The much anticipated amendment to the Federal Commercial Companies Law No. 2 of 2015 announced late last year will be implemented in letter and spirit from June 1, 2021, marking a revolutionary change in business ownership rules in the country.
The new amendments to the law that allows 100 per cent foreign ownership of onshore [mainland] companies in the UAE is expected to open floodgates of investment opportunities for foreign investors.
Right to ownership lies at the core of capitalism where individuals determine where to invest, what to produce or sell, and at which prices to exchange goods and services.
While laissez-faire or the unfettered market capitalism remains utopian, modern nation states have been pursuing the core principles of capitalism that is rooted in right to property and freedom to own while protecting the socioeconomic interests of the nation at large.
The UAE government’s decision to allow 100 per cent foreign ownership of onshore businesses has come as a major boost to the country’s economy that has been actively pursuing foreign direct investment (FDI) in recent years.
The UAE recorded a 44.2 per cent ($20 billion) jump in foreign direct investment (FDI) in 2020 when global foreign FDI flows collapsed, falling 42 per cent from $1.5 trillion in 2019 to an estimated $859 billion, according to UNCTAD data.
Clearly, the country emerged as an attractive FDI destination and the clarity in ownership is going to bring in more investors into the country.
While several free zones within the country had already been allowing full business ownership to foreigners, onshore it has been restricted to certain categories of businesses with gradual easing happening during the last two years.
Keeping foreign investor as a minority shareholder legally has been a major impediment in attracting investors onshore in manufacturing and in several new generation businesses, such as, software development, financial technologies, and artificial intelligence.
By scrapping the system of having mandatory UAE national partners across the board for onshore businesses, with the exception of a few strategic areas, the government has opened up the country to the world for investment opportunities.
The UAE has been on a steady rise in the Global Competitiveness Index of the World Economic Forum. In the latest Index, the country is ranked 25th globally, improving by two positions from last year’s report and is leading Arab region.
The country has been pursuing a strategy to improve and develop performance in all competitiveness indicators. Clearly, the approach is rooted in open economic policies, modernisation and updating of legislations and streamlining of procedures as well as the adoption of innovation to move up on the scale of global competitiveness.
While the effects of the pandemic on global investment flows are expected to linger for longer with investors likely to remain cautious in committing capital to new overseas assets, the UAE’s legal reforms are sure to give it an edge in attracting foreign capital.