The UAE has recently overhauled its corporate law, introducing key changes that significantly impact foreign-owned Limited Liability Enterprises (LMEs). The most notable reform is the removal of the mandatory local sponsor requirement, allowing 100% foreign ownership in several sectors.
These updates simplify business incorporation, enhance investor protections, and provide greater operational control for international businesses. These reforms make the UAE an even more attractive destination for global investors looking to establish or expand their presence.
But what exactly has changed? Let’s take a closer look at the recent UAE corporate law updates.
What Are the Recent Changes in UAE Corporate Law?
In 2021, the UAE Commercial Companies Law was amended and the requirement that a minimum of 51% of the shares in a company incorporated under the law be held by one or more UAE nationals was removed. The Department of Economic Development in Abu Dhabi and the Department of Economy and Tourism in Dubai have each issued a list of activities in which 100% foreign investment is permissible
However, companies involved in activities considered strategically important are still subject to ownership restrictions. The following strategic impact activities are identified in Cabinet Resolution No. 55 of 2021.
- security and defense activities and activities of a military nature;
- banking, money exchange, finance company, and insurance activities;
- printing currencies;
- Telecommunications;
- Hajj and Umrah services;
- activities of Quran memorization centres; and
- fisheries-related services.
Benefits of 100% Foreign Ownership in the UAE
The removal of ownership restrictions provides many advantages to foreign companies such as increased autonomy in business decisions, ease of business setup, and improved global investor confidence.
Eliminating the need for local partners is a game-changing move that now allows international business owners and entrepreneurs to have complete control over their ventures in the UAE, leading to faster and more effective decision-making.
Entrepreneurs can now allocate resources more efficiently because the removal of prior ownership restrictions eliminates the need for costly partnerships and complex ownership structures.
This strategic initiative is designed to boost the UAE’s economy and global competitiveness by increasing FDI inflows, fostering entrepreneurship, and streamlining the process for businesses to succeed in a variety of industries.
Compliance and Challenges for Foreign Businesses
Shareholder disputes can be a hurdle for foreign companies. Following the removal of the minimum share requirement, it is expected that foreign shareholders would want to request their local shareholders to transfer the shares registered in their name to the foreign shareholders.
However, this could potentially result in a dispute between the foreign shareholder and the UAE shareholder in the event the UAE shareholder refuses to transfer its shares.
Before this amendment, it was common practice for the shareholders to enter into “Side Agreements” to circumvent the restriction of the 51% local contribution rule. Side Agreements generally include provisions wherein the UAE Shareholder agrees to hold 51% share capital for the benefit of the foreign shareholder in consideration of a fixed annual fee while relinquishing its right to claim profits or other benefits of the company. So essentially, such arrangements limit the rights of the UAE shareholder, thus, making the foreign shareholder the real owner of the company.
In case of a dispute, the foreign shareholder may consider filing a case with the UAE Courts if there is a provision in the Side Agreement stipulating that the UAE shareholder must transfer the shares upon request by the foreign shareholder.
However, the enforceability of a Side Agreement is a grey area, particularly, in light of the Commercial Company Law provision which provides that a company’s Memorandum of Association depriving a partner of the profits or exempting him from sharing the losses, or granting him a fixed percentage of profits, shall be deemed null and void. There is a great divergence of opinion on this issue and usually, such cases are decided by the UAE Courts in the context of the dispute.
Steps to Transition to a Fully Foreign-Owned Company
The removal of the 51% shareholding rule is expected to encourage a greater influx of foreign businesses into the UAE. To transition to a 100% foreign ownership structure in the UAE, existing companies must undertake a series of key steps such as:
Business Activity Review
It’s important to review the specific lists of permitted business activities released by each Emirate. For example, Dubai Economy has published lists identifying commercial and industrial activities that are now eligible for 100% foreign ownership without the need for a local sponsor. Companies should review these lists to ensure their business activities align with the permitted sectors.
MOA Amendment
Companies are required to formally amend the company’s existing Memorandum of Association (MOA). This amendment legally reflects the updated ownership structure, removing the requirement for a local sponsor and establishing full foreign ownership.
Adherence to Legal Procedures
A strict adherence to legal procedures is essential for a successful transition. This typically includes securing a formal board resolution from the existing shareholders which must explicitly state their consent to the proposed changes in ownership structure, registering the amended MOA with the economic department and ensuring all necessary fees are paid as per regulations, updating the company’s trade license to accurately reflect the new ownership details.
Conclusion
The abolishment of the 51% local sponsorship requirement is a major transformation in the UAE’s business environment, intended to stimulate economic growth and draw increased foreign investment through expanded ownership options.
Although some strategically important sectors are still subject to restrictions, most commercial and industrial sectors are now accessible to complete foreign ownership, paving the way for new prospects and expansion.
Legal experts can provide essential support to foreign investors by guiding them through the UAE’s intricate legal and regulatory systems and ensuring that they comply with local laws. Legal experts can offer assistance with due diligence, structuring investments, and complying with the UAE’s complex regulations.
Get Expert Legal Advice on UAE Corporate Law For Foreign-Ownership with SK Legal
Understanding and complying with UAE corporate law is essential for foreign investors looking to establish or expand their businesses in the region. At SK Legal, we provide expert legal guidance to help you navigate ownership laws, business setup procedures, and regulatory compliance with confidence.
Our services include:
✅ Comprehensive Legal Consultancy: Personalised advice on 100% foreign ownership, business structuring, and compliance with UAE corporate regulations.
✅ Business Incorporation Support: Assistance with MOA amendments, trade licenses, and regulatory approvals to ensure a smooth transition to full foreign ownership.
✅ Strategic Legal Solutions: Expert representation in shareholder agreements, dispute resolution, and investment structuring for foreign-owned businesses in the UAE.
For tailored legal support on UAE corporate law, contact us at [email protected]
Frequently Asked Questions About UAE Corporate Law Changes on Foreign-Ownership LMEs
Disclaimer
This publication does not provide any legal advice and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal or other decisions. Therefore, any reliance on such material is strictly at your own risk.
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