Over the years the UAE has gained world-wide popularity as a relocation destination. With its attractive Free Zone system, internationally recognised financial centres, extensive network of Double Tax Treaties and political stability, it’s the go–to jurisdiction for a growing number of expats and corporates alike.
With Expo 2020 in sight, the UAE are experiencing a heightened global interest. Patricia ‘t Hart van Rooijen, Managing Director in the UAE, shares the latest regulatory updates in the region including Foreign Direct Investment, Economic Substance and visa rules.
FINANCIAL CENTRES OF UAE
2018 saw an overhaul of Companies Law, and other related regulations, in the Dubai International Financial Centre (DIFC) (1). Originally, the DIFC laws and regulations were predominantly based on the UK Companies Act 2006, with influences from related common law jurisdictions. The enactment of the new Companies Law DIFC Law No. 5 of 2018 (Companies Law) includes policy decisions on where to deviate or apply lighter touch than UK or other common law positions. Furthermore, it can be seen as part of a broader initiative in line with international best practices, providing a suitable regulatory framework by promoting shareholder and creditor protection whilst creating greater certainty and flexibility for companies.
The amendments made to the Ultimate Beneficial Ownership regulations (UBO regulations) is a response to increased focus by national authorities and global regulatory groups, to combat money laundering, terrorist financing, bribery and corruption. It’s intended to safeguard and promote the DIFC’s reputation as a stable and responsible financial centre, and to reinforce its commitment to adhere to the highest global standards.
The Abu Dhabi Global Markets Authority (ADGM) also recently adopted several amendments to their Commercial Legislation(2) in a bid to align with the international best practices. With the introduction of an Ultimate Beneficial Record and the rewording of the definition of the Beneficial Owner to include “any person who holds the position of officer of the company” the authorities wish to ensure transparency for all parties involved.
100% FOREIGN OWNERSHIP OF A MAINLAND COMPANY
Foreign companies seeking to establish an entity onshore in the UAE would previously have to team up with a UAE national, who was required to own 51% of the shares of the company. Following the enactment of the UAE Federal Law No 19 of 2018 on Foreign Direct Investment, a negative list of approximately 13 restricted sectors was published. In July of this year a total of 122 economic activities across 13 sectors were specified on a so-called positive list. These sectors are now to be eligible for up to 100% foreign ownership such as renewable energy, space, agriculture, and manufacturing industry.
The decision provides investors with an opportunity to acquire various shares in a number of economic activities including the production of solar panels, power transformers, green technology, and hybrid power plants. “Our goal is to stimulate, activate and facilitate businesses…” HH Sheikh Mohammed tweeted, “we want to open and expand economic sectors”.
On 31 March 2019, the UAE cabinet announced that it had amended the family visa rules. In a tweet the authorities confirmed that the new visa options were to ensure that “the UAE remains a global incubator for talents and a permanent destination for pioneers”.
With the new retirement law of 2018 and the introduction of a long-term visa option in 2019, foreigners can work, live and study in the UAE without a need for a national sponsor. With a five year visa options and even a 10 year gold visa option the UAE are now open to investors, students, entrepreneurs, retirees and specialists.
ECONOMIC SUBSTANCE RULES
The most recent law amendment can be seen as an affirmation of the path the UAE has chosen to follow. The clear wish to comply and align with global trends is also evidenced by the most recent enactment of the Economic Substance legislation, by Cabinet Resolution No. 31 of 2019, with the aim of being removed from the European Union’s (EU) blacklist of uncooperative jurisdictions.
The UAE enacted economic substance rules on 30 April based on the EU recommendations outlined in the scoping paper issued by the EU Code of Conduct Group (COCG) on 22 June 2018 and OECD guidance on harmful tax practices in Action 5 of the Base Erosion and Profit Shifting (BEPS) action plan.
The legislation prescribes mandatory levels of substance for UAE corporates, including companies, branches and representative offices (including those based in any of the Free Zones) performing certain activities. Once it’s established that the entity and its activity are in scope, the entity requires to pass a test demonstrating its economic substance.
In most jurisdictions, the enforcement of laws are ensured through a combination of financial sanctions for non-compliance, transparency and information exchange provisions and other corporate law mechanisms addressing corporate governance.
Clarifications on the procedures, templates and requirements for the reports and notifications haven’t been provided but are expected to be released soon.
To find out more about these regulatory developments in the UAE, please get in touch with us.
1. Non-exhaustive list of the new relevant Laws and Regulations: Companies Law DIFC Law No. 5 of 2018; Companies Regulations; Operating Law DIFC Law No. 7 of 2018; Operating Regulations; Ultimate Beneficial Ownership Regulations; DIFC Laws Amendment Law, DIFC Law No. 8 of 2018.
2 Reference is made to the Commercial Licensing Regulations 2015, the Commercial Licensing Regulations 2015 (Conditions of License and Branch Registration) Rules 2019, Beneficial ownership and Control Regulations 2018 and Beneficial Ownership and Control 2018 (Amendment No. 1) Regulations 2019 and any and all other applicable law and regulations.