Prior to the recent amendment of the Federal Law No.2 of 2015 and its amendments (‘UAE Commercial Companies Law’), it was a mandatory requirement for expats to have a local sponsor to be appointed in the company. Such local sponsors would also be holding 51% of the total shareholding of the company. The local sponsor will also hold additional duties as well as rights , or in some instances, the parties would enter into a side agreement to ensure that the full operational control rests with the foreign expat alone.
With the latest changes effected in the Commercial companies’ law, the previous restrictions imposed on foreign entities is now greatly removed to a larger extend. A foreign entity or person may now invest and own up to 100% of the total shareholding in the company in the UAE and thus excluding the previous mandatory requirement of a local sponsor. The new amendments also provide the UAE authorities to determine certain activities to hold a ‘strategic impact’ and thereby to be reserved for Emirati participation on an emirate level. Each emirate is thus required to release its list of business activities that may be carried out with 100% foreign ownership and thus, do not require a local sponsor. These changes have been affected under the Federal Decree-Law no. 26 of 2020, and these changes are in effect from 1 June 2021. The Dubai Economy has listed around 1000 commercial and industrial activities that are allowed for 100% foreign ownership.
Clarifying the requirements under the new law, the Dubai Economic department has released its statement that “ Full ownership does not bring any change to current procedures or requirements for licensing, except that it’s no longer mandatory to have an Emirati partner (Local sponsor) or specify a fixed quota ratio for him/her. Dubai Economy clarified that a reduction of the percentage share of the Emirati partner from 51% or his /her withdrawal from the partnership is possible according to the legal procedures followed”.
Steps for effecting the changes:
In order to effect the changes in an existing company that endeavours to move from a 49 % foreign ownership to 100% foreign ownership, the following steps may be undertaken:
- Existing companies can change to a 100% ownership structure by amending their existing Memorandum association (MOA) as registered with the economic department to reflect the changes. This would require the legal steps to be followed as per existing procedures of providing – Board resolution of existing shareholders to consenting to the said changes;
- Obtaining initial approval from the economic department;
- Registering the amended MOA and paying the requisite fees;
- Amending the trade license of the company to reflect the changes made.
- It is not possible to change an LLC company with more than one shareholder into a Sole Proprietorship under the existing laws, however; instead, it is possible to transfer the license to a solely owned limited liability company.
- Also, no additional governmental fees, guarantees or capital is required to effect the changes for full foreign ownership.