UAE's Foreign Ownership Laws: A Gateway to Full Business Control

January 02 2025

The United Arab Emirates (UAE) has enacted significant legal reforms to enhance foreign direct investment (FDI), notably permitting 100% foreign ownership of onshore companies in various sectors. This article examines the evolution of these reforms, focusing on Federal Decree-Law No. (26) of 2020, and provides references to pertinent UAE laws and regulations.

Historically, the UAE required that foreign investors could own a maximum of 49% of an onshore company's shares, with the remaining 51% held by a UAE national or a company wholly owned by UAE nationals. This stipulation was outlined in Federal Law No. (2) of 2015 on Commercial Companies.

To attract greater foreign investment, the UAE enacted Federal Law No. (19) of 2018 on Foreign Direct Investment (the "FDI Law"). This legislation introduced a "Positive List" of economic sectors and activities where up to 100% foreign ownership was permitted, subject to specific criteria and licensing requirements. However, the FDI Law maintained restrictions in sectors deemed to have strategic impact, as outlined in a "Negative List."

A pivotal change occurred with the issuance of Federal Decree-Law No. (26) of 2020, which amended provisions of the Commercial Companies Law. Effective June 1, 2021, this decree abolished the general requirement for a UAE national or a company wholly owned by UAE nationals to hold the majority share in onshore companies. Consequently, foreign investors are now allowed to establish and fully own onshore companies in most sectors, eliminating the previous 49% ownership cap.

The amendments empower each Emirate to determine the specific activities and sectors where full foreign ownership is permitted. For instance, the Department of Economic Development in Dubai has published guidelines specifying over 1,000 commercial and industrial activities eligible for 100% foreign ownership, excluding activities with strategic impact.

Despite these liberalizations, certain sectors considered to have strategic importance remain subject to restrictions on foreign ownership. These sectors include, but are not limited to, oil exploration and production, military and defense, banking and finance, and telecommunications. The UAE government retains discretion over these sectors to safeguard national interests.

In addition to ownership reforms, Federal Decree-Law No. (26) of 2020 introduced changes to corporate governance. Notably, it allows companies to convene general assembly meetings via modern technology methods and adjusts quorum requirements, thereby facilitating more flexible corporate operations.

As of December 2024, the UAE continues to refine its investment landscape to attract foreign investors. Individual Emirates have updated their lists of activities eligible for full foreign ownership, reflecting the country's commitment to economic diversification and competitiveness. For example, the Emirate of Abu Dhabi has expanded its list of sectors open to 100% foreign ownership, aligning with its strategic economic objectives. Additionally, the UAE has entered into new trade agreements, such as the free trade agreement with Australia, which are expected to further enhance the investment climate.

The UAE's legislative reforms, particularly Federal Decree-Law No. (26) of 2020, signify a substantial shift towards fostering a more open and competitive investment environment. By permitting 100% foreign ownership in a broad range of sectors, the UAE aims to attract increased foreign direct investment, stimulate economic diversification, and enhance its position as a global business hub.

If you need further guidance to ensure compliance with the latest regulations and to address specific circumstances related to your business endeavors in the UAE, kindly consult with our legal professionals for expert assistance. Please do not hesitate to contact us on [email protected]