Updated rules about local sponsors

A new law, which was released recently, states that some category of foreign investors no longer need sponsorship to own a local business.

The Foreign Direct Investment (FDI) Law went into effect on December 1, 2020. It will allow eligible foreign investors to own local businesses themselves. The law applies to 122 permitted business activities. Investors must have at least 51% shareholder rights to qualify.

The law replaces the current Commercial Companies Act No. 2. The changes are made to the Foreign Direct Investment Law, which was enacted by Federal Legislative Decree No. 19 of 2018 and Resolution No. 16 passed by the UAE Council of Ministers in March 2020. The Foreign Direct Investment Law amends commercial companies. Law (FCL) No. 2, passed in 2015.

Previously, foreign shareholders could only own 49% in an LLC operating as an onshore business in the UAE. the remaining (51 percent) share was owned by UAE citizens and acted as a local sponsor.

The Foreign Direct Investment Law amended the commercial law by adding new articles and updating 51 existing articles. The amendments primarily concern the creation of companies with a limited liability company.

In March 2020, the Department of Economic Development (DED) issued Cabinet Resolution No. 16 of 2020, which contains “Lists of Activities” — 122 activities that do not need local sponsors. You should also read the resolution in more detail.

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