Newsletter Archives - Page 37 of 57

Newsletter

Singapore’s Rankings Go Up and it Presents Itself as a Stronger Case by the Day!

December 17, 2018

If you check the global ranking of various places you consider to do business, Singapore surely shows as one of the top choices. It figures in the most smooth and straightforward countries to do business when it comes to financial compliance.

Many companies throughout the world have opted Singapore to set up their base in Asia Pacific. Some recent global trends and new developments further strengthen the case for company formation in Singapore and Singapore company incorporation even further.

Singapore’s government nowhere seems to be resting; it is introducing new changes to improve the business environment to a larger extent and make some amends to promote investments from some particular industries.

The Monetary Authority of Singapore (MAS) recently introduced the Variable Capital Company (VCC) structure, which is going to boost this country’s influence as a hub for the domiciling and management of funds. This simplifies the process of entering and exiting the funds for the investors for managing multiple sub-funds and in addition, streamlines the accounting procedures.

This change has been announced shortly after the changes done to the tax treatment of various Singapore-listed real estate investment trusts (S-REITs), which is slated to promote the progress of this asset class even further. The authorities have announced many incentives and put up support infrastructure in place so as to advance future-focused industries in the country, ranging from fintech to green buildings.

The Monetary Authority of Singapore has also announced a new Code of Corporate Governance 2018 in the month of August with a positive outcome to assist continued corporate performance and innovation along with strengthening the confidence of investors in the Singapore’s capital markets.

Foundations with a big promise

Other than pro-business regulations, Singapore is also blessed with private wealth and many high net worth investors (HNWI). In fact, this country’s ultra-HNWI population is expected to spiral up by 40% by the year 2026, thus leaving behind London and New York. The investors are going to take advantage not only from an optimistic funding environment but also a pool of very skilled local talent.

However, this doesn’t mean that there are no challenges or obstacles of doing business in the country. The Singapore government has been tightening its process for hiring any new global executives, making the anti money-laundering more stringent, and know your customer (AML/KYC) process steps including processes like opening a new bank account, could at times be more complicated than organizations expect.

But these challenges too have related positive points. This nation’s stability and high standard of living means bringing in and hiring global talent of a high potential that meets the benchmarks set by the government is hardly an issue for long. The thorough checks put in place by some banks are a proof of the reliability and safety of the financial system, which spurs the investors to do transactions and house funds in complete confidence.

Tapping the potential of the regional network

Singapore is one of the partners in the Association of Southeast Asian Nations (ASEAN), a region which is expected to rank as the fourth-biggest economy internationally by 2030, housing a rising middle class. Because of its highly-developed infrastructure and connectivity, this city-state offers the ideal base to make a presence throughout Southeast Asia and outside.

The potential investors who are planning to make use of Singapore as a point to get into ASEAN must ideally seek some local support before planning their strategies and steer ASEAN’s still distinct bureaucracies.

By collaborating with such a partner from the start, the investors can plan their Singapore and other future operations in such a manner that would enable in moving smoothly and effectively so that they can tap into the best potential of the region.

Newsletter

The New Jebel Ali Offshore Company Regulation 2018

December 17, 2018

If you want to own or hold Dubai freehold properties, then Dubai-based JAFZA offshore company is the best option and is also the usually preferred SPV/SPC for this purpose.

JAFZA Offshore jurisdiction has seen a lot of evolution in the last few years and has become the most sought-after jurisdiction for owning Dubai freehold properties in UAE. JAFZA offshore company is the only one that is allowed by the Dubai Land Department to possess property in chosen freehold areas, thus transforming it into the common vehicle when it comes to corporate property ownership for global individuals or legal entities/businesses. The free zone authority has recently announced new more investor-friendly and flexible Offshore Company policies and regulations.

Key features of the new JEBEL Ali Offshore Companies Regulation 2018

The Jebel Ali Free Zone Offshore Companies Regulations 2018 actually completely replaces the Jebel Ali Free Zone Offshore Companies Regulations 2003. The New Offshore Regulations are not only more investor-friendly but also offer new opportunities for global investors to streamline their enterprises in the UAE. The JAFZA Offshore companies can also hold shares in the free zone and onshore businesses to make the operations of a business smoother within the Middle East and outside of the UAE.

Options of Visa

An Offshore company that possesses any property in one of the selected freehold areas is permitted to apply to JAFZA to get a residence visa for its members like its Shareholder and/or Director.

