In an effort to attract investment and thus boost its profile in the region and beyond, the United Arab Emirates has decided to allow foreign nationals to own companies without local partners.
The change is to go into effect within six months.
The official Emirates News Agency reported on Monday that a presidential decree was issued amending the Companies Law in addition to advancing legal reforms that will allow unmarried couples to cohabitate, improve protections for women and ease restrictions on alcohol consumption.
Waddah Taha, a member of the National Advisory Council of the British Securities and Investment Institute in the Emirates, told The Media Line that the UAE was trying to create a legislative framework to attract increased investment, given the international conditions resulting from the novel coronavirus.
“Complete ownership by foreigners leads to the creation of companies that may boost the overall economy as reflected in GDP. It also allows entrepreneurs to be the owners of their ideas and creativity and innovation,” Taha said, calling this “very important.”
The sweeping reforms signal a startling change as the UAE grapples with the economic fallout of the coronavirus pandemic. Dubai in particular, which was teetering on the brink of an economic downturn even before the pandemic due to a weak real estate market, is eager for capital and travelers, being largely dependent on international tourism and aviation.
The International Monetary Fund projects that the overall UAE economy will contract a record in 6.6% in 2020, while Dubai’s economy will shrink by 9.8%.
Mohammed Yasin, an economist and chief strategy officer at Al Dhabi Capital, told The Media Line that since the beginning of the year, even before the coronavirus outbreak, UAE governments at both the federal and local levels had been working to reduce the cost of doing business in the country.
“With what happened in terms of COVID-19, implementing these reforms has taken on paramount importance and urgency whether in terms of business or in the social realm,” Yasin said.
“Taking these decisions now is really putting the infrastructure in place for many things that were asked for over the past 10 years,” he stated, adding that they would provide a positive business environment for the private sector and for foreign investment.
Allowing companies to be 100% foreign-owned everywhere in the country, and not just in the UAE’s 45 free-trade zones, as was the case until now, is an important development, he notes.
“Most of these companies have the prerequisites to be 100% foreign owned in terms of their capital. This capital can go from as low as 3 million dirhams, which is less than $1 million, up to something like a 100 million dirhams, something like $30 million,” Yasin said.
If companies already operating in the country wish to increase their foreign ownership, they will need to bring in additional capital, which would benefit the banking sector, he points out.
“If these companies are set up, it means there will be foreign owners who come here with their families, and they will buy real estate. This will trickle down the supply chain to the rest of the economy in terms of consumer spending, whether it is in air flights, real estate or hospitality,” he explained.
The reform was intended to re-energize the private sector and return the UAE to the leaderboard in terms of countries that are business-friendly and attract foreign investment.
“That [aspect] has been heavily challenged over the past five years, with some other countries in the region trying to do the same,” Yasin noted.
“We have a complete set of rules and regulations today that will make this place a very choice base for doing business,” he added.
Yasin believes the changes will help the UAE economy in the long-run.
“Hopefully, when life goes back to normal with a vaccine, and people start traveling again, we will see positive effects reflected in higher GDP growth, as it has been slowing down over the past four years,” he said.
“I think to take [annual GDP growth] back to a level above 5%, things need a shake-up, and I think these kinds of steps will hopefully take us back to those levels in 2021 and 2022,” he stated.
As for the social reforms, Yasin says that although some in the region may see them as negative, it was understood that to attract foreigners and foreign investment, “you need to help them fit in and make them feel safe, and at the same time allow them to move their families into an environment similar to the one they are used to in their countries.”
Abdulkhaleq Abdulla, an Emirati writer and professor of political science at New York University’s Abu Dhabi campus, told The Media Line that the transformation will break with lengthy precedence.
“All these changes come in the context of modernizing laws that have been in place since the establishment of the state and were appropriate to the circumstances of the ’70s of the last century,” Abdulla said, explaining that these laws had not kept pace with developments and were not suited to the 21st century.
“These laws had to be reviewed, especially the articles on personal status and individual freedoms, in addition to the status of companies,” he stated.
Suhail al-Zubaidi, an Emirati analyst and a media personality with Abu Dhabi TV, told The Media Line there were people of approximately 200 nationalities and more than 50 religions living in the Emirates, and the reforms grew out of the country’s understanding of this diversity.
Israelis have joined the multitude of foreigners who have opened businesses and bought apartments in the coastal cities of Dubai and Abu Dhabi since the normalization agreement with Israel was ratified in October.
“The UAE wants to provide an appropriate and moderate environment that understands this great diversity, and to facilitate it in the country,” Zubaidi said.
“Last year [2019] was called the Year of Tolerance [in the UAE], where even many traffic violations were canceled,” he explained. “This year, the state tolerated residency violators and waived fines. It is the usual Emirati way.”Read more articles from The Media Line.