If a foreign national wants to register a local company in the United Arab Emirates, he or she does not have to involve a local person in establishing the business any longer. The UAE administration continues to enhance the attractiveness of the country to foreign investors. With this goal in mind, the Sheiks are lifting some of the restrictions that used to be in place before.
You can open companies of two basic types in the UAE:
- You can register a company on the territory of a Free Economic Zone (FEZ) in the country; or
- You can register a local company outside any of the FEZs.
Before a new law was passed some time ago, foreign investors could possess 100% of the company assets only if it was registered in one of the FEZs in the UAE. If a foreigner wanted to register a local company, he or she had to sign an agreement with a local ‘sponsor’ – a natural person or a legal entity – to jointly own the company. Moreover, the local partner had to have a controlling interest in the company (51% of the shares or more). Thus, the foreign company founder could hold not more than 49% of the shares.
It must be admitted that there were certain loopholes in the UAE corporate legislation that allowed distributing the company ownership shares in this way only on paper. In practice, the local sponsor would agree to receive a small regular fee and never really interfere in any business operations. However, the local sponsor had to be remunerated anyway and this fact increased the overall company maintenance cost.
Some more relaxed requirements used to be applied to UAE-registered foreign companies working in certain spheres of business. Instead of involving a local company owner, they had to hire a local service agent who would supposedly ‘overlook’ the company operations. The service agent did not own any company shares but he or she had to be paid anyway. Thus, the situation with the increased company maintenance costs remained the same.
Now the Commercial Companies Act № 2 from 2015 has been amended in the UAE. If you would like to register an LLC in Dubai or some other part of the country, you do not have to give up more than half of the company shares to a local person/ corporate entity.
From now on, a foreign national can be the full owner of a local company in the UAE. 100%.
The companies that used to be jointly owned by foreigners and (nominee) locals are undergoing the process of changing their form of ownership at the moment. The amendments to the Act mentioned above allow doing so but the form of company ownership cannot be changed in an instant. With time, the foreign owners of local companies in the UAE will solve this issue without any doubt.
We have to make a special note at this point, however. The new regulations do not apply to each and every foreign company registered in the United Arab Emirates. In particular, if a Federal or an Emirate agency is the co-owner of the foreign company, the form of company ownership cannot be changed, that is, it cannot fully belong to the foreign co-owner. In addition, the UAE Cabinet of Ministers reserves the right to make special exceptions to the general rule and disallow certain companies to use the 100%-foreign-ownership opportunity.
Age restrictions for company founders have been relaxed in the UAE
Traditions play a much more important role in Arabic cultures than they do in most Western cultures and the United Arab Emirates is not an exception in this respect. However, no-one can resist the globalization processes and one of the characteristics that these processes possess is intercultural exchange of an unprecedented degree. Speaking about the UAE in particular, it is probably the most ‘westernized’ country of all Arab countries.
A great number of (western-born) transnational companies have divisions in the UAE. English is the language used for communication in the business circles in the country. A growing number of young UAE citizens attend western universities including such top educational institutions as Oxford and Cambridge, for example.
The whole world is changing and the Arab world is changing too. Social institutions in the UAE are becoming more flexible as they are adjusting to the new reality. One of the signs of this flexibility and preparedness for changes is the recent amendment to the regulations that concern the age when a person can act as a company founder in the UAE. Now the company founder can be as young as 18 years of age.
What goals do the UAE authorities pursue by lowering the legal age for company founders in the country? First, they certainly aim at making the country one of the global business centers in the near future and they want to be in keeping with the most advanced western practices. A person of eighteen is considered an adult person in most European and American countries so the Sheiks simply want to live by the global standards.
Second, they are very much interested in diversifying the local economy that still depends on oil to a large degree. Not as much as it used to depend before, but anyway. The oil is going to come to an end in a few dozen years and the UAE authorities want to have an economically strong country that does not mine oil by the time when the deposits become empty.
Third, they want their youth to be more self-reliant and start living independently at a younger age than they normally do now. They want young people to take responsibility for their own future at an earlier stage in life.
Fourth, the UAE administrators are looking to attract as many foreign investors as they can in the view of their overall intention to diversify the country’s economy. They probably hope that in case a wealthy foreigner has a chance to register a company in the UAE in the name of his/ her child, this could serve as an additional incentive for the foreigner to launch a company in the country.
This may prove a wise decision in the long run. Inheritance planning is an important issue for affluent people whatever country they come from. The legal system in the UAE offers some highly efficient inheritance planning mechanisms that allow safely passing the family assets from one generation to another.
The changes are positive and the UAE authorities are certainly looking to the future.