Class of Shares

The new regulation has come up with the specification to set up a separate class of shares and hence give an opportunity to its investors to exercise management control over the offshore company.

Registered Agent

Regulation 32.1 of the newly-announced Offshore company regulation 2018 reads as ”An Offshore Company shall at all times have a Registered Agent. This requirement is optional for Offshore Companies that maintain an office in the Zone”.

Registered Office

The regulation 30(1) of the newly-announced offshore company regulation 2018 states that an offshore company has to as a mandate at all times have its registered office, which should be an office that is maintained in the Zone by the company or an office that is maintained in the Zone or in Dubai by the company’s registered agent, and all the communications and notices are addressed here. As per the New Offshore Regulations, an Offshore Company is also allowed to hold a lease of property for using as their registered office in any of the chosen freehold areas in the UAE, have a stake in some other operating company in the UAE and also possess a property in one of the specified freehold areas.

Number of Directors

According to the new offshore regulation, the business affairs could be managed with one director and this could be a corporate body. The Regulation 33.1 of new JAFZA Offshore Company regulation states ”Subject to any limitations in the articles of association, the business and affairs of an Offshore Company shall be managed by at least one Director.”

The needed majority for passing any resolution

Contrary to the repealed JAFZA Offshore Company Regulation 2003, the new 2018 regulation mandates 75% of the members to vote in person or exercise their vote through a proxy at the company general meeting for which a statutory notice explaining the purpose of the resolution must be circulated to all the members.

Re- Domicile or transfer of incorporations

Regulation 111 & 116 of the new JAFZA Offshore Company, 2018 permits the businesses and organizations to re-domicile and also transfer to this jurisdiction if they are authorized by the laws of the jurisdiction in which it was incorporated. A JAFZA Offshore Company may need a resolution and an approval of Registrar of Offshore companies for applying to the relevant official or a government or public body of a particular foreign jurisdiction for transferring its incorporation to the foreign jurisdiction and also request that the Offshore Company should be continued as a foreign company.

Prohibition of loans to directors

AS per the new JAFZA Offshore regulation, it is strictly prohibited to giver a loan to a Director or to go into any guarantee or offer any security related to a loan made to a Director without the approval of members holding not less than 90% of the normal value of shares, thus giving a right for attending and voting at any meeting of the members.

Transformation of offshore company to onshore free zone company

An Offshore Company requires a resolution for applying to the Registrar if it decides to change its corporate form into a Free Zone Company in the Jebel Ali Free Zone. The date of this incorporation of the Free Zone Company would be the same as the Offshore Company and all the rights and obligations of the Offshore Company would continue with the Free Zone Company.

If you need professional advice, we will be more than happy to help in JAFZA offshore company formation or Company formation in Dubai. Do get in touch and our experts would guide you the next steps as per your requirements.

Newsletter

New Regulation on Ultimate Beneficial Ownership in the DIFC

December 17, 2018

The DIFC has lately announced their policies and guidelines regarding the Ultimate Beneficial Owners (UBO) of companies. A beneficial owner is defined as a person within a company who, as per the new DIFC regulation, directly or indirectly controls or holds either of the following:

Shares or some other Ownership Interests in the applicable person over the relevant percentage;
Voting rights in the applicable person above or more than the relevant percentage; or
The right to give appointment or remove a big number of Directors of the applicable or relevant person.

Regarding a partnership, the UBO is allowed to exercise considerable control overall.

In case it’s a foundation or some Non-profit organization or, the UBO is usually an individual or person who has the legal control of all the activities of the Governing Body of the business entity or the operations conducted by it.

Details of the Law

The basic premise of the Ultimate Beneficial Ownership Regulation (Consultation Paper Number 7 of 2018) is to clarify that the UBO of a company or a business entity is to be identified. They should be a formalized prerequisite within the earlier mentioned legal forms of enterprise. In addition to this, this new regulation also explains that the DIFC holds the responsibility for ensuring that they are aware of the UBOs and possess updated information about them.

The exemptions are covered under Article 2 and Article 3 provides the definition of a UBO according to this law, which we have mentioned in this article. This article contains in-depth information and deals with other circumstances like 3.1.2, which concerns cases of two or more UBO parties.

A registrar holds all the collected information on the UBOs within the DIFC, and the relevant or applicable person decides to acquire this information and then communicate it to the registrar, as described in Article 3.2.2.

