100% Foreign Ownership in the UAE: Navigating the Onshore vs. Free Zone Dynamics

The United Arab Emirates (UAE) has undergone a significant legislative transformation, most notably with the enactment of Federal Decree-Law No. 32/2021 on Commercial Companies (or “the CCL”). This law, along with subsequent implementing regulations by the local Departments of Economic Development (DEDs), has fundamentally reshaped the rules for foreign direct investment, allowing 100% foreign ownership of many onshore companies.

This development marks a strategic shift to enhance the UAE’s global competitiveness and improve the ease of doing business. While the ability to secure 100% foreign ownership is now widely available on the mainland, prospective investors must navigate the nuanced legal and regulatory landscape, as restrictions remain in key sectors and vary across the different Emirates.

The New Regulatory Framework: Federal Decree-Law No. 32/2021

Commercial Companies Law has been instrumental in dismantling the long-standing requirement for a UAE national to hold a minimum of 51% shareholding in most Limited Liability Companies (LLCs) established outside of a free zone.

Key Provisions for Foreign Ownership

Two key articles in Federal Decree-Law No. 32/2021 govern the remaining flexibility and limitations on foreign ownership:

• Article 10 of the Companies law grants the relevant authorities, specifically the economic departments (DEDs) of each Emirate, the power to determine the required percentage of UAE national ownership for activities deemed to be of strategic importance. This delegates the critical decision-making on restricted activities to the local level, ensuring that certain key national interests remain protected.
• Article 151 of the Companies law permits the Cabinet or the competent DEDs to enforce prescriptive requirements for the participation of UAE nationals on the boards of Joint Stock Companies (JSCs). This ensures local representation and oversight in the governance of larger, publicly-traded entities.

The result of these provisions is a decentralized framework where the ultimate permissibility of 100% foreign ownership depends on the specific commercial activity and the Emirate of incorporation.

Onshore Ownership: The Emirate-Specific Discretion

The discretion afforded to the local DEDs means that the implementation of the new foreign ownership rules is not uniform across the UAE.

Dubai has adopted a highly liberal stance, permitting 100% foreign ownership for the vast majority of commercial and industrial activities. This comprehensive approach is designed to maximize foreign direct investment and streamline the setup process. However, even in Dubai, restrictions persist in specific key sectors, which are often deemed strategically important to national security or the local economy. These typically include Oil and Gas (Exploration and Production), Banking and Financial Services, Insurance and Re-insurance, Telecommunications, etc.

Other Emirates, such as Abu Dhabi, have also issued extensive lists of activities open to full foreign ownership, with thousands of commercial and industrial activities now eligible. Nevertheless, some Emirates, including Sharjah, Fujairah, and Ajman, have been noted as having a narrower or slower implementation of full foreign ownership in certain areas, requiring prospective investors to conduct thorough due diligence based on their specific license activity. The rules are constantly evolving, necessitating current legal advice.

The Role of the Local Service Agent

While the need for a Local Partner holding 51% of an LLC has been largely eliminated, the requirement for a Local Service Agent (LSA) persists for certain corporate forms and activities. Sole proprietorships or companies licensed for professional or consultancy services (e.g., law firms, consultancies, medical clinics) may be 100% foreign-owned. However, they are still typically required to appoint a Local Service Agent.

The LSA shall be a UAE National and shall not hold any shares in the company and bears no civil or financial liability for its operations. Their role is purely administrative, acting as a liaison with government departments to facilitate licensing and official paperwork in return for a fixed annual fee.

Free Zones vs. Mainland: A Persistent Divide

The UAE’s Free Zones were historically the primary vehicle for foreign investors seeking 100% foreign ownership and full repatriation of capital and profits, a benefit they have offered since their inception.

While the new mainland rules narrow the competitive gap, a key distinction remains:

• Free Zone Companies: These entities benefit from 100% foreign ownership, tax benefits, and full profit repatriation. However, their ability to trade or operate outside the Free Zone (on the mainland) remains restricted, often requiring a separate mainland branch or a local distributor.
• Mainland Companies (Onshore): With the new laws, these can now be 100% foreign-owned for most activities. They have the significant advantage of being able to trade freely across the UAE and bid for government contracts.

Conclusion and Market Impact

The UAE’s corporate ownership reforms, anchored by Federal Decree-Law No. 32/2021, represent a pivotal legislative advancement aimed at creating a more globally competitive business environment. The ability to attain guaranteed control and circumvent the need for a traditional local sponsor is expected to significantly reduce administrative costs and boost investor confidence.

Specifically, the near-universal allowance of 100% foreign ownership in Dubai is a strong catalyst, likely stimulating a substantial rise in Foreign Direct Investment (FDI). While foreign investors must remain diligent in confirming the exact ownership requirements for their specific activity and Emirate of choice, the overall direction of the UAE legal framework is clear: an open and accessible market designed for global business.