.

Under the new rules, newly incorporated companies will have to apply for an FDI license, the obtainment of which is nonetheless subject to certain conditions, including additional reporting obligations and the levels of capital investment. Already existing on-shore companies may consider a conversion to FDI companies, in case they meet the requirements set by the law.