Article 4.1.4 describes the specific data regarding the requirement of collecting on the UBOs. This includes information such as the UBO names, nationality, addresses, date of birth and other such details. Article 4.2 explains the process if a new UBO comes or replaces the earlier one and how an application has to be made to the court. Other than this, in case any problems arise regarding the current UBO, an application is required to be made in a court to find a resolution of the matter.

Article 5 talks about an entity’s Nominee Director. This person who will be a Nominee Director of a company, has to be registered, and the information to be collected is the same as the UBO, and Article 5.2.1 confirms the same.

The duties and responsibilities of the registrar are mentioned under Article 7 and include data collection and analysis of the data; however, this should only be with a purpose to regulate things like money laundering, terrorist financing, or criminal organizations and sanctions conformity in the DIFC, and to be in compliance with any other such applicable laws in the DIFC.

Last but not the least; Article 8 describes any situations where any persons who had to obtain the information on the UBO or the Nominee Director and fails to follow any of these regulations, would be struck off by the registrar.

Newsletter

Five Lessons that Introduction of VAT Brought for the GCC

December 17, 2018

Almost after a year of VAT implementation, too many businesses and organizations in the UAE and Saudi Arabia still require assistance in setting up their tax treatment accurately, while enterprises in Bahrain would require being VAT-compliant from 1 January 2019.

The United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA) have been first of the six Gulf Cooperation Council (GCC) member states who introduced VAT at a rate of 5% in January 2018. It’s been a year and there are still so many companies who are struggling to be compliant.

So, what were the reasons that these companies tripped in the UAE and Saudi Arabia? What could be the challenges for those functioning in Bahrain starting from January?

We have collated the top five key lessons that companies across the Gulf could go through while the VAT rollout process continues. In case you need help in VAT implementation in GCC, complying with VAT rules, or finding VAT consultants in Dubai, just get in touch with us.

1. Linking and validation is still a work-in-progress

Organizations have had issues while linking their tax registration number and also customs registration numbers to official systems so as to conclude and submit their final VAT return, for no fault or miss from their side.

As per the GCC’s VAT agreement, the VAT payable on imported goods in member states should be paid right at the first point of entry and is then transferred to the last destination state in the framework of the GCC Customs Union. But in practical sense, every member state has to build its own electronic tax system and then link it with the GCC tax information centre which operates through a central website. As all the GCC states have still not implemented VAT, the unified GCC tax information ‘hub’ is not connected to each local tax system yet. Provisionally, the UAE and KSA are considering the transactions between them as outside of the GCC.

Till such time when all the six GCC states bring in VAT, various transitional rules will remain in play and there would be a lot of local tax complexity. There is an impact on business, for example, in the ‘use and enjoyment rules’ as all the member states are considered as ‘non-GCC’ – which impacts the cashflow.

After the remaining four GCC states also announce VAT, businesses will have to readjust their tax treatment especially for inter-GCC transactions while complying with the unified GCC VAT agreement.

2. Know about your VAT from the accounting requirements

In the UAE and KSA, there have been confusions between VAT reporting requirements and the accounting rules.

Irrespective of the date of the sales invoice, the VAT liability is calculated based on the time period in which the related payment is given, or the products/services are delivered. The organization’s ERP systems should be checked accordingly to make sure that the charging VAT is correctly adopted.

3. Different tax treatments in different zones

There are different tax treatments in the UAE in various designated zones (DZs or free zones) and also in mainland entities. DZs are especially designed to give incentives to enterprises and be the tax-free zones for goods. They are thus outside of the UAE for the purposes of VAT.

This, however, does not mean that any business set up as a DZ or free zone entity will be exempt from VAT. It completely depends on how their business activities are managed inside the zone.

4. Consistent reporting is critical

The Emirate-level reporting guidelines are applied variably in the UAE, because of which some businesses at times wrongly account for VAT on the sales they make, based on where their customers are located. It is advised to work with local tax experts to make sure that you’re reporting as per the accurate requirements.

Companies could face administrative penalties if they violate the VAT law, like missing the payment of VAT or filing deadlines. The VAT return has to be filed with the tax authority before 28th (in the UAE) or before the last day (in KSA) of each month after the end of the tax period.

5. Business versus personal expenses

Some expenses undertaken for a business can be input as VAT recoverable; however, they should have been used for making taxable supplies (standard-rated or zero-rated). The input tax cannot be recovered if the company provides exempt supplies which are non-taxable.

