Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
42
encouraging. The EDB also has offices overseas to promote the open nature of Bahrain’s
economy to international capital flows.
UAE
Laws regulating capital inflows
The Federal Companies Law (1984) stipulates a 49% cap on foreign ownership of locally
registered companies, in addition to non-tariff barriers such as a requirement to partner with a
UAE national in order to establish a business. Other relevant legislation includes the
Commercial Agencies Law (1981), requiring a local commercial agent to distribute products;
the Federal Industry Law (1979), mandating 51% UAE ownership of industrial projects; and
the Public Tenders Law (1975), allowing only UAE nationals or entities majority-owned by
UAE partners to bid for public-sector contracts.
Limited foreign ownership is often seen as an added cost of doing business in the UAE.
However, free zones permit 100% foreign ownership in addition to tax-free status.
Furthermore, foreign investors can in some cases circumvent the legislation by negotiating
individual agreements with their Emirati partners. Most commonly, foreign investors offer
annual cash payments in return for retaining management control and profits.
In early 2013, policy-makers rejected proposed measures to ease foreign investment limits
outside free zones; these measures were excluded from the latest draft of the Commercial
Companies Law (CCL) approved by the Federal National Council in May 2013. However, in
light of the decision by Morgan Stanley Capital International (MSCI) to upgrade the UAE to
emerging market status, there may be fresh efforts to promote further equity investment
before the upgrade takes effect in May 2014.
The new CCL makes the establishment of limited liability companies (LLCs) more attractive by
removing minimum capital requirements (Dh300,000 (approximately US$82,000)) in Dubai
and Dh150,000 (US$41,000) in Abu Dhabi); increasing the maximum number of shareholders
to 75 from 50; and removing the cap on the number of managers permitted. Notably, the new
CCL enables the pledging of shares, which is set to ease the raising of debt financing.
For public joint-stock companies (JSCs), the new CCL allows for the possibility of different
share classes, such as preference shares. The proposed legislation encourages initial public
offerings by allowing founders to retain ownership of 30-70% of a JSC company’s capital
(compared with 20-45% under existing law), thereby dampening concerns among founders
about losing majority control when listing shares on the stock exchange.
Since 2011 the UAE federal government has intensified its efforts to boost the employment of
UAE nationals in the private sector. This was reflected in the new CCL, which maintains the
requirement of hiring a local agent for foreign companies opening branches in the UAE.
Majority Emirati representation remains obligatory on boards of directors of publicly-held
companies, and the chairman of a joint-stock company must be a UAE national. Small and
medium-sized enterprises (SMEs) are exempt, although local hiring is expected to facilitate
procedures in dealing with government ministries.