In a noteworthy development that holds significance for foreign direct investment (FDI) in the Middle East and North Africa region, the United Arab Emirates (UAE) has executed a series of legislative changes designed to foster a more open investment environment. A UNCTAD report released in July 2023 indicates that the UAE now ranks among the top 20 host economies for FDI inflows. In specific numbers, the country saw its FDI rise from USD 21 billion in 2021 to USD 23 billion in 2022, setting a new record for inbound investment.
Historically, the UAE had stringent limitations on the ownership stakes that foreign investors could hold in ‘onshore’ private companies. The legal framework stipulated that at least 51% of a company's capital had to be owned by a UAE citizen. Foreign investors, except for GCC nationals, could own no more than 49% of the capital, thereby lacking legal control over the enterprise. These restrictions were often further compounded by limitations in the business licensing procedures, acting as deterrents for foreign capital flow into the UAE.
However, a groundbreaking legal amendment, UAE Federal Decree Law No. 26 of 2020, has largely negated these hindrances. Post full enactment of this law and subsequent modifications to the business licensing framework, the obligation for a local partner has effectively been eliminated. The sole exceptions are sectors considered to have a 'strategic impact,' such as defense, banking, and commercial agencies, where UAE national participation remains obligatory. Foreign investors are now permitted to hold 100% ownership in onshore private companies, markedly broadening the landscape for international investment into the UAE.
These adjustments mark a substantial departure from the traditional investment climate, which restricted foreign investors to the UAE's free zones. The legislation opens new possibilities for international business engagement in a broader range of industries within the UAE, a move that will likely have a ripple effect on the country's economy and its attractiveness as an FDI destination.
The International Trade Council views these modifications as a noteworthy development in global trade dynamics, with potential implications not just for the UAE but also for the broader MENA region and international investment communities.