The VAT law also has a Capital Assets Scheme which enables to recover the input tax paid while acquiring new assets. The initially-recovered input tax is finally adjusted based on the actual usage during a particular period.

Newsletter

The New Pact Brings Enhanced Market Access for Singapore and Dutch Companies

December 11, 2018

There’s good news for Singapore companies as it’s going to get easier for them to set up their businesses in the Netherland now. This is because both the countries have agreed recently to further open their markets and improve the opportunities for innovation.

A two-year agreement was signed between Enterprise Singapore and the Netherlands Enterprise Agency at a business forum held in Rotterdam, when President Halimah Yacob’s was visiting the country.

The memorandum of understanding’s (MOU’s) focal point is on areas like healthcare, smart mobility and logistics, and food technology.

The objective of this MOU is to generate better opportunities for both Singapore and Dutch enterprises to collaborate especially in the area of innovation and also market access and help in expanding each other’s skills and markets in Europe and Asia.

As per the Global Innovation Index, the Netherlands and Singapore stand in the top five most innovative countries in the world. Many other such agreements with an aim to improve cooperation especially in the fields of food science and customs were also signed recently.

A plan to aid cargo clearance between both these countries and also a Singapore Business Federation (SBF) agreement to boost the financial cooperation and to open up more business opportunities between both countries has been done.

“(The Netherlands) are very much like us – a small country in a big region. They are very enterprising; they are also quite careful. We find the mindsets quite similar,” said Teo Siong Seng, the SBF chairman 1 was leading the Singapore business delegation.

Tan Wu Meng, who is the Senior Parliamentary Secretary for Foreign Affairs and Trade and Industry said, “As talk about building walls gets louder, it’s important that like-minded partners like us must continue building bridges that are stronger.” He also said that trade agreements like the European Union-Singapore free trade and other investment protection pacts offer an opportunity for all the involved parties to signal their shared commitment towards free and open trade.

Madam Halimah and other important Singapore officials were also amongst those who visited the Dutch seat of government in The Hague. There, she met with the heads of the upper and lower chambers of the Parliament – President of the Senate Ankie Broekers-Knol and also the Speaker of the House of Representatives, Khadija Arib.

The Binnenhof (the building complex) was the Dutch legislature for over 500 years and is one of the oldest House of Parliaments in the world which is still in use currently.

Madam Halimah also mentioned that they will continue to encourage the Netherlands to use Singapore as a base from where they can explore and do business with the South-east Asia region, which is a nascent, budding and dynamic market of more than 620 million people.

So if you are heading for Singapore company incorporation and don’t know how to begin, do give us a chance to assist you. Our experts at IMC will help you with any queries and take the burden off your shoulders.

Newsletter

EU and Singapore Have Signed the Free Trade Agreement

December 4, 2018

Singapore and the European Union (EU) have just signed a free trade pact which is called the EU-Singapore Free Trade Agreement (EUSFTA) with a goal to strengthen their economic relations. In addition, two more agreements were signed between the EU-Singapore Partnership and Cooperation Agreement (ESPCA) and EU-Singapore Investment Protection Agreement (EUSIPA). This pact shows their commitment to free trade especially with increasing protectionism and is expected as a preface to an FTA in times to come between the EU and the Association of Southeast Asian Nations (ASEAN).

Sanction and coming into force

The EUSFTA and EUSIPA are now under discussion and votes will be collected in the European Parliament in 2019 Quarter 1. After approval by the European Parliament and the national parliaments of every EU member state, the EUSFTA and EUSIPA will come into force and announced and this process would take about a couple of years.

Trade links between Singapore and the EU

Do you know that Singapore ranks as 14^th largest trading partner in the EU in terms of goods and the 4th largest in terms of services? The EU is the country’s 2nd biggest trading partner for goods and the biggest for services. It is predicted that over 10,000 EU-based organizations that have their business in Singapore would highly benefit from this FTA. Now, other Vietnam, Singapore is the second ASEAN partner to sign an FTA with the EU.

Foreign direct investment (FDI) is also very important in the economic relations in Singapore and the EU. The size of trade between these two regions and the reciprocal FDI helps in making Singapore the top-most players in terms of EU trade activities in Asia.

Trade in goods

The EU decided to slash its tariffs to 0 within the coming 5 years after the coming in force of the EUSFTA, which will cut 75% of the tariff lines to almost 0% soon and the rest in the next three to five years. Some current tariffs, such as on agricultural products, would remain. In Singapore, almost 99% of goods from the EU are currently permitted duty-free access.

