Mahmood Hussain Advocates & Legal Consultancy | View firm profile
Once again, the United Arab Emirates proves itself as the Middle East friendliest investments market. The pass of the investments Positive List by the Federal Ministerial Cabinet is a clear indication that UAE economy planners do understand that in this new world order, open market strategy is the only way to go to achieve a stable economy outcome while we evidence some international market drivers create more monopolistic approach and more protection towards their local businesses. This approach is both harmful and creates more international conflicts as we now face between the superpowers.
The introduction of the Positive List and the decision over the chosen activities show that UAE market focus areas in the coming future is arguably more favorable to boost the manufacturing industry and those business related to the innovation and technology disruptive.
This Article it is not intended, however, to create deep study over these industries which are recognized by the Federal Ministerial Resolution nor the intention to analyze direct and indirect economic impacts on the liberalized sectors and activities. The intention here is only to highlight the areas in which the UAE government decided to promote the foreign investments and the goals set to encourage investors to engage and promote their businesses and investments in the UAE market.
This development of Positive List issuance arguably is the most long waited resolution for many international companies which they have required for many years a clarity in the FDI position in the UAE. Especially after the enactment of the FDI Law 2018 and the establishment of different FDI, s authorities in different Emirates.
The introduction of the Positive List is the assurance of UAE intention in encouraging investments in different fields that will have impact in both the creation of new jobs and also positive circulation of the financial and monetary services which will be derived by our national and international financial institutions.
When we approach the area of foreign investments, we have to understand that UAE market has for long time decided to move from the oil dependency and the creation of sectors that will support the existing- well performing- sectors such as hospitality, tourism and education and is important to stabilize these industries in the creation of strong ancillary services and products that will enable these sector to flourish even outside of the UAE. The Agriculture is one of this main focused area.
Origin of the Positive List
The UAE as announced in both Federal and Emirates levels different governmental strategies such Dubai Industrial Strategy 2030 and Abu Dhabi Dubai Strategy 2030. These strategies in all levels were and remain to have a clear path towards pushing our economical agenda to international level and to assure that our role as the international well-established re-exporting market will be also capable to support our local products to the international markets as well. It is fair to suggest that many international investments houses and private banks along with international companies and multinational brands understand that UAE is and remain to be the stable station and base for many international trade and made their positive steps to confirm their willingness to take part in this world phenomenon safe and robust market ground.
Therefore, to be part of the UAE future economic development is always the right and correct choice for many different spectrums of business especially the technology and the IP developments hence the Positive List announcement is the starting point to this journey.
The Positive List was introduced by the Ministerial Resolution No. (16) of 2020 (“ Ministerial Resolution”) which was the instruments required by upon the amendment of the Federal Company Law No. (2) of 2015 (“Company Law”) and the Federal Foreign Direct Investments Law No. (19) 2018 (“ FDI Law “). Whereby, the FDI Law provides a regulatory framework which would allow foreign shareholders to own up to 100% of UAE companies incorporated outside of the designated free zones as specified in the Article No. 5 of Company Law. The FDI Law is a fundamental platform to encourage foreign investments and to uplift the interest of investors and create more tranquility by assurance of full ownership and control to 100% of the company shares and the companies decisions and to exempt these investors in any ownership requirements in particular articles 327, 328, 329 and 330 of the Company Law.
The FDI Law tasked the foreign direct investment committee (Committee) with recommending to the UAE Council of Ministers a “Positive” list, which setting out the economic sectors in which more than 49% of foreign ownership will be permitted (the Positive List).
The Committee issued its proposed Positive List to the UAE Council of Ministers.The UAE Council of Ministers on 2 July 2019 and, based on the recommendation of the Committee, issued a resolution approving the Positive List, such resolution to be further recertified by UAE Supreme Counsel.
Article 3 of the Ministerial Resolution
The Ministerial Resolution is very clear in defining the shape of the companies that to be registered as FDI’s companies which they have to be formed in these two shapes which is stated in Article 2 of the Ministerial Resolution:
1- Limited Company (one shareholder or more); or 2- Private Joint Stock Company
This particular order of such company formation has its connection with both risk easement of the investments and the administration of such entities and also the ability to create harmony to the company which is regulated by the applicable authorities per to the Company Law fundamentals. However, we shall be able to make more study on the basis and to analyze whether the legislators were successful in locking the FDIs companies in these two shapes of law or whether different formations of law may be introduced.
What also important to note that Article 6 of the Ministerial Resolution is clearly pointing that the pre-conditions or regulations in which developed or owe to be developed and adopted by the licensing authorities in Emirates shall be effective to these FDIs entities. Thus, we are really keen to see if the applicable licensing authorities will develop any specific rules in the incorporation of the FDIs companies that may be different from those operating in the broader company’s formation exist. Also, we have to follow the interpretation of this Article if that will allow these Authorities to establish different per-conditions or regulations in different Emirates.
