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UAE to change onshore rules for foreign companies

Global Arab Network - - Maha Karim

Thursday, 17 September 2009 21:47

The UAE Ministry of Economy proposes to change the rules regarding 'onshore' companies in the UAE so that foreigners can own up to 100% of such companies' shares. 100% foreign ownership is already available for companies set up in the UAE's freezones, which have been a cornerstone of the UAE Government's drive towards diversification of the economy.

At present, foreign participation in local liability companies (known as 'LLCs' - the form of company at which this law change is targeted) is limited to 49% of the shares of those companies.

However, even though 51% of a LLC's shares are required by law to be held by a local partner, in practice it is possible for LLCs to be controlled by foreign investors.

Andrew Cooke, a corporate finance lawyer with the legal practice Norton Rose (Middle East) LLP, is available to discuss the rule changes and their prospective effect, including:

• why the rule change has been proposed (the government sought to shape commercial practice by making amendments to laws as Dubai grew exponentially - the law changes proposed are consistent with that approach).

• the types of UAE companies this will affect (LLCs. At present, expatriates cannot own a majority of a LLC's shares. However, investors in an LLC can contractually agree that expatriate partners will retain control of the management of the company and share profits and losses in such fashion as they may agree with their local sponsor, subject to certain rules).

• whether the changes proposed will have a positive effect on foreign investment in the UAE (the detail of the law remains to be published and so it is too early to say).

• how the rule changes might affect the success of free zones in the UAE (i.e. will taking away the key advantage free zones offer over operating 'onshore' impact upon the success of UAE free zones? It depends on the business being conducted; it remains to be seen whether 100% ownership onshore will be allowed).

"Our experience is that foreign investors can be uncomfortable investing in an onshore company in which they do not own a majority of the shares. It remains to be seen whether the ability to own shares in onshore companies will, of itself, bring new investors into the UAE. However the Government's willingness to implement changes to UAE companies law to encourage foreign investment is undoubtedly a good thing."

Global Arab Network

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Last Updated on Thursday, 17 September 2009 22:42

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