This agreement will strengthen cooperation in terms of regulatory standards and will also reduce needless technical barriers in trade. Some specific guidelines for food safety are also included. EU standards regarding automobiles and their parts are already accepted by Singapore. Third-party testing of Electronics would be removed slowly in Singapore complying with the EU rules. The EU calls for better transparency for pharmaceutical pricing. Also, green technology should be considered the same as national products in both regions in this agreement.

Trade in services

Trade in services is prepared with a positive list, which includes 12 sectors (with over 160 sub-sectors) which are open for competition from the associate countries. Postal service is now opened up on both sides and they also agreed for better co-operation in e-commerce and remove needless restrictions and rules.

Investment protection agreement

The EUSIPA is going to replace 12 current Bilateral Investment Agreements among Singapore and the EU. This agreement lays standards of fair and equitable treatment (FET) for investments between both the parties.

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New DIFC Real Estate Laws and Regulations – Explained by IMC Group

November 26, 2018

The Dubai International Financial Centre (DIFC) has released a new set of real estate laws and regulations. Keeping with the regulatory developments in Dubai, DIFC has amended its Real Estate and Strata Law and Regulation Regimes.

The amendments to the Real Estate and Strata Law regimes came into effect on 14th November 2018. We have analysed these changes and have summarised them for your understanding. So, let us have a quick glance at the new real estate laws and regulations.

A quick glance at the new laws and regulations

The Real Property Law (DIFC LAW NO. 10 OF 2018) repeals and replaces the Real Property 2007 Law (DIFC Law No. 4 of 2007). Likewise, The Strata Title Law (DIFC Law No. 11 of 2018) amended certain provisions of the Strata Title Law (DIFC Law no. 5 of 2007).

This Law applies to all Real Property within the jurisdiction of the DIFC. It includes land, buildings, and items placed in, on or under the land.

The changes implemented an updated property regime that ensures enhanced and better protection for the DIFC property owners and mortgage holders. Moreover, it also introduced an off-plan register and escrow requirements for developers. The new law ensures that the property purchasers acquire full disclosure on the developments and units being bought. The new law has made it mandatory for the developers to set up escrow accounts for the purposes of pooling amounts paid by the purchasers in an off-plan development.

The Strata Title Law further expands the scope of functions and powers of the Registrar of Real Property (RORP). The registrar now has the power to govern parties that breach their obligation in regards to the law. In order to promote efficiency and impartially in matters of dispute, the new law will enable the DIFC Courts to hear directly from interested parties.

Now, let us look at the key changes introduced by the new laws and regulations.

Key changes introduced by the new laws and regulations in relation to leasing and transfer of interests

For any DIFC property where the term of lease exceeds 6 months, it is mandatory to register the lease with the DIFC Registrar of Real Property by the lessor. (Earlier registration was mandatory only for properties with lease term more than one year).
Where the properties are mortgaged, the freehold transfer fee needs to be paid within 50 days from the date of signing the memorandum of understanding between the two parties.
The Real Property Regulations have further extended the scope of exemptions by providing total 8 exemptions from the payment of freehold transfer fee which is generally charged at 5% of the purchase price or market value.
While transferring non-freehold interests, a new schedule of registration fees will apply.

Key changes introduced by the new laws and regulations in relation to strata law

The new law made it mandatory to provide a copy of the proposed Strata Management Statement or Strata Management Statements disclosing the proposed management structure and rules along with additional details of the shared facilities as per the Principal Strata Schemes.
The new legislation stressed the developer’s obligation to rectify construction defects in the off plan development. Developers are now responsible for repairing, rectifying or replacing all defective building works, materials, equipment and installations of non-structural nature within 1 year and structural nature within 10 years from the date of completion of the building.
The new legislation also mentions a clear process for registering a lien in a case where the service charges are not paid by the registered owners by the due date. Moreover, if the service charges are unpaid, the person is not allowed to vote at a General Assembly.

The new real estate laws and regulations represent an updated DIFC’s real estate framework post 2007. However, we expect a few more amendments to the framework in the coming time.

If you seek further guidance on the new real estate laws and regulations, you can get in touch with IMC Group who are pioneers in advisory and consulting related to the real estate sector in the UAE. The professionals at IMC Group have requisite knowledge and expertise of the real estate projects in DIFC.

For further information, you can visit www.intuitconsultancy.com or email at [email protected].

