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New law to trigger huge FDI flow

November 24, 2020
finance & economy

Dubai and Abu Dhabi are already recognised as two of the most powerful business and financial hubs.

Expatriate investors and businessmen welcomed the landmark UAE reform allowing foreign investors 100 per cent ownership of businesses as a far-sighted initiative that will bring about a paradigm shift in the investment environment of the nation.

Most analysts and business leaders believe the bold new reforms would prompt an “unprecedented explosion” of foreign direct investment in Dubai and Abu Dhabi and will cement the growing status of the cities as major international financial centres.

“Dubai and Abu Dhabi are already recognised as two of the most powerful business and financial hubs in the world by international investors who are lured by the incredible possibilities offered in terms of finance, trade and commerce, plus the famous ‘can do’ attitude and the low tax environment in these destinations,” said Nigel Green, founder and CEO of deVere Group.

Green said with the new business ownership law that permits businesses to be fully owned by foreign nationals coming into force soon, the appeal of the UAE as a preferred global business hub has just sky-rocketed.

Under the new legislation, the UAE will allow 100 per cent ownership of businesses for foreign nationals from December 1, 2020. Previously, all businesses were required to have a UAE citizen sponsor.

Analysts believe the new law will also have a positive multiplier effect by way of creation of jobs and an increase in productive capacity, resulting in less dependence on imports.

Yusuffali MA, chairman Lulu Group, hailed the new law as “a landmark decision which has come at the perfect time.”

“The UAE is already seen as one of the most pro-active countries in the region and this new initiative will further boost its global standing. As the entire global economy is looking for new ways and means to overcome the unprecedented challenges being posed by pandemic, I am sure this new law will help the existing as well as upcoming businesses,” said Yusuffali.

“The visionary leadership of this great country has once again set a new benchmark in ease-of-doing-business that is sure to kick-start the next round of economic growth.”

Shailesh Dash, financier and entrepreneur, said this is one of the best news of 2020 and is going to help bring in significant capital inflows into UAE. “This was a much-awaited news and has the potential of bringing lots of positive outcome for the economy. It also shows the commitment of UAE leadership in making UAE a great leader of the 21st century,” he said.

Rizwan Sajan, founder and chairman of Danube Group, said thanks to the visionary leaders, the investment landscape of the UAE is transforming drastically, making the nation more and more investor-friendly.

“The UAE has become a hub for global investors, who are taking advantage of the excellent business opportunities to the fullest. These kinds of timely reforms make the country a much more desired destination for starting and developing business in the local and global markets. I wish the nation achieves greater heights in the coming year,” said Sajan.

Atik Munshi, a senior partner at Crowe UAE, said the current UAE Cabinet resolution 16 allowing 100 per cent foreign ownership for foreign nationals and foreign companies in UAE entities will be surely considered a game-changer for the business community of the UAE and prospective investors.

“The new law reflects the positive and inclusive stance of UAE Government in attracting FDI to the country. This will act as a booster and catalyst for prospective companies who used to consider the 51-49 per cent shareholding as a risky preposition,” said Munshi.

He said the large expat business community would welcome this move. “However, the UAE free zones will need to redesign themselves to maintain their attractiveness.”

The new law has amended 51 articles of the existing Commercial Companies Law CCL and added new ones, mostly focusing on the regulation of provisions of establishing companies with limited liability shareholding.

The UAE Cabinet Resolution in March 2020 determined the ‘Positive List’ of sectors and economic activities in which FDI law is permissible and the percentage of ownership is 100 per cent in companies outside free zones. However, this remained subject to certain criteria being satisfied.

The Positive List covers key sectors including agriculture; manufacturing; transport and storage; hospitality and food services; information and communications; science and technology; healthcare; education; art and entertainment; and construction.

Activities in the negative list, which will fall outside of the foreign direct investment regime, include petroleum exploration and production; banking and financing activities; insurance and telecommunications. In the case of activities not included on either list, authorities have discretion to allow up to 100 per cent foreign ownership.

