Ruling that non-nationals can now own 100% of a company that is based in the UAE speaks volumes about the nation’s desire to broaden its scope of foreign investors. The new law passed in late-November, which comes into effect in December 2020, to remove the obligation of a 51% Emirati stakeholder is designed to make it easier than ever for foreigners to deepen their business interests within the UAE’s border – propelling its progress as a global investment hub, as per the National Vision.
Be it new foreign entrants into the UAE, existing business owners who want to expand their scope, or small and medium-sized enterprises (SMEs) and entrepreneurs looking to diversify their businesses – all can benefit significantly from this ruling.
"This decision puts the UAE on a level playing field with the world’s most developed markets. It gives foreign investors the choice of complete ownership versus working with majority partners – psychologically, that’s important," explained Mike Davis, Managing Director and Head of Commercial Banking, UAE, HSBC.
With the global economy still to recover from the effects of Covid-19, the move comes at an opportune time for innovative businesses looking to tap into high growth sectors such as technology, education and healthcare. The scale of this opportunity is underlined in the recent Navigator survey from HSBC, which shows that businesses in the UAE are some of the most optimistic in the world about their prospects in the coming years, with 90% expecting to be back at pre-Covid levels of profitability by 2022.
The reform to the commercial companies law is expected to increase foreign investment to the UAE by 35% according to Sami Al Qamzi, Director General of Dubai Economy. Sami also mentioned sectors such as manufacturing, digital and tech, entertainment and legal consulting services can expect to attract investment which will enhance competition, partnerships and acquisition amongst local and foreign companies1.
"Against the challenging backdrop at the moment, it is great to see the UAE making innovative and positive steps that will help protect the economy at a time we need it. This should really help drive the local economy forward in the early 2020s, benefiting all investors, both foreign and Emirati," said Kyle Boag, Regional Head of International Subsidiary Banking MENAT at HSBC.
The news is built on an ever-growing foundation that supports the ease of doing business. Notably that the UAE has already built a world-class foundation for business interests in-country. Despite being founded only 49 years ago, the UAE already leads the Middle East with its ranking as 16th out of 190 nations in the World Bank’s Ease of Doing Business report.2 And the UAE ranks 34th in the Global Innovation Index, as well as ranking 17th in the two sub-sections of Human Capital & Research and Infrastructure.3
The new law is coupled with other significant steps that make living and working in the UAE even more attractive to international businesses and a global population – the recent insolvency law, eased visa restrictions, relief and incentives for small and medium and legal changes to inheritance and assets. Each step reflects the UAE’s never-ending proactivity when it comes to financial maturity on the global stage, a momentum many foreigners can benefit from in 2021 as the nation will host Expo 2020 Dubai and ask questions around how we foster more global cooperation and shared purpose in order to thrive.
Dubai is also offering a one-year virtual programme – i.e. live in Dubai but work for a company anywhere – which appeals to entrepreneurs who want to sample local living while mitigating employment risk.
A rise in foreign ownership in 2021 will spur a new blend of foreign-Emirati business ties. But many foreign entities said they are still keen to sustain the local relationships that add value, such as networking and operational expertise. Another shift in dynamics next year will see foreign entities start keeping more cash in-country, as well as greater reinvestment, as the new laws make business and residential longevity in the UAE much more attractive. In turn, this will increase the human capital and financial bandwidth for more manufacturing, more innovation, and so on.
Of course, this will trigger more competition between the UAE’s seven emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah and Fujairah. "You will see each of the emirates trying to compete to make the most of this legal change. They will each want to incentivise businesses within their own emirate as they seek more foreign investment. But a resurgence in competitiveness is good news, as it will spark a wave of new investments into the whole of the UAE at a time when it needs them," Davis said. "What will be interesting is seeing how all seven emirates come together, pulling on their own strengths to produce an overall UAE message, both locally and internationally to investors and existing businesses," he adds.
Asia’s rising appetite
The UAE’s already burgeoning relationship with Asia, especially China, its largest trading partner, is expected to get a boost from the new law in 2021. For example, UAE-Sino bilateral trade rose by 6% to $34.7bn in the first nine months of 2019 alone, according to Ni Jian, the Chinese Ambassador to the UAE.4 And the geopolitical fractions in Europe, plus the momentum of Beijing’s Belt and Road Initiative (BRI), will drive even more business appetite towards the UAE in 2021.
While the UAE’s move is laudable, there is more to be done. "If you are an entrepreneur or business owner with a bright idea, where do you want to go globally? This year alone, the UAE has certainly done many things to make it a very attractive destination. But smart thinkers can go anywhere, so the UAE must keep strengthening its economy, push for future-proofed innovation policies and sustainable businesses frameworks, to ensure it stays at the top of that wish list," concludes Boag.
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