A very welcome announcement came to those closely watching the UAE market in December, with the news that Article 10 of the Commercial Companies Law had been changed to remove the requirement for 51% Emirati ownership and allow for 100% foreign ownership.
The question everyone was then asking was what will this mean for local free zones, where 100% foreign ownership has been allowed for years, thus becoming a key element in their success? To delve into this a little more, it is important to note what the change in the law actually was. Despite what some reports say, the law did not state foreigners could now own 100% of mainland businesses; rather, the federal law was delegating responsibility to an Emirate level whereby a council will be convened to decide which activities would require Emirati participation, at what level and if there were any additional capital requirements.
So, are free zones still relevant? In short, yes. Free zones offer many advantages over mainland companies in the UAE, not least of which being faster entry into the market. For many free zones, there is additional infrastructure that companies can utilise. Often, free zones will have a list of activities that are industry-specific and also have access to facilities such as sea ports, airline terminals and warehousing.
Another distinct advantage of free zones is the ability to combine different business activities — something mainland companies can sometimes have issues with. Depending on the selected free zone, new market entrants may find they have fewer external approvals (or none) when compared to a similar mainland licensed activity.
From a cost perspective, it can be more affordable to open shop in a free zone in the UAE. With mainland companies requiring a minimum 200ft office to obtain a commercial license, free zones will still hold a major advantage as they offer flexi-desks as a market-entry option. Also, visas for free zones are valid for three years — a full year longer than mainland visas. Finally, corporate documents do not need to be translated into Arabic, also helping reduce the costs.
There is no doubt that the easing of foreign ownership restrictions will have new market entrants considering their options a little more closely. We anticipate that the removal of the local ownership restriction will boost foreign investment into the UAE once the new laws are better understood and applied; however, there will still be room for free zones once the dust settles.
This article first appeared in the February/March print edition of fDi Intelligence. View a digital edition of the magazine here.