On June 1st of 2021, the government publicly confirmed that UAE allows 100% foreign ownership, which does not need foreign investors to have a local UAE partner. This law increases the UAE's attractiveness for foreign direct investment and shows how great opportunities for startups are setting up or investors looking to invest in the UAE companies.
Anyhow the latest 100% foreign ownership law creates some unanswered questions; for example, should the venture capital ecosystem try to move out of free zones, where they enjoy the relative ease of transacting and look to set up, relocate or re-invest on land or onshore? Which can only be answered with time.
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These are the three takeaways from this change of law on the UAE startup and venture capital ecosystem.
3 Major Impact on UAE Startup and Venture Capital Ecosystem due to 100% Foreign Ownership in UAE
1. Applicability
Not all types of businesses will be eligible for 100 percent foreign ownership in UAE, and to maintain balance, each Emirate also sends out unique guidelines. The minimum share capital requirement to the 100 percent foreign ownership; can be procured from Abu Dhabi’s policy which was recently published, which has set the minimum share capital requirements for the particular businesses as high as $4 million.
Also, other guidelines state that certain businesses need to hire at least five sector experts. In particular, the technology business sectors require computer knowledge and software designing. There are many unclear complete guideline structures for e-commerce or online marketplaces that are entirely unknown at this time. So in these sectors, they take advantage of the change in the law until the company’s requirements are clarified.
Also Read: Your Ultimate Guide to Free Zones in Dubai in 2021
2. Ease of Doing Business
This law change will qualify foreign investors to terminate their contracts with local owners as previously they need to have a UAE entity or an individual. In local ownership, most of the stakeholders hold 51 percent of the business. These arrangements can be costly in the long run and directly impact the local business and benefit the land-based venture ecosystem greatly. In addition, business transactions will be easier without the consultation of local UAE entities.
According to many experts, free zones are expected to dominate the venture capital ecosystem in the UAE. Although free zones are significant for early startups and venture capital investors, these conditions should remain unchanged in the near future.
The only issue is that businesses tend to operate fast; the physical presence may require to be retained by companies, not in the same ability as a 51 percent ownership - but to attend meetings with the other local investors, distributors, or sellers. It is essential because foreign investors cannot travel back and forth for these meetings; earlier, it’s not a big concern as the cost will be lower than before.
Also Read: A Step by Step Guide to Procure Your Free Zone Visa in UAE
3. Venture Foreign Direct Investment (FDI)
The 100 percent foreign ownership in UAE will make it easier to raise outside funds. Because you previously had a local UAE entity of 51 percent ownership and going into the business with a lower stake in the company, it is challenging from the investor's point of view. As in the law change, the investors will now most likely partner with the foreign-owned companies that play a crucial role in previous issues of controversy.
The industry experts summed up the best and claimed: “These changes are doubtful to make a building or investing land venture more appealing unless the relevant business needs open on the land venture because of its purpose of delivering goods or services of the free-zones.”
Here at Danburite Corporate, we provide a complete range of plans and solutions for business startups and management in Dubai and worldwide. We offer all the services related to setting up and running a business in Dubai. We have excellent awareness about UAE business culture and can help you to make the right decision at the right time. We offer one-stop solutions for Foreign Nationals/ Citizens who want to set up their business in the UAE.
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