Guiding Principle

On 23 November 2020 it was announced that far-reaching amendments to the UAE Commercial Companies Law have been made, pursuant to which the need to maintain a UAE national “Sponsor” as mandatory majority shareholder in any company with limited liability (“LLC”) has allegedly been abolished. This article aims to shed some further light on this new development.

What we know and what we do not
At present (24 November), reliable information on the amended Commercial Companies Law is hardly available, let alone a copy of the amended law. This means that all we can do at this point is take a half-way educated guess on what will happen going forward.

Doing business without a Sponsor
What are the likely consequences of being able to do business without a Sponsor? The obvious first thought is to ask the current Sponsor to transfer the shares that are registered in his name to the actual shareholders of the company. But will he? It will certainly be interesting to see how agreeable many Sponsors will be with parting way with a welcome source of income.

How about the numerous free zones in the UAE, given that their main appeal was always that full ownership was possible? Surely, some free zones will retain their appeal, particularly those that are deemed extraterritorial for customs purposes, such as the Jebel Ali Free Zone or KIZAD. Other free zones, such as Media City, Internet City and Co, on the other hand, may well find themselves “downgraded” to mere hubs for the industries they are designed to attract. This is provided, of course, the licenses issued in such free zones will be accepted as valid outside of the relevant free zone as well.

Will there be limitations?
As mentioned above, at this stage we can offer an educated guess only. It has been announced that “local authorities”, most likely the Departments of Economic Development, will have the option to restrict certain sectors or activities from being open to full foreign ownership. We know restrictions will apply to sectors that are traditionally State owned, such as electricity and water supply or the oil and gas sector. However, there is not yet any clarity on whether or which restrictions will be in place.

Judging by the experience with the rather ill-fated Foreign Direct Investment Law of 2018, which largely failed to have any impact on the economy, because it proved too burdensome and deprived of tangible benefits, one would assume that the new amendments to the sponsorship rules will be simpler and more far-reaching.

What should you do now?
There is no need to rush at this point. So far, all that is available is a very promising announcement. The true extent and value of the announcement depends on the details, however, virtually none of which are known at this point. Plus, it has been said that the amendments to the sponsorship requirement will not be effective for at least another six months. Experience shows that “six months” does not necessarily mean months of 30 days either, so it may well be later, less likely earlier.

Yesterday’s announcement has fueled the hope of full foreign ownership of companies operating in the UAE. And there most certainly is reason to be hopeful. Too little details are known at this stage, however, to jump to conclusions. As with so many other things in the Middle East, the best option now is to just wait and see. Things will develop. In their own time.

Author: Dr. Michael Krämer

Senior Lawyer