The Article without a clear interpretation from the Federal Ministerial Cabinet or the Ministry of Economy may create confusion on the said above matters and also one of these tests would be the requirement of Emiratization under the Article 7 of the Ministerial Resolution which assigned the employment requirements to the Ministry of Human Recourses and Emiratization. What we are waiting to witness is whether they would be any suggested Emiratization quarter to be imposed.
Exemptions under the Resolution
The Ministerial Resolution made it clear that some Articles in the Company Law are exempted to be implemented on the FDIs companies and namely articles 71, 151 and 209. For more clarity article 71 of the Company Law states that:
Article 71- Definition of the Company
1– A Limited Liability Company is a company where the number of partners is at least two (2) but shall not exceed fifty (50). A partner shall be liable only to the extent of its share in the capital.
2-A single natural or corporate person may incorporate and hold a Limited Liability Company. The holder of the capital of the company shall not be liable for the obligations of the company other than to the extent of the capital as set out in its Memorandum of Association. The provisions of the Limited Liability Company contained in this Law shall apply to such person to the extent not in conflict with the nature of the company.
In observing the Article 71 it is important to note that two fundamentals issues that are to be taken in consideration first (i) is the number of the shareholders may be 1 or more that may not be locked to 50. Therefore, the bylaw may be issued to govern the suggested numbers or to have unlimited numbers of shareholders in future which means the requirement will be further addressed by the Licensing regulators and (ii) the lift of the shareholders protection of the affairs of company under the LLCs model whereby the Shareholders were only responsible to maximum of their capital contribution. Now whether this protection will be fully lifted or will be governed by other thresholds is something that owe to be witnessed. But what is important that these changes may force some amendments to the Company Law it self so to balance with the other forms of companies.
Article 151- Nationality of the Members of the Board
The Chairman and the majority of the members of the Board shall be UAE nationals. If the percentage of the UAE members falls below the applicable percentage under this Article, such deficiency shall be completed within no later than three months, failing which the Decisions of the Board of Directors shall be void upon the expiry of such period.
The exemption of nationality requirements is a natural result of the development made under Article 2 (2) of the Ministerial Resolution in which the Private Stock Company is the only second option of the FDIs along with the LLCs. The exemption of Non-Emirati board member is practical, and this distinguish the requirement of UAE national members under the Public Stock Company. The only point in this matter whether we needed to have the exemption whereby Article 151 of the Company Law is connected with the management of the Public Stock Companies. What we fail to understand in this whether the Authorities in Emirates will be able to create independently the management requirements, or this would be a full and comprehensive requirement to be further developed by the UAE Security and Commodities Authority whereby the public listed companies and private stock companies are regulated.
Exemption of Article 209 of Company Law
Article 209- Disposal of the Shares
The method and conditions of disposal of shares shall be determined in accordance with the provisions of this Law, the Regulations and Decisions issued by the Authority and the Articles of Association of the company, provided that the disposal of the shares shall not lead to the decrease of the share of the UAE nationals in the capital of the company below the applicable limit according to this Law.
To avoid contradiction between the laws namely the Company Law and the Ministerial Resolution with the FDI Law in which the UAE nationals’ shares are not required in the FDIs companies anymore this exemption was implemented.
The Capital Required for the Activities
The Positive List under the Ministerial Resolution also create clear requirements for the minimum capital required under the Law. The attached list will be able to clarify in detail the activities in the Positive List and the minimum capital requirements in general most of the Agriculture sector capital requirements is AED Million 7.5 and for the soft manufacturing is AED 15 Million and hard manufacturing is AED 100 Million 100.
In the Services Sector most of the required capital remain to be the same capital required under the existing regulations other than Hospital Activities the required minimum capital is AED 100 Million other than the Dubai Health Care City which was exempted under this Ministerial Resolution and AED 100 Million in Retail in non- specialized stores ( expect cooperative societies )
Onshore – Free zones Foreign Ownership
As discussed in the beginning of this Article that the specific areas of discussion on the impact of these activities in a single market may be discussed in detail in different articles and publications of MHLF. However, it is important to note that this development is a game change in our commerce platforms in general and the development of our business structures in specific. Yes, it is true that this Positive List identified specific areas of liberalization and also required capital funds that are distinguished from the small businesses. However, this shows the wall between free zones and Onshore has now been thinner specially for those international fortune 500 entities which they can operate in different business models. And arguably the definition of the SMEs now is much needed to distinguish these investments and those that will be now connected with multi nationals’ companies.
The natural questions will now emerge whether these companies as incorporated Onshore and by the DEDs from different Emirates if they will be considered a GCC entities which legally and hypothetically the answer is yes but would be that the case in all GCC markets so to enjoy the same protection and benefit from the GCC nationals business movement enjoys?
And other question will the existing free zones in the UAE change their business models as the core element of value proposition which long time upheld namely full ownership is no longer a value especially in the Service Sectors and Industrial. It is fair to suggest that unless the business model of the existing free zones will go beyond their comfort zones and push envelops more actively this time the attracting magnate is now not effective. However, we shall wait and learn more about the impact of this historical event.
Written By: Mr. Hafidh Thani – Managing Partner