Friday, June 25, 2021

UAE foreign ownership implementation and compliance deadlines: what companies need to know

There is a lot going on in the UAE from a corporate law perspective, including some rapidly approaching deadlines and the implementation of amendments to the UAE Commercial Companies Law. In this article, we summarise some of the most important changes and action points every company operating in the UAE must consider.

The topics covered include:

Impacts: LLCs and other commercial companies ‘onshore’ in the UAE

Implementation date: 1 June 2021

Decree Law No. 26 of 2020 (Decree Law) published late last year contained significant amendments to the UAE Commercial Companies Law (Companies Law).

The Decree Law abolished the requirement under Article 10 of the Companies Law for a UAE national to own 51% of the shares in the capital of a commercial company. The Decree Law permits full or majority ownership of commercial companies by a foreign investor, unless a restriction applies. The restrictions will apply by way of:

  • a Cabinet Resolution restricting foreign ownership in companies carrying on activities with a ‘strategic impact’; and
  • regulation at an Emirate level by the competent authorities (Departments of Economic Development).

On 19 May 2021 the UAE Minister of Economy, His Excellency Abdulla Al Marri, announced that amendments to the Companies Law in respect of foreign ownership will be implemented from 1 June 2021.

Abu Dhabi

The Abu Dhabi Department of Economic Development has announced a list of licence activities which may be conducted by a company which is wholly owned by foreign investors in Abu Dhabi. There are over 1,100 licence activities included on the list from a range of sectors of the economy.  

Dubai

The Dubai Department of Economic Development has issued an announcement stating that there will be more than 1,000 commercial and industrial licence activities which it will be possible for a company which is wholly owned by foreign investors to carry on. It also confirmed that no specific capital requirements will be imposed on companies which are wholly owned by foreign investors.  

While further detail is to be confirmed, the developments present an interesting opportunity for clients looking at incorporating a wholly-owned presence ‘onshore’ in the UAE, those with existing companies in the UAE in which they own 49% of the shares but are targeting 100% ownership and clients looking for acquisition opportunities in the UAE.

We are in regular contact with Government Authorities and are advising a number of clients on these changes. We will provide further updates on how these changes are implemented in practice.

More information about the Decree Law is available here

Impacts: Foreign companies operating through a branch office ‘onshore’ in the UAE

Implementation date: 1 June 2021

Foreign companies operating ‘onshore’ in an Emirate of the UAE through a branch office will, in principle, not be required to appoint a UAE national service agent.

While further detail is to be confirmed, the developments present an interesting opportunity for cost saving for foreign companies which currently operate through a branch office ‘onshore’ in the UAE which may be able to terminate UAE national service agents.

Impacts: Most companies in the UAE – whether in a free zone or ‘onshore’, including companies operating through a branch office

Deadline: 15 or 30 June 2021

On 24 August 2020, the UAE Cabinet published Cabinet Decision No. 58/2020 on the Regulation of Procedures Related to Real Beneficiaries (the UBO Decision). The UBO Decision applies to all companies licensed in the UAE, other than:

  • companies in financial free zones (Abu Dhabi Global Markets and Dubai International Financial Centre), and
  • companies which are directly or indirectly wholly owned by the federal government or the government of one of the Emirates.

Most companies licensed to operate in the UAE (a Licensee) will be required to create and maintain a Register of Real Beneficial Owners (UBO) and a Register of Partners (or Shareholders).

A UBO is defined as the individual that ultimately owns or controls the Licensee, whether directly or indirectly, through at least 25% of the capital. UBO information must be submitted to a Licensee’s competent licensing authority.

Deadlines

The filling deadline announced by the Ministry of Economy applicable across the UAE is 30 June 2021.

At an Emirate level, the Dubai Department of Economic Development has issued a notice stating that that the deadline to submit the UBO information is 15 June 2021

Next steps

Companies that are subject to the UBO Decision should:

  • ensure that they are maintaining compliant registers, including a Register of UBOs and a Register of Shareholders, and
  • file details of their UBO to their competent licensing authority without delay.

Penalties

Fines of up to AED 100,000 and a penalty of licence suspension can be imposed on those in breach of the UBO Decision.

More information about these developments is available here

Impacts: LLCs and other commercial companies ‘onshore’ in the UAE

Deadline: 31 December 2021

The Decree Law introduced a number of important changes to corporate governance and compliance, including, amongst others, changes to:

  • notice requirements for convening general meetings
  • methods for sending notices of general meetings
  • methods of convening general meetings
  • quorum requirements for general meetings
  • the liability of executive management teams
  • rules regarding the disqualification of directors
  • the term of appointment to auditors
  • requirements for the Memorandum of Association of a company, such that it includes a dispute resolution provision addressing specific requirements.

Companies must ‘adjust their position’ to comply with some of the above by 31 December 2021. In many cases, this will require companies in the UAE to adopt amended or amended and restated Memorandum of Association.

More information about these developments is available here

Impacts: most Licensees

Deadline: varies – calculated by reference to financial year

Economic Substance Regulations were introduced in the UAE last year. Many Licensees will be familiar with their obligations, but it is important to remember that Licensees need to assess whether they carry on a Relevant Activity on an ongoing basis, and that if they did in their last complete financial year, it is likely they will need to submit an ESR Notification, and possibly an ESR Report, to the UAE Ministry of Finance.

Deadlines

For those Licensees who are subject to the ESR and who carried on a Relevant Activity in their last complete financial year:

  • an ESR notification must be filed within six months of the Licensee’s last financial year end; and
  • an ESR report must be filed within six months of the Licensee’s last financial year end.

Many Licensees have a 1 January to 31 December financial year: those Licensees who do have this calendar year should be considering whether they are required to file an ESR notification in respect of the 2020 calendar year by 30 June 2021.

Next steps

All Licensees should assess whether they are subject to the ESR, and if they are, (re-)assess whether they carried on a Relevant Activity in their last complete financial year, and are carrying on a Relevant Activity in their current financial year. If a Licensee that is subject to the ESR did carry on a Relevant Activity in its last financial year, the Licensee should understand and comply with its reporting obligations and make sure that it did and does satisfy the economic substance test provided for in the ESR.

Penalties

Penalties for non-compliance include fines, and disclosures to overseas tax authorities (amongst others).

More information about ESR in the UAE is available here

Clyde & Co can provide further advice on these developments, and support in meeting compliance obligations.  

Please contact your usual Clyde & Co contact for more details on any of these developments.

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