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New DIFC Law Set to Help Small Private Companies in UAE

November 26, 2018

With a view to place Dubai International Financial Centre (DIFC) as the world’s top financial centre, Mohammed bin Rashid, the Vice President and Prime Minister of the UAE and the Ruler of Dubai has enacted changes to the DIFC’s legal and regulatory framework. The new law came into effect on 12th November 2018.

New DIFC Companies Regime

The new law aims to enhance growth and investment in the UAE. The new companies regime makes it easier for companies to do business in the Middle East. It will increase the ease of doing business in the DIFC along with providing appropriate levels of protection to investors in line with international best practices.

The newly enacted law aims to update the overall operating environment for entities based in DIFC, making it the most sophisticated and business-friendly common law jurisdiction in the region. Owing to the new law, DIFC companies will have to adhere to less stringent governance requirements which will allow them to focus majorly on doing their business. This robust and comprehensive legal framework will ensure that businesses and investors can operate easily and with confidence in the DIFC.

The new rule further removes all the ambiguity regarding the scope of powers and responsibilities of the directors. It clearly specifies their scope. The new law promotes transparency by clearly communicating the roles and responsibilities of the officers of DIFC companies.

The new law replaced the former Companies Law and its operating regulations. We will glance through the key changes under the Companies Law and Regulations and Operating Law and Regulations.

Key Changes to the Former Companies Regime

Key changes in the Companies Law and Regulations
- The new law has abolished limited liability companies and has introduced a new classification of public and private companies. The private and public company regime will now allow maximum flexibility, especially for small private companies. With the introduction of the new law, private companies limited by shares (Ltd.) can have up to 50 shareholders and public companies limited by shares (Plc.) can have any number of shareholders. Moreover, there will be a distinct set of requirements for both of them.
- A public company must operate with at least two directors and a company secretary whereas a private company is not required to appoint a company secretary and can operate with just one director.
- The new law will further expand directors’ duties for DIFC companies. They are expected to disclose any interest in a transaction that is entered into or is proposed to be entered into by the company that conflicts or may conflict with the interests of the company. Furthermore, directors are required to act honestly, lawfully and in good faith keeping the best interest of the company.
- Another change is, a public company is required to have a minimum of USD 1,00,000 capital, of which at least 25% must be paid up. However, a private company is not required to have a minimum share capital.
- The new law also introduced a statutory pre-emption right for existing shareholders of the companies to guard against undue dilution of their existing rights.
- The new law has enacted a new schedule of administrative fines that the Registrar of Companies can impose on a company.
- As per the new law, companies are not required to notify ROC about the initial allotment of shares. Notification is required only in case of subsequent allotments.
- The law further provides new provisions for ‘whistle-blower’ protection.
- The law also enhanced the company accounting and auditing requirements.

Key changes in the Operating Law and Regulations
- The new law provides a detailed framework for the role of the Registrar of Companies. ROC’s role will now include supervision and monitoring of the DIFC law and ensuring that the companies operating within DIFC are complying with the law.
- The new law further enhanced the licensing regime by providing a detailed framework concerning the licenses issued by the Registrar of Companies and their types. The new licensing regime will enable companies to conduct more business within DIFC or from DIFC. The new law requires companies to file a confirmation statement in case of license renewal.
- The law has strengthened the powers of the Registrar relating to inspection and investigations.
- The law also provides an extension of the ROC’s enforcement powers.

What are the objectives of the legislative changes?

The legislative changes are aimed at providing flexibility to the companies operating in the DIFC. The law further aims to enhance the business environment and reduce entry barriers in the DIFC. Moreover, it will increase the cost-efficiency and flexibility of small businesses, which constitutes a major portion operating within the DIFC.

How can IMC Group help you?

IMC Group is a cross-border advisory firm focusing on providing financial consultancy and advisory services in Asia, Middle East and Africa region. IMC Group can assist you in registering and securing ongoing compliance by advising you on the changes as per the DIFC regime and helping you with the incorporation of a company as per new law. For further information, you can visit www.intuitconsultancy.com or email at [email protected].

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The UAE Foreign Direct Investment Law

November 26, 2018

The good news is that Federal Decree No. (19) of 2018 regarding Foreign Direct Investment (the “FDI Law”) which has been long awaited, is now in force. This FDI Law has an objective of creating a rational and balanced business environment which helps in increasing the flow of FDI coming into the UAE by permitting up to 100 percent foreign ownership of companies, which are functioning in certain sectors. In this article, we are going to talk about the main principles of the Foreign Direct Investment Law and the possible impacts and implications that this law would have on all global investors in the UAE.

