Fears for UAE investments over draft foreign ownership legislation

13/02/2013 13:51 AST

A lack of clarity about caps on foreign ownership under the planned companies law risks stalling a tide of investment to the country, lawyers are warning.

It comes as the Federal National Council (FNC), a government advisory body, yesterday began a two-day discussion to review the draft of the law.

Law firms and business consultants say they are being inundated with inquiries from international companies asking whether they will be allowed to take majority ownership of any operation they set up in the UAE if the law comes into force.

Uncertainty stems from the fact the draft law does not include a list of sectors or industries that will be able to apply for majority foreign ownership.

Instead, it sets criteria in which the Cabinet can take a decision to relax the rules based on whether the business would be in the interest of the national economy.

"We do receive inquiries about what it will look like and whether non-UAE investors should initiate joint-venture opportunities with Emirati nationals or wait. It creates hesitancy on behalf of investors and that's not necessarily helpful," said Faraj Ahnish, the managing partner of Hadef & Partners in Abu Dhabi.

"We hope the Cabinet of Ministers uses the set of criteria in a proactive rather than a reactive way or on an ad-hoc basis. The risk is that the Government could be seen to be giving favours in certain cases if there's no clear guidelines."

Considered a key cornerstone in reforming the economy, the companies legislation will set out a framework for how businesses should be run - ranging from how shares can be allocated to accounting standards.

However, the part of the law most eagerly anticipated by international investors is the prospect of an easing of decades-old foreign ownership limits.

Currently, at least 51 per cent of a business has to be owned by an Emirati if it is located outside a free zone.

There had been an increase in interest from investors in the United States and Europe about setting up operations in the UAE, said Andrew Tarbuck, partner in the Dubai office of Latham & Watkins. Improved stability in the global economy and a recovery in the UAE market were helping to entice prospective investors, he said.

But the existing ownership limits remained a sticking point for many, he said. "There's a short-term lack of clarity [about the companies law] which makes people wait and see but in some respects that might just be pent-up demand."

Spanning 12 chapters and 383 articles, the existing draft law dates from 1996 and has been circulated to many lawyers and government entities.

But questions still remain about some aspects of the law.

"We are constantly being asked by our clients what we are expecting from the companies law," said Stuart Curtis, the managing director of the Links Group, a company formation specialist.

"There's some things we know, like shareholder requirements will go down from two to one in a limited liability company, but there are other areas we are less certain about."

The National