The UAE has recently issued the long-waited FDI laws

Updated: Jul 16, 2019

Like most of GCC countries, the UAE has recently issued the long-waited law to develop the investment environment and promote attracting FDI in line with the developmental policies of the State. The federal law No. 19 of 2018 regarding Foreign Direct Investment (the Law) has been issued on 23 of Sept. 2018 and it shall be effective from the next day of publishing it in the Official Gazette.

The law generally provides an exceptional legal framework to regulate the entry and operation of FDI Projects in selective sectors as an exception from the general statutory foreign ownership restriction (i.e. 49 % in the limited liability companies in the UAE in accordance with the UAE Federal Commercial Companies Law). However, the positive list, which defines the sectors opened to FDI fully or partially has not been issued yet by the Council of Ministers.


The provisions of the Law can be summarized as follows:


Decision Making and Management


FDI Committee:


The Law establishes FDI Committee, chaired by the Minister of Economy and included representatives of the Competent Authorities in the seven emirates. The Committee shall be responsible for studying and submitting recommendations to the Council of Ministers following coordination with the local governments, concerned authorities and the Competent Authority in relation to the following matters:


  1. The Positive List which includes the economic sectors and activities, and associated parts, which are permitted to be carried out through a FDI Project in the State.

  2. Adding some sectors and activities to the Negative List.

  3. Recommendations received from the Competent Authorities regarding approving licensing applications for FDI Projects in sectors and economic activities, and their respective parts, which are not included in the Positive List.

  4. Incentives granted in the State FDI Projects.

  5. Any other responsibility assigned to it by the Council of Ministers in accordance with the provisions of this Law by Decree.


FDI Unit:


A specialized unite called FDI Unit shall be established at the Ministry of Economy and shall mainly have the responsibilities to setup FDI policies in the State, determining the priorities, plans and related programmes, and proceed to implementing those that have been presented to FDI Committee and approved by the Council of Ministers. The FDI Unite also shall establish a comprehensive database of investment data and information in the State, including data on existing FDI Projects and periodically updating such database.



Sectors/Activities


Economic sectors or commercial activities in the UAE can be classified in accordance with the provisions of the Law, as follows:


  • Negative List:

1- Exploration and production of petroleum products.

2- Investigations, security, military sectors, manufacturing of arms, explosives and military equipment, devices and clothing.

3- Banking and financing activities,

4- Insurance services.

5- Hajj and Umrah services, providing employment and recruitment services for staff and servants.

6- Water and electricity services.

7- Services related to fisheries.

8- Postal services, telecommunications services and audio and video services.

9- Land and air transport services.

10- Printing and publishing services.

11- Commercial agents’ services.

12- Medical retail such as private pharmacies.

13- Blood banks, venom and quarantine centres.


The Council of Ministers may, by resolution it issues, add to or remove from the Negative List, specified in this paragraph, any sectors or activities.


  • Positive List:

The Council of Ministers shall, upon the proposal of the Minister and the recommendation of the Committee, shall issue a resolution specifying a Positive List; such resolution shall specify the Emirate or Emirates within which FDI Project may be established.


Still the positive list has not been issued yet.


  • Other sectors neither under negative nor under positive lists:

Exceptionally, the Council of Ministers may issue a resolution approves FDI Projects not included in the Positive List. The resolution shall include the legal form of the FDI Project, the percentage of ownership by the Foreign Investor, whether 100% or lower percentage, the minimum share capital of the Foreign Investment Company, any restrictions and conditions relating thereto including the minimum percentage of nationals employed, available incentives to the FDI Project.



Guarantees to FDI Projects


  1. FDI Project may not be expropriated in whole or part except for public interest and in exchange for fair compensation calculated at time of expropriation.

  2. Without prejudice to the provisions of Article 14 and other provisions of this Law by Decree, the right to benefit from any real estate allocated to the FDI Project may not be cancelled, suspended or restricted except in event of a violation of the Licence conditions.