Already, the new FDI regime has been put into action after both Abu Dhabi and Dubai recently issued their first FDI licences to foreign investors. Abu Dhabi also recently adopted its own positive list of economic activities eligible for an FDI License in the emirate, featuring a generous total of 1586 activities across the agricultural, industrial and service sectors.

In October, the Abu Dhabi Department of Economic Development (ADDED) said the FDI licence targets businesses with capital ranging from Dh2 million to Dh100 million or even higher. The licence covers 122 different economic activities related to the agricultural, industrial and services sectors.

Mohammed Ali Al Shorafa, chairman of ADDED, said the chamber is committed to enhancing the local investment environment and strengthening the Abu Dhabi economy’s competitiveness through policies that provide more investment opportunities in various non-oil sectors.

According to legal experts, to qualify for the FDI law investors may have to meet various conditions, including the employment of UAE citizens. The relevant licensing authority in each emirate and industry-specific regulators may impose additional requirements. It is likely that all entities will subject to minimum capital requirements — these currently range from Dh2 million to Dh100 million. Construction and civil engineering projects will only be granted up to 100 per cent foreign ownership if they relate to a large infrastructure project or to sports facilities or projects exceeding Dh450 million in value.

The new law also sets the condition that companies need to invest in new technologies, contribute to research and development and meet the requirements of UAE licensing entities.

Bilal Moti, Chairman and CEO of Windmills Valuation Services, said: ' The UAE is marching ahead fast on the road of globalizatiion leadership, faster than most countries in the world. The royal decree announced today to allow 100pc ownership of local business and investment is the most distinguished facilitatiion to investors, entrepreneurs and businessmen since the independence day of the country. The decision will undoubtedly attract and welcome new and large investment in the country. It will also be conducive to perpetuate existing business established by expatriate community. This is indeed the most pragmatic way to develop the country organically and inorganically, and broadcast the image of openness, ease and flexibility to the investor world.'

Taher Shams, managing director of Zulekha Healthcare Group , said: “The decision of the UAE government to allow a 100 per cent ownership for foreign nationals is promising I must say. This ensures foreign nationals who have made this country their home are committed and contributing to the growth of the UAE economy and its developments. Ever since we have known the UAE, we see migrants have been given a safe and secure environment here, be it working or running our own businesses. In every sector there is huge representation from migrants and individuals who have contributed to this nation over the years.'

Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services LLC, said: “The announcement of opening up the economy to 100 per cent foreign ownership is poised to take the UAE economy to enhanced investment flows and participation from investors accross the world. This is bound the propel the overall economy to a new growth trajectory and reinforce investor confidence and sentiments.”

Dr Dhananjay (Jay) Datar, chairman and managing director, Al Adil Trading, said: “This is yet again another great initiative from the visionary leaders of this great country. This will help many business establishments to strengthen their position in this region. This will facilitate business growth and make things easier for investors. But along with this comes responsiblities and commitment.”

Kamal Vachani, group director of Al Maya Group, said: “This will further boost the positivity of economy and confidence in uae of doing business that has always been very pragmatic in the approach very business friendly and optimistic. The UAE has set an example of being a progressive nation which helps the development and growth of the society, which encourages entreprenuers to expand their operations and boost business growth.

Sajid Azmi, CEO, Yegertek, Sajid Azmi, CEO, Yegertek, said: 'The UAE administration has consistently taken a very progressive approach to making the Emirates an attractive destination for investors and business people. The decision to allow 100 per cent ownership of businesses for foreign nationals, without the need for a local sponsor, will benefit a lot of SMEs and Startups. It’s great news for expatriate entrepreneurs, who can leverage the pro-business policies and taxation policies in the UAE to their benefit. In turn, the UAE’s well-deserved reputation as a regional and global commercial hub will be further reinforced, adding to an ecosystem of innovation and growth.'

Prabhu Ramachandran, Founder & CEO, Facilio Inc., an AI-driven property operations & maintenance (O&M) platform, said: 'If you are someone like Elon Musk, Dubai is already a high potential market, for tech startups and companies looking to set-up their base here, owing to the conducive business environment and supportive infrastructure it offers. And now with this new decision to allow 100% ownership of companies by foreign nationals, Dubai could well become the Silicon Valley of the Middle East!'

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