Before the FDI Law was passed or announced, the foreign ownership of all the companies in the UAE was only allowed up to 49 percent as per the Article 10 of Federal Law No. 2 of 2015 on Commercial Companies. But post the passing of Federal Decree Law No. 18 of 2017 this limit has been relaxed and the UAE Cabinet has been given the freedom to enhance the foreign ownership limit in all the economic sectors and also for businesses involved in certain activities. The FDI Law has now come up with a new framework or guidelines, according to which the Cabinet of UAE can exercise the powers that are given to it as per the Federal Decree Law No. 18 of 2017.

The FDI Law has established the following two lists: (i) a negative list that is meant to set out some sectors, which are termed “unavailable” for foreign investments; and (ii) a positive list which stipulates the sectors and business activities that are available for the foreign investors.

The Negative List

The specific sectors in the UAE economy, which figure out on the negative list currently are:

Exploration, prospecting and then production of oil;
Investigation or security agencies, military sectors, and also weapon manufacturing;
Financial activities such as banking or funding like payment systems or any cash dealings;
Insurance sector;
Labour-based services like recruiting of personnel;
Water, electricity services;
Postal, telecommunications and all kind of audio-visual services;
Land and air transport services; and
Medical sector-related retail trade, which includes private pharmacies.

The UAE Cabinet has the powers to make amendments to this list and add more or remove any current sectors, which are there on the negative list.

The Positive List

Contrary to the negative list, the FDI Law does not give any details of any particular sectors in the UAE economy regarding the positive list. Though the Economy minister has said that the government will soon be publishing this list by the first quarter of next year. The FDI Law permits the authority to the cabinet of the UAE to add any sectors it deems fit, on the positive list and to:

Authorize the level or percentage of foreign ownership that is allowed in such a sector, which not necessarily has to be 100 percent but could be anything more than 49 percent;
In case less than 100 percent of ownership is allowed in a particular sector, the government needs to change the foreign ownership level that is permitted depending on the Emirate where this business is set up and functions;
Mention the limitations and requirements on the legal entity’s form which might carry on the business activities;
Set a minimum requirement of capital for all the legal entities that are functioning in such sectors; and
Impose or necessitate the mandatory Emitarisation requirements regarding businesses which are operating in such sectors (that is, instruct that some specified percentage of the UAE residents include the total strength of employees in the business).

The FDI Law has listed the application procedure that all the global investors need to follow if they are requesting for an increase in foreign ownership in a specific sector on the positive list. Not only that, but the FDI Law also describes the appeal procedure in case of a rejected application.

Foreign Direct Investment Projects

A foreign investor can apply to get permission so that they can own over 49 percent of ownership or shares in FDI project provided that the project’s sector is not listed on the negative list. In case the foreign investor gets the permission, they are allowed to set up a foreign investment company (as prescribed under the FDI Law) to hold their interest in the particular project.

Administration

There are two government bodies that have been set up as per the FDI Law to make sure accurate administration and also an implementation of this FDI Law:

The Foreign Direct Investment Unit, which is called the “Investment Unit”, and
Foreign Direct Investment Committee, called the “Committee”

Investment Unit’s primary role is to make suggestions and execute (post getting approval from the cabinet of the UAE) FDI policies in the UAE and also to observe and appraise the performance of this foreign direct investment that is permitted.

The Committee is basically responsible for first studying and then submitting their recommendations to the cabinet about the inclusions on the positive and the negative lists. The Committee is also accountable for giving recommendations to the cabinet of UAE on approving of all the license applications of FDI projects, which are still not on the positive list.

Some other provisions

The FDI also lists the provisions and details about how to settle disputes, if any, administrative sanctions, any penalties, fees (which is decided by the UAE cabinet) and rejecting or restraining the total ownership percentages of a global shareholder.

Though the FDI Law has been implemented successfully, it is still subject to interpretation and in the near future, many more clarifications are expected to come, including the sectors which will be on the positive list.

IMC assures you of the expertise and experience it brings to the table in form of a dedicated team of investment specialists who can advise the global investors on topics such as corporate structuring and other such issues in the UAE. If you need any assistance or have any queries related to setting up your business pursuant to the FDI Law, do get in touch with [email protected].

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