  3. The funds of the FDI Project may not be seized, confiscated, frozen or restricted except pursuant to a court judgement in accordance with the provisions of the legislation in force in the State.



Incentives to FDI companies include


  1. Shall be treated as national companies to the extent permitted by legislation in force in the State and international agreements to which the State is a party.

  2. May repatriate, to outside the State, the returns FDI Projects including the annual net profit, the proceeds of the liquidation of the investment or the sale of all or part of the FDI Project, and proceeds derived as a result of settlement of disputes relating to the FDI Project. .

  3. The employees of a FDI Company shall have the right to repatriate their salaries, compensations and entitlements outside the State, in accordance with the provisions of this Law by Decree and legislation in force in the State.

  4. FDI Companies shall, by virtue of this Law by Decree, be afforded confidentiality of technical, economic, financial and investment information provided to the Competent Authority or the Licensing Authority in accordance with the provisions of this Law by Decree, in a manner that is not inconsistent with the State’s legislation and the international agreements to which the State is a party.



Disputes related to FDI Operations


Disputes and disputes that may arise from the FDI Project may be settled by all alternative means of dispute settlement. Cases relating to FDI Projects shall be dealt with on an urgent basis by the competent courts of the State.



Obligations of FDI Company


  1. Adhering to the federal and local laws of the State, including the protection of the environment from pollution and everything related to the maintenance of public health and security.

  2. Conducting the activity specified in the Licence.

  3. Employing and training national cadres and providing them with the necessary skills, provided the adherence to percentages and special criteria relating to the Emiratisation as shall be specified in a Council Resolution issued pursuant to this Law by Decree.

  4. Maintaining regular accounts for the FDI Project.

  5. Appointing one or more of the licensed auditors in the State for a renewable period of one year provided that such appointment does not exceed six consecutive years.

  6. Providing information, statistics and documents required by the Committee, the Investment Unit, the Competent Authority or the Licensing Authority relating to the FDI Project.

  7. Notifying the Competent Authority and the Licensing Authority in writing of the date scheduled for commencement of work or actual production within five (5) Business Days from the completion of the installation of Fixed Assets and the preparation thereof for the purposes of the project.


Penalities applicable to FDI projects


The Licensing Authority or the Competent Authority may apply one or more of the following sanctions:


A. Warning. B. Denial of Incentives granted in whole or in part; C. Administrative fine which should not exceed one million dirhams. D. Suspension of the project until the reasons for the violation has been removed; or suspension for a period specified by the Competent Authority or the Licensing Authority, as applicable. Further, the Competent Authority may, after the coordination with the Licensing Authority and notifying the Investment Unit, cancel the Licence in either of the following two cases:


A. The Foreign Investment Company fails to remedy the violation after it has been notified in writing to remedy such a violation.


B. The same violation has been repeated by the Foreign Investment Company.



Grievances

The Foreign Investment Company may lodge a written grievance with the head of the authority which imposed any of the penalties mentioned in this Article within fifteen (15) Business Days being notified of such penalty. The head of the Licensing Authority or the Competent Authority to whom a grievance was submitted, must resolve on such a grievance within twenty (20) Business Days of the date of its submission, or otherwise the grievance will be deemed to have been rejected. The Foreign Investment Company may appeal any related decision to the competent court within thirty (30) days from the date of notification of the decision or the date on which the grievance was deemed rejected.



Protection the confidentiality of FDI Projects


Anyone who discloses, other than as otherwise permitted by the applicable legislation in the State, any information relating to technical, economic or financial aspects of a FDI Project which came to his knowledge while performing his employment duties, shall be punished by imprisonment for a term not less than one year and a fine not less fifty thousand (50,000) Dirhams and not exceeding ten million (10,000,000) Dirhams, or by either of these two punishments.


Finally, the Law stipulates that any provision contravening or conflicting with the provisions of this Law by Decree shall be annulled.


For further details, please check the text of the law:

http://www.economy.gov.ae/LawsAndRegulationsEn/Federal%20Law%20Regarding%20Foreign%20Direct%20Investment.pdf

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