03 May How will the 100% foreign ownership law affect startups in the UAE?
The UAE has announced the long-awaited 100% foreign ownership law . which will enter into force on June 1, 2021, Which would eliminate the need for a local partner in the UAE.
This change in the law has the potential to radically change foreign investment in the UAE and has far-reaching repercussions for the UAE economy. It cannot be denied that the UAE government has been working for some time to achieve economic diversification. In order to achieve this goal, New laws and regulations have been enacted, As well as legal amendments. The main purpose of this diversification was to strengthen the UAE ‘s economy and help it break free from its sole dependence on oil income.
Starting a business has become easier than ever thanks to the regulation of foreign direct investment. But the regulation of foreign ownership, which recently reached 100%, may raise many questions that cannot be answered at the present time; for example, Should the venture capital system move out of the free zones at present, Where transactions are relatively easier…we have to wait a bit to find out, The answers will become clear over time.
The following are three main findings from this amendment to the startup ecosystem law in the UAE:
applicability
Based on recent developments, We believe that not all types of companies in the UAE are eligible for 100 percent foreign ownership… Each emirate will also set special laws that must be adhered to in order to maintain balance. We already know that 100 percent foreign ownership will be subject to minimum capital requirements; This information can be found in the recently released Abu Dhabi Guidelines. That set the minimum ownership interest for some businesses at up to $4 million. This is just one of many ways to ensure that the law is not misunderstood and benefited from.
Likewise, Some rules state that companies in certain industries must engage at least 5 industry professionals; technology, In particular , It is one of these sectors because it requires a high level of expertise. However , As the regulations for e-commerce and online marketplaces are not known at the moment, There is a lot of ambiguity when it comes to the overall structure of the recommendations.
Ease of doing business
As a result of this change in the law, foreign investors will be able to terminate their contracts with local owners. Where previously they had to have a legal business or individual in the UAE. Furthermore it , Local ownership should represent the majority of stakeholders, or 51 percent of the company. Not only do these procedures take a long time to perform, It can also be costly in the long run. The new law will have a direct impact on the local business scene, And it would be extremely beneficial to the Earth-based industry ecosystem. Business transactions will be considerably simpler as they will not require any documentation with a local legal entity
This change in the law allows foreign investors to terminate their contracts with local owners, Where previously it was required that they have a legal entity or individual in the UAE. not only this , local ownership had to constitute the majority of stakeholders, That is 51 percent of the company. These procedures may be tedious and costly in the long run
The change in law directly affects the realities of local businesses and companies and will greatly benefit the ecosystem of land-based enterprises. Business transactions will become much easier as it also does not require any kind of paperwork with a local legal entity.
Despite all the positive changes, Many analysts believe that free zones will continue to dominate the investment capital environment in the UAE. Early stage companies and venture capital investors rely heavily on free zones. And that only drawback is that since business is usually fast paced, Institutions may need to maintain a tangible presence – not in the same capacity as 51 percent ownership, But to attend meetings with other local investors, distributors or vendors. Because the foreign owners are unable to go back and forth to properly organize these meetings, This is required. This, However, This is not the case.
direct foreign investment
Foreign investors will be able to terminate their contracts with local owners as a result of this change in law, Where previously they had to have a legal business or individual in the UAE. Furthermore it , Local ownership must represent the majority of stakeholders, or 51 percent of the company. These procedures are time consuming and labor intensive and may incur additional costs in the long run.
The new law will reflect positively on the local business market. It will be of great benefit to the pre-existing business and companies.
Where business transactions will be considerably simpler as it will not require any documentation with a local legal entity .
These were the most important points that must be highlighted regarding the benefit of the new law to foreign investors. And if you are looking for someone to guide you to take the right steps in your projects, you can contact Itqan experts